Incentivise me

Today I got a note in the mail informing me that my gym membership is going to increase by 5%. This got me thinking about the business model that underpins gyms...

The gym owner has a high fixed-cost (equipment, building rent) and therefore needs to sign up a lot of members to cover these costs.The best case outcome for an owner is that a high proportion of members are casual users (in terms of attendance), even up to the point of being non-users. This means that there will be less over-crowding (better 'customer experience') and, potentially, lower O&M costs (reduced wear and tear).

Under this 'traditional' model the fact that a proportion of members don't actually use the gym keeps the business afloat. At the same time such 'non-use' is quite costly for the gym member, both in terms of finance (money spent, opportunity cost) and health.

A group of students at Harvard have approached this issue from the perspective of motivation by applying principles drawn from behavioural economics. They set up an experimental company called Gym-Pact  where members to pay fees according to the gyms sessions they don't attend. Under this scheme gym members agree to a visit schedule that states how many days a week they will exercise. They then set a monetary fine that they will pay if they miss a session. Gym-pact suggest a minimum fine of $US 5 per day missed and there is some leniency for sickness.

According to the their website the scheme has been successful, at least from the perspective of getting people to go to the gym, with 90% of users keeping to their gym schedule.

On the business model side it's unclear whether this concept is sustainable without significant tweaking. Putting aside how the fines are distributed (at the moment they are handed over to the gym's themselves and so there is little in it for Gym-Pact themselves other that the experiment), if everyone went to the gym then there would be much less of a revenue stream. Regardless, it's healthy food for thought about the power of incentives.