Pricing and positioning at Pulse Fitness
Pulse Fitness is an independent gym with 420 members paying €45 per month. Monthly fixed costs are €14,000; variable cost per member is €8. A national chain opens nearby with a €29 monthly fee and a large equipment budget. Pulse's churn has risen from 2% to 4% per month; 60% of members are aged 45+ and value small classes and personal attention. The owner considers matching the €29 price, spending €20,000 on new machines, or launching a €65 health coaching package. Cash reserves are €35,000. The gym has two studios and a physiotherapy room, but no data on which classes members value most. A local employer has asked for a corporate wellness programme for 80 staff but wants a 20% discount.
1. Calculate break-even membership at €45 and at €29. Assess whether matching the chain's price is viable.
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At €45, contribution per member is €45 − €8 = €37. Break-even = €14,000 ÷ €37 = 378.4, so 379 members. Current membership of 420 gives a margin of 41 members, about 10%.
At €29, contribution is €21. Break-even = €14,000 ÷ €21 = 666.7, so 667 members. To maintain current profit of €1,540 per month, required membership = (€14,000 + €1,540) ÷ €21 = 739.5, so 740 members. That is 320 more than today, a 76% increase.
Churn is 4% per month, so the gym loses about 17 members monthly; replacing them and adding 320 is unrealistic. Price matching would also signal a commodity and would not fund the €20,000 equipment spend.
Judgement: do not match the chain. It has scale economies that Pulse cannot beat. Defend the 45+ segment and corporate offer instead.
2. Recommend a segmentation, targeting and positioning strategy. Evaluate the three options: price match, €20,000 equipment, or €65 coaching package.
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Segment by need: 45+ health and community, corporate wellness, and performance users. Target the 45+ and corporate segments, not price-sensitive students. Position Pulse as supervised, small-class and health-focused, not cheap.
Price match: break-even rises to 667; it destroys margin and is not credible against a national chain. Equipment: €20,000 is 57% of cash reserves; machines are imitable and do not address churn; the chain outspends Pulse. Coaching at €65: contribution is €57, so fixed costs require 246 members (€14,000 ÷ €57), fewer than the current 420. But it works only if enough members buy it.
A better option is a dual strategy: keep the €45 base membership, add the €65 coaching package for a sub-segment, and offer the corporate programme. At 20% discount, corporate price is €36 per employee; 80 staff yield €2,880 revenue and €2,240 contribution per month, covering 16% of fixed costs.
Judgement: use €10,000 of reserves for retention and marketing, not machines; pilot coaching and corporate wellness before committing the rest.
3. Design the marketing mix and KPIs for the corporate wellness offer.
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Product: an eight-week programme with health screening, two classes per week and physiotherapy access. Price: €36 per employee per month, minimum 80 employees, 12-month contract; the 20% discount is already included. Place: on-site sessions and gym access. Promotion: pitch to the HR director, run a trial day and use member testimonials. People: qualified coaches and a named account contact. Process: monthly health and attendance report. Physical evidence: branded app and progress cards.
Financial check: 80 × €36 = €2,880 revenue; variable cost 80 × €8 = €640; contribution €2,240. If an extra coach costs €800, net contribution is €1,440 per month.
KPIs: corporate leads, conversion, retention, revenue per member, churn, class utilisation and satisfaction. Judgement: pilot with 40 staff for eight weeks and require 60% utilisation before renewal. Do not cut the price further; the discount already reduces margin, and the employer values reporting and convenience more than a few euros.