Pivoting for a Post-Pandemic Era: a Chat with Zach Apter, COO of ClassPass

ClassPass interview with Zach Apter

I’m Zach Apter, the chief commercial officer of ClassPass. I run our marketing team, our business development team and our pricing and inventory function. You can think of pricing and inventory as everything related to the marketplace management of ClassPass supply and demand – from consumer-facing subscription packaging and policies to the automated yield management data products that we provide our studio partners.

 

Zach, ClassPass was born out of your founder’s frustration in finding an exercise class to suit her busy schedule. How have things changed since the app’s launch in 2013?

Back in 2013, there was no centralized place you could go to figure out which studio or class was right for you and also fit with your schedule. This made discovering new experiences really challenging for consumers. It also required a lot of friction to book a class. You have to set up a new account, hand over credit card details, and fill out lots of paper forms. If you want it to work out at multiple places, you’d need to multiply that level of effort over and over again.

On the consumer side, the aggregation and simplification ClassPass offers adds a lot of value. That’s been a constant since the early days.

As far as evolution goes, there are three main chapters so far in our story – 1. our journey towards a sustainable business model, 2. our expansion outwards from major US cities and finally 3. our COVID response and everything we’ve learned from that.

Our first business model gave users 10 classes a month anywhere in the network. Then we switched to an unlimited model, which was really great for usage and for studio payouts, but not great for ClassPass economics. We spent a lot of time iterating on that until we ended on the credits model. Credits is a virtual currency that gives us the flexibility to offer any inventory we want in the network, significantly expanding our addressable market – think of it this way, if you can only charge one price for everything in the store, you’re severely limited on what you can sell in the store. Once we went to credits, we could both variably and dynamically price our inventory which is better for both our customers and our partners.

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And the second chapter?

Getting our pricing model right allowed us to expand geographically. We began as a very urban product – but as studio fitness has proliferated, we found that frictionless discovery and great value became relevant elsewhere too. Something like 90% of Americans live in an area that’s served by five or more fitness studios. ClassPass can work everywhere, so we’ve since expanded massively into suburbs and added a lot of supply to our network. Studio fitness is also a global phenomenon so once we had the business model right, we were able to expand from 5 countries to 30.

Alongside this expansion, we realized that our value proposition actually resonates really well for the wellness market. There are the same sort of discovery problems for customers, whilst wellness and beauty businesses also have a lot of excess capacity. So since 2018, we’ve been busy adding wellness inventory to the network so that our product can establish itself more broadly.

This brings us onto your third chapter – your COVID response

Almost overnight all of our studio networks couldn’t operate. We couldn’t charge people on a recurring basis for a service that didn’t exist.

We had to put our full network on ice, stop charging for recurring subscriptions and evolve quickly to fit an industry that was very suddenly entirely digital.

We’ve been very careful to monitor a return to recurring billing as studios reopen, making sure that we’re being really sensitive to both customer needs and studio needs. We’ve tied this in with an understanding of what’s going on at a local market level with regulations, case counts, vaccines, public health sentiments in general, as well as what we’re seeing with our partners’ direct business.

Many of our other markets, especially in Australia and Singapore, are starting to see strong recovery because there’s just a ton of pent up demand. People have been cooped up in their houses for more than a year and are eager to get back to in-person experiences!

Circling back to your first point – it seems that having a cohesive global pricing structure that serves two clients at once has been integral to your expansion. Could you tell us a little more about the credits model?

The first thing that credits allowed us to do is create a universal currency both globally and across the domestic market.

For example, before we introduced credits, 10 classes in New York cost $129, whereas in Des Moines, 10 classes cost $59. This created all sorts of complexity, so we spent a lot of time experimenting and testing out new ways of doing things and what we have now is a system where you simply buy 38 monthly credits for $79.

Those 38 credits work anywhere and allow us to price different inventory accordingly – whether it’s a two credit mid-afternoon yoga class and a small studio in Lubbock, Texas, or a premium massage at the Plaza in New York City.

