Episode #0111 - What can business learn from gym pricing?

Pricing College Podcast

In today’s episode, we are going to cover something that’s very close to our heart. If you just listen to our podcasts, you may think we are just pricing gurus, but we are also incredibly ripped.

And so we’re going to cover, gym memberships and gym pricing. A subject that I think a lot of people, both consumers and businesses can learn from. So I think we’ll let Joanna kick-off.

Yeah. But firstly, starting with that, Aidan apparently goes to the gym five times a week. Not so sure. Maybe. Uh, anyway, aside from that gym pricing, gym pricing, now we wanted to speak about that yet.

Look, we do go to the gym, but I’ve actually worked with like a couple of gym companies with pricing. But I don’t really see improvement overall in the industry. Like really, Can anyone really think of a gym that has one clear price point for different plans? It seems as if, yeah, they’ve got millions of different price points.

To me it’s pricing, chaos and indicative of discretionary pricing led to predominantly by the franchisees, the owners, but more particularly by the individual sales people that are driving that sales. You know, they’re sort of dressed up as, you know, personal trainers. They wear the shorts, but really they really go for the hard sell.

And like from my experience, going to a gym and working for gyms for pricing. It seems like the maturity of pricing is still dominated by that person who wants a sale for their commission. There’s very little price transparency and to my thinking like. Is it fair? Is it very, It’s very promotional driven.

It’s always targeted on, you know, time based, promotions, getting people in , driving traffic to meet a sales quota. I’m thinking very much, it’s very similar to like the recruitment model . As a result of doing this over many years, it has led to a lack of trust in gym pricing, a lack of transparency, and you never really know what you’re gonna get.

And sometimes the plans can even change as well. So you’re thinking what’s the value of this particular plan? In my opinion, I really don’t think I’ved looked at customer segmentation at all well, they’re really just driving traffic to get sales through the door for cash flow purposes, and I think it’s no wonder that gym profitability is declining as a result.

Like to some extent I think , I’m gonna disagree with this. I think, I actually think we can learn a lot from gyms. There’s a lot of interesting stuff happening in the way they do stuff. You know, it’s a subscription model. Before most things were like, I think it’s probably almost impossible to go in and pay just for a workout, in a gym.

You know, they’ll have an onboarding system and all this sort of stuff, which to be honest, is probably some health and safety aspect to that, but I’m sure it’s also just a barrier to actually letting you just, you know, work out once, et cetera. Say if you’re, you know, do wanna work out this week and then next week, so they get you on a subscription model, which is almost way before the, the whole SaaS revolution.

So where it’s a service. They also have a weird, they make it almost impossible, as Joanna mentioned, to compare pricing, virtually no gym will have a, a price on the internet. You have to go in, meet someone, chat to someone, you know, invest time and effort, shoe leather cost before you even get a price.

And so your willingness to shop around would be very low, clearly. You probably just go to the first one you get. You get to, you’ll decide based on, I don’t know what criteria, you know, we’ll get into the value drivers, but I think your ability to shop around is low. Unless they really try to rip you off or charge way above market rate.

But that aspect, your lack of ability to shop a around or compare is interesting. Also, the promos they offer tend to always be focused on like a fake joining fee. You know, joining fee wave for this week or joining fee 50% for this week. And in reality, joining fee for a gym is clearly preposterous.

The joining fee often is so low, it’s like maybe $15. It’s really just. I think it really is just used as a method to let them advertise something because they don’t wanna reduce their subscription fees. The other thing before I pass back to Joanna that I think is very interesting about gyms is they try to price at a level whereby, I think some of the stats we’ve read, the majority of people don’t visit the gym every month.

They take out memberships maybe in January or dry July or whatever, whatever the month is where you’re on a new health kick and people have all these great aspirations. We’re gonna work out every week, you know, and it sounds great value. And then they, of course, human nature. They stop and they don’t go back.

But then you’ve gotta think if you know, there’s a psychological aspect too. You wanna stop your gym membership cuz in theory that is quitting and giving up. Or do you just wanna keep that aspirational, Oh, I’ll start again next week. And so basically they have that subscription model set at a level whereby really , it’s almost designed just to be under the radar, not to cost too much pressure on people so that the letter keep ticking along.

