The Business Models We Need
Marginal Revolution reader Peter Risager says:
A Danish chain of gyms is now offering membership free of charge, with the only caveat that you have to show up, in order for the membership to be free. If you fail to show up once per week you will be billed the normal monthly membership fee for that month. This should solve the problem with incentives that gym-membership normally carries – there is suddenly a very large (membership is around 85$ per month) incentive to show up each week.
I have my doubts that they’ve nailed the structure just right here. But the general shape of the solution seems right. And we should all hope entrepreneur or other cracks the code and manages to make something like this work. In the domain of personal health habits, we have a lot of instances of akrasia and these are exacerbated by the fact that the business world has done a much better job of finding ways to make money by taking advantage of our akrasia than they have of finding ways to help us overcome it. If you could actually find a workable business model that’s built around getting people into the gym — rather than just buying a membership to the gym — you’d wind up doing a lot of good for the world.
42 Responses to “The Business Models We Need”
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September 9th, 2008 at 5:30 pm
Crunch here in NYC for a while was running a special where your first month was free if you came some specified number of times in that month (7 or 8 or something like that). Not a bad model, in that if you can get people over the initial inertia then (hopefully) they would see enough benefits to keep coming.
September 9th, 2008 at 5:31 pm
Workable business model: have health insurance companies pay for it
September 9th, 2008 at 5:36 pm
This seems like the kind of utter craziness that happens when you fuse the American mania for private solutions with northern European instincts for social democracy. (In other words, something right up Matt’s schizophrenic libertarian-social-democratic alley.) You get a private club whose very sustainability depends on substantial numbers of people paying for the privilege of subsidizing the services received by others.
September 9th, 2008 at 5:50 pm
I hear “business model” and immediately hum “Solid as a Rock…”
September 9th, 2008 at 5:55 pm
How does this not utterly obliterate any pooling equilibrium? Why would anyone continue to pay for a service they’re not using? So you go to a separating equilibrium and then the business fails because no one is in the group that actually provides income to the business.
In other words, what Dan said.
September 9th, 2008 at 5:56 pm
Left out of consideration here is the fact that most people simply don’t sign up for gym memberships anyway.
September 9th, 2008 at 5:57 pm
One of my old HMO choices did offer a discount if you could show that you went to the gym X times a month.
September 9th, 2008 at 6:09 pm
Why would anyone continue to pay for a service they’re not using?
September 9th, 2008 at 6:19 pm
all this talk of economic models is well and good, but the reason most people who have memberships don’t go to the gym is time. one could, i suppose, blog from the lobby of the gym or make sales calls from there, but most jobs cannot be done there and, regrettably, require a physical presence at the job for hours and hours of a day. add in a commute—even a matt approved one (how does all this flying around the country blogging and speaking, fit with the matt transport model?)—and kids and what they entail, let alone if you like them, and it is damn hard to find that time to get to, work out at, and clean up at the gym. at least, if, like me, one needs to sleep.
September 9th, 2008 at 6:23 pm
Oxford Health gives you $100 (I think) if you go to the gym 50 times in 6 months.
September 9th, 2008 at 6:37 pm
Gyms suck, I’ve given up on them. They suck up too much in transit time, money and effort. Just do something like the 5BX every morning before you shower. Less than 15 minutes a day and it makes all the difference. Zero cost, zero equipment (well, I use a yoga mattress that I can roll up when I’m done but that’s not really a must).
September 9th, 2008 at 6:46 pm
Two things I didn’t consider previously:
1. Does the Danish government subsidize health club or gym membership? If so, the business model might make sense. The gyms are competing for members, and get paid for every member they sign. Beyond that, they have two competing curves to consider: they can offer “free” memberships (no additional non-subsidized fees) which would maximize the size of their membership rolls, but bring in no extra cash to pay for better and more equipment, more profit, etc. Or they could charge very high membership fees, which would cover their costs per member fairly well, but do nothing to attract members through price competition. Where the falling membership curve and the rising income curve intersect is where I suppose they want to be.
It would make sense to join such a club, because clubs that charge extra fees have better equipment and services, and the no-fee guarantee of a cheaper club might be offset by more bargain basement services.
