ClassPass – COVID-19 not a threat, just an occasion to innovate and bond more with partners & clients

ClassPass was under significant threat from the COVID-19 outbreak but quickly innovated its operating model to mitigate the impact during the crisis. The fitness industry has a lot to learn from this company.

ClassPass is a subscription that lets you take a variety of different fitness classes in specific clubs without having to be a member of the gyms. You pay a monthly ClassPass fee to get credits and you use those credits to sign up online for classes that you like. ClassPass consistently gives you a wide variety of exercises and classes to choose from every week such as boxing, yoga, cycling, martial arts etc. You can try the ClassPass 14 days free trial to take up to nine free classes. You could pay as much as 50% less every month for specialized fitness classes and have access to a wider variety and convenience in your options. ClassPass also provides class recommendations and reviews to let you see what’s good before you book a new class.

Due to coronavirus fitness studios are shutting their doors and adapting to the new reality. This is a challenge unlike any other that the wellness industry has seen. ClassPass platform has been hit hard because its booking fitness and wellness appointments can’t function very well if there are no classes being offered. Almost 90% of the 30,000 gyms and studios that ClassPass has partnered with in 30 countries, have indefinitely closed their physical locations. The company has a few advantages though, because as a global firm it had a front row seat watching this unfold in Asia at the start of the year, particularly in China. ClassPass, which has raised more than $500 million, is well capitalized to deal with the storm. However, the company’s success relies on the health of its partners, so it is taking efforts into its own hands to help the fitness industry survive the pandemic. In response to COVID-19, ClassPass has removed its reactivation fees, has made it possible that members pause their memberships and scaled its customer services team for more support.

ClassPass was working on its digital presence vision a couple of years ago. The company launched a live video streaming product called ClassPass Live for the first time in March of 2018 with a full broadcasting studio in Brooklyn. To be able to have access to it users had to have a new subscription specifically to the online workout repository. ClassPass Live eventually was stopped as the company reorganized its priorities. However, thousands of workouts from that product have remained on the app for subscribers as an on-demand workout from home option. Those 2,000 video and audio workouts are now available for free to anyone who is signed in to the ClassPass app.

ClassPass studio partners are able to offer live streamed classes on the platform. The company system allows the studios to set their own prices, date and time, and share a link to the streaming platform of their choice for their class. Through June 1, 2020, one hundred percent of the proceeds will go directly to the studios and fitness instructors due to COVID-19. For partners that are hosting online classes for the first time, ClassPass will offer training and resources on best practices and help them get started through the platform. The company has also created a Partner Relief Fund, where people can donate to their favorite studios directly through the app. ClassPass will match all contributions up to USD $1 million.

All of these initiatives are not enough to save the fitness industry. The government needs to intervene, in a big, end-to-end way. ClassPass has joined forces with CEO’s of fitness businesses and sign a petition to the government asking for immediate intervention. The petition gathered thousands of signatures within an hour of going live. The coalition calls for help in the following areas: rent, loan, tax and interest relief, financial assistance to support the workforce, and leveling up incentives for employers to invest in employee wellness. The petition asks for policy intervention to effectively force private landlords, their mortgage providers and the mortgage providers insurers to all get onboard for a three or four month rent free. After rent relief is accomplished, there is a whole lot more that should be happening: moving faster on financial assistance; offering loan, interest or tax relief; and then post-recovery creating more incentives for employers to invest in employee health and wellness.

After COVID-19 the primary business for ClassPass will never be online since the real-world experience is difficult to be experienced digitally, that is another reason why the online workout videos published in 2018 were not that successful. But in the future, people will want some offline offerings across a variety of things and some of the brick and mortar fitness industry will disappear. In an already crowded industry, the coronavirus will set the successful apart from the mediocre.

ClassPass has followed a very detailed plan that other companies can learn a lot from. First of all, they chose to fully support their partners and customers and prioritized to help them instead of pocketing the money for their finances. This will help more studios be on the platform after the pandemic is over and increase the positive correlation to the brand name. There will be more customers choosing ClassPass because of how easy it was to deal with the membership if you want to cancel or roll over and how easy it is to reach customer service. Secondly, they joined forces with other players in the industry to petition to the government. The more coalition there is, the higher are the chances of the government helping the companies. Thirdly they put into use whatever content they had digital and offered it for free. On the top of that created a system where each partner can stream live any workout in any platform they want. The partners can also decide on the structure and the payments.

In conclusion the best way to come out winners from the COVID-19 is to be very flexible and give your customers plenty of options to choose from, offer your products in a consumable way during social distancing, help your partners if you can and create a coalition with other players in the industry to ask government for more help.

