In this episode, Olive and Kayla, MBA students at Feliciano School of Business, delve into the ramifications of Planet Fitness's price hike and the shifting landscape of subscription utility. Uncover the truth behind rising rates, "shrink-flation," and its impact on consumer perception. Tune in as they navigate through the latest in business news and strategy!
In this episode, Olive and Kayla, MBA students at Feliciano School of Business, unravel the Planet Fitness price hike and the evolving landscape of subscription models. Dive into the discussion as they dissect the impact of utility on consumer perceptions and explore the broader implications of "shrink-flation". Tune in for insights and analysis on the latest business topics!
Join Olive and Kayla from Feliciano School of Business as they break down Planet Fitness's price increase and how it affects subscription services. Also, get the lowdown on "shrink-flation" and what it means for consumers. Tune in for a discussion on the latest business moves!
In this episode, Olive and Kayla, MBA students at Feliciano School of Business, delve into the ramifications of Planet Fitness's price hike and the shifting landscape of subscription utility. Uncover the truth behind rising rates, "shrink-flation," and its impact on consumer perception. Tune in as they navigate through the latest in business news and strategy!
In this episode, Olive and Kayla, MBA students at Feliciano School of Business, unravel the Planet Fitness price hike and the evolving landscape of subscription models. Dive into the discussion as they dissect the impact of utility on consumer perceptions and explore the broader implications of "shrink-flation". Tune in for insights and analysis on the latest business topics!
Join Olive and Kayla from Feliciano School of Business as they break down Planet Fitness's price increase and how it affects subscription services. Also, get the lowdown on "shrink-flation" and what it means for consumers. Tune in for a discussion on the latest business moves!
Now, you're just getting ready, I'm ready.
Speaker 2:Anyhow, have you had time with? You know, classes approaching graduation, I'm sure the job hunt to even get to the gym, because I know that's your little Kayla thing, you know.
Speaker 1:I always try to make it to the gym four to five times a week. But that also brings me to our topic of today of Planet Fitness increasing their prices for the first time since 1998.
Speaker 2:I don't really know how they were able to get this far with it, especially with all those renovations over the years.
Speaker 1:I think it's really interesting how many people must have a membership but not use it, and I think it's so enticing because it's ten dollars and with everything going up, it's like okay, if it's ten dollars I can keep my membership, I don't have to worry about kind of switching gyms and I can go as I want without having to be, I guess, feeling guilty about spending a whole lot of money and not really using it.
Speaker 2:I've heard this sentiment before, like I think the $10 was kind of a sweet spot for a basic membership. To be honest with you, a basic membership for me is not appealing. I'm not even going to hold you. I used to pay like $50 a month for YMCA because I eliminate all those high school kids.
Speaker 1:You feel me?
Speaker 2:I got my steam room after. But it's like you know that's $600 a year.
Speaker 1:After a certain point I was just like well, then it all goes back to like how often do you go? Because then you can really get the most out of what you're spending per month. So if you end up using it half of the month, it's not really that bad per usage well, that's what I mean, though, from what you mentioned.
Speaker 2:Like, if you don't go all the time, the basic for 10 is like. I guess what I failed to say was I've actually heard people say that like whatever, I didn't go this month, but it's only ten dollars. That's like three cups of well, it's like one cup of coffee if you go to certain, certain places, which is for another episode, because definitely don't get the cost of a cup of coffee right now what is it on the top?
Speaker 1:not the um, the cool whip. Right, the cool whip, not the cool whip. So what is it? I'm blanking, I'm really blank, that's okay. Cold foam. Cold foam adds in the extra $3.
Speaker 2:Saxby's, we have a no, which has been nice, but all to say, they really hit that sweet spot with like if I go, I'll go and it's worth the $10, the high value, low cost kind of model, but then if I don't go, it's two, three cups of coffee, no big deal. I think this is the whole, before we even get to subscription utility, like that price sensitivity. I just think it's really fascinating because it's kind of what we mentioned in the last episode. People were willing to pay $20, but that $5, $5 as we move towards you, you know people being more conscious of the dollar post-covid is people that weren't typically price sensitive are kind of tallying it all up now.
Speaker 2:Cent percent.
Speaker 1:well, the thing is is that the price increase will only apply to new customers, so then it's like you're keeping the ones that don't consistently go, and then I feel like for the people that aren't going consistently it may trigger a questioning of like should I change my current gym to pay for a price that's more accommodating and for something that I don't really use all the time? Before that $5 price increase? Or people will just stay with the current gym that they are going to now.
