By: Stephen Tharrett and Mark Williamson Bonus Article:
A Deep Dive into the Value Proposition of the Market Leader - ClassPass
ClassPass has a dual brand
promise. The rst is the consumer promise built around offering incredible convenience, the exibility to work out at a host of great studios or clubs and do so at below market pricing. The second is the promise promoted to club and studio owners (partners) that involve increased brand presence and brand recognition, increased consumer traf c, potential to garner high quality regular clients, incremental revenue growth, and nally, professional development for studio leadership. So, let’s take a look at how well ClassPass delivers on its promises to consumers and studios.
1. The consumer promise. ClassPass does an excellent job delivering on its consumer promise. First, they offer convenience and exibility. Consumers can go online and reserve space at over 7,500 studios (typically several hundred in a given geographic market) and typically at a time that is convenient for them. Since ClassPass gives studios the exibility to manage which classes ClassPass members can use, many studio operators limit the number of classes (black-out classes) they open up to ClassPass members that, in turn, may reduce the convenience and exibility of the program to some consumers.
Second, the price is an incredible value. A month of access is anywhere from $79 to $125 a month, and for most markets, will be in the neighborhood of $99. If you take IHRSA’s 2015 Health Club Consumer Report data that shows the average boutique member visits their studio 80 to 117 times annually (7 to 10 times a month), it equates to a price of $9.90 to $14 per visit. This is signi cantly less than the average price charged by boutique studios according to AFS’ 2015 Fitness Studio Operating and Financial Benchmarking Report, where the average reported price charged by studios for unlimited access to group exercise classes was $111 a month and $159 per month for small group training classes. Furthermore, the charge for a single group exercise class or small group training class, according to the AFS report was $24 and $34 respectively. As the numbers re ect, consumers pay considerably less using ClassPass than if they go directly to the studio (cost per visit could be anywhere from $10 to $20 less using ClassPass). In an August 31, 2015 article that appeared on
Mindbodygreen.com, the author highlighted 10 things only
ClassPassers understand. One of those was, “Paying the regular fee for a class not on ClassPass seems insane.” We have to give ClassPass a score of 9 out of 10 on delivering their consumer promise with the only thing preventing it from achieving a 10 being the fact that many clubs and studios limit class availability, which may be perceived by some consumers as limiting the program’s convenience. If class availability erodes, then it may become harder for ClassPass to effectively deliver on this promise to consumers.
2. The partner promise. The promise to studios has several elements, so let’s look at each separately and ascertain how well they are delivering on each:
Increasing brand presence, brand recognition and brand value. ClassPass is very similar to other digital middlemen; it’s all about building their brand on the back of their hosts. So, what do we know absent quanti able brand research? We know who Uber is, but do we know the names of the drivers. We know who Airbnb is, but do we know the homeowners whose homes are used? Do studios get the press ClassPass receives? No! When ClassPass signed on leading boutique operators such as Barry’s Boot Camp, Core Power Yoga, Cross Fit, Exhale, Flywheel, Pure Barre and Yoga Works, and club operators such as Active Sports, Crunch, Gold’s Gym and 24 Hour Fitness, whose brand bene ted most? In all of the above instances, ClassPass received the greatest bene t. Lastly, when you bring in consumers at a price point that is typically 50% below the single session rate of your discounted 10-pack rate, it devalues the studio’s brand. Katherine Paine of the News Group said, “The moment you make a mistake in pricing, you’re eating into your reputation or your pro ts.” Yes, studio and club operators will be exposed to a signi cantly larger audience of consumers by being on the ClassPass platform, hence greater brand extension, but they will be one of more than 7,500 options (several hundred in most markets), each competing for a share of the consumer’s attention. So, while the awareness of a studio or club will increase (positive brand recognition), depending upon its existing marketing efforts, its brand will always take a back seat to the ClassPass brand in terms of top line exposure. The perceived value of a studio’s brand can also be negatively impacted if consumers begin equating the value of the studio’s experience with the ClassPass fee. We have to give ClassPass a score of 4 out of 10 on ful lling this partner promise, though for some start-up clubs and studios, the fact they gain wide exposure may offer greater value in the
Stephen Tharrett
short-term than the possible devaluation of their brand over the long-term.
Increased consumer traf c. According to the aforementioned study conducted by AFS, the average monthly visits generated by studios using ClassPass was 65 (approximately two per day), or 3% of the studio’s overall visits. The highest volume of monthly visits generated by ClassPass in the AFS study was 300 (approximately 10 per day). In this instance, the traf c represented less than 3% of total client visits. We recently obtained ClassPass usage data from a national boutique operator that indicated across their brand they experienced approximately 130 visits per studio per month. One yoga studio indicated that, for the classes it opened to ClassPass, 75% of the participants were from ClassPass and not their regular client base. Finally, one operator of traditional health clubs indicated they experience approximately 120 additional visits per club per month from ClassPass. It should be noted that not all these guest visits are unique since a ClassPass member can frequent a studio up to three times in one month. Accounting for the above variable, then the actual number of unique guests could be a third of the reported foot traf c (e.g., if the average studio sees 65 visits a month that would be 22 unique guest visits, and if the studio sees 130 guests, it would be approximately 47 unique guests). We realize the data may not
be re ective of the entire boutique or club industry, but it does offer a realistic glimpse. According to our interview with ClassPass’s Head of Global Business, ClassPass brings considerable new traf c to its partner clubs. On an absolute basis, it appears ClassPass generates a reasonable level of additional traf c, but when looked at as a relative percentage of the total visits a studio experiences, the average traf c increase is small. Obviously, there are clubs and studios, as re ected in the above data that garner a greater
Mark Williamson
number of ClassPass guest visits on a monthly basis, and for them, the traf c numbers may be more signi cant. What is important to understand is that most of this additional traf c is incremental and therefore enhances the overall occupancy percentage of the partner studios. As a result, we would give ClassPass a score of 8 out of 10 on ful lling this partner promise.
Conversion of guests to members. In the AFS study, the average conversion percentage for studios using ClassPass was 6%. In talking with several studio and club operators (owners of single studios, multiple studios and multiple clubs), they indicated their conversion rates (percentage of unique ClassPass visitors who acquire a membership or a class pack) were below 10%, and in some instances, as low as 2%. These conversion percentages are eerily similar to the conversion rates seen in other digital business models that offer a free or low price value proposition and then attempt to upgrade the user to a premium experience. For example, in the free-to-play video game market, conversion rates range from as low as .5% to as high as 30% with an average range of 2% to 5%. Platforms such as Dropbox and Skype see conversion rates to premium services in the neighborhood of 4% to 6%. Since most conversion monetization strategies have low conversion rates, the key to their success is having a very large base of consumers to pull from. In video gaming, that audience base can be in the millions, sometimes the tens of millions. Consequently, for Internet middlemen to drive signi cant absolute conversion for a seller, they either have to generate extremely high visit counts or incredibly high conversion rates. A few operators we talked to indicate the “big risk” of using ClassPass relates to the possibility of not converting new guest traf c to full paying guests. In our interview with ClassPass, (See Internet Middlemen Page 29)
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