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Analysis of the ClassPass Business Model
The business model of ClassPass mainly revolves around charging a subscription fee to customers who then receive credits which can be redeemed at partnering health & fitness clubs, studios, gyms and salons. However, this is only one aspect of its business model – at the same time, the company also receives commissions from its partnering facilities when customers use their credits at these gyms or studios.
The main implication of this business model from the user’s perspective is that it allows them to find and join fitness classes more easily while saving them the trouble of signing up for memberships and making long-term commitments to specific gyms or facilities. As for the partnering companies, the advantage gained by them is the access to a greater portion of the market. This is because many of these partners are boutique fitness studious or salons which often have difficulty with customer acquisition and retention.
For this strategy case study, we start of with an internal analysis of the company using the McKinsey 7S framework.
ClassPass depends on gym owners and fitness class organizers on one hand, and users looking to join these on the other. For the business model of ClassPass to work, the company needs to have a direct and flat structure with a fair level of delegation required since it has 500+ employees spread across the world. This figure was much higher before the pandemic.
After going through many different business models, ClassPass appears to have settled on a strategy which can be simplified and stated as an aggregator of service offerings. For instance, it groups and manages the list of gym owners and fitness classes on one side, and lets users choose their preferred options using ‘credits’ as if they were selecting from a menu and pay on a monthly basis for the subscription. Consequently, this makes customer loyalty a key focus of its strategy. The company has also shown creativity and flexibility with its business model as it pivoted around the pandemic to encourage partner studios to provide classes on live stream in an effort to retain customer participation in the programmes.
As the ClassPass Business Model requires it to act as a strong digital middleman, its main value proposition revolves around providing good customer-service. This requires customer-friendly systems with easy-to-use platforms for its customers. At the same time, it also needs to have strong systems in place for managing its relations with the gym owners. This requires the company to have good font-end and back-end integration.
Although the company has changed its business model many times many of the central aspects of ClassPass’ business model appear to have remained the same. This core service offering of being an aggregator of fitness classes which can give users a cheaper membership than if they if they signed up for the classes directly. Hence, the main capability of ClassPass is its database of available classes and tie-ups with the respective owners and operators of those classes. This allows the company to have a strong value proposition of providing significant cost-saving potential and variety of options for its users.
The business model of ClassPass has gone through several iterations with many changes being made along the way to best suit the financial position required for the company in relation to changing market trends. This shows a visionary style of leadership where despite the backlash of changing the business model and charging higher prices, its popularity has continued to increase.
ClassPass appears to encourage employees to wear workout clothes to the office which shows a greater sense of commitment to the service offering. Unfortunately, the company’s reliance on physical classes did have a detrimental effect on the company’s ability to keep staff on its payroll at the height of the pandemic.
ClassPass was established based on a personal need that the Founder had. In terms of shared values, it can be inferred that the management of the company have a strong vision of what the company’s goals and objectives are. This allows the company to encourage a greater level of organizational commitment to improving the fitness levels of users.
ClassPass Marketing Strategy
ClassPass aggregates fitness and other related activities from various providers and locations. Its user-base only need to pay a single subscription to ClassPass, but this allows them to freely join various different classes, often at cheaper prices. To be successful with its business model, the company adopts a multifaceted approach to its marketing strategy. On one hand, it targets customers with concentrated efforts to keep them on its platform. It achieves this by promoting and upselling the value that it offers in the form of more variety of options at lower costs. Another value-added service that customers gain by using ClassPass platform is the access to user reviews.
At the same time, the company also continues to work on convincing its channel partners, such as fitness studios and gyms, to remain in their network and continue to pay commissions for ClassPass’ programs. These partners often find it more profitable to stay with ClassPass as it reduces one of the key problems that they face, which is customer acquisition and retention.
Why is ClassPass so cheap?
The company charges subscription fees to its customers, while simultaneously also receiving commissions from channel partners when customers use their services or facilities. This allows the company to provide good value for customers.
Is ClassPass profitable?
At present, the company is not reporting significant profits, but this would seem to be due to the continuous re-investment back in to marketing and technology. The revenue of the company can also fluctuate wildly even between consecutive months since one part of its business model is tied to how many classes customers actually attend in a month.
How does ClassPass grow?
ClassPass continues to achieve exponential growth year after year, although it has faced some hurdles along the way, such as the pandemic most recently. The main reason for the company’s sustained growth are the tweaks that it makes to its overall strategy and business model. The company does not shy away from changing its pricing model. In fact, it had faced backlash when it increased its subscription fees earlier, but the value proposition of the company remains strong enough that customers are ready to accept such hikes. One of the main aspects of its business model which contributes to its continued growth is the significant channel partner retention rate of 90% which it claims. This indicates that even the channel partners see significant value in giving up a portion of their revenues just to have ClassPass pushing users through their doors.
Will ClassPass survive?
From the perspective of consumers, ClassPass continues to be an effective solution for gaining access to a greater variety of classes. It gives customers the ability to evaluate classes and facilities before making a long-term commitment. Hence there is no doubt about the value proposition when looking at the consumer perspective. From the perspective all fitness studios and gyms, ClassPass serves as a tool for customer acquisition. While this does come at a price it also allows these channel partners to gain access to a larger number of potential customers. However, what’s worth noting is that the company appears to have survive the pandemic and well on the road to recovery. Given that the company has survived various challenges and made both tactical and strategic changes in response to market trends, it seems quite likely that the company we will continue to survive in the long term.