I don’t know what the actual occupancy rate of a gym is based on their, you know, how many the sell, but clearly it’s a bit like an airline. Clearly they’re selling more tickets than there are seats on the plane. Clearly not everybody can do the, you know, the bench press, et cetera, at the same time. So it’s an interesting approach.

I think that may be applicable for gyms that don’t have many, like gyms within the firm, like they don’t have like a large transactional. Sort of capability they may have, you know, a couple of gyms dotted around. Then they’re more likely to understand what their price bandwidth is and to get that more optimal price bandwidth that you were talking about, and then promote within that range.

However, with gyms with a number of different gyms and franchises within. Or geographically dispersed throughout the country, that may be more tricky, in terms of finding that optimal price bandwidth. And that’s what we’ve learned from research and to the point where, you know, it’s very difficult to price shop because there’s a lack of transparency. Is that a good thing? I mean, you just have to go on social media and see the reams and reams of complaints about that very topic. And looking at the data, what does that indicate? Yes, they probably attract customers using price point, which is, you know, one could argue with a great thing at the beginning, but then they lose profitability because the customer churn rate is actually quite significant. And although the customer doesn’t price shop at the beginning of the journey, because yes, there’s pretty much hard sold to the offer. Told to sit down like an naughty boy and girl and fill in their paperwork and pay an additional , membership fee on top.

They do so. But then aftera while you know, they do start to shop around because the value of that gym is not appealing anymore. Or the fact that they didn’t like the pressure, the price point, and the whole shady aspect of the model. And you can see that in social media and in data the churn rate is huge.

And for those type of businesses where they’re sort of selling premium type of services, but actually delivering the value in a very shady manner. There’s some discrepancy in misalignment, and customers are onto it. On the point of subscription models, I think they’re actually quite interesting from a psychological perspective in that for gyms in particular, The fact that it comes out of customer’s bank accounts every month could, and research shows could be considered a good thing because it reminds people why they’re going to the gym.

And in fact, contrary to what you, you, you think even though it’s a lower amount of money coming out of the gym, people actually do notice it. And especially in times of inflation where. The first things to go are things like gym memberships because people are under pressure that they’re spending less and they’re thinking and evaluating consciously, what they’re going to spend.

So things like newspapers, things like gym memberships, things like software as a service models. They’re really gonna be hit. Streaming services, video streaming, music. That’s the sort of thing, expenditure that people start to evaluate. And so then when they see it, So the pro of this, the psychological pro is if you actually are committed to your fitness and you see that going out your bank account, you go, yeah, you’re reminded to go.

However, if you’re sort of lack a day or so about your fitness and you see it going out of your bank account, you probably think, Do you know what? I probably will give it a miss. And that’s also reflected by the churn rate. Most people fit into that latter segment. The non-committed to gyms except Aidan of course, is highly committed.

Which makes you think, Okay, are we charging enough for the, the value that we offer to the more premium segment, the people that do actually value the gym, people that do utilise the gym and get the money’s worth. And are we undercharging the other segment. So what I think needs to be , that price value, profit equation still needs to be ironed out, especially for the bigger gym networks.

On that point, like I think there is probably more willingness to pay, you know that value discovery. What do people really value in a gym, that aspect? I don’t think, you know, I think I’ve, a couple comments made before I forget them. The first one. I I actually, the payment, they nearly always take a direct debit is something I wanted to add.

It’s a very, it’s almost impossible or not available to pay on invoice in a gym. There’s almost an, an entire industry of payment facilitators who basically focus on gyms because a lot of gyms fall below, at least in Australia, fall below the level of where the big banks, the big four banks would allow direct debit facilities.

So there’s a whole echelon of companies who are in that space just cater for the gym industry. So it’s quite interesting that, you know, they’re smaller businesses sometimes, you know, mom and pop style and they are direct debiting. So that is interesting. I also believe the fear of direct debit obviously seems a lot in bad collection and It that aspect and improves their cash flow.

But I also think if an invoice was arriving every month, people would be much more aware of what they’re paying when it goes direct debit, it sometimes goes onto the radar. The thing about value discovery, what do people really value in a gym? Clearly, you know, the tangibles, the number of machines, you know, the weights.

