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MEMBERSHIP UNLEASHED FUTURE OF FITNESS

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THE FUTURE OF FITNESS CHALLENGES

Health & Fitness facility attendance has become the biggest adult “sport” in the Western world. Bigger than football, tennis and golf combined

§ LES MILLS white paper highlights big challenges we face if we are to survive 1.  2.  3.  4. 

Aging obese markets Fitness Seekers want other options Play drives activity Activity must offer something more

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FUTURE CHALLENGES AND OPPORTUNITIES 1.  The number of people who fit our current offerings is reducing reflected in a population that is aging and suffering from obesity 2.  Fitness seekers want better quality products, more control and mobility, and ultimately more choice in how they exercise

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FUTURE CHALLENGES AND OPPORTUNITIES 3.  “Play drives activity” with growth in two distinct areas: § 

§  § 

Blends of game, sport and dance will offer fitness and activity that are driven by fun, pleasure and sociability ‘Exergaming’ consumers will seek fitness and activity as a game driven by enjoyment. Technology will evolve this segment into ‘exertainment’ with rich sensory experiences, and eventually virtual realities that involve movement, social networks, escapism and new experiences.

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FUTURE CHALLENGES AND OPPORTUNITIES 4.  Activity offers ‘more’… §  ‘Relationships and community’, in which people seek communication, connection, and shared experiences §  ‘The search for meaning’, in which people place emotional, social and spiritual integrity at the core of their beings §  Low-tech solutions like returning to nature, opting out or disconnecting §  New techniques like proactive medication

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THE PROBLEM – ACQUISITION IN A COMPETITIVE MARKET •  Big-box operators with large range of products at low price point •  Low service operators at even lower prices •  Skeptical customers viewing price as the only point of difference

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THE PROBLEM – RETENTION OF SMALL POPULATION •  •  •  • 

>16% of the US population go to a Health and Fitness facility About 15M new memberships sold per year and 12M quit Nearly 1;:4 leave within the first 12 months of joining Average length of membership is 67 weeks*

*For those paying monthly, without a contract

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STANDARD APPROACH

FIRST PRINCIPLES

§ The goal is to grow earnings - EBITDA •  Grow revenues •  Cut costs

§  When EBITDA is #1 guiding principal: •  Revenues are revenues •  Costs are costs

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STANDARD APPROACH § If all revenues are treated as equal, and acquisition is hard you try to supplement membership dues with other products and service

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EXECUTION

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STANDARD APPROACH § If all costs are treated as equal, management looks to trim variable costs like payroll, training and and services

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EXECUTION

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STANDARD APPROACH

§ Results of cost cutting: •  •  •  • 

Members notice Generates negativity Club less appealing Total savings are minimal

CONSEQUENCE

§ Results of supplementary revenue sources: •  Division is created between ‘cost’ and ‘revenue centers’ •  Members resent add-on costs •  Additional revenues are minimal

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REVENUE AND COSTS

§ All revenues are NOT created equal: §  membership dues are an annuity §  Incremental revenues comes from membership revenue

§ All costs are NOT equal §  Reduced member experience causes increase in attrition and decrease in referral §  Any revenue loss occurs at the margin which directly impacts the bottom-line profit

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REALITY CHECK $1

12

$17

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THE PROMISE §  An integrated method that insulates you from: •  Big box competitors •  Bare bones competitors •  Seasonality

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A NEW MENTAL MODEL Profit maximization is OLD Purpose maximization is NEW

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MEMBERSHIP GROWTH STRATEGY 1. Relationships

Facilitation

Engagement

2. Results

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1. Member  Retention

Membership

Earnings

2. Member  Acquisition

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THE MECHANICS OF FACILITATION § During the on-boarding phase, you need the new member to exercise regularly at least ≥ once a weekly, exercise productively and ensure they develop relationships with a broad range of staff § Once a member has settled-in, you need them to exercise consistently at least ≥ twice a week – and you need to ensure that they develop relationships with other members

1. Relationships

Facilitation

Engagement

2. Results

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1. Member  Retention

Membership

Earnings

2. Member  Acquisition

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THE ECONOMICS OF FACILITATION § Facilitation takes many forms – each with a different cost-effectiveness profile: •  •  •  •  •  •  •  • 

