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Markets in self-constraint, a continuing series
Peter Risager, a loyal MR reader, relays the following to me:
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.
He offers also a link in Danish.
Posted by Tyler Cowen on September 2, 2008 at 03:29 PM in Economics | Permalink
Comments
First!
Posted by: soupy sales at Sep 2, 2008 4:08:23 PM
how does that ensure that people actually work out
Posted by: at Sep 2, 2008 4:09:34 PM
Kind of like the old book and cd clubs, except you can't mail in your card to avoid the charge.
Posted by: liberalarts at Sep 2, 2008 4:12:45 PM
I think if everyone who is signed up at a gym actually showed up regularly, it would be so crowded to the point of being unusable. It would be similar to everyone withdrawing money from a bank at the same time.
Posted by: MS at Sep 2, 2008 4:14:21 PM
But what about the incentives for the gym to provide a good service and environment?
They should have a soundtrack with very few songs constantly looping around. On a first visit, it will look good, but the annoying repetition will keep people away, maximizing their revenue.
Posted by: TheophileEscargot at Sep 2, 2008 4:19:20 PM
This is just turning the incentive around, not creating a new one. After all, normally people pay for their membership up front, and then many still choose not to go. The incentive works the same here: their laziness is worth 85 bucks to them, whether already paid up front and lost (well not technically lost, but not made use of by not showing up) or by having to pay after the fact (by not showing up). Either way it does not matter to a lazy person, they will still rather stay at home and gladly pay the associated fine.
Posted by: Melpomene at Sep 2, 2008 4:19:57 PM
By the way, your comment form mentions "automated robots" but this is a pleonasm, because robots are by definition automated. You should change it to either robots or automatons.
Posted by: Melpomene at Sep 2, 2008 4:23:42 PM
They should have a soundtrack with very few songs constantly looping around.
That is what my gym does, and they have conventional pricing model.
Posted by: ms at Sep 2, 2008 4:32:06 PM
This is more or less the business model of credit card companies. Procrastinators and deadbeats subsidize the smugly virtuous.
Posted by: at Sep 2, 2008 4:34:38 PM
Do they not have regular gym-goers on that side of the pond? I go to the gym, on average, 4 times a week. I don't remember the last time I missed a full week, and many other people in my gym are the same way. How do they prevent all those folks from other gyms from signing up at theirs and getting free workouts?
Posted by: Grant at Sep 2, 2008 4:39:17 PM
The "automated robots" in question are in fact humans in India: see Inside India's CAPTCHA Solving Economy (slashdot.org). They are paid a mere $2 per thousand code strings entered. Surely worthy of an MR post in its own right... oh wait, you already did.
Oh, and "pleonasm" is one of my favorite words, undeservedly far more obscure than its flipside "oxymoron". Please do your part to embiggen pleonasm's cromulence. Maybe automated robots could be used to spam it in blog comments.
Posted by: at Sep 2, 2008 4:47:07 PM
@TheophileEscargot: The 'annoyingly looped music' business model is not sustainable in the long run. I think a gym will find plenty of incentives to provide good service.
Posted by: mpkomara at Sep 2, 2008 4:57:17 PM
This is more or less the business model of credit card companies. Procrastinators and deadbeats subsidize the smugly virtuous.
I'm not smugly virtuous. I very much appreciate the procrastinators and deadbeats. Really!
Posted by: at Sep 2, 2008 5:10:03 PM
Does this mean that if you show up once a week, you don't have to pay, or that if you don't show up every day, you have to pay?
Also, how does this work for the gym? Why do they care if gym members show up? It's incentivizing behavior that is just an added cost for them. Ideally, everyone would pay and no one would go. If you just have to show up once a week, it seems to me that virtually no one will pay, particularly as it would be difficult to police whether or not people are doing a legitimate workout. If you wanted to maintain your free membership for occasional use you could show up and read the paper.
Posted by: Mark at Sep 2, 2008 5:31:41 PM
Actually, as a former credit card marketing executive, I can assure you that procrastinators and the merchants that accept said credit cards are the ones that are subsidizing the deadbeats and smugly virtuous.
If you'd like to disagree, I'm happy to have a dance-off on the matter.
Posted by: Anittah Patrick at Sep 2, 2008 6:25:12 PM
Also, how does this work for the gym?
There are probably opportunities to upsell: personal trainers, pilates classes, and so forth which would not be part of the free membership. They could also offer supplementary services on premises like massage, tanning salon, and a juice bar selling overpriced health drinks where you try to chat up the hotties you met that day. Maybe even on-premises day care for a fee.
Also, how many weeks of vacation do Danes get? Four weeks in Spain could get expensive.
Sometimes people get the flu and don't show up for a week. Or, to avoid losing $85 they show up anyway and spread disease to all the other customers in a chain reaction, and then some of those people skip a week.
