ClassPass: Bringing Boutique Fitness to the Average Yuppie
How one platform is creating value by effectively connecting fitness demand with fragmented supply.
Today’s Lululemon-clad young urban professional women are not flocking to your average sweaty, institutional gym; they want boutique fitness studios, perhaps in a renovated rowhome in DC’s historic Dupont Circle, with gleaming wood floors and exposed brick walls, where a welcoming instructor leads a group of like-minded individuals through a fun new pilates, yoga or barre workout. New York-based ClassPass, founded by CEO Payal Kadakia 3 years ago, has found a way to create value for millennials who aspire to this mode of working out but can’t afford the packages and memberships at these fancy studios.
Value for Members
ClassPass offers individuals access to a wide variety of fitness classes at discounted prices, facilitated through its online and mobile reservation system. Through a $119 monthly subscription fee, members can sign up for an unlimited number of classes all over their city. Though expensive compared to many gym memberships, class packages at these locations would normally be much more expensive, with individual classes, such as the pilates reformer, costing as much as $40. The only limit is that one can only visit the same location three times in any given month, but this encourages members to take chances on new activities they might not have thought to try before and to seek out variety in their workout routines. Many members enjoy attending classes with their friends, encouraged by frequent referral discounts and facilitated by the ability to link up with their friends on the platform and view their weekly workout schedules. Members must cancel reservations 12 hours in advance without incurring a penalty, a policy many users don’t find ideal but admit holds them accountable to their fitness commitments.
In an age where 70% of people with gym memberships don’t even use them in an average month, ClassPass incentivizes its users to workout, making the trendiest workouts accessible to first-timers, and leveraging millennials’ desire for social connection through more life-enriching activities.
Value for Studio/Gym Partners
Over 6000 participating fitness studios agree to sell classes to ClassPass at a bulk discounted rate primarily for new customer acquisition. These studios face high fixed costs and excess capacity, so much like an airline, any additional spot sold represents additional value at no marginal cost. ClassPass helps fill these spots, and unlike Groupon or LivingSocial fills them with the right kind of individuals – who actually want to discover new classes and may ultimately purchase packages through the studio directly.
ClassPass recognizes the importance of keeping its studios happy and preventing the cannibalization of existing business. ClassPass offers studios the ability to block their most popular classes and times from ClassPass users. Studios are therefore gaining additional revenue for spaces that would not otherwise be filled, and more importantly, potentially acquiring new long-term customers.
Operations
An organization of about 200 based primarily in New York and San Francisco, ClassPass is rapidly growing its operations to provide and capture this value in over 30 cities and 3 countries. Employees are encouraged to “live the sweaty life” themselves, attending classes together in the middle of the workday, gaining empathy for their customers and knowledge of studios. As a two-way platform, it carefully manages both its studio partner and individual member relationships, negotiating unique prices with partners to properly reflect engagement and usage each month, and promptly responding to member emails. ClassPass seeks to keep its members engaged, a departure from the old-fashioned gym membership model, and thus the number 1 metric the whole company stands behind is reservations number.
Kadakia sees the future of the business not in the discount service, but the personalized focus on the user as a virtual concierge. The company’s investments in an engineering workforce, 20 last February but rapidly growing, reflect the importance of technology to a seamless workout planning experience. Successfully implementing this technology will be key to ClassPass sustaining its success, since it is not actually providing its own services but rather facilitating various parties. It’s only real value creation is through the convenience and personalization of its platform that keeps its members committed.
Is it Sustainable?
ClassPass has found tremendous success bridging the gap between fitness studios with excess capacity and millennials seeking boutique-style, variety, and social connection in their fitness routines, but whether it is a sustainable business remains to be seen. This depends on whether the company can tread the line of satisfying studios by encouraging individuals to attend classes outside of the platform, while still providing enough value as a platform to retain and grow its user base.
Sources:
http://www.classpass.com
http://techcrunch.com/2015/02/27/with-a-60m-revenue-run-rate-classpass-may-be-the-next-uber/
http://www.forbes.com/sites/hollieslade/2014/05/16/how-this-startup-pivoted-to-survive/
http://fortune.com/2014/11/03/class-pass/
http://www.racked.com/2015/1/20/7560577/classpass
http://www.crainsnewyork.com/article/20150116/TECHNOLOGY/150119871/fitness-startup-classpass-buffs-up-with-40m
Nicely done, Caitlin!
I found this super interesting, as a big ClassPass user myself. My only question is that it seems like the value of ClassPass to fitness studios is filling extra holes due to underutilized capacity (say for example, Flywheel). The long-term value is then that users become regulars of Flywheel and do not go through ClassPass. This ties in to your above comment regarding the sustainability of the business model– I wonder if ClassPass will have to invest heavily consistently on acquiring new users since old users, if the system works properly, will slowly but surely defect.