Speaker 2:See, you know me, I have to entertain a marketing ploy. You know I have to, I have to. I don't know what goes through the minds of these people, but I can't help. First of all, they have to oblige with letting their audience know, or prospective customers know hey, the prices will go up at this date. I appreciate that because a lot of the times you get in those contracts or it's in the fine print on the commercial prices, subject to you know what is it Subject to pricing?
Speaker 2:Right and whatever at our discretion. So I appreciate that part, but I cannot help but think of it as a driver to capture a new audience. I think you're absolutely right about the convenience factor Like okay, the price is going up, is it really worth starting at a whole new gym Because they also have their annual fee, which maybe it's too early in the conversation to get into this part. But I I think it's really fascinating that they have chosen to interrupt their pricing strategy for their um lowest tier subscription when I really feel like they could have just done a higher annual fee, even if it translated to the same amount.
Speaker 1:I'm not even gonna hold you make sense seriously, because I think that the annual fee, like personally, if I feel like it always throws me off because it's not something that I necessarily want to pay for. It's part of the contract, right? So then it's like you're getting hit with the membership fee for that month and then also the annual fee and it's like a double whammy.
Speaker 1:So I think like it's just more impactful for it to be like you know, let's say thirty forty dollars extra in your annual fee and you're like, so you like the idea of parsing it out. Yeah, okay in my head, yeah, and it's five dollars compared to you know, adding that up all in one shot just feels a little bit more. And then you start to maybe question your membership there, like is it really worth this much?
Speaker 2:of an annual. You know it's too a little too much friction, right? Is this really what I'm paying for? Because really my other competing theory is that they're making us pay for this Megan Thee Stallion campaign from earlier this year.
Speaker 1:Well, also their current filling in CEO, Craig Benson, was talking about how the beginning of this year, the first quarter of 2024, they did not meet their quota or touch, I guess, their expected number of new memberships, and that's generally the time that they're supposed to be making the most money as a gym.
Speaker 2:Yes.
Speaker 1:New Year's resolutions. They are the ones that promote the New Year's event in New York City. That's all Planet Fitness space and I just think it's a little bit funny how the CEO is mentioning about how there was like loss of memberships because of the RSV and COVID-19 in January. I was like we're four years out of the pandemic. People would choose not to go on a temporary basis, but to close their memberships. I think that's a little drastic because of a little sickness going around.
Speaker 1:No, you're absolutely right, and I think there's, like other underlining problems that are not being looked into. He also mentioning some of the marketing campaigns and it's not reaching the crowd that they're expecting and their whole messaging is the no judgment zone. But do people really resonate with that message and actually feel that's true? When it comes to the brand, it's another thing, that's questionable.
Speaker 2:But that's why I'm so confused about the whole thing. If utility went down, if people used it less but maintained their memberships through the new year, I would understand that more. But it's the new year and we're dealing with high churn. That's weird. I think it's really fascinating that. I mean they have expressed that they're trying to target a younger generation, which can be evidenced, because I never thought of Planet Fitness with a mascot of any sort. And then you go with Megan Thee Stallion. So you're trying to reach a younger audience while raising the basic price.
Speaker 1:I'm a little confused, but also in comparison. We have talked about this extensively in regards to when you're looking at your competitors. Even raising it up to $15 only to new customers, you're still relatively cheaper than a lot of the other competition and something like. I've been to Retro, I've been to LA Fitness, I've been to Planet Fitness. La seems to be one of the more expensive ones, but it's all about like the colors. I feel like you know Retro, you get the ketchup and mustard combo and then you know Planet fitness is that bright, purple and yellow?
Speaker 2:and I feel like the alay, fitness, the gear's going.
Speaker 1:It's just like the corporate of the alay the gym kind of lifestyle type of thing. So, um, it goes back to like that brand identity and how you see yourself and where you want to be associated with. So I feel like planet fitness Fitness, even if it's increasing price, it's still having a lot of that base of people that don't consistently go to the gym so they don't really feel like they're losing much, and a lot of the younger kids that can't afford more than $10 to $20 for a membership.
Speaker 2:That $10 membership was for people that say they have a gym membership but they don't really be in there like that.
Speaker 1:That's why you have to wait after the first two to three weeks of the new year, and then it evens out.
