Gym price discrimination

http://jonsteinberg.com/2010/02/gyms/

by jonsteinberg • 16 years ago

30 41 16 years ago

ruang• 16 years ago

Amazing that an entrepreneur-in-residence would use GoDaddy for hosting: http://jonsteinberg.com/2010/01/risk-and-doors/

Some of his other posts are good though.

lsc2• 16 years ago

why? Shared hosting, /in theory/ could provide better service levels than dedicated servers, simply because it is a whole lot easier to make a standard shared hosting setup redundant than it is to make a dedicated server redundant.

jonsteinberg4• 16 years ago

yes thx

jonsteinberg4• 16 years ago

I moved to hostgator, does that redeem me?

viraptor• 16 years ago

I'm amazed that the described system works / is popular. At first I checked websites of gyms around me, expecting this scheme to be US-only - it isn't. Random UK gym has 8 membership types with 4 different access options (+ 3 different "offers" on top of that) without any price on the web. I've never heard of this before and it seems just crazy... I wonder if anyone checked how many people they would gain / how much money lose by having only 2/3-options with fixed, known prices.

andrewvc2• 16 years ago

Even worse, I signed up to LA Fitness's pro results training program, took my free lesson and found out my trainer sucked. I looked at the fine print on the contract, I had 7 gym business days after signing, which it turns out include weekends, to either send a letter to their headquarters, or send a telegram to their headquarters saying I want out. Since it took me a few days to decide this, I had to Fedex my written letter 2 day express to get it there in time.

The ridiculous part is when the trainer called me up and said I "shouldn't have done that" and that he could just cancel me over the phone, despite the fact that the contract was quite explicit about mail and telegram (really telegram?) being the only two ways to cancel. I'd switch but it seems most gyms are run like 2 bit scams.

philk4• 16 years ago

>> took my free lesson and found out my trainer sucked.

Unfortunately this is pretty much the rule as far as trainers go. But to be fair to them they're in a situation where they're generally rewarded for making the customer like them (which means relatively little hard work) rather than making the customer look like someone who actually works out.

andrewvc2• 16 years ago

Heh, actually I had no problem with the workout, I want a trainer who pushes me. I had a problem with the fact that he 'forgot' about our appointment, that he was clearly hungover, and that he was complaining about that DUI he got the night before.

byrneseyeview2• 16 years ago

Why not? Buyers can be getting a huge range of results (from temporarily assuaging guilt to changing their lifestyle to finding a new set of friends they can hang out with every day). If you're selling something that could mean so much to so many different customers, there's no excuse not to charge them intelligently for it.

mnemonicsloth• 16 years ago

A big chunk of the people who join gyms stop going after a month or two. Gym equipment is also really expensive. I'd be surprised if the average gym could stay in business very long if infrequent exercisers weren't subsidizing more regular gym-goers via long-term membership contracts.

Which also explains the lame high-pressure sales act. When you walk in the door, they already know there's a good chance they'll be taking your money for a service you'll barely ever use. You avoid being this kind of rube by being somebody who will derive enormous benefit the gym instead, in which case manipulating you into joining is for your own good.

kijuhygf• 16 years ago

Gyms make all their money from people who never go - that's why they all have 12month contracts and sell 90% of them in January

My local gym does per visit, 10 visit, 1, 3 and 12month with increasing discount - but it's city owned = socialism eh?

byrneseyeview2• 16 years ago

I would assume that their profit equation works something like this: they need enough capacity to ensure that during the peak season, nobody is unhappy. If 90% of their contracts are in January, then that peak is huge, so they can't really skimp, even if most of those people never come back. If, e.g., 90% of signups were on the 1st of the month, it would be a lot easier: the peak occupancy would be much lower.

bonsaitree2• 16 years ago

This article smells more of self-aggrandizing attitude than sound business reasoning. I'm amazed that he would bother with the artifice of negotiating when he's essentially unwilling to budge from his friend's price tier. That's not negotiating.

