I’ve been an avid Classpass user since 2014 back when I lived in Washington DC. I joined because this was the more-affordable alternative to the expensive barre studios I’d fallen in love with-I couldn’t afford to join my favorite studio(s), so I hopped around taking up to 3 classes per month at a variety of studios as my backup option. When I moved to New York, this was still the most financially sustainable option to get my workout fix. I’d actually come to enjoy trying out different studios and classes: I sampled workouts that I otherwise wouldn’t have tried, I promoted the service to friends who enjoy a variety of fitness activities, and I even started a blog about my experiences in different classes. Unfortunately, this wasn’t financially sustainable for the other parties involved.
For those unaware, Classpass operates in numerous metro areas throughout the US (and has expanded to Canada, London, and Australia, more recently). They gained popularity in 2014 when they offered a promotion for new users in all of their markets – unlimited classes for $99. With drop-in classes in NYC costing as much as $40, this was a great deal and a great way to attract new users. The company decided to extend this promotion into their business model. This was their first mistake.
In what world is this a sustainable plan? Your partners, the fitness studios, receive half of their standard rate per class under the guise that they’ll be exposed to new customers who may become loyal and eventually pay full price. Meanwhile, you tout affordability and variety to draw in your own customers. Classpass couldn’t even develop a consistent message to the two sides of its operations. It was silly to think that an increase in membership alone would cover costs and result in profit.
On the customer side, the $99 unlimited plan was great. I continued taking 15+ classes a month for $99 unlimited, averaging less than $7 per class. Apparently, so did everyone else, and Classpass lost money on customers like me who, theoretically, should’ve been their superusers (and unofficial marketing team!) if they’d created a sustainable pricing model from the get-go. Naturally, they had to raise their prices—in NYC, first to $125 and then to $190—nearly double the original price.
There were two main mistakes here:
- Multiple price increases. If Classpass had better projected the fees needed to cover their costs, they could have only raised their prices once. The counter argument, of course, is that announcing a nearly 100% price increase would be catastrophic. This is correct, but it’s still better than the alternative: gradually decreasing the service’s value to customers and revealing a poorly thought out business strategy.
- No value add to the customer. With the impractical initial pricing plan, doubling membership costs was inevitable. However, providing value-adds for loyal customers would’ve helped soften the blow (and in turn, Classpass’s reputation). Fitreserve, Classpass’s main competitor in the NYC market, offers a similarly-priced service whereby customers can attend a studio 4x monthly (rather than 3x), and they also offer their customers discounted rates for a variety of wellness brands and products. These are simple, low-cost benefits that could’ve helped ease the impact of the price increase on customers. Further, while raising rates for loyal customers, the company now offers an introductory special of 5 classes for $19 to new customers in the NYC market. Growing a customer base is important, but a company shouldn’t do so in lieu of maintaining its current base—the base that they made no effort to maintain.
To mitigate the effects of the price hikes, Classpass rolled out different membership “tiers” with their second price increase. In New York, users could choose between 5 classes per month for $75, 10 classes for $135, or unlimited classes for $190. Superusers such as myself would stick with the unlimited plan despite the price increase, while infrequent or cost-sensitive users could scale down. This effectively eliminated the most profitable customers (unlimited users who attend infrequently) but expanded the service’s customer base overall, which was great; however, it still wasn’t sustainable, as Classpass eliminated its “unlimited” tier as of yesterday.
If Classpass knew they would lose money even with the price increase, it shouldn’t have even offered unlimited classes with the roll-out of its membership tiers. Why propose a business plan that, if successful, will still hurt your bottom line? If you’re changing your business strategy twice in a year, you need to be sure that the second change will stick. Smart companies don’t reinvent themselves quarterly.
Loyal customers have begrudgingly tolerated Classpass’s business model changes not once, not twice, but three times in the past year. It’s gotten to the point where if I receive an email from Classpass, I’m expecting the worst—no company should have this reputation. We’ve stuck with Classpass through its growing pains and multiple price increases (coupled with no value adds!), and every time, we end up feeling tricked and betrayed. We can only hope that the latest Classpass change is both profitable and sustainable, but after so many haphazard business plan changes, can we really be sure? Will the increased profitability of this model be enough to offset the inevitable loss of customers this time around? Time will tell.