Front Desk staff contact with guest and members Membership staff enrolling a guest Spotting a member in the weight room A one-on-one personal training session A small group training session A group-fitness class An educational event A social event 1. Relationships

Facilitation

Engagement

2. Results

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1. Member  Retention

Membership

Earnings

2. Member  Acquisition

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THE PROBLEM WITH FACILITATION § Typically Health and Fitness facilities are not engineered to enable facilitation: •  Department ‘silos’ with often with a less-than-positive view of one another •  This is a consequence of the ‘profit center’ versus ‘cost center” approach from management

§ As an example; PTs and Group-Fitness instructors are often Contractors – meaning that, outside of structured sessions, facilitation is the responsibility of: •  •  •  • 

Front Desk Staff Membership Staff Fitness Floor Staff No one at all

1. Relationships

Facilitation

Engagement

2. Results

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1. Member  Retention

Membership

Earnings

2. Member  Acquisition

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MSG > ENGAGEMENT > MEMBERSHIP § Not surprisingly, the primary driver of membership is engagement : •  To keep a member, ensure that: visitation frequency ≥ once weekly •  To add a member, ensure that: visitation frequency ≥ twice weekly § Instead of trying to sell memberships, focus on prospect engagement •  Use an initial trial to create buy-in 1. Relationships

Facilitation

Engagement

2. Results The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

1. Member  Retention

Membership

Earnings

2. Member  Acquisition

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MGS > FACILITATION > ENGAGEMENT § We must appreciate that health and fitness facilities are not always engaging, special effort is required. § Engagement comes from: Relationships, Results and Environment

1. Relationships

Facilitation

Engagement

2. Results The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

1. Member  Retention

Membership

Earnings

2. Member  Acquisition

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MGS > FACILITATION > ENGAGEMENT §  BUT, relationships always develop in two phases: •  Member-to-staff relationships •  Member-to-member relationships

§  Member-to-member relationships lock-in established members and lock out new ones, without facilitation, only a small percentage of members will engage

1. Relationships

Facilitation

Engagement

2. Results

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1. Member  Retention

Membership

Earnings

2. Member  Acquisition

LES MILLS INTERNATIONAL © 2011


MGS > MEMBERSHIP > EARNINGS § Membership = Earnings § Membership growth potential is almost open ended

1. Relationships

Facilitation

Engagement

2. Results

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1. Member  Retention

Membership

Earnings

2. Member  Acquisition

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PRACTICAL STEPS TO MEMBERSHIP UNLEASHED

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FACILTATION MEMBERSHIP ONBOARDING

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FACILITATION CHALLENGE § “Every year the industry sells millions of memberships to men and women who, though they earnestly wish that they could become regular exercisers, have not yet developed the discipline or habit of regular exercise IHRSA Guide to Retention 2007

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MEMBERSHIP ONBOARDING § People join to get results and motivation BUT they stay because they make friends § The membership consultant can be the first powerful relationship § Membership team must build real solutions versus hard sales. § A high quality member onboarding process focusing on attendance during the first 12 weeks is essential

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MEMBERSHIP ONBOARDING § Best practice: § Pay Membership and Personal Training Commissions based on usage during first 12 weeks of membership. § 21 visits in 90 days

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LES MILLS INTERNATIONAL © 2011


EXAMPLE

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EXAMPLE

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FACILTATION ACTIVITIES

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THE ROLE OF MOTIVATION §  “Motivation is a trigger that ignites membership. Understanding and leveraging the members motivation affects retention”

IHRSA Guide to Membership Retention

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PEOPLE CAN GET AN EXERCISE SOLUTION ANYWHERE. BUT NOT MOTIVATION. The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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FACILITATION THAT MOTIVATES § The five major categories include: •  Membership/Front Desk (1 member) •  PT (1-3 members) •  Small-Group (4-12 members) •  Large Group (12+ members) •  Events (unlimited)

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FACILTATED EXERCISE - MAKE IT SOCIAL Personal Training

FREELANCE PT PROGRAMS

Group Fitness Training

Small Group Training

CYCLE

FREELANCE PROGRAMS

Event Training SOCIAL EDUCATIONAL EVENTS

STRENGTH STEP DANCE SPORTS MARTIAL MINDBODY SENIORS

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BRANDED FACILTATED EXERCISE MODEL Personal Training

