If you're booking a flight or a hotel, even buying tickets to a sporting event, odds are you're dealing with dynamic pricing. Businesses use dynamic pricing to fill seats (or beds), offering discounts at key times during a booking process to incentivize a purchase.
With airfare, you might see steep markdowns for flights booked months out or for off-peak fares. Hotels offer last-minute deals to fill rooms — there's no harm in giving a big discount if the alternative is making no money at all for that room. Same goes for tickets to concerts or baseball games, and now fitness classes — yoga, Pilates, spinning, CrossFit.
If you've ever taken one of these wellness-oriented fitness classes, you probably scheduled it using MindBody, a tool that about 59,000 fitness studios in the U.S. use to manage their schedules and clients.
MindBody was born out of a business need in the wellness industry. Rick Stollmeyer, the founder and CEO of MindBody Inc., says that fitness scheduling for these types of businesses didn't exist before MindBody created its software.
"The way they operate is surprisingly complicated," Stollmeyer said. "Even a small neighborhood boutique wellness studio will have 300, 400, 500 customers. The thriving ones have thousands of customers they have to manage. They sell them these really strange passes. A one-class, five-class, 10-class pass. They sell monthly memberships ... and what we saw was a lot of complexity and no system available to help them."
Wellness studios use a much different model than standard gyms, which sign members up for a monthly fee and hope that the gym never gets too crowded — they have a set number of ellipticals and other exercise equipment, and the gym gets paid whether or not all of them are in use. It's called a breakage model. For a yoga studio though, the money is all in people showing up — consumption economics.
Stollmeyer's software streamlined the multitude of ways that studios offered their services and put it into a neat scheduler that became nearly ubiquitous in the world of wellness classes. But even with a scheduling tool, about 50 percent of spots went unfilled. Stollmeyer saw it as an enormous missed opportunity, and in its app, MindBody began to offer dynamic pricing.
The idea is that everyone will benefit. Studios will fill spots in their less popular classes, consumers, especially those who don't fit the stereotypical affluent mold many of these studios cater to, will have access to more affordable wellness classes.
The major concern is that discounting classes will create what Stollmeyer calls a "race to the bottom," where people wait until the last minute to book classes, hoping for a deal.
Ramandeep Randhawa, associate professor at the University of Southern California's Marshall School of Business, said that if done right, dynamic pricing should work for fitness. The key is offering the right markdown at the right time.
"The question is would people wait until the last minute," Randhawa said. "That's always a risk. By doing it right, by not dropping prices too significantly, that's going to help." Offering a discount — but not too steep a discount — means that the customers who pay full price to ensure their spot in a popular class or with a well-liked instructor don't feel put out. But flexible last-minute exercisers also feel like they got a deal.
Randhawa said that fitness studios could learn a lot from the dynamic pricing models that airlines use — it's often better for businesses to leave empty seats than to offer too big a markdown, because if they lower prices too much, it sets an unsustainable precedent about the value of a service.
Airlines have mastered dynamic pricing — fares fluctuate frequently, airlines adapt their schedules and offerings based on what sells, and these days, almost no seat goes unfilled on most flights. Hotels and sporting events, which have less flexibility in scheduling and changing services, can't quite keep up, but wellness studios, which can change their schedules, or the number of spots in each class, can.
MindBody clients — fitness studios — can now set their own metrics for dynamic pricing. And Randhawa said that if they do it right, it could pay off.
"Think of it as another level of flexibility," he said.