2. Maybe there is no subsidy, but this is just a one-year membership drive gimmick? In that case the long-run unsustainability of the model doesn’t play a role. You attract members via this membership drive technique, and then revert to a more standard model.
September 9th, 2008 at 6:55 pm
“Gyms suck, I’ve given up on them.”
Good for you. I knew this women who every day had the same routine after getting home from work. She’d change her clothes, get in the car, drive 6 miles to the gym, and then do 10 miles on an exercise bike. And then she’d drive home. One day I asked her: “Why don’t you just ride your bike to the gym and back? That way, you’d get two extra miles in, and you wouldn’t need the membership.” Needless to say, she was dumbfounded.
September 9th, 2008 at 7:00 pm
Unfortunately, just going to the gym isn’t enough.
Many people derive little benefit from their visits. They simply don’t work hard enough.
But the problem is even deeper. The last thing most gyms want is for their members to actually show up. It would be like having a run on the bank. Most gyms do not sell health. They sell memberships they know 80% of their members will abandon within days or weeks. But most people take up to a year to cancel their unused memberships. The gyms depend on churn — constantly attracting new members.
And you don’t need a gym membership to be fit and healthy. A lot can be accomplished by running in the park…or doing simple body weight exercises at home. Adding a pair of dumbells opens up even more possibilities.
Benchmarks along the way along the way are crucial. Think timed intervals and recording progress. But most people are light years away from such a structured approach.
Trainers are paid by the hour. It’s just as dumb as paying lawyers by the hour.
September 9th, 2008 at 7:14 pm
Another thought.
Why should governments or insurers subsidize the commercial gym industry? The results are too meager and the cost is too high. It’s a bit like government subsidies for the private health industry. You just perpetuate inefficiency.
Here’s a wild idea: tax credits (or even cash) cash for showing progress in standardized fitness tests. How you get there is your own business. Let the marketplace work its magic!
September 9th, 2008 at 7:59 pm
I’m highly skeptical of any business model where you’re only paid if people don’t use your product.
I can see something like this working if insurance companies agreed to cover the fee if you show up frequently enough, otherwise it comes out of your pocket, but as described, this sounds much more like a recipe for a defunct gym than the social-democratic business model of the future.
September 9th, 2008 at 9:19 pm
Daniel Freedman is right. For gyms– just like insurance providers– the fewer of your customers that use your service, the better.
September 9th, 2008 at 9:23 pm
Um, can we have some bars that operate on this business model?
September 9th, 2008 at 10:24 pm
Sure, if all you give a shit about is not being a complete lardass. If you want to actually gain mass and improve strength in a meaningful way, with a reasonable time commitment, a gym is pretty much a necessity unless your job is more physical than most jobs these days are.
September 10th, 2008 at 2:11 am
i have a friend, stunning top model, who was being introduced to an equinox in nyc by the head trainer. he showed her that all but one of the mirrors on the floor make the viewer look slightly fatter. the reason, he said, is to discourage members from actually coming to the gym.
September 10th, 2008 at 3:33 am
Gyms don’t suck, you just have to know how to use them. The key is belonging to one close to where you live or work. If its close to where you live, it should be close enough that you don’t use the locker room, you just change at home and walk to the gym. Now popping in for ten minutes on the treadmill makes sense, if you do that just about every day and throw in some longer gym sessions you should be fine.
Its hardest to do this in sprawl areas where nothing is within walking distance, and of course that is where gyms are most needed. Its harder to exercise on your own by just running in the park if you have to drive to the park, and there are no sidewalks in the area to run on.
Another good idea to take at least one formal class with a trainer, just to get introduced to the equipment and get some idea of what your workout routine should be.
I agree with dbt that with the way modern society is structured, gym membership is a near necessity. Our bodies did not evolve to sit at a desk for 8-10 hours most days and in a car for another couple of hours.
September 10th, 2008 at 3:53 am
dbt: All I do care about is not being a complete lardass. I’m not interested in gaining mass and improving strength beyond what can be maintained by simple calisthenics. I can do 30 good push-ups and I’m happy with that.
Ed: I’ve never lived in a place where going outside for a 10 minute run in the morning was somehow a problem. It wasn’t even a problem when I lived in central London. Admittedly, I’ve never been to America…
Anyway, did calisthenics yesterday. Off for my morning run today. It will take less time than what I’ve already spent today reading blogs.