FWIW, contract strikes work just as well (sometimes better) on gym memberships as for any other legal agreement. If he's willing to pay the "full price", but doesn't want to deal with a cumbersome cancellation method, strike that clause and see if they will still approve the membership. That's a give and take. That's a negotiation.

Either he is deliberately feigning ignorance as fodder for a blog post (likely) or Mr. Steinberg is unaware of how modern gyms, especially ones located in dense urban environments, actually make money.

Mainly it's through un/under-utilized memberships and revenue-sharing from ancillary services (personal training, first-aid classes, childbirth classes, etc.) and seminars which can best leverage the uncommon properties of the real estate.

What's one business's "Price Discrimination" is another's "Flexible Pricing Strategy". A classic example are the near orders-of-magnitude margin differences for the same 1oz. of Coke depending on the customer (vending machine, supermarket, restaurant, stadium). Same customer, different channel, same product. For those who remember, a similar strategy was leveraged successfully (for a limited time) by AOL to manage subscriber churn.

In this specific example, I highly suspect "Dan" joined the gym during a lull point in the calendar year (low-demand) or was a so-called "charter" member (pre-paying). Though likely the same physical space and equipment when "Dan" joined, the financial profile & goals of the company which own the facility may be very different today--and, hence, reflected in their membership pricing.

That said, there's clearly a market for a "hassle-free" gym, but that business model is going to have roughly the same fixed capital costs of other gyms, but get squeezed between low/no-margin YMCAs & county/municipal facilities at the low-end and high-end "clubs" (like Crunch) where, sadly, part of the business model's revenue is the social and life-style exclusivity afforded by that membership fee. In big cities, high-end gyms are the modern equivalent of country clubs.

philk4• 16 years ago

You're right, trying to get discounts from gyms in January is less likely to succeed.

You can also generally get better deals by trying to join just before the salespeople have to make their quota each month.

That said, all he's really asking is whether he can get exactly the same deal his friend has. Obviously they're making money off his friend so it's not like he's marched in and demanded that they lose money on the deal or something.

bonsaitree2• 16 years ago

Actually, they may not be making ANY money off of his friend. Most 'charter' deals and seasonal specials are loss-leaders for gyms. The former, as part of the initially pre-financed membership drive and the latter when they're already below break-even capacity on a per-membership basis.

Keep in mind he's asking for more than a 8.5% discount on the stated price even before excluding the bogus initiation fee.

psyklic• 16 years ago

Definitely. I got an even better deal than Dan by joining Crunch over the summer (including no enrollment and month-to-month).

Part of the appeal is definitely the "exclusivity" via the pricing -- in LA, for example, the nearest (location-wise) choices are a 24 hr fitness ($199/yr) which gets terrible (1-2 star) reviews online, Equinox which is twice the price of Crunch, and quite a few private gyms. But in all fairness, the gym does offer justifiable perks for the price -- for instance a huge selection of classes which appeal as a middle ground to people who don't want to spend even more on yoga studios or personal training.

daniel-cussen• 16 years ago

In Chile, that's how it works. No fucking contracts. You buy a x month long membership; for x = 1, 3, 6 or 12; and for the next x months, you get to go to the gym. There is some price discrimination in that it is cheaper to buy more months at a time, but that's it.

pbz• 16 years ago

Buying x month long memberships is how contracts work. After the contract is over you're usually switched over to a month by month.

philk4• 16 years ago

This is because the prevalent business model as far as gyms are concerned is signing up a whole lot of people who attend for a few weeks and then never come back (while continuing to charge them fees).

Personally I'm glad that I have all the stuff at home and can avoid the contracts and sleaziness of the average gym while also not having to trudge across town to one of the few decent gyms in existence.

KC8ZKF• 16 years ago

My gym (in Ohio, USA) has an advertised monthly fee with a month-by-month contract. So they do exist. Vote with your wallet.

bugs• 16 years ago

That is crazy, one of the most popular gym chains (they are local to the state though) here has a 50 dollar initial fee and like 50 dollars a month for access with no contracts and decent benefits. [1]

The whole thing seems awful and is probably the result of massive franchising of a particular gym chain (I don't know if Gold's has this issue or not).