It sounds like ClassPass had to go through a couple of iterations before you landed on the credits. What advice would you give to founders or Head of Products at that crucial stage of figuring out their pricing model?

You’ve hit on something which is important, in that there’s this need to balance of supply and demand. You can make supply happy, and then demand suffers or vice versa – or supply and demand are both happy, but ClassPass suffers. It’s all about finding that balance.

When you have a recurring subscription model, you’ve also got to consider unit economics. You could lower prices and make less money on a percentage basis, and hopefully make that up from longer customer lifetimes. Or you could expand the funnel and spend more on marketing to grow faster, but that might bring in customers who don’t have that product-market fit, who don’t last as long on the platform.

Be rigorous about setting up good experiments. Another thing to bear in mind is this complete devotion to experiments and A/B testing, and letting the data follow you where it may. We were utterly non-religious about packaging the kind of construct or concept that ultimately landed for ClassPass – it was purely about what is the thing that balances those three constituencies and maximizes our unit economics.

It seems that this iterative, agile approach really came into ClassPass’s response to the pandemic. Could you talk us through how your approach to product development helped you over the course of last year?

That’s a really good question. Immediately we had to make a very basic decision that, as a recurring subscription that people could no longer use, we couldn’t charge people. So we initially decided to freeze people’s accounts and turn them back on later when COVID was behind us, whenever that might be.

Where we really have been able to experiment, however, has been in coming back to the markets when restrictions are eased. There are so many things to think about – when and how do you turn accounts back on? What do you charge? I could just keep going on – we had so many things to consider.

Because we operate in so many markets worldwide and because markets were coming back at different times, this actually afforded us this really interesting opportunity to road-test our strategies.

We were able to test different comeback approaches in different cities and sort of iterate a playbook around restarting a ClassPass market after a pandemic. This wasn’t a playbook that we had in March 2020. But it’s certainly one that we have now in April 2021.

We’ve definitely learned a lot – the earlier markets didn’t perform as well as the ones where we’ve baked in and iterated these improvements. And we’re now on the brink of New York, LA and London turning back on with this super-optimized playbook in place which will help us achieve the best results for our business, best results for studios, and best results for customers.

Do you have any advice for founders who have to respond to circumstantial change?

I would definitely go back to what we were discussing earlier – get out there and experiment as fast and as much as you can!

The other thing I would add to that is, depending on where this change is coming from – let’s say it’s a change in customer psychology or needs, attitudes, behaviors – get that feedback loop going. Go talk to customers, go talk to suppliers, go talk to whoever to really understand what is driving this change. Oftentimes you can learn a lot from really getting down to the truth of what’s motivating some sort of change in behavior.

A good founder or a well-run company will have those feedback loops in place anyway, but in those moments of sort of structural shock, they’re more important than ever.

Just one final question. In January last year, ClassPass hit Unicorn status. How has accepting continued investment allowed your company to scale whilst remaining agile?

In a sense, the investment is all about funding future growth. So we have to spend money upfront and our customers pay that back over their lifetimes.

That means your near-term marketing investment is always going to be large. Because of this amazing combination of the credits model and ClassPass being relevant to a wide range of geographical markets, we have this huge green field ahead of us in terms of expansion.

So it is really just a question of how big and fast do we want to grow – so that is primarily what that capital will be used for. It turned out to be useful to have a rainy day fund for when COVID hit, but as we come out of it it’s great to have that cash position to continue to spend into the recovery.

Key Takeaways

  • Experiment, and do so without preconceptions. Let yourself be led by the data you analyze.
  • If your pricing model no longer balances the needs of all your clients with your needs as a business, don’t be afraid to switch it up.
  • Maintain customer feedback loops constantly – you never know when you’ll need to fall back on them to adapt and survive.
  • Want more founder insights? Check out our report – Building a Successful Digital Product: 11 Founders Share Their Secrets for Success.
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