September 10th, 2008 at 5:35 am
“a gym is pretty much a necessity unless your job is more physical than most jobs these days are.”
Umm, no. You can hike and bike. If you need to lift weights, haul some bags of sand. For normal people, there really isn’t anything at the gym that can’t be found in normal life. Now, if you’re an NFL player, yes, you need a gym as a controlled environment. And you really need to be in the very best of physical health. But the rest of us can do natural things. We don’t need to drive to the gym to run. We can run to the gym and not go in. We can bike to it instead of riding the stationary bikes. We can lift rocks instead of weights. We can swim in a lake instead of a pool. Health is something that can be integrated into daily life. And should be. But we don’t need gyms to do it. We just need to do it.
September 10th, 2008 at 7:09 am
I’m wary of getting wading too deep into a debate about the relative merits of various fitness regimens. Too many people become too dogmatic too quickly. They get hung up on promoting their preferred option. They think they have found the truth. And they want to convert others.
The topic under discussion is promoting fitness and health, and whether well-designed economic incentives might help.
The Canadian government now allows parents to claim small tax credits for their kids’ sports programs. But the kids have to sweat. No kidding; this is the official criterion. So hockey counts, but horseback riding or archery don’t. Cynics see this as pandering to the now notorious “hockey Mom” vote.
I repeat my contention that subsidizing a very inefficient commercial gym industry would be a public policy mistake. Too many people quit too quickly. Many of the remaining exercisers derive only a small benefit because they flit by randomly from one mediocre group classes to another. Others get hung up on cosmetic body shaping stuff….which has little to do with health or fitness.
Trainers who come up with well designed, custom, individual program should be well compensated professionals. But such creatures are rare. Most trainers don’t know much. They can be “certified” at a weekend course. Almost everyone passes; you just pay pay the fee an pass a multiple choice exam. Then they can go to work at a big gym and get to keep $30 from a $90 training session. There are also more rigorous certifications, but few clients make distinctions. (Story idea: Ezra gets certified as a trainer and sees what a scam can be. I’d love to read it! )
An interesting option is a small group class the meets regularly, with some individualization and performance benchmarks along the way. That might be worth promoting with economic incentives. Such a class need not meet in a gym. Much can be done in park, including pull ups on swing sets, jumps on to a park bench, etc…The instructor can also bring minimal equipment that add many possibilities.
Big gyms have huge overheads and heavy capital expenditures. It can take a million dollars to buy machines for a large gym. Having blown the budget, they then economize by hiring unqualified trainers. Why should that be subsidized?
September 10th, 2008 at 7:26 am
Big Ooops!
This is Matt’s blog, not Ezra’s.
But maybe Matt could persuade Ezra could get certified as a personal trainer, That would STILL be fun to read.
September 10th, 2008 at 9:35 am
I would pay good money to see a video of Matt trying to work as a personal trainer. Actually, hell, I’d hire him. Like most trainers, he’d be useless, but I’d get some good public policy discussion in when working out. And I’d feel very fit working out next to him. Most trainers sole qualification is being ripped, and that makes you feel like a lardass.
September 10th, 2008 at 11:26 am
Back to a semi-serious public policy proposal.
Call it “Fitness Choice.” It would have some features in common with “Commuter Choice” transit programs.
Every January 31, you would get a $250 re-imbursement from your employer for fitness instruction, provided:
- you self-certified that you sweated for at least 12 hours during January
- your trainer has other paying clients (but not necessarily a phony certification)
Employers would get a big tax break and cheaper health insurance premiums. Self-employed people would get some sort of tax break.
You could even put a conservative spin on this. The magic of the free market would create fierce competition. People could create “fitness pools” to found their own “charter fitness centers.” Over time, the best ideas would prevail.
Everybody wins!
September 10th, 2008 at 12:43 pm
Doesn’t this idea create an incentive for the gym to keep people from showing up? Why would gyms expand their space, add more machines, maintain existing machines well, etc if their financial incentive is to keep people away?
September 10th, 2008 at 7:08 pm
My idea would force gyms to compete with independent trainers. The money goes to individuals who spend it as they see fit. They could form small groups to hire trainers to meet them in parks, basements, or workplace break rooms.
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