Posted by: at Sep 2, 2008 7:28:56 PM
I hate to be cynical, but for some reason I don't think the gym would offer this deal if they expected people to show up regularly.
I could also see it as way for the gym owners and/or members to signify a sort of hardcore devotion, but that may be too American of an explanation.
Posted by: Jeff H. at Sep 2, 2008 7:52:46 PM
I suspect behavioral economists may be operating behind the scenes here. :)
Kahneman and Tversky and Ariely (Predictably Irrational) have shown that people have a strong tendency for loss aversion, sometimes irrationally so. We fear losses more than we value gains: we will usually answer mathematically identical questions differently based on whether the question is framed in terms of avoiding a loss or making a gain.
Also, people overvalue things that are free. If you offer an expensive thing for a low price and a cheap thing for free, people will often go for the free item even if they would save more money and get better value by choosing the discounted but non-free item.
Also, people tend to overvalue things that they already have (endowment effect), and are loath to trade them for other things of equal value.
Fear of losing $85 is probably a stronger motivator than hope of gaining better fitness. Put all these things together, you will get more compliant and committed customers, who will be loath to switch to some other non-free gym even if that gym offers better value.
And because people like to appear consistent (see Cialdini, for instance), it may be easier to upsell committed customers on supplementary non-free goods and services. "We've noticed you're really serious about fitness. Good for you. By the way, you'll get more out of your workouts if you drink some of our delicious overpriced protein shakes right after."
Posted by: at Sep 2, 2008 7:57:53 PM
http://volokh.com/posts/1220398359.shtml
Markets in everything , self restraint
Posted by: k at Sep 2, 2008 8:09:11 PM
I guess the population subscribed to that gym enjoys having that incentive, maybe more then they enjoy the freebie. I'm assuming to understand, or even decide, the model behind that initiative, one should consider the market segment they are addressing: health buff, regular patrons, fatties, people here to find a soul-mate; in every case coach, drinks, extras could make sense — and also consider entrepreneurs' ability to have amazing ideas to loose buckets of money.
Danes probably take up to six weeks hollydays, often abroad; some take more thanks to a generous job insurance system (some factories have fired everyone the week before Christmas, to hire everyone back after New Year, saving money, and offering workers a week off with they family at no apparent cost), so the model could rely on, say, three to four weeks worth: is $300 such a meagre yearly fee for a gym?
Posted by: Bertil Hatt at Sep 3, 2008 4:13:51 AM
This campaign has a pretty high fixed entry cost compared to competing centers. $90 to become a member and get a card and then another $90 in deposit. Usually it only costs like $40-50.
Posted by: Sune at Sep 3, 2008 4:46:28 AM
On top of that theres a 12 month binding period, which is quite abit longer than competing fitness centers have.
Posted by: Sune at Sep 3, 2008 4:48:00 AM
I think if everyone who is signed up at a gym actually showed up regularly, it would be so crowded to the point of being unusable.
That's why you'll never see a sign in a gym reading "No curls in the squat rack." The douche bags who curl in the squat rack generally don't show up regularly, and therefore don't burden the gym's facilities. In contrast, the sort of people who actually squat in the squat rack go to the gym all the time, and therefore do burden its facilities.
Posted by: Peter at Sep 3, 2008 10:36:58 AM
How does the gym exist is the question that I keep on asking myself! In the competitive business environment nowadays there are hardly any loosing businesses that will stay in business for too long. This looks more to me as part of a genius marketing plan of the gym. By advertising the free gym membership the demand increases rapidly which means that the rest of the on premises activities such as personal trainers and different types of classes as well as food and drink stands are rapidly booming as well. The ‘free bee’ is only the basic gym membership which does not include all the supplement goods.
But I also think that the gym still supports itself from the people that miss a week of training (various reasons such as sick, lazy, holiday travel, business travel ect.) because I am pretty sure that the price that you have to pay of 85 dollars is not random as well. If you think logically and have some statistical background you can easily calculate how many new people will join the gym because of the “free bee” and what percentage of them will miss the gym once a week and have to pay the monthly membership. No doubt that the percentage will be low but you will have an increasing number of people that will join the gym at the first place, which will increase the number of people that will have to pay as well. You could probably then break even and see how much you should charge per person, hat does not show for the weekly training, so that the gym could support itself. Plus a big portion of the costs of a gym are fixed and at one point does not matter if more people are going to join. So I am pretty sure that this marketing tactic is pretty clever if statistically calculated as accurate as possible (if the price of 85$ is calculated correct).
Posted by: anonymous at Sep 3, 2008 5:44:53 PM
Im pretty sure I could up this attendance except for 2-4 weeks a year and I live near a center. Right now I pay $60 a month, 2 month binding period. I'm mostly deterred from joining this new place because of the high entry cost, long binding period and uncertainty of quality/crowdedness.
Posted by: Vizen at Sep 3, 2008 7:49:10 PM