Group Fitness Training

Small Group Training

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Event Training

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PERSONAL TRAINING great way to increase the quality of § A on-boarding, results and connection between member and to staff § Can be a good source of revenue § Increase income opportunities and career opportunities for GX instructors § However: –  Best facilities only have ≥10% of members using PT on regular basis vs. 30%+ in GX –  Connection is with a single staff member: if the member is unhappy with the PT or if the PT leaves potential to lose the member –  Typically no or low prescription of other forms of exercise such as GX ,which is more social and more holistic

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PERSONAL TRAINING § Considerations •  Match new clients with PTs carefully •  PT Manager should check regularly with customers to confirm if they’re happy with their PT. Make it a formal part of the process. •  Offer short term courses •  Encourage PTs to teach GX •  PT can generate revenue for a facility but it’s impact is relatively small

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SMALL GROUP TRAINING § Currently the holy grail of the industry § Everybody wants successful SGT programs –  Allows more people access to PT –  Increases $/hr for PTs –  Builds relationship between members… they make good friends. –  Brings back the spirit of sports teams

§ Challenges: –  Best facilities only have 3% - 4 % of their members doing SGT –  As yet, no one has really made it successful

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GROUP EXERCISE § Many facilities worldwide are being hurt by low-budget competitors. § At the same time, there are successful new business models emerging eg: –  Pure Yoga and Pure Fitness (Asia and US) – Group Ex-only, charging $165 per month in New York –  Exhale Spa (US) - $195 pm for classes –  Soul Cycle and Flywheel (US) - $32 per class

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GROUP EXERCISE. THE MOST POWERFUL SOURCE OF MEMBER MOTIVATION WHICH CREATES COMMUNITY AND EXCITEMENT IN FACILITIES. The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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POWER OF GROUP EXERCISE § Retention •  90% of exercisers prefer to exercise in a group •  Group exercise is cited as the biggest influence (40%) on how long people stay a member of a club •  GX member retention rates are higher than other member retention rates, on average

§ Acquisition •  60% of people rate GX classes as the #1 important service offered by a fitness facility

•  Satisfied Group Exercise members refer people 3 times more than other members The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

IHRSA/HCD/Les Mills (March, 2009) IHRSA Consumer Report USA (2011) Micheal Scott Skudder (2010) 41

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THERE IS ABSOLUTELY A COMMERCIAL CONNECTION BETWEEN GROUP EXERCISE ATTENDANCE AND LONG-TERM PROFITABLE FACILITIES. The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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SMART GX PROGRAMING § Prospects and members usually need 3-5 types of training to cover their basic needs § Make sure you have at least one great program you can recommend in terms of quality, experience and consistency in each of these categories –  (21%) Strength –  (19%) Cycle –  (14% Mind Body –  (12%) Dance –  (9%) Martial –  (25%) Cardio/Fusion/Other Les Mills Scoreboard Global Report (April , 2011) The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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GX NEEDSCOPE MODEL

SIMPLE DANCE ACTIVE SENIORS

NICHE DANCE

High Energ y

/Chal

lenge

BOOTCAMP CYCLE MARTIAL ARTS

Power

Conformity/Affiliation

/Fun y t i l i b Socia

STEP BARBELL

CORE

MINDBODY®

Rene w

al

n

tio c e f r Pe

Essence Research ( 2004) The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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THE BOTTOM LINE IS. GROUP EXERCISE ATTRACTS MORE MEMBERS, WHO ATTEND MORE OFTEN, REMAIN LOYAL AND ATTRACT NEW MEMBERS THEMSELVES. The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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ENGAGEMENT ENVIRONMENT

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ENVIRONMENT EFFECTS ATTENDANCE § 70% of Members rate “Ambience of the Studio”… as an “Extremely Important or Important” driver on their attendance

Neilsen Research ( 2008) The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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ENVIRONMENT. CREATE MORE A COMPELLING AMBIENCE. 48

