Thursday, December 1, 2011

Upsell Kills Bally Total Fitness

In the end, Bally Total Fitness did not survive the upsell strategy it put in place five years ago.

Bally planned to boost revenue by getting more members to hire personal trainers. To this end, it reminded its members of the availability of personal trainers about 20 times on each visit to the facility. Members who did not have personal trainers were put off by this approach, and membership numbers and attendance both plummeted. Bally went bankrupt twice. It closed and sold many of its locations, especially in the center of the country.

Now Bally is selling most of its remaining locations, covering its best facilities, most of its geographical areas, and more than half of its members, to LA Fitness, in a deal that closed late yesterday and takes effect at the start of business today. Bally will retain just 100 locations, along with its exercise equipment products and other product lines. The deal appears to be structured so that LA Fitness is buying just under half of Bally’s assets.

LA Fitness is purchasing the assets of 147 Bally locations but will be selling or closing some of them this month.

The majority of the acquired clubs will remain open, but some will be closing before the end of the year.

LA Fitness plans to hire the employees from the locations it is acquiring, including the locations it will be closing. It will be moving equipment from the clubs that close to its other locations.

Bally will continue in a sense, but faces an uncertain future after its transition from a national brand to a local one. More important in a business sense, its serial bankruptcies ensure that its previous owners and creditors will not profit from its continued operation.

It is a cautionary tale for executives who would imagine that upsell is a risk-free way to grow a business. Sometimes upsell is an appropriate strategy, but the risks are greater than with most marketing strategies. If your marketing approach alienates prospective customers, that is a problem, but if it alienates your existing customers, you could lose your whole business.