[1] http://www.defined.com/trainerfinder/websites/60178/membersh...

jusob• 16 years ago

I had the same experience with a big chain open 24 hours a day. Now I pay $15/month (no upfront fee) for a great gym, and there are other around my place for the same price. I don't know how this other chain can still be in business.

jboydyhacker• 16 years ago

It's a business with huge fixed costs so they are forced to use dynamic pricing to cover those costs and maximize revenue. That includes "tricks" to get you to sign long term contracts and giving some people some deals versus others. His friend got the great price with the purpose of getting his friends to join the gym too. As for price discrimination being some evil thing--look at airlines when they sell their last seat for more versus an 30% filled plane. Or hotels auctioning last minute deals.

Relatively normal industrial behavior. The only thing that is shocking is that he's shocked.

rjett• 16 years ago

I just signed up for a Gold's Gym membership in Sacramento and encountered a similar situation. They give you three different 'options' of membership: 150 init + 12/month, 115 init + 15/mo, or 65 init + 19/mo. Once you choose, they then tell you that you have to sign up for a 1 year contract (meaning, for 1 year's time, they all cost the same). If you don't submit a written letter after a year saying you wish to cancel membership, your contract is automatically renewed for a year. I thought it was funny how both sales reps I talked to described the $65 + 19 plan as the cheap plan and "probably the way to go" when in essence, you pay the same for all in the span of the first year and after that, the $150 + 12 plan ends up being the cheapest option.

DenisM• 16 years ago

It's not their fault - lots of people prefer to pay more over time rather than a smaller lump sum upfront. I mean look at the credit card industry which entirely built on this.

mattwdelong2• 16 years ago

I can't speak about the price discrimination in the fitness industry, but having experience in the Hotel industry I can say that this a very difficult situation to be in. On one hand, you have a product that is perishable in the fact that if you don't sell it (the room in my situation, or in this case the space in the fitness area), you can never sell it again; So in certain situations you will have to sell at any cost, or lose that potential gross profit. In theory, all is well until you have two people checking in at the same time, and customer A is paying 30% less than regular rate while customer B is paying the regular rate. In the case of people checking in together as a group, and checking into the same type of room, its always best to ensure that there is a common rate because obviously those people will talk and no one wants the short end of the stick.

In dealing with the situation, I think there are a few things one can do as the seller. You can simply budge, and go for the lower rate. But you wouldn't be very good at sales if you did that. Instead, what I often do is look at the emotions of the individual and you can normally tell how to handle the situation. In the hotelier industry, when a rate discrepancy occurs I usually state that you must book through a different distribution channel to attain the rate that the individual is arguing for. I go on to state the channel they used, and explain that the package/rate is no longer available, but what I can do for them is give them the special managers rate which is a 5% discount (or adjust until satisfied). This lets the customer feel like they are winning, all the while keeping your rate integrity. Another way you could handle the situation is stating that they are receiving rate X and that the rate at the current time is actually 10-15% higher than their current rate, and most people are okay with this, believe it or not. In the end, you have to either give the user some sort of value (such as a complimentary upgrade if there is a better room vacant and its late at night) or budge just a little. Otherwise you will have a bitter customer, and they will never be pleased nor will they ever return. In the end, how the customer is acting emotionally really determines how much you should give up, but you should always give up just a little and then add a little extra value - I believe this practice can be transferred to the sale of any product or service.

On the other hand, I have experienced very irate customers who act like total assholes, and they just end up with a higher rates. Don't be that guy.

dschobel• 16 years ago

So it pays to be a bit of a pain in the ass. Good to know, thanks!

mattwdelong2• 16 years ago

Not necessarily, its just simple negotiations. Play your cards right and you will get the best possible rate. I assume most Front Desk agents wouldn't have the authority to change rates as much as I do, so don't pressure too much because they probably can't do a whole lot and then you will just be a pain in the ass that can't get a better rate.

