

Gym price discrimination - jonsteinberg
http://jonsteinberg.com/2010/02/gyms/

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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._

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

~~~
mattwdelong
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.

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andrewvc
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.

~~~
philk
>> 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.

~~~
andrewvc
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.

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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.

~~~
DenisM
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.

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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.

------
bonsaitree
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.

~~~
philk
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.

~~~
bonsaitree
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.

~~~
jonsteinberg
Dan was not a charter member. But I think you're right about "lull period."
Yes I understand the whole 80/20 usage scenario.

My point is just that it's price discrimination that doesn't work. Soda at a
supermarket vs. restaurant works because of location. This is just a bluff on
the gym's part.

~~~
OmniLarry
I was actually a charter member at the Union Square Crunch gym (the one on 3rd
anyhow). Quitting was easy though, they only asked why (because I hadn't been
going) and that was that.

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viraptor
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.

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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).

~~~
easp
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.

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mnemonicsloth
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.

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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.

------
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.

~~~
rlpb
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.

~~~
teye
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.

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bugs
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...](http://www.defined.com/trainerfinder/websites/60178/membership/index.html)

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philk
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.

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byrneseyeview
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.

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

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kijuhygf
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?

~~~
byrneseyeview
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.

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jusob
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.

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KC8ZKF
My gym (in Ohio, USA) has an advertised monthly fee with a month-by-month
contract. So they do exist. Vote with your wallet.

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ruang
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.

~~~
lsc
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.

~~~
jonsteinberg
yes thx

~~~
lsc
I mean, you've got to watch it, as in reality, shared hosting providers have a
reputation for providing a lower level of service, not because it's difficult
to provide a good shared hosting experience, but because they make most of
their money off monthly fees rather than per-usage fees (as the more 'cloudy'
shared hosting, like google app engine does) - so traditional shared hosting
places have an incentive to oversubscribe their services, and to lose their
heavier (cpu and I/O) users.

But then, it's pretty cheap and easy to have two shared hosting accounts, and
to switch between them with DNS as required, and that solves a whole lot of
those problems.