Loved the read– great job!
Prak
Thanks Prak! I definitely have those same questions about the long-term value of ClassPass and whether it can maintain its existing users or attract enough new users steadily. I actually was a former user of ClassPass who abandoned it for a membership at one favorite studio. I do think it’s a sustainable model for customers who are willing to give up some perks (access to the most prime hours/classes, inability to keep a strict routine, etc.) for a lower price point, but the value only exists for studios if there are enough new users who potentially switch to their packages. I think there will also be a challenge retaining the “best” studios, since those are more likely to entice new memberships outside of the ClassPass platform, increase brand awareness and fill capacity, and then no longer require ClassPass services. It seems like such a tricky balance to strike, but if it can strike it successfully I do think ClassPass will continue to fill a need in the market, especially since Millennials are so transient and new studios and new workout trends are popping up all over the place.
Hi Caitlin – love this post, as an ex-user myself. The operating model is fascinating because of the points you mention – they segment the market for studios, and they increase engagement and accountability for users (which keeps you fit!). That said, I wonder how this model will scale, as demand becomes too big for non-primetime studio supply. As it stands currently, the premier classes (like those $40 pilates classes after work) get booked immediately. Will they find a way to increase the supply part of the equation? Or will they lose too many disillusioned users along the way?
Great post, Caitlin! ClassPass is pretty genius– it capitalizes on the niche micro-gym trend while doing the legwork of aggregating long-tail supply. I do wonder though whether the model works outside of urban areas where there aren’t as many high-end fitness options. Secondly, at what point do the fitness studios get tired of ClassPass cannibalizing their existing business and mediating their relationship with customers? Does ClassPass eventually fall into the Gilt / Groupon trap where they dilute brand of the studios and/or start feeling too expensive to justify long-term?
Great post Caitlin!
I have a couple of friend who swear by Classpass (almost enough to get me to try it). I think the model is especially beneficial to smaller studies with new concepts that do not have the resources to advertise and really garner the required support to become profitable. Classpass basically brings in an audience of health focused individuals who might not be willing to try new routines unless they are offered at a discount (which is the case here).
I also particularly like the fact that you can continually change your workouts (trying new things and really avoiding it getting monotonous).
The question I had was regarding solvency – i think Classpass had issues with liquidity and was having to refocus operations. If not mistaken they were exiting Boston because of this. Could you maybe provide some insight into the issues they are facing? Thanks!
Great post, Caitlin! ClassPass has really taken off given the growth in studio and group exercise classes. The company was able to ride this new fitness wave without significant upfront capital expenditures that new gyms have to incur. I wonder though how the company is dealing with the churn issue when existing ClassPass users find a studio or a workout that she or he really prefers. The other question I have is whether certain group exercise studios will start to partner with other types of studios and cut out ClassPass entirely. Further, what will happen if studios start to do online gym classes that people can join from home? Looking forward to seeing what the future holds for ClassPass!
Caitlin, it’s great to learn more about such a popular and rapidly growing business! I’d like to learn more about the company’s gross margins – how much is ClassPass paying studios for their inventory? Is an individual user profitable for ClassPass? My guess is that the company’s gross margins are extremely high, given the high price tag studios charge customers for classes and that ClassPass raised their monthly fee by 20% recently. Additionally, as others have mentioned above, I’d be interested to see the data on customer retention. If customers are leaving to join a studio, the ClassPass needs to work on its churn/ customer retention. However, if customers aren’t leaving the platform, ClassPass’ value proposition to studios isn’t actually true.
Loved your post, Caitlin. Very interesting in how the Company has successfully created value for both participating parties – individual customers and participating studios – and how they have captured some of that value in a subscription-based model. Wondering if there is an additional way to capture value in having ClassPass members actually join one of the participating studios – one of the big risks to the sustainability of the ClassPass models as users trade in their ClassPass and instead sign up for their favorite studio classes directly? Also wondering average customer churn; are customers really using this as on a trial basis and trading in for specific studio memberships or are they enjoying the access to a range of classes that ClassPass offers?
Your thoughts – any specific opportunities you see to improve the model as you researched?
Thanks for the introduction!
Jackie
While I agree to an extent with the point of cannibalization that a few have made, I actually think there is a huge market for ClassPass consisting of those people that don’t want to work out at the same place more than three times per month! Most of ClassPass’s participating fitness studios are focused on one type of fitness class, whether it’s spinning, boot camp, yoga, trampolining, etc, and the ideal exercise schedule combines cardio with strengthening and stretching. It’s not physically sustainable (or shouldn’t be!) for a ClassPass user to spin 5x per week and do nothing else. It seems like this business model really lends itself to providing users with a well-rounded workout routine. I’d be curious to know if ClassPass purposefully stays away from more generalist fitness-type studios for this reason, or if that’s just the current market.
Loved the post!