The downside of the discount gym business model
Each January, gyms seem to fill up with well-meaning people looking to get into better shape in the new year. Within a few weeks, however, their resolve wavers and many people lose their enthusiasm. We’ve already explored this phenomenon from the perspective of the individual, but a 2014 Planet Money podcast suggests that the gyms themselves may rely on their members not actually using the gym.
The hosts of the NPR show, Stacey Vanek Smith and Caitlyn Kenney, researched a few different gyms in New York City with similar business models. They started with a gym called Planet Fitness, whose membership costs only $10 per month, and the first thing they noticed upon entering the gym was rows of massage chairs. They asked one of the users how often he comes to work out, and he estimated that he came to the gym five days per week. When Smith and Kenney asked him to swipe his membership card at the front desk so they could confirm this average, it turned out that he averaged about two attendances per week.
Luxuries such as massage chairs make the gym environment appealing, and while users think they work out five days a week because they are at the gym five days a week, these luxuries can skew the user’s picture of their fitness routine.
“Gyms want to be this product that everyone buys, but no one actually uses,” declared Smith in the podcast.
An employee of Planet Fitness told the interviewers that the gym has a 300-person capacity, but they have over 6,000 members. Gyms target the potential customers who think they’ll work out, but won’t actually follow through.
“They have to rely on consumer psychology,” explained Smith. “You want to get people excited enough to sign up, but not so excited that they’ll get up early and go to the gym.”
For members who do use the gym regularly, the plus side of this consumer psychology is that your membership is essentially being subsidized by the people who don’t use it. The more members sign on, the more the company can offer a discounted rate or lower membership fee, which is yet another way to draw people in, and so the cycle continues.
So how do these gyms—with their inexpensive memberships— make all of their money? The answer is annual contract memberships. These agreements, which behavioural economists call pre-commitments, appeal to people who want to be locked into a healthier lifestyle. We think that if we’ve already paid, then we’ll be more motivated to go use our membership because we don’t want to waste the money. Many of these annual contracts are notoriously difficult to get out of, adding another deterrent to members thinking about leaving.
The podcast estimates that gyms lose about half of their members each year as annual contracts come up for renewal and people come to terms with the fact that they’ve barely used their membership. Many gyms look for other ways to keep these non-users thinking that they want a membership, which has led some businesses to initiatives such as free bagel days. The idea is that members will look back on a year of free bagels, along with being at the gym without working out, and be tricked into thinking that the money spent on a gym membership is worth it.
Fit4Less is a discount gym in Guelph, owned by GoodLife Fitness, that operates on the same business model discussed in the podcast. Fit4Less offers monthly memberships ranging from $8.99 to $18.99 per month, which gives members access to massage chairs, tanning facilities, and beverages in addition to cardio and strength training areas, according to their website. The less expensive membership comes with a one-year commitment, and users are required to pay out the full amount if they decide to cancel within the first year, in addition to a $35 joining fee. The more expensive membership has no commitment, but users must still pay the joining fee.
For users who are new to gyms, it’s easy to get caught up in the excitement of such a great deal on the membership fee, but it’s not a good deal if you don’t actually use it. Consider your lifestyle and your personal preferences for exercising, and commit to getting the most out of your gym membership if you do decide to join.