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.
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.