TALE OF THE TANDEM NUMBERS
How many tandems do you do per year?
In the niche world of DZO’s, the above question has served as a gauge to indicate the level of success a DZ is enjoying, or not enjoying.
Today, the answer to the tandem question no longer acts as a badge of honor. Extremely high tandem numbers are usually indicative of a low price model. A model that I don’t believe is sustainable.
THE CURRENT MARKETPLACE
The landscape of DZ’s in the United States is divided into two pricing categories – low priced and what I’ll call regularly priced (I only know of a couple of operators actually charging what they should).
The irony of today’s pricing strategy is that the DZO’s offering low prices don’t like it either. Everyone (low and regular priced DZ’s) would prefer to be charging more money, but in order to hold market share and keep the doors open and volume flowing, the low price DZ’s can’t afford to raise its established prices. They’re caught in a cash flow crunch where high volume is mandated to keep the doors open. This is affecting everyone else in the marketplace.
What the US skydiving industry is currently experiencing is basic economics. Supply versus demand. Presently, there’s an oversupply of DZ’s in nearly every marketplace.
The root cause of this surge is Groupon and the data supports this. Following the housing crisis of 2008, Groupon discounting came at the perfect time… experiences at a lower price when everyone needed a discount. Little wonder why Groupon exploded the way it did.
With massive databases, Groupon allowed anyone to open a DZ with a Cessna 182 and a few instructors and have an instant customer base as opposed to procuring one over time. This was great news for everyone in the industry (USPA, manufacturers and sport growth), but negative for the individual DZO.
In the data below, note the surge in DZ’s between 2009 and 2015… it’s explosive. What exacerbates this figure even more, are the number of new DZ’s that are not USPA Group Members – approximately 50 at last count putting the approximate total of new DZ’s to 369 since 2008.
|Year||USPA Members||USPA Group Member DZ’s|
** 1991 – Point Break is released seeing subsequent growth in new DZ’s in 1992 and 1993
***2010 – GroupOn is now nationwide and catching fire with one deal per day and understandably, many are getting onboard.
By all appearances, the health of skydiving in the US looks good. With a higher supply, there are more jumps being made annually, but the foundation of this surge is weak as many of these new DZ’s are setup for high volume, low experience equating to more one and done versus the potential of repeat business and ultimately more licensed skydivers in the future.
WHAT’S COMING NEXT
It’s easy to see what comes next. The current low price trends are not sustainable. The price of everything in our sport has steadily increased and continues to do so… except for the price of tandems.
Simple math says that the high-volume, low-cost approach in an industry where each year the prices for nearly everything goes up doesn’t make sense. We’ve already seen the price alerts from manufacturers advising jumpers to get orders in now as price hikes are coming soon… and we see this annually.
It’s little wonder why the used gear market is thriving especially with tandem rigs. DZO’s are doing all they can to keep expenses as low as possible in all areas as the price of their revenue generating tandems are not growing with the costs of everything else. One could say there is a slippery slope starting to develop.
The economies of scale mandate that the market can’t bear too much more. At some point in the near future, we will see the number of operators reverse and begin to decline. This will be a gradual reduction but could be accelerated by a major event… namely weather.
The low price, high volume model is only sustained if there is no major disruption in the flow of that volume. A disruption evaporates cash flow which forces operators to offer yet a lower price to increase volume and restore cash flows – a short-term solution, but a long-term calamity. A repeat of 2002’s El Nino weather phenomenon could spell disaster for many (it rained nearly every week for most of the year). Without any cash reserves, this would decimate many operators.
MANUFACTURERS: TAKE HEED
This reversal could indicate trouble for those enjoying the current growth – namely manufacturers. While USPA memberships and gear sales are very high and DZO’s struggle to compete, a decline in DZ’s could spell trouble for manufacturers (in the sport market division) as there would be an oversupply of gear in the marketplace which would reduce the costs of used gear and reduce the demand for new gear.
It’s important that everyone in the industry look carefully at where we are in the growth curve and begin to make preparations for the next phase whenever it may come.
PREPARING FOR THE DOWNTURN
A competitive marketplace should force business owners to be better if they are to survive. The cream will rise to the top. So… let’s be better.
To The Low Cost, High Volume DZO:
If you’ve gained market share and volume, you are actually behind the power curve for what’s to come. You should have one of two strategies:
1. Sell now and exit while the going is good.
2. Have a strategy to start increasing your prices and delivering a better customer experience (better than your best competitors). The current price model is not sustainable.
To the Regular Priced DZO’s:
1. Be more lean. Make budgetary adjustments during this time of market oversaturation. The natural gut instinct is to reduce prices in order to maintain some market share. Before making any price adjustment, examine all business expenditures and cut out the fat.
2. Be better than you’ve ever been before. If the new operators in your market can offer a better price and a better experience, your survival is at stake. Take a global look at your operation and ask yourself how you can deliver a five-star experience at all customer points of interaction. I count 33 points of interaction a DZ has with its guests. How are you performing at each customer touch point? (Click Here To Download the 33 Point Checklist)
SURVIVAL OF THE FITTEST
We are in the survival of the fittest mode; no matter your pricing model.
While the industry has seen a great surge, don’t be thinking that what comes next will be easy. As the new skydiving season comes about, I recommend taking a step back and looking at your business objectively from a 10,000′ (or 14,000′) perspective. Are you in a position to accurately self-evaluate where you are to ensure your survival when the economies of scale begins to regulate itself?
I will be hosting a marketing webinar on Wednesday, March 29th at 12:00pm to discuss this topic and offer insights on developing a sound marketing plan during this challenging time for DZO’s.
Click here for more information and register. 4 slots remain for this webinar.