Change membership pricing at a Bhopal gym?
Before the decision
Evening capacity is tight, but equipment is underused in the morning. The manager has already tested a morning class schedule. Signups look promising, but the finance team wants to know whether those members switched from evening access or came from outside the club.
The problem
Should the team choose Off-peak tier or Single price for the next 12 months?
Decision owner: The business unit lead.
An off-peak plan can cannibalise members who would have paid full price.
Option economics
Scroll the table to see all figures.
| Option | Volume (member-months) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Off-peak tier | 24,500 | 530 | ₹96 lakh | ₹33.85 lakh |
| Single price | 21,300 | 630 | ₹94 lakh | ₹40.19 lakh |
Make the call
- Calculate net contribution for Off-peak tier and Single price. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer member-months, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Single price. It contributes ₹40.19 lakh after fixed costs and leads by ₹6.34 lakh. Treat that gap as the amount of unmodelled cost or lost contribution the option can absorb before the ranking reverses.
- Frame the decision
Compare contribution after the volume response. A better margin on each sale can be offset by lost transactions, downgrades or cancellations.
- Calculate both options
Off-peak tier: 24,500 member-months × ₹530 less ₹96 lakh in fixed costs gives ₹33.85 lakh. Single price: 21,300 member-months × ₹630 less ₹94 lakh in fixed costs gives ₹40.19 lakh.
- Stress-test the forecast
Single price leads by ₹6.34 lakh in the base case. If Single price delivers 10% fewer member-months (19,170) at the same margin and fixed cost, it contributes ₹26.77 lakh. Holding the other option constant, the stressed result falls behind. This isolates volume risk. Check whether both options would respond to the same change in demand.
- Set a decision threshold
Holding the other option’s result fixed, Single price needs at least 20,294 member-months to match or beat it under the model. Use check-in histories to quantify voluntary downgrade risk.
An off-peak plan can cannibalise members who would have paid full price. Compare the cost of a limited test with the loss the business would face if the full commitment failed. Ask the team to agree the decision criterion before collecting more evidence.
Check whether your answer names the trade-off, cites a number from the exhibit and specifies a reversal condition.
What if the whole market moves?
The worked solution tests a change to one option at a time. Here, both options gain or lose the same percentage of volume. Unit contribution and fixed costs stay constant.
| Volume scenario | Off-peak tier | Single price | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹20.87 lakh | ₹26.77 lakh | Single price |
| Base assumptions | ₹33.85 lakh | ₹40.19 lakh | Single price |
| Both gain 10% of volume | ₹46.84 lakh | ₹53.61 lakh | Single price |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.
Practise this case as an interview