Speaker 2:Yeah, no, you're so right. But just a question. I want to kind of like get your thoughts Do you think that, rather than mess with that, that they could have maybe kind of dealt with their black card model, or do you think that that would have been more of a backfire?
Speaker 1:they're doing test pricing for that, but I know that right now they're only dealing with the basic membership. Well, it's also like if you raise the price of the basic, I think it just makes sense to raise the price of the black card, because then it's like I don't know the pricing of the black card currently, but then it's like it could be relatively close in pricing and then, like you know, that could be part of the strategy Like oh, only for $10 more, I get all these other extra amenities, so might as well just get.
Speaker 2:Well, that's what I'm getting. At those amenities they take maintenance. I mean like those waterbeds and whatever. I mean like there are costs associated but part of it is not necessarily amenities based.
Speaker 1:It's more like oh, you can go to other places and you're not limited to one. So sometimes it's not necessarily other amenities that you're using, it could just be other features that are included in that. But also it's interesting, I think, about less people going to the gym and that membership decrease. I'm also fascinated if more people working at home is kind of reducing the need to go to the gym. Having that accessibility at home, you're like, oh yes.
Speaker 2:I feel like with I don't want to say the advent, you know, because I know people were working at home before COVID but I feel like that kind of happening standardized that, like it's a part of our society in a bigger way than it was before and I didn't think about how that plays into it. But it does make me think about the other motivators you know we talked about. The motivation might just be that people don't want to go through the hassle of going and opening a new membership. There's also the routine of it. There's the intimacy that people have with their gyms. I'm going to tell you right now I've been on the road, on tour or like whatever I'm doing, where having that Planet Fitness membership is like a godsend, because sometimes you just want to. You've just been driving for so long, you just want to pull over and take a shower and chill.
Speaker 2:Yeah, like you know, maybe go for a walk because you've been driving to Miami for hours and you know, yeah, yeah.
Speaker 2:And, like you know, doing that thing where you're stopping for a cup of coffee is not enough, like you just want to, like you know what I'm saying, so I love that. But there's also that part where you like your location. Some people actually have a closer relationship to gyms that are, like further away from them, not necessarily the closest one to them, but I feel like you know that routine and I feel like that's also a barrier for people exiting, like I actually do. Like this is only affecting new customers, because I think it would affect the loyalty of the presence demographic a little too much. But it's also exactly what you said. It's it's the, the, the love you have for the location that you're in, but it's also having access to all these different places. Let's get into that part, the uh utility.
Speaker 1:I personally um like, even for my membership, I like that it's a little bit more expensive, but it kind of weeds out a lot of the younger people that I don't need to be there at the gym. Even for me personally, there are other amenities that I pay for, like there's a pool, there's classes, zumba classes, cycling classes that I don't use enough you know, even if I do go, to the gym roughly half of the month.
Speaker 1:I'm not using my membership as much as I should in the extent of, oh, I could go to this class if I want to switch up my workouts, things like that and all. I think this doesn't have a tier program. It's more like, oh, you have a membership and, depending on when you signed up for the membership, if there was a promotion taking place or not, that would just be the only discrimination of price differences basically basically Right right.
Speaker 1:So it's very interesting, when it comes to services and subscription-based models, that there's a question of the utility factor and how much people are really using that to its fullest.
Speaker 2:Absolutely, and not to backtrack again, but it's like the Red Lobster thing track again. But it's. It's like the red lobster thing. There was a bigger utility factor for people, or rather a bigger incentive, you know, to get endless shrimp for 20 bucks. That increase the utility for most people fell and that's why they're in the hole they're in. There's so many other examples of that, even like netflix. Okay, so netflix's prices are going up, right, but I have not heard a single thing that people actually want to watch in like five years I don't know, I'm so serious but and maybe this is just coming from- a person who is a woman.
Speaker 1:So yeah, I'm bitter because I literally have film degrees.
Speaker 2:I don't even remember the last time I watched a movie. You know the whole thing with sharing memberships, which, okay, I get it Like the IP address. I get it, I get it, but see, that's totally something different. That's a whole other thing.
Speaker 1:I feel like Well, it's also like you kind of question are you getting the most out of this subscription that you used to before? Yeah, so it's like you're paying for it. So it's like you're giving that login. Um, they do have profiles. So it's like who says that those profiles have to be all within a household? And then now, if you open your netflix account and it's to a different address compared to where it's supposed to be, then it's like are you traveling, or you know they lock you out and things like that.
