Innovations in Fitness Pricing
Dynamic pricing is taking a hold across various industries. One of the most recent examples of its application is in the fitness industry. If your after-work spinning class is too full to get in, as it happens to me too frequently, then you’ll know what I mean. The opportunity to apply dynamic pricing in fitness is largely driven by the changing customer behavior. Today, many people are opting in for multiple pay-as-you-go specialty classes rather than or in addition to committing to a gym membership. Many classes such as CrossFit, yoga, and Pilates reported growing number of practitioners since people have picked them up as “active hobbies.”
The opportunity to apply dynamic pricing in fitness is largely driven by the changing customer behavior.
Is Dynamic Pricing Bad News for Price Sensitive Customers?
A recent example of how this is playing out is Dibs Technology Inc., a New York startup, which has raised $1 million in seed funding to apply dynamic pricing technology to the fitness industry. Its co-founder and CEO Alicia Thomas said, “This can be good and bad for customers, who pay extra to hail a ride on peak travel days, for example, but can get big discounts if they buy off-peak, book in advance or purchase less-popular items.” In reality, this is most likely bad news for the price sensitive customers since advance bookings are less likely in the case of fitness classes than they are of hotels and airlines. There are significant behavioral differences between planning a trip and going back to your favorite spinning studio. Foremost, exercising is more habitual compared to travel, and it draws the purchase motivation from a completely different place which influences the time horizon of the purchase and the consumption.
Is Dynamic Pricing in the Fitness Industry Inevitable?
Dynamic pricing of fitness classes is inevitable and, in fact, it is just right. When you look at their investment structure, gyms and fitness studios rely on fixed asset investments, as hotels and airlines do, and they too sell “perishable” inventory. Although a membership model makes a fitness business more immune to perishability, it still cannot take advantage of pricing for demand peaks. If a studio is able to create surges in demand, it would leave money on the table by using a membership model. As most fitness studios target a low-commitment customer behavior that is primarily driven by trendiness and instant purchase and gratification, they are more likely to create demand surges than clubs or gyms that don’t offer the a la carte activities. Therefore, we’ll see dynamic pricing increasingly replace membership models for specialty fitness studios, in the near future.
Dynamic Pricing Will Change the Game for Gyms Too
If dynamic pricing turns into a trend and widely applied within the fitness industry, it could change the game drastically for fitness clubs and gyms. If more and more customers opt in for classes or activities, gyms will not only have to offer a la carte classes such as boxing, yoga or spinning but also build capabilities to market them differently to a new kind of audience. On the technology side, the application of dynamic pricing requires the gyms and studios to add-on dynamic pricing software to their e-commerce platforms and point-of-sale systems. On the customer side, the gyms would have to develop reservations capabilities for multiple “day-parts” or sessions as this new audience will behave more similarly to a hotel or airline guest than a loyal gym-goer.
Dynamic Pricing in Fitness Industry is Less Dependent on Demand Forecasting
The most difficult aspect of executing dynamic pricing in hotels and airlines is that dynamic pricing relies on robust forecasting that is based on historical demand. Perfecting dynamic pricing algorithms that are based on historical demand and future surge took the airline and hotel industries more than two decades. The good news is, in the advent of big data and ever more capable CRM platforms, no new industry applications should take that long.
Real-Time Reservations and Immediate Consumption of the Experience Make Fitness Pricing Different Than Hotels and Airlines
A key difference in dynamic pricing in the fitness industry from hotels and airlines is not only the much shorter booking window but also the time of consumption. In most hospitality and airline pricing software, the booking windows may range up to a year. In that regard, dynamic pricing in fitness industry could be closer to Uber’s surge pricing than hotel pricing. In Uber’s case, the booking of the service is near real time and the consumption of it is almost immediate which makes the reliance on historical demand not as critical as in the case of airlines and hotels bookings. An added benefit of real time bookings is the convergence of the time between the buyer’s purchase intent and commitment which makes dynamic pricing of immediately consumable experiences just right.
An added benefit of real time bookings is the convergence of the time between the buyer’s purchase intent and commitment which makes dynamic pricing of immediately consumable experiences just right.
What the Fitness Industry Has to Learn from Hotels and Airlines about Dynamic Pricing
If the fitness industry will go in the direction of dynamic pricing, which is expected to be mainstream, a word of caution is in order: where there is demand there will be aggregators. The fitness industry must build in the customer recognition and relationship management features into its e-commerce platform as early as possible so that it can take into account customer behavior in their dynamic pricing from the get go. This is particularly important because customer loyalty and retention in fitness are extremely behavioral. Expedias and Kayaks of fitness services will arise, eventually, disintermediating the access to customers and to their information. Therefore, it’s critical for fitness studio owners to market to their customers directly and capture higher margins on the value that they have created right from the beginning and avoid the mistakes that hotels and airlines did.
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