D376 Task 2 Pricing Strategy Report Example

Pricing the Habit, Not Just the Class: A Value-Based, Tiered Pricing Strategy for a Composite Regional Fitness Studio Chain Losing Members in Their Third Month

Student Name

School of Business, Western Governors University

D376: Product, Price, and Customer Experience, Task 2

Course Instructor

Month Day, Year

Pricing the Habit, Not Just the Class: A Value-Based, Tiered Pricing Strategy for a Composite Regional Fitness Studio Chain Losing Members in Their Third Month

Current Pricing and Its Problems

Pulse Collective, the composite Texas studio chain examined in the customer experience analysis, runs 11 boutique studios and charges a single price of $129 a month for unlimited classes after a free trial class. Its customer experience analysis found that 38% of new members cancel within three months, largely because the first class feels intimidating and missing a week leads to quiet disengagement. Pricing contributes to the problem in three ways. The single unlimited plan asks new members to commit $129 before they know whether the habit will stick. It offers no option for members who want more support, such as coaching, and are willing to pay for it. And members who attend only once or twice a week feel they are paying for classes they do not use, which is a common reason given in exit surveys.

Pricing Objectives

The pricing strategy has three objectives: raise three-month retention of new members from 62% to 72%; increase average revenue per member by 6% within a year; and position Pulse as a premium but welcoming studio, distinct from low-cost gyms and from exclusive boutiques.

Costs, Competition and Customer Value

Costs: each studio's fixed costs, rent, equipment and core staff, are about $38,000 a month, and the variable cost of an additional member is small. Because most costs are fixed, retaining members and filling classes matter more to profit than small price differences.

Competition: low-cost gyms in Pulse's markets charge $25 to $45 a month with no classes included; other boutique studios charge $140 to $220 for unlimited classes or $25 to $35 per class.

Customer value: interviews and surveys show members value small classes, expert instruction and community, and that new members value guidance and flexibility most. Value-based pricing sets prices according to the value customers perceive rather than costs alone, and strategic pricing texts emphasize understanding how value differs across customer segments so that pricing captures it (Nagle & Müller, 2018). Pulse's members fall into three groups: newcomers building a habit, steady members attending two or three times a week, and committed members attending four or more times a week, some of whom want personal coaching.

Recommended Strategy: Value-Based Tiers

Pulse should replace its single plan with three tiers. Foundation, $99 a month, includes eight classes a month, suited to members attending about twice a week. Unlimited, $139 a month, includes all classes. Unlimited Plus, $189 a month, adds a monthly coaching session, a progress assessment every quarter and priority booking.

The tiers match price to the value each segment perceives. Members who attend twice a week no longer feel they are overpaying, which removes a reason to cancel. Committed members who want more support gain an option that captures their willingness to pay. The Unlimited price rises by $10, reflecting its position against competitors priced well above it.

Tactics

New member offer: the first month on any tier costs $49, combined with the redesigned beginner first class and a 30-day check-in. This lowers the risk of joining during the period when most cancellations are decided and works with the customer experience improvements rather than replacing them.

Monthly billing rather than annual prepayment: research on the psychology of pricing found that at a health club, members who paid annually attended heavily soon after paying and less as the year went on, while those paying monthly attended more steadily, and that attendance predicted whether members renewed (Gourville & Soman, 2002). Monthly billing keeps the cost salient in a way that encourages regular use, which supports retention.

Class packs for occasional users at $28 per class or $120 for five classes, which keep people in the studio's orbit when they cannot commit to a membership.

Referral credit of one free week for both the member and the friend who joins, which uses community, the chain's strongest asset.

Communicating Price

How prices are presented shapes how customers perceive them (Monroe, 2003). Pulse will present the three tiers side by side on its website and at the front desk, with Unlimited highlighted as the most popular, and will frame Foundation as the right place to start rather than a lesser option. Staff will recommend a tier after the first class based on the member's goals and schedule, rather than pushing the highest price. Existing members will receive 60 days' notice of the Unlimited price change, with the option to switch to Foundation, and current members will keep the old price for six months as a loyalty gesture.

Revenue Effects and Risks

The tiers change revenue in several directions at once. Some current Unlimited members who attend only twice a week will move to Foundation, lowering their monthly payment by $30, but they are the members most likely to cancel under the current plan, so keeping them at $99 is better than losing them at $129. The $10 increase on Unlimited and the new Unlimited Plus tier raise revenue from committed members. The $49 first month reduces revenue from new members in their first month but should increase the number who stay into months two through twelve. Modeling with the chain's current membership suggests that if 25% of members choose Foundation, 60% Unlimited and 15% Unlimited Plus, and retention improves as the experience changes are expected to achieve, average revenue per member rises by about 6% within a year. The main risk is that too many members downgrade to Foundation; the pilot will reveal whether this happens, and the class limit on Foundation can be adjusted if needed. A second risk is confusion; keeping only three tiers, clearly described, limits it.

Measuring Results

Pulse will measure three-month retention for new members, tier mix, average revenue per member, cancellations citing price, and uptake of the new member offer. The tiers will be piloted in four studios for four months before rollout, with the remaining studios as a comparison.

Conclusion

A single unlimited price asks new members to pay for more than they need before a habit forms, and offers nothing to those who want more. Value-based tiers, a low-risk first month and monthly billing align price with what each segment values, support the customer experience improvements that keep new members coming back and give committed members a premium option. Together, these changes should raise retention and revenue while keeping Pulse welcoming and premium.

References

Gourville, J., & Soman, D. (2002). Pricing and the psychology of consumption. Harvard Business Review, 80(9), 90-96.

Monroe, K. B. (2003). Pricing: Making profitable decisions (3rd ed.). McGraw-Hill/Irwin.

Nagle, T. T., & Müller, G. (2018). The strategy and tactics of pricing: A guide to growing more profitably (6th ed.). Routledge.