Dynamic pricing has been a part of flight sales for years. You check the amount, think about it, then return to book the next day and find out it has doubled in price. Now, many leisure centres, fitness studios, and sports courts are using dynamic pricing to increase usage and maximise profit. It makes sense; isn’t it better to have a tennis court filled, even if the profit margin is slimmer? Does dynamic pricing solve the gym’s most prominent issue of being either too full or not full enough? The answers are not as straightforward as you might think.
How does it work?
There are many software products that each have their method of determining price points. First off, the studios themselves set their price margins: the minimum and maximum they are willing to charge for a class. Then the algorithms kick in. The method works by taking the actual capacity utilisation of a studio. Let’s say a studio is, on average, at 60% capacity. Dynamic pricing aims to increase this figure while also growing revenue. However, it is possible for this studio to improve its capacity utilisation to 70%, yet revenue stays level or decreases, due to lower prices.
Who will benefit?
Dynamic pricing is particularly useful in the boutique fitness market, where customers will pay premium prices for premium slots. Then there are the many people who cannot afford to participate unless the price is lower; dynamic pricing gives them access to slots depending on when they book. Facilities that are in high demand (such as squash courts) can also do well from a dynamic model, as space will only go to waste if a timeslot is left open.
Will dynamic pricing put people off advance purchasing?
A tool like Zenrez offers a pricing structure that decreases the value of a class as the starting time nears. A descending model may seem like a positive move; that empty spot gets filled- fantastic! Ultimately Zenrez’s programme discourages early-bird bookings, causing a last-minute flurry of activity and studios struggling to predict and manage class numbers. Your class might be full, but your margins are squeezed and your customers are less loyal. People who wait until the final moment to book your classes have proved that they could take or leave your service. They are an unreliable customer that could very quickly jump ship.
What about an ascending price model?
Perhaps more useful are the systems that turn this algorithm on its head, rewarding early booking and slowly hiking the price as the time nears so that a reservation made the final hour costs up to £6 more than one made a week before. This system is more effective than a descending model and is proven to be useful in the airline industry. However, an ascending price structure can dissuade some people from booking at all.
Introducing your customers Jane and John. Jane is delighted she bagged herself an early deal for Boxfit and views your studio favourably. John doesn’t know what his plans are in a week’s time and cannot commit to a class seven days in advance. It comes to the day of, and John resents paying more than Jane for the same service. That bitter taste makes John spiteful. Maybe he is a spiteful guy? Or, quite possibly, many more of your customers are a little miffed. Jane, on the other hand, is a loyal customer who prioritises your classes, instead of offering Jane a discount on individual courses, you should be focusing on promoting class bundles or a membership.
Will it encourage more pay-as-you-go purchases and discourage memberships?
The short answer is yes; well, probably. With an abundance of choice in studios and gyms, pay-as-you-go is very popular, particularly amongst the younger generation who enjoy varied workouts. At the end of the day, each venue wants you to train with them and them alone. So if you bring dynamic pricing into the mix, aren’t you encouraging people to earn discounts by paying for individual classes?
By all means, experiment with your pricing; perhaps a dynamic model will work for your studio. However, if you want to build a loyal customer base, maybe it makes more sense to provide value for money memberships. Regarding pay-as-you-go, peak and off-peak is a tried and tested method that few customers seem to begrudge.