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§  Les Mills World of Fitness, Auckland*, New Zealand §  12,000 members – current membership NZ$110 per month §  5,000m2 / 53,500 ft2 Fitness Only Club §  2,000m2 / 21,500 ft2 Group Fitness Area §  4 studios – largest is 700m2 / 7,500 ft2 §  Over 150 classes per week §  50%+ of total attendances §  65 part time Instructors §  9,000 + Group Fitness visits per week §  M’ship retention rate 80% (IHRSA formula)

*City of 1.5M people with 175 health clubs

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LES MILLS INTERNATIONAL © 2011


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LES MILLS INTERNATIONAL Š 2011


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INEXPENSIVE EFFECTS – PHOTO BLOW-UPS

Inexpensive effects – photo blow-ups The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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INEXPENSIVE EFFECTS – PHOTO BLOW-UPS

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ENGAGEMENT RELATIONSHIPS

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THE CHALLENGE § “Most of us aren’t really health clubs, were not even clubs. We’re just places where people come to lift weights and run on a treadmill” Michael Scott Scudder

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ENGAGEMENT DRIVES ATTENDANCE §  12% of all cancellations would be avoided if all new members attended the facility at least once per week during the 1st calendar month after joining §  FIA Top Ten strategies for Winning the Retention Battle

§  High Attendance Correlates with High Retention §  IHRSA Guide to Membership Retention

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ENGAGEMENT FOCUS § More people through the door more often … §  EBITDA and membership are not invalid, but only a consequence of great facilities and member attendance

§ Attendance should be the key metric but is currently one of the least measured by facility owners & managers § Member Attendance is ultimately the biggest driver of membership and profit, and as such, it should be our biggest indicator of risk to financial success

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RELATIONSHIPS SUSTAIN ENGAGEMENT §  “Facilities with strong member-to-member connections have higher retention” IHRSA Guide to Member Retention

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ONE MORE THING. SUCCESS STARTS WITH ENGAGED STAFF. The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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HAPPY, ENGAGED AND LOYAL STAFF MAKE HAPPY, ENGAGED AND LOYAL CUSTOMERS. The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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ENGAGE YOUR STAFF § Why should your staff care about your business and challenge themselves every day? § To unleash company performance and profit, you need to unleash staff performance, motivation and loyalty. § People need to be engaged in an inspiring and meaningful purpose, something bigger than them

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ENGAGEMENT FROM ENDEARMENT § Latest research shows that companies can profit from passion and purpose § Endearment is based on selfknowledge, candor and maturity -- three essential elements of integrity -- in interactions with others. § In return stakeholders place uncommon trust in their companies and products and fall in love with them.

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ENGAGE STAFF WITH THE BIG PICTURE §  By 2030, 50% of the USA population will be obese (>30% BMI) §  Traditional health care is failing §  By 2016 the cost of the American health system will have doubled to $4.1 trillion per year*. §  It seems that our health is deteriorating at almost as quickly as these costs are increasing. §  Need for a preventative focus §  Health and Fitness facilities are effective preventative health care *2006 US Treasury report

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HEALTH AND WELLNESS AND OUR ROLE IN THE FUTURE § The world is facing a great holistic health challenge and our industry is perfectly positioned to play a big part in the solution. § We are the exact opposite of the cigarette and junk food companies, and we have an intimate relationship with a large percentage of the world’s wealthiest, most influential people.

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VALIDATING STATEMENTS § “We are warriors in the battle against inactivity and over consumption” LMI Instructor Creed, 1998

§ “Creating life changing experiences every time, everywhere. One class at a time, one participant at a time” Les Mills Advanced Instructor Module 2011

§ “You have to find a way to make people fall in love with fitness” Les Mills, 1968

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STAND FOR SOMETHING. CREATE A CAUSE, NOT A BUSINESS. 74

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MEMBERSHIP EVENTS

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GROUP FITNESS EVENTS. ORGANIZING GREAT WOW EVENTS IS THE BEST WAY TO CREATE MOMEMTUM, ENCOURAGE MEMBER MOTIVATION, BUILD ATTENDANCE, COMMUNITY, RETENTION AND GROW MEMBERSHIP The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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THE MEMBERSHIP EXPERIENCE CURVE Experience When you host GX events, you are selling non-members an experience, not a membership – this makes selling so much easier

