What do yield management and yoga have in common?
This might sound like the beginning of a riddle, but in fact, yield management and yoga were the "two loves" that inspired Matt Capizzi to create Zenrez, the San Francisco-based company that uses price optimization technology to get users the best price on last minute fitness classes.
When Capizzi first came up with the idea for Zenrez, companies like ClassPass didn't exist. At the time, he was attending the Tepper School of Business at Carnegie Mellon, taking classes in yield and revenue management. During the same period, he was also getting into yoga -- which gave him the idea for tying together these two very different interests.
Yield Management: The Unlikely Hero
What Capizzi realized was this: most fitness classes are never filled to capacity, which means fitness studios are losing out on a lot of potential revenue. He thought there had to be a better way to manage fitness classes, and that's where his knowledge of yield management came in handy. A yield management system allows companies to change the pricing of certain goods or services based on the demand at any given time. This system is already being used extensively by airlines and hotels to optimize their prices.
As with flights, there's essentially a time limit on the inventory (after all, you can't sell someone entry to a class that's already happened), Capizzi wanted to find a technology that would change the price of the class depending on when the class was being held and when the user was looking to buy.
Look at it this way: if you're a fitness studio, you're not likely to be offering deals to people who book for your classes a month in advance, as they're probably regulars. But what if it's the night before the class, and you still have six spaces left to fill? In that case, you're likely going to lower the price as a way of enticing people. By doing it this way, you're not hurting the revenue that you get from your regulars (who pay full price), and you're still making money from the new people who've decided to take your class.
Unlike ClassPass, which Capizzi sees as "more of a marketing company", Zenrez decided to approach this as a problem that could be solved using technology. And here, again, is where the principles of yield management came into play. As Capizzi saw it, "Yield management [was] the perfect way to find efficiency."
So What Took So Long?
Given that the principles of yield management have been used by airlines and hotels for years, it's interesting that no one else thought to apply it to fitness before he came along. So why hasn't anyone used it to solve this problem before? The answer is pretty simple: most people don't know what yield management is. "Had I not gone to grad school, I probably wouldn't know about it either," admits Capizzi.
It doesn't help that the world of yield management is pretty vast, and there are a lot of ways to approach the problem. Capizzi found it helpful in these types of situations to begin with the end in mind, and then figure out how to get there. With a fitness class, there are lots of variables that impact demand: class type, teacher, time of day, and so on. And in addition, there also needs to be a database to be ready to capture all of the data when it comes in.
Armed with a strategy, Capizzi had to figure out how to build this system. He worked with professors at Carnegie Mellon and Harvard to get to this technology standpoint that very few businesses in the world have. "Now that we have this know-how," Capizzi says, "there are applications far beyond fitness classes. Wouldn't it be great if you were on the Zenrez app and you could get a massage a day or two after an intensive class?" Personal training, massages, salons, and even acupuncture could all be affected by Zenrez's services -- basically, he could go into just about anything other than the food industry.
There have been surprises along the way. These studios are obsessed with their brands. In theory, studios should be fine taking $1 for a class a minute before the class is due to begin, since otherwise that spot would be wasted. But in reality, studios have to protect their brand and they won't just give out free classes. Capizzi is careful never to say discounts or deals. "To a consumer, it may look like a discount to the drop-in price," he says, "but it's really about price optimization."
Ultimately, Capizzi and Zenrez have come up with a unique solution to a complicated problem. Instead of approaching it from a marketing perspective, à la ClassPass, Zenrez combined technology and economics to come up with a product that benefits both consumers and fitness studios. It's safe to say that their approach has yielded rewards.