The growing popularity of Groupon in the past year has drawn attention to business models centered around principals of behavioral economics. In this vein, Gym-Pact, a new gym membership model, offers customers deals and discounts on yoga studios and fitness centers with a catch—if the customer misses a workout or a yoga class they pay a fine. Gym-Pact’s founders, recent 2010 Harvard Grads Yifan Zhang and Geoff Oberhofer, refer to these fines as “motivational fees”. At the initial signup, the customer agrees to a certain number of workouts per week and the fee to be charged if they don’t show (the company sets a minimum of at least one workout per week and $10 per absence). Since keeping accurate attendance information at gyms can be difficult, Gym-Pact and the participating vendors developed a text-message based password system; a changing password is kept at the front desk that the customer has to text-in to get credit for showing up. The seed of the idea apparently occurred to Zhang in her behavioral economics class at Harvard. People, Zhang learned, are more motivated by immediate consequences (in this case a financial penalty) than potential long-term payoffs (the benefits of regular exercise). Financial motivation seems like a good way to get people off the couch and into the gym, but is it a sustainable business model? Oberhofer is quoted in The Boston Globe saying, “We don’t want to profit off people’s failures.” The motivational fees, along with the fee paid if a customer leaves the program early, currently go towards paying for access to the fitness centers and building a financial aid fund. So how does Gym-Pact plan to turn a profit? Oberhofer claims through eventual referral fees and revenue sharing programs with the local fitness centers.
Though it’s not clear just yet if there are enough people out there who will actually sign up to pay fines when they decide to skip a workout in order make the system profitable. Gym-Pact also runs the risk of over-filling local gyms with discount-hungry consumers. Some popular Groupon merchants have had their resources stretched in this way. But, like the long-term benefits of working out, profitability can be an eventual, future objective. A more immediate concern for Gym-Pact: getting up and running (the service is currently only offered in Boston). To that end, they could put some effort into redesigning their strikingly lackluster website (gym-pact.com). “No-frills” might be a quality customers want in a gym, but for a company asking people to pay-up when they’re less than perfect, their online platform should at least inspire a little more confidence.