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Gym price discrimination

jonsteinberg.com

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Re: Gym price discrimination

#21

Post by jboydyhacker »

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.

Re: Gym price discrimination

#22

Post by rjett »

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.

Re: Gym price discrimination

#23

Post by mattwdelong »

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.

Re: Gym price discrimination

#24

Post by bonsaitree »

philk wrote: post #15
bonsaitree wrote: post #11

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…

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 t…

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.

Re: Gym price discrimination

#25

Post by dschobel »

mattwdelong wrote: post #23

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 co…

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

Re: Gym price discrimination

#26

Post by teye »

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.

Re: Gym price discrimination

#27

Post by callmeed »

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).

Re: Gym price discrimination

#28

Post by philk »

bonsaitree wrote: post #24
philk wrote: post #15

Earlier quoted context omitted.

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 t…

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.

Yes but the vast bulk of costs for a gym are fixed costs. You've got large fixed costs in the form of rent, machines and staff just to have the doors open.

Sure there's the idea that he'll be taking up space in the gym, but, statistically speaking, that's unlikely after the first couple of weeks.

Re: Gym price discrimination

#29

Post by DenisM »

rjett wrote: post #22

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 canc…

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.

Re: Gym price discrimination

#30

Post by coffeemug »

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.

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