 

https://www.cnn.com/2020/04/01/business/fitness-studios-coronavirus/index.html

https://www.businessinsider.com/classpass-free-trial

https://techcrunch.com/2020/03/25/classpass-now-offers-live-streamed-workouts-for-those-house-bound-by-coronavirus/

https://www.forbes.com/sites/yolarobert1/2020/03/25/classpass-throws-crucial-lifelines-to-fitness-studios-struggling-from-covid-19-closures/#42f2a92a56a9

https://www.pymnts.com/coronavirus/2020/classpass-ceo-the-feds-need-to-flex-their-muscles-to-help-the-fitness-industry/

 

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22 thoughts on “ClassPass – COVID-19 not a threat, just an occasion to innovate and bond more with partners & clients

  1. Thank you Jona, great post! It is really interesting how they developed a best-in-class playbook to mitigate COVID-19 impact. Nevertheless, I still wonder how they could prepare for post-COVID and how customer behavior could change to smaller-groups or outdoor experiences and how they could guide their partners to address these new needs and maybe offering them proper operational tools to manage these new demands and improve the gross transaction volume. Also, it will be interesting to see how they will manage the disintermediation risk when they put commissions back in.

    At the same time, I think they have a great opportunity to access “new” behavioral health insurance companies (on top of employers) as a straightforward way to increase customer’s stickiness to their platform.

    Great post!

    1. I would not be worried that much about disintermediation after COVID-19 because the real added value of these classes is the in person experience and that will be the most profitable part of ClassPass once people can go to the studios. That part is difficult to disinter-mediate since the small fitness places see ClassPass as a great way to acquire customers. The online part will potentially be skipped from people that like one studio a lot. But the value preposition attracts more people that are bored with only one type of workout so I am guessing there will still be people looking online for different types of workouts depending on their mood.

  2. Thanks for your post, Jona! As I know you’re a big fitness fan, I had to get your take on Classpass and its business model’s survival during this time. 🙂

    I agree with Leo’s concerns about disintermediation risk over time, if Classpass decides to monetize streaming options. Their platform was notoriously criticized for extracting a ton of margin from already-strapped mom-and-pop fitness studios… Similar to Groupon, critics argued that ClassPass charged unsustainably low prices to customers, didn’t create repeat business for studios, and ended up capturing more value than it created.

    Can they successfully capture value from these partners if the pandemic drags on for another 18 months? I think most fitness studio owners – once Classpass shows them how to create digitally-optimized streaming content) would prefer to post their videos for free on YouTube (and generate ad revenue) or MindBodyOnline (a ClassPass competitor). It’s interesting to think about.

    1. I think they will capture most of the value from the off-line workouts and not from the streaming. Even if the studios get paid very little they are still on ClassPass because it offers a Customer Acquisition Cost (CAC) most lower than other alternatives. Even if studios post their videos online for free, ClassPass will win the in person war in the end.

  3. Thanks Jona for this post. I agree with Megan M- I’m not sure the unit economics of ClassPass make sense in the post-Covid-19 world. I think they will survive the pandemic because of a relatively large warchest… however, the minute things revert to normal, the customers will likely disintermediate them. Mom & Pop gyms don’t like them either- thus will be unwilling to put up with Classpass after the pandemic b/c of competition for margin. Currently, the brand dimensions and convenience can be substituted out. What is the moat or barrier to entry that they’re building during the pandemic?

    1. I don’t think their barrier to entry is getting higher during the pandemics. What is getting better is their brand name. Disinter-mediating the online experience is a good possibility, but most of the profits after COVID-19 will come from the face to face classes and the fitness studios cannot afford to disinter-mediate because they are closing a great way to get more customers.

  4. Interesting read! I used ClassPass before COVID and have to agree that the customer service has been great related to cancelling subscriptions and rolling over unused credits. However, I had no idea that they had digital classes offered on their platform. I agree with the concerns above of disintermediation but am also concerned that in an extremely crowded fitness space, ClassPass is seen as an online booking tool rather than a content creator like Peloton or Nike. Given this perception, I think it will be difficult for ClassPass to generate a lot of engagement on their digital platform resulting in users (like myself) using other platforms for at-home fitness classes and studios bypassing ClassPass to engage directly with their members. I am concerned that the pandemic has accelerated the trend towards at-home fitness and many ClassPass users will not reactive accounts after the shelter at home orders lift.

    1. I agree that the company is known as an aggregator more than a content creator. But I think that the in person experience is not replaceable from the online workouts so I believe that they will get back the people that were using the product. And even more after gyms are open they might be a huge wave of new people trying to exercise after so much sedentary time.

      1. I think this is an interesting point to bring up Jona. Personally, I love in person work out classes. However, Covid has given me the opportunity to try out many at-home workouts and I’ve found I really enjoy them and could see myself continuing with them in the real world instead of going to as many in person classes. I wonder how the free trials offered right now by Peloton, Down Dog etc. will impact people spending money in the future on in person classes.

        1. I am googling human psychology now hahaha, it is puzzling how the exercising psychology will change (how much online and how much offline) after the pandemic. I think the winner will be the company that can actually adapt to the new norm since it seems that speculations go both ways.

