Fitness First: value-based pricing for a private-equity turnaround

Oaktree Capital Management instructed Fitness First management to review its pricing strategy. After evaluating several consulting firms, management selected Pricing Insight to develop a new approach using detailed commercial analysis and our proprietary Customer Value Discovery techniques.

The brief was to support a business repositioning: retain existing members, attract new ones and build a stronger membership revenue model. That required more than a change to the headline fee.

The challenge

Fitness First faced a substantial decline in membership as lower-cost chains, boutique studios and premium gyms challenged its full-service offer. The engagement brief put the decline at approximately 100,000 members, from 400,000 to 300,000. At around A$1,000 per membership each year, this represented approximately A$100 million in annualised membership revenue.

Discounting was adding to the pressure. One referral promotion gave members A$5 off their monthly fee for every new member they introduced, without an expiry date. Some members were paying only A$15 to A$20 a month for a membership normally priced at around A$80.

The problem became more pronounced when referred members cancelled within 12 months, but the original member kept the discount. An incentive intended to generate growth had created an ongoing reduction in revenue after the acquisition benefit had ended.

Understanding why members chose a gym

Our analysis found a market divided by customer needs, not simply by price. Some members wanted inexpensive equipment access and flexible training hours; others valued classes, personal attention and a broader fitness experience.

Anytime Fitness appealed to price-sensitive, independent users. At the other end of the market, the Virgin Active offer assessed during the engagement carried a premium of approximately 43% over Fitness First's monthly fee.

That price range pointed to an important opportunity. Fitness First needed to understand which parts of its offer mattered most to different members, where it could defend a premium and how to give customers relevant choices without relying on blanket discounts.

Customer Value Discovery and the pricing strategy

Pricing Insight combined in-depth pricing analysis, competitor evaluation and structured customer value-driver discovery sessions. Our proprietary framework moved the discussion beyond the facilities a gym provided to the reasons customers valued them.

• Membership economics: Examining actual fees and discounts exposed where promotional rules were weakening the revenue model.
• Competitive positioning: Comparing complete offers, rather than headline prices alone, clarified the differences between low-cost, full-service and premium gyms.
• Customer value: Structured discovery sessions identified sources of pricing power and the priorities that influenced member choice.
• Revenue-model design: These findings informed membership choices, pricing tactics and a more disciplined approach to incentives.

The innovation was to connect customer value directly to the way memberships were structured and priced. Rather than treating every lost member as a reason to discount, the strategy gave management a basis for matching different needs with a relevant offer.

The contribution

Pricing Insight developed a new pricing strategy to support Fitness First's retention and acquisition objectives as it rebranded and redesigned the customer experience. Management gained a clearer understanding of its pricing power, competitive position and the commercial consequences of its discounting.

The engagement brought together the owner's performance priorities and the customer's reasons to join and stay. It demonstrated how specialist pricing expertise could help a private-equity-backed business rethink its offer and revenue model, rather than simply adjust its prices.

Fitness First since the engagement

Fitness First's wider evolution continued beyond the pricing assignment. Quadrant acquired Fitness First Australia from Oaktree in 2016, and the brand now sits within Fitness & Lifestyle Group's full-service gym portfolio.

Pricing expertise for portfolio companies

The Fitness First case illustrates the value of examining customer needs, offer design and discount economics together. Pricing Insight was selected through a competitive consulting evaluation to bring that perspective to an Oaktree-directed review.

For owners and management teams, the starting question is not simply how much to increase prices. It is where the business creates value, which customers recognise it and how the revenue model can capture it.

To discuss a pricing review for a portfolio company or membership business, contact Pricing Insight.