Speaker 1:So then it's like you're getting less value for the same thing that you were paying before. And it's meant to encourage more people to get their own Netflix account and open more accounts in that sense, hence making more money from it.
Speaker 2:Everybody's tripping man.
Speaker 1:They're facing a lot of competition with other platforms you know Disney+ and all of that stuff to kind of maintain their current audience and customers in that sense. But it's becoming very difficult to maintain that it's.
Speaker 2:it's this is where I have the moment where it's like I just get like it's not that I'm frustrated with the thing. I know, in the interest of human progression or whatever, things tend to get more expensive. The cost of living versus inflation things have just not kept up. I know these CEOs are not hungry. Let me just start there and let me end it there too. I'm just wondering you know how much we are keeping up with their costs and you know I understand they're I with their costs and you know I understand there I mean, this is bigger than I understand, because when I just think about the sheer amount of servers it must take, it's like run a thing like Netflix. I get it like there there are all kinds of costs, but I just I feel the shift in the air of people just, first of all, understanding the value of a dollar more because they have to with the cost of living. If you want to breathe, it costs money, and if you take a deep breath, that's extra too, and it's like okay, I think people are starting to.
Speaker 2:I want to see a consumer revolution. I'm not even going to hold you and I don't know if it's enough for people to just withdraw. You know, because when, like we're seeing with Planet Fitness, when their expectations were not met, now it's falling back on the consumer and I'm just wondering where the line will be. And I only bring up the CEOs, because a lot of these people have more money than they'll ever spend by the time their great, great, great, great greats have that money. Money will not even be. Eventually, we're going to transcend currency. So why do you need billions of dollars, like, can we just, can we just? You see? And then it's so hard not to get lost. But you know, this subscription utility is something that's, it's beyond Netflix, it's everything.
Speaker 1:I remember you were talking to me about a skincare subscription base that you were trying, yes, kind of how you felt like you weren't able to get the most value out of it because it was just like, boom See, that's the thing, here's another support.
Speaker 2:Yep, you know what I'm adjusting myself in the chair. It's about to go there. It's not even about utility, in the sense of I'm not getting what's worth it. First of all, it was like $150 or whatever. For what? It wasn't that good, like an acid of some, a cleanser, a lotion, and I think they threw in like, uh, it might have even come with this sample, but it was a spf and okay, 150, which I meant to cancel. After I got the samples that I forgot. Okay, yeah, and it's formulated, you know, specifically for my skin or whatever, which I had these online tests because it's like function of beauty.
Speaker 1:Now it's like their entire model 150.
Speaker 2:It might have even been more than that. That's the crazy part. But the subscription model was for the renewal to come every three months I don't, I can't even I'm not even finishing the product before I'm spending another 200, for I'm not gonna say who the company is, but y'all are not who you think you are with this skincare. I should have just got Fenty. Honestly, that's a little too much for a product that's not even giving me what is promised and it's a customized thing.
Speaker 2:Exactly and I would have happily paid for it had I. There goes the utility again. I would have happily paid for it if it was doing the thing that you needed, and yeah, but it's really not that, it's not all that it's cracked up to be, and for that price. And I'm not even finishing in three months and I've been using it every day, like I've been trying to use it every day.
Speaker 1:You need to watch your face five times a day so you could being a student again, being a working artist.
Speaker 2:You know, things are very much financially seasonal in my life and they've always kind of been like that because I've been a gig girl forever. But it's like if I had the money to blow and it's like if I had the oh yeah, $10, I'm not even going to the gym, whatever kind of attitude about this. It would be different. It would be piling up in my house. I'd be giving it away because it's like I'm not at what, and that's the thing.
Speaker 2:I feel like utility works both ways. It's like the, and maybe some people need more, but I mean, I'm using it twice a day, I'm using it as directed. My point is that if I can't even get through it, what is the point of paying for it? I could just do this subscription what? Twice a year for 400, instead of whatever it was going to cost me. If you're going to send it to me every two months, three months, whatever the cycle was it's, it's a balance, right, it's a balance of the utility and the ever-increasing costs of doing business I think, with inflation, I kind of, I guess, see it as services and subscriptions having their own version of shrinkflation and kind of offering less and then charging more.
Speaker 1:You know, when netflix first came out, it was like oh, I believe it was like five dollars, and then there was no ads, no commercials, and then now they have like the three-tier programs wait, oh, you get commercials when netflix started.