If you are booking a room, the advice I would give is be as nice as possible, not only that, but be sincere. I assure you, I will be more than willing to help you out the best I can, as I am sure the same applies to other FDA's. Just remember that the majority of people who check in aren't happy to give up ~$100+/night, and therefore are not the greatest people to deal with. The easy people to deal with are a welcomed break.

dantheman• 16 years ago

So are your excuses actually true? Or do you make things up to placate the customer? This is something I always wondered.

teye2• 16 years ago

Recently experienced this with 24 Hour Fitness in SF.

Visited the location to sign up for the $199/yr my buddy paid. "That promotion [wasn't] currently running," but I got a call two days later saying that it was back on.

It's a shame to delay a customer like me who'll wait for the better price, but I bet you lose a lot of low-hanging fruit if you make the better price available permanently.

Without the system, eventually everyone gets the better price. And though slightly inconvenienced, I ended up joining for $199/yr.

angelbob• 16 years ago

24 Hour Fitness also has huge, huge disparities. I paid too much initially for a year in advance, but I now have a $50/yr membership forever, and my wife has $25/yr (!) because her timing was even better.

But the base rate is what, $150 to join and around $50/mo? I assume some people pay that, but it seems steep -- doubly so given what I'm paying :-)

rlpb• 16 years ago

Are you sure that's what actually happened? It sounds to me that they were trying to negotiate a higher price, realised that you weren't going to take it (when you didn't) and so you effectively negotiated them back down to $199/yr.

teye2• 16 years ago

That's what I thought too, but I saw the ordering system both times (before manipulation, immediately after boot-up) and the annual price was higher the first time and $199 the second time.

callmeed• 16 years ago

I think the author is wrong in thinking a "swiped at the door" and "no sales staff" is a better model.

Most gyms make their money locking people into annual contracts in exchange for a slightly lower monthly fee. This is especially true for "full-featured" gyms with lots of classes and staff.

The only way his idea works is for the 24 hour/keycard type of gym where only 1 employee is needed and there are no instructors necessary. (like SnapFitness)

I'd like to see some actual creative pricing based on actually going to the gym. For example, if you check in 100 out of your first 180 days, then your rate drops $5 a month. Or your rate drops $1 for every 5 pounds you lose (with a cap of course).

jonsteinberg4• 16 years ago

OK fair enough. Maybe a swipe that triggers payment for that month. Crunch is month to month. So they don't necessary have a contract. I just want to avoid the whole hassle.

easp• 16 years ago

I think that the gym's techniques for gaming customers also benefit by aligning with customer's attempts to motivate themselves. At least some customers are aware that paying in advance could motivate them to go to the gym more often.

coffeemug• 16 years ago

Pricing always seems simple on the surface, until you try to work out the details. Then it gets endlessly complicated. What the author is suggesting sounds like a good idea, but I'm willing to bet it would work out to be a pretty bad business practice.

Gym memberships is the kind of thing people do on impulse. It's kind of like new year resolutions where people stick to them for a few weeks and then trail off. I wouldn't be surprised if the 80/20 rule applied to gyms - 20% of the people use 80% of the resources, and 80% of the members go no more than 20% of the time. If this assumption is true (and it most likely is), he'd leave 80% of the money on the table! Most likely, he'd use the system he described to lure in initial customers, and then would switch to the system everyone else uses in order to actually make a profit.

Also, I'm guessing that sign up rushes occur during specific times of year. People sign up before summer to get in shape, and after new years, to follow resolutions. That means that during quiet periods he'd have implement promotions to get customers to join, but if he were to keep the promotions during rush signups, he'd leave a lot of money on the table.

It's just the nature of the industry. Signups aren't uniformly distributed throughout the year, and consumption isn't uniformly distributed among customers. Price discrimination and contracts is just a consequence of this.

Gym price discrimination

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