{"id":6781,"date":"2018-03-04T16:45:47","date_gmt":"2018-03-04T21:45:47","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/classpass-flexing-its-platform-to-align-with-consumer-preferences\/"},"modified":"2018-03-04T16:45:47","modified_gmt":"2018-03-04T21:45:47","slug":"classpass-flexing-its-platform-to-align-with-consumer-preferences","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/classpass-flexing-its-platform-to-align-with-consumer-preferences\/","title":{"rendered":"ClassPass: Flexing it’s Platform to Align with Consumer Preferences"},"content":{"rendered":"

Over the past 10 years, there has been a rising popularity in boutique fitness studios as people move away from big box gyms into specialized group classes. \u00a0The top challenge for these studios is customer acquisition as they incur high fixed costs such as rent and equipment. Similar to filling the seats on an airplane, a fitness studios profits are completely driven by scale, and every empty space in a class is lost revenue with minimal incremental cost to serve an additional customer. Beyond a few prime-time classes each day, most studios operate under capacity and look for ways to fill these additional spots.<\/p>\n

Founded in 2014, ClassPass provided a solution to these studios by creating a platform subscription business that connects consumers with a broad range of studios. Classpass offers customers variety and an option to try all of the hottest fitness studios in their neighborhood without having to commit and pay high fees at each location.<\/p>\n

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ClassPass claims value by charging customers a fixed cost per month depending on the city they are in. In Boston, for example, 3 classes cost the user $40\/ month, 5 classes cost $65\/month, and 10 classes cost $120\/ month. The company negotiates rates with studios individually, but they typically pay 50% of the cost of a class in a 10 pack for that studio. For example, if a studio sells a class 10 pack for $150 to clients, ClassPass will pay the studio $7.50 per class taken by a ClassPass user. The customer wins by getting a discount on the studio classes, the studio wins by filling additional space, and ClassPass benefits from the margin on class packs purchased as well as profiting from unused classes.<\/p>\n

Today, ClassPass has expanded to 50 mid to large sized cities around the world and has 8,500 partner studios and 45 million reservations made to date. ClassPass has raised $173 million with a valuation of $470 million. They have instituted two recent changes to their business model that change the dynamics of their platform business: a credit booking model and ClassPass Live.<\/p>\n

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Dynamic Pricing and Customer Segmentation with Credit Model<\/strong><\/p>\n

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In February 2018, ClassPass introduced a credit booking system to differentiate the cost of booking an expensive high-demand Flywheel class versus the cost of a local spin studio class at off-peak hours. On the customer side, this platform change helps segment users who are looking to get more value for their money versus users who want access to the best classes. Additionally, it doesn\u2019t limit how many classes a user can use each month at a studio (previously capped at 3 per month maximum).<\/p>\n

On the supply side, this enables ClassPass to introduce dynamic pricing, like Uber does with its ride sharing program, driven by an algorithm of consumer browsing and booking preferences, to drive traffic to off-peak classes and capture more value for high-demand classes. This in turn, allows fitness partners to offer premium, high-demand inventory on the platform.<\/p>\n

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ClassPass Live<\/strong><\/p>\n

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In 2018, ClassPass began beta testing a new service called ClassPass Live which allowed users to stream live digital classes into their home. Each user receives a heart monitor to use during class and their results are displayed to the instructor and the community of other live users. \u00a0Existing ClassPass users pay an additional $10\/ month for this service and non- ClassPass users pay $15\/ month.<\/p>\n

The introduction of this program is a sign that ClassPass is staying on top of fitness trends, with the rise of Peloton bikes and other at-home digital work out communities gaining popularity. However, it is still unknown how this will affect ClassPass\u2019s original digital platform business. Will this be seen as competitive to studios who are looking to fill spaces in their classes or will studios begin to create their own live digital classes that will detract from the popularity of ClassPass Live? Only time will tell what the future of digital fitness platforms has for ClassPass and other competitors in the space.<\/p>\n

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