Speaker 2:Let's rewind.
Speaker 1:I'm saying like once there were a streaming service.
Speaker 2:But that's what I'm trying to say. At that time, like before this digital revolution, it was actually worth every dime Because, first of all, you save the trip to Blockbuster or Hollywood Video, you can order as many movies as you want, keep them for as long as you want and then put them in the mail. It was worth it because we lived in a different world. Now you want to raise prices in the world of well, because every network plus customers.
Speaker 1:They have their customers. So then, once they have you, the next step is spread that out. So then it's like you can pay the same price, but then you're going to get commercials. You can pay a little bit more and then not have commercials, and then the options of you can spend even more and then have more devices that use this um same password at the same time but their base price is going up exponentially. This is not even a five dollars that they've been.
Speaker 2:Yeah, this is not a five dollars and they had the nerve to do this after they took Friends off of it, because I know that was a whole uproar, I think last year or whenever it was, people were not happy about that. I actually knew two people that only got Netflix to watch Friends whenever they wanted, at any time.
Speaker 1:And then that's part of the thing too is that sometimes people only sign up for these memberships or subscriptions subscriptions on the basis of one specific thing when it comes to oh, I want to watch a specific episode. Or you know, Planet Fitness, I'm trying to just lose this 20 pounds and then I end it, you know. So sometimes it's just that temporary solution and I think people aren't realizing that you're trying to get the longevity of these memberships, not just in one quarter but trying to keep those customers throughout the entire year, not just like, oh, my New Year's resolution and then that's it.
Speaker 2:I do want to mention one thing that I didn't earlier and I meant to. I know that you were saying kind of like the price being a barrier for certain demographics that you in particular, and I'm sure many others, find like they don't want to do it. They don't want to be around kids when they're doing it. I don't even mind kids if they're going to work out what.
Speaker 1:I mind, are the influencers. I don't want to be, but I feel like that's becoming common on all different levels. You know, you have people that are just starting at the gym.
Speaker 2:Girl, I don't want to have my big back in somebody's, in the background of somebody's video.
Speaker 1:People are viral Like is she working out?
Speaker 2:There's people that, like, take selfies in the locker room. I see them pop up all the time, like when I'm just scrolling, you know. That's why I feel like in certain situations, like don't tell me the rate's going to go up unless you get these people out of here.
Speaker 1:Because you're basically I'm paying more to be, but then that's what you're paying for, you know. Yeah true, sometimes you pay a cheaper price for a cheaper kind of experience.
Speaker 2:I think this utility factor is first of all, it's just at the forefront of my mind every day. Is this really going to bring me joy in the way that I need? Because it's not just subscriptions, it's all kinds of streaming and services. Again, with the Red Lobster, people want more for less and they want it to be hot. They want it to be fly.
Speaker 1:And then, especially when you get used to kind of like the same type of pricing model Planet Fitness is doing the same thing for over 20 years you get used to that. And then when a brand is just, you know, not making enough money to sustain itself and it's trying to change that, there's some, I guess, pushback from your customers in that sense that there's some, I guess, pushback from your customers.
Speaker 2:In that sense, what do you think you know, just hypothetically, what planet fitness would have to do? Like how can they make this appealing? What would make this appealing? What would justify that change?
Speaker 1:well, I'm just thinking now, like so, since it's only for new customers, the people that are already going, they're not phased. But I think what would be a cool feature for planet fitness, to kind of take it to the next level, would be offering, like their black card members, extended time that the regular membership isn't there. So like extended hours beyond, like, let's say, from 5 to 9 pm anybody can come in, but maybe from 9 pm anybody can come in, but maybe from 9 pm to 12 am or something like that, only black guard members, the YMCA does do that.
Speaker 1:Oh, that's so cool.
Speaker 2:Because there's a lot of older people that go there, at least in Montclair. I can't speak to other locations, but I know they have like a coffee hour once in a while where it's like just drop in and you know whatever. Actually, if I'm going to keep it real, I would have tried messing with the pricing strategy at the end of last year on some like new year, new us. We'll see how it goes. But I know that people want more for less than they want it to be. What are we?
Speaker 1:going to do about it. It'll be interesting to see how this plays out in the future.
Speaker 2:I'll stand by. If you would like to watch more episodes of the Human Side of Business and enjoy our other content, please follow us at Montclair underscore, feliciano.