  5. Thanks Jona! Super interesting to read about ClassPass’ response to Covid. All in all, it appears to be quite commendable. I generally agree with the comments above, but I disagree on the premise of the digital offerings becoming less popular once social distancing measures are relaxed. I don’t believe ClassPass created this digital response as a main product/offering for their customers. It appears to be a way to support the business in the short term, to keep the supply side of their platform alive so that post Covid, ClassPass is able to offer a breadth of in-person content to its subscribers. I think they’ve done a wonderful job understanding their value proposition, and working to bolster it and its partners throughout this challenging time.

    1. Can’t agree more. That was my exact point, their streaming offerings are supplementary used for these days only, but once back to normal the face to face experience is what matters the most and that can’t be disinter-mediated.

  6. Thanks Jona! Really interesting post. Like some of the comments above, I worry about the long term effect of these new changes. I think it will be particularly key to understand how long term the move into online classes will be, and how willing consumers will remain to pay for classes when there is such a wide offering of free alternatives (IG live, etc.)

    1. If the goal of ClassPass was to transition forever to online then would be a big problem. But I believe that their main product will remain face to face experience after the world gets back to the new normal. The off line classes are difficult to disinter-mediate since they are the main source of branding and new customers for the small fitness studios.

  7. Hi Jona,

    This is a really great post and I enjoyed learning more about ClassPass. My wife is a huge fan and I joined her for a live class on ClassPass last weekend over Zoom. I think there were over 100 people dialing in for the 30-minute class, and at the end, the instructor asked for a $5 Venmo transfer. If the online home workout platform still continues in popularity after the pandemic, it can be a lucrative option for trainers, since I doubt the instructor would only be teaching one class per day, and $500 is great for 30 minutes of work.

    I do think ClassPass is filling a huge void that the pandemic has left in its wake and providing an opportunity for partner fitness instructors to gain exposure to a customer base they may not have had before.

    Again, great post. Thank you!

    1. Thank you ! Oh I didn’t know the venmo thing in the end, apparently I haven’t followed as many videos online these days. Hopefully the online strategy will not cannibalize their offline customers once the pandemic is over 🙂

  8. Thanks for sharing Jona. The failure story of ClassPass Live really shows how failures can provide stepping stones for companies in the future. As we learned in class, there’s a difference between a mistake and a failure. Even though ClassPass’s failure in live classes back in 2018 was discontinued, they learned so much about the process that they can quickly pick up when the time is right. This story stresses the importance of being able to take risks and learning from failures.

    1. Such a deep difference between failure and mistake even if seemingly they might be synonyms. Very much agreed that learning and adapting fast will define the future of the company and not trying to predict the people’s behavior for the future.

  9. Thanks for a great post, Jona! It’s very saddening to see how many businesses are being completely destroyed by COVID-19. I applaud the efforts from ClassPass to continue supporting its partners and clients. However, not knowing when will we go back to “normal” and what this “new normal” will look like, is terribly frightening. I think that people will develop different habits around working out in big classes and tend more towards outdoor workouts vs. indoors. These changes in habits because of COVID-19 could really affect ClassPass and other training platforms. Another concern that I have is that many celebrities, workout influencers, and gym professionals are offering weekly online trainings for free via their IG or YouTube accounts. I can imagine that this might be affecting the number of participants in ClassPass’ virtual classes and membership applications.

  10. I agree with a lot of the points above that ClassPass will need to compete in the online world, especially since the offline world is likely changed significantly in the future (and even if it goes back to more normal, there’s probably a long time to get there). To capture significant growth, I think that online growth will be important as well – I like your point on the brand positioning being an important factor during this time. I wonder how and if they can translate that to building up that online presence in the future in a way that might continue to differentiate them as a partner to the studios? I’m excited to see what they can do with the opportunity, especially as so many people are looking for new ways and places to exercise – I think there’s a lot they can do to be even more successful and look forward to seeing what happens!

  11. Great post! When looked at individually, I agree that Classpass has done a great job innovating to make its product more accessible now and more valuable in the future. I remain concerned, though, that the company is still not well-positioned coming out of the crisis to compete with other fitness streaming options such as Peloton and Beach Body On Demand. What about Classpass’ actions make you think that it will succeed against these strong competitors? Also, how might Classpass leverage data about users’ in-person class behavior to inform their online offerings?

  12. Thanks for sharing! I find this industry fascinating and it will be interesting to see how in-studio classes approach digital after the COVID-crisis is over. Your post reminded me of two things..
    1) Delivery partners for restaurants such as DoorDash or Uber Eats perhaps play a similar role to ClassPass here. ClassPass was able to provide a resource for its studio partners to connect with a larger user base and access a digital platform perhaps faster than they could build their own. This is particularly useful for the smaller businesses. However, I worry about the larger businesses such as Barry’s, Flywheel, etc using this crisis to develop their own digital capabilities and will no longer need ClassPass over time.
    2) Class Pass has changed its pricing model and structure a few times over the life of its business. I’m curious how it will price “digital” vs “in-studio” experiences as it relates to their points system. I know Barry’s launched a digital version of their workouts and many users complained it cost too many points. I”m not sure if this is set by Class Pass or by Barry’s, but think it’ll be interesting as perhaps both digital and in-studio offerings are offered on Class Pass.

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