Les Mills GX Events typically drive 10-20 New Memberships

Membership Sales The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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THE MEMBERSHIP EVENTS MODEL Experience Program 2 Launch Event

Quarterly Re-launch Event Quarterly Re-launch Event Program 1 Launch Event

Months 3 The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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THE RESULT § As the number of member-to-member and members-to-staff relationships increases, so does retention § With better new-member retention you have more money to spend on member acquisition § With more compelling offers, special events and engaged staff, membership enrolment becomes easier

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LES MILLS INTERNATIONAL © 2011


LES MILLS SUPPORT FROM GOOD TO GREAT

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1. THE LES MILLS GX SYSTEM

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LES MILLS INTERNATIONAL Š 2011


2. PROGRAM SOLUTIONS

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LES MILLS INTERNATIONAL Š 2011


3. TRAINING SOLUTIONS: WORLD CLASS INITIAL AND ADVANCED INSTRUCTOR TRAINING

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4. CLUB SOLUTIONS: CLUB PERFORMANCE TOOLS

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LES MILLS INTERNATIONAL Š 2011


5. CLUB SOLUTIONS: GX REPORTING SYSTEM

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6. CLUB SOLUTION: GX EVENTS § Point of sales training that leverages group fitness as a key membership sales tool § Les Mills has formulas for hosting launch and relaunch events, on 3 different budgets, that are proven to: – enhance member retention and acquisition – deliver significant ROI – transform group exercise into a profit centre

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LES MILLS INTERNATIONAL © 2011


NEW US CONSUMER INITIATIVE 2011/12 §  Beach Body LES MILLS PUMPTM Home DVD §  Biggest marketing initiative since the global launch of BODYPUMPTM in 1997 §  Multi Million $$ Infommercial §  Massive consumer drive of new members to sites with LES MILLS Programs §  US launch January 2012

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LES MILLS INTERNATIONAL © 2011


GX POWERED BY LES MILLS FROM GOOD TO GREAT § The average Les Mills licensee facility has 500 more members per club than the global average

(1) Scoreboard Round 1 and 2 (2) Scoreboard Round 2

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GX POWERED BY LES MILLS FROM GOOD TO GREAT Retention

§ Les Mills GX members attend their facilities more often § The majority of LES MILLS™ participants want to continue to take LES MILLS™ in next 12 months

AC Nielsen (2010); IHRSA Consumer Report USA (2011 The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

LES MILLS INTERNATIONAL © 2011


GX POWERED BY LES MILLS FROM GOOD TO GREAT Acquisition

§  Majority of LES MILLS™ participants would absolutely or strongly recommend LES MILLS™ programs to their friends and family

AC Nielsen (2010); IHRSA Consumer Report USA (2011) The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

LES MILLS INTERNATIONAL © 2011


GX POWERED BY LES MILLS FROM GOOD TO GREAT § Les Mills Licensees tend to have higher % of Club Attendance participating in Group Exercise

§ Les Mills licensee average significantly higher than the industry average

(1) Scoreboard Round 1 and 2 (2) Scoreboard Round 2 The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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GX POWERED BY LES MILLS FROM GOOD TO GREAT § Les Mills Classes help drive attendance § Top performing licensees attract higher total class attendance in Les Mills classes than other classes, on average

(3) Scoreboard Round 1 and 2 (4) Scoreboard Round 1

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GX POWERED BY LES MILLS FROM GOOD TO GREAT § The average Les Mills licensee attracts around 600 weekly group exercise attendances through the year(3)

(3) Scoreboard Round 1 and 2 (4) Scoreboard Round 1 The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

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THE RESULT § As the number of staff/member-to-member relationships increases, so does retention §  With better new-member retention, you have more money to spend on acquisition § With more compelling offers, sales becomes easier

1. Relationships

Facilitation

Engagement

2. Results The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and

1. Member  Retention

Membership

Earnings

2. Member  Acquisition

LES MILLS INTERNATIONAL © 2011


YOUR NEXT STEP Schedule a Membership Growth Strategy Review Create an action plan for the transition to Membership Growth Strategy No Cost, No Risk, No Obligation

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Membership Unleashed by Les Mills  

The health and fitness market is tougher and more crowded than ever before. But it’s not all gloom and doom. A growing number of facilities...