Does the gym smell? You know, simple stuff. Is it clean? Is it hygienic? Is it nice? Then there’s other stuff. Is it aspirational? You know, is it in a good location? Is it open? What hours of the day? Is it open? Is it 24/7? Can you go in public holidays? Does it open early in the morning?

And then other stuff like the real, the value add capability that gyms have, you know, those sort additional, the luxury aspects of like swimming pools and, you know, is it more of a health club. Can you have play racketball like in a movie set in New York, like Wall Street, you know, where Gordon Geco goes to play racketball?

I think even the first time I became aware of gyms was, I suppose when we were a kid and you’d see Princess Diana in Britain and she’d be going to this fancy health clubs in Chelsea or wherever it was, or Kensington. And you know, and I’m assuming those gyms are charging top notch, you know, very high prices.

I’m assuming they’re capturing the value they offer, but are they, are the regular gyms really even digging into that value discovery? You’d have to argue not, but again, because of the lack of clarity on gym pricing, it’s hard to know, but what really drives people to, and these things, the drivers probably change.

You know, with working from home, there used to be big chains that would, you know, publicised. You can work out in our gym at your, in your suburb. Then you can work out in the gym at lunchtime in the cbd, you know, when you’re at home on holidays, you know, if go up to Queensland for sunshine, and winter, you can work out at our gyms there too. Like those drivers have probably decreased with working from home, I assume. And I wonder how that’s played around into the different value driver. One aspect I really like about gyms is, you know, we talk about ecosystems and building ecosystems and buyers to entry and ability to upsell.

Like in a gym, it’s almost like a perfect little enclosed, air conditioned hopefully air conditioned world. And they’re always trying to upsell you with personal training, with extra classes, you know, all different things added on, like from massage machines. To body dexa scans and everything else.

So it’s almost once they’ll capture you, they are trying to move you along that sales funnel into the next thing, which is a great opportunity for these businesses. It’s almost like being on a cruise ship to some extent. They have you where they want you to some extent, and they can, you know, they can sell you additional stuff.

I was just thinking about there, there’s actually a proliferation of new types of very niche gyms. Ones like, for instance, I’ve seen, like for those who really like pump to really into weight lifting, they’re appealing to a very target market. Everyone goes there or like into the same thing.

They lift way above the average weights, dead lifting and all that sort of stuff. And they choose those gyms very consciously. According to a lot of research out there, even though smaller niche players are using price and promotion, to drive traffic into their gyms because obviously they’re reacting to the pressure of, you know, having to pay the bills, mass inflation, churn, because it still happens in those gyms too.

So even though they understand the value, sometimes I feel that they’re not confident in the value that they offer and often resort to price. And like I say this, like it’s a surprise. We see this in every business from B2B to B2C, even when there’s a clear and delineated value proposition and people are willing to pay and people do go, there’s still that propensity to backtrack and default to price and promotion as a way to drive cash flow ’cause cash flow to smaller businesses, smaller gyms with a niche audience means a lot. And it also means a lot to those sort of big low budget, let’s call it sort of maybe more members that go to them, but low budget gyms who maybe we completely ignore.

Even looking at value drivers, it seems because they’re using price and promotion to drive traffic, they’ve understood their churn rate to some degree and know that the replacement of that customer is cheap. If they, if they drive more promotions. However, is it really cheap? Could they be nurturing customer lifetime value, their customer base. That would be more profitable, especially at a time like this, I would argue it would. And also, you know, you would give them much better reviews and credibility online and a more sustainable business model. So are they looking for sustainability? Are they looking for, you know, cash, quick cash now and sell on the business? So I feel it’s probably the latter for a lot of the budget gyms, they’re here today, gone tomorrow, sort of thing and then customers have to find another alternative because they’re not truly committed to the gym memberships. And those that are, go to the, the more specialised premium gyms, niche gyms, and unfortunately, they are the people that we should really be thinking about because they’re committed. They’ve been going for a number of years and maybe business owners in that position. Should be really reaticulating reminding their customers, not just through price, but through their marketing and the people that sell their, their plans and offers, through their sales, their marketing, their operations, renewing the gyms and all that sort of thing. The value in use and the value at risk concept. So, I suspect that even with the lady Diana gym, they probably could be charging a lot, but they probably are not charging the full amount optimal price point or exploring that. But I’m hedging my bets there to think that based on what I’ve seen in gym pricing.

Cause I imagine Princess Diana really shopped around for pricing and she really went, she probably did invest quite a few, you know, days in just checking out pricing and could you see if a few pounds here and there? One thing I say about gyms, the ability to charge an upsell, Like there is a large amount there.

I know we should talk about the price, consciousness of people, you know, but clearly people care a lot about their fitness. Health is wealth is an old saying and clearly people will pay big money and you can just see that by, you know, these gym, you know, one on one coaching and you’ll see people paying, I dunno what it is, I think it’s like 60, $70 plus an hour in Sydney to get someone to tell you to do your press-ups.

You know, And obviously I’m underplaying what they’re really doing there. There’s obviously some really good ones and some probably not as great, but if it works, you know, people are willing to spend big money. The other, there’s been innovation in the sector in the last couple of years, which is probably.

Trying to address some of the, you know, the boredom, the monotony, that aspect that gyms have been criticised. , you know, and we’ve seen, is it CrossFit, which has been a, a big phenomenon. And then , this other one, um, is the name has just slipped my mind. It’s the one promoted by Marky Mark, Mark Wallberg.

And it’s huge. It’s more like individual classes they run. The name just slipped my mind, but you know, the one I’m talking about, it just being on the stock market. The share price has fallen recently, but those have been innovations that are sort of catered more to, I suppose, making it more competitive thing, making it more, you know, bit more camaraderie potentially in the gym to drive people on, you know, to counteract some of those criticisms people have had.

But look, it is, gyms are not going go away. You know, I think one of the, even during the Covid restrictions, which we’re all trying to forget, one of the things that people really looked forward to when they ended was for a certain percentage of people it was getting back to the gym. Some people wanted to go out for dinner, some people wanted the movies, and a lot of people just wanted to pump some iron.

And so that is, gyms will never go away. Clearly there’s, it’s like a spectrum. , clearly there’s a huge opportunity for optimising pricing by tailoring things and all that stuff, but I think it is a sector that we can learn a lot from. And, you know, even small businesses, et cetera, If you’re running a business, you know, one gym like that is by definition to small business.

But in reality, you’re facing a lot of the challenges that a big business has. Also, you know, hundreds, potentially thousands of customers collecting debts from them, offering, tailoring your service to them, competing with other gyms in the local neighborhood. So yeah, it’s a microcosm of, I suppose, pricing challenges that even, you know, mega corporations.

I suppose just a quick one. I, I was just thinking there that even between the plans that they offer, I find that the price, the pricing is, and the relativity between those, like the difference in pricing between the plans, good-better-best is often very like narrow. Also indicating that really they’re thinking about the features and benefits of their plans as opposed to really the full value of, each plan. So that’s something that I potentially would address, as a quick and very important fix because when you see that, really, what does that show? It shows a lack of understanding of the basic price and fundamental price model and structure and promotional structure, discount structures are just not there. It’s just ad hoc. That’s what that indicates. So, you know, that’s something potentially to fix. I suppose the last thing that I probably would want to mention here is that there is a clear difference between people that are committed to going to the gym and people that see fitness as part of improving their life, their health, and it’s like their medication, that they’re committed to a healthier life. Now, I’m not saying here that we overcharge the ones that are committed, but there is a point here of, you know, why, of the people that are not committed here. And what I’m thinking is you can make that market more profitable. Aidan mentioned right at the beginning of this podcast that they have removed sort of that ad hoc usage of gyms.

Why is it a highly profitable market if people want to go once or twice? Charge them for it, they’re probably willing to pay. And in that way, , they’re actually making money from a highly price sensitive and non-committal audience because they want to pay at that point. So what I can see, there’s really some really good pricing, quick wins, as well as long term wins that they’ll get from building a sustainable value base in customer focus pricing architecture, but a slight changes to the model that won’t, disrupt the flow of business and they can make money at the same time.

Almost like feel like here we’ve, even in a tough time, we’re still making money and it’s profitable. Okay, well I think that’s what I’m gonna, what I’ve got to say on that in the moment.

Okay, Thanks. Have a great weekend everyone. Bye.