A