Dynamic Pricing: Get on Board
Consumers are accustomed to flexible options. What does this mean for your fitness business?
For years, hotels, sporting venues and airlines have utilized dynamic—or flexible—pricing when selling their services. Is it time for the fitness industry to do the same? Michael Rucker, PhD, vice president of technology for Active™ Wellness, a management company that specializes in fitness and wellness services, argues that the fitness industry no longer has a choice whether or not to adopt dynamic pricing. “The best we can do at this point is to anticipate its economic impact and plan accordingly,” he says.
Under the dynamic pricing model, fitness facilities and studios can sell class spots according to supply and demand. Though price ranges vary according to location, a customer could theoretically nab a class for dirt cheap one day, and a few days later pay through the teeth for the same offering. To be clear, dynamic pricing is not a replacement for memberships and other subscription models; it’s merely an addition.
There’s no need to worry about how to figure out and implement a system. Technology platforms have already begun applying sophisticated algorithms that take the guesswork out of setting dynamic class prices that are both fair and enticing. For example, MINDBODY®, a technology platform for the fitness and wellness industry, integrated dynamic pricing into its app earlier this year. Now, users can find last-minute class spots offered at dynamic prices simply by pressing the “Last-Minute Offers” button on the app’s home screen.
On the back end, MINDBODY allows clubs and studios to set their desired price range for any given class. Then, using historical trend data, real-time inventory and other variables, the algorithm calculates the ideal price within the range a facility has set.
And just as you can save on airline tickets by buying in advance, the algorithm offers a price advantage to students who sign up earlier (typically four days out). According to Doug Hecht, senior vice president of consumer products for MINDBODY, this price advantage aims to solve, or at the very least curb, all the last-minute bookings that make it challenging for fitness facilities to predict whether or not a class will attract many students.
As a fitness entrepreneur, it pays to educate yourself about the ins and outs of dynamic pricing and how it can affect your bottom line.
Dynamic Pricing in Action
Elevate Training, a fitness company in California that uses the Lagree Fitness Method™, has successfully offered dynamically priced class spots. Though Elevate is largely membership-based, the fact that its two studios are located in areas with a high volume of out-of-town visitors means the studios need to offer options for people who may not become repeat customers. “We see [dynamic pricing] as a great option for people who want to try our class without paying for our intro offer, which would be more beneficial for clients who live in the area,” says manager Bekah Klein.
That said, plenty of locals come to Elevate via dynamic pricing, and those who do are often really interested and invested in the classes they choose, whereas drop-ins and ClassPass users typically value variety and cheap prices over finding their ideal workout or fitness facility, Klein says. Eventually, many of these dynamic pricing clients transition to a full membership.
The fact that many of Klein’s dynamic pricing clients make the leap to a membership means the dynamic pricing model is working the way it’s supposed to. “We see dynamic pricing as a gateway to a membership,” Hecht says. “We’ve already seen pretty high conversion rates of people buying with dynamic pricing on their first visit, and then converting to a 10-pack or a membership.”
A Win–Win for Clients and Facilities
According to Hecht, dynamic pricing is a win for consumers who want to try different classes and fitness facilities before committing to a membership—especially in the boutique fitness market, where memberships can run upwards of $100 per month. “[Through dynamic pricing] you can try [indoor cycling], barre, yoga and Pilates and figure out what you like the best,” Hecht says, “and if you find yourself going enough, then a membership makes sense.”
Dynamic pricing is also a great alternative for the consumer who doesn’t want to commit—period. According to Hecht, the millennial generation in particular tends to commit less, from buying fewer cars to downloading individual songs instead of paying for an entire CD. For millennials and other consumers who are less likely to commit to a membership, dynamic pricing offers them the opportunity to try as many different classes and fitness facilities as they want.
“There are two types of consumers out there,” Hecht says. “[There are those who find] what they looking for, and a membership feels right for them, and then [there are consumers who are] really looking to mix it up and not commit.” For the second type of consumer, dynamic pricing offers a membership alternative.
On the club or studio side, the simple act of offering more pricing options—including but not limited to dynamic pricing, membership and class packs—will attract more clients. And for most fitness facilities, attracting more clients is a plus. “Any platform that markets your services becomes another revenue stream,” says Stephen Beck, owner of Yoga Loft in San Diego and former regional vice president of sales and marketing for Hilton Hotels & Resorts®. “Dynamic pricing in general garners a higher mixed rate and increases your ability to move distressed inventory, such as class spots that wouldn’t sell.”
More people means fuller classes, and fuller classes means higher class prices, Hecht adds.
In spite of all the benefits that dynamic pricing offers both to operators and to their clients, some fitness facilities may have concerns about using it. For example, won’t students compare pricing among themselves? Hecht doesn’t see this as an issue. He says, “We know that concerts are dynamically priced, but you don’t turn to the person sitting next to you at a ‘Hamilton’ show in New York and [say], ‘What did you pay for that seat?’”
And even if students do compare pricing, consumers already have experience with dynamic pricing, so there’s no reason to expect shock or outrage. “We know that everything on Amazon is dynamically priced, and now consumers expect the price to change; we expect technology to enable the right price at the right time for the right person,” Hecht says.
The key to avoiding price shock and outrage is to ensure that those with paid memberships are always getting the best price and perks. After all, according to Klein, your ultimate goal is to encourage dynamic pricing clients to transition to a membership, so you need to make your memberships the most enticing. As long as you do that, there’s no reason not to offer dynamic pricing. “You’re not undercutting members by any means,” she adds.
According to Rucker, one potential con to dynamic pricing is less consumer choice—a natural byproduct of market efficiency. He offers canceled airline flights as an example: “Many canceled flights are an economic decision made by an airline because it’s advantageous to reroute travelers to fuller flights in order to maximize capacity.” Similarly, club operators may make more strategic economic decisions at the cost of the member experience (offering limited class schedules or canceling specialty classes that don’t bring a good return on investment).
And as dynamic pricing becomes ever-present in the fitness industry, fitness facilities will be pressured to drop their price ranges, while fitness consumers will become more discerning. The solution, Rucker says, is for clubs and studios to adopt or maintain a consumer-centric approach: creating an experience that clients will want to invest in via membership. “If you cannot succeed at this,” he says, “your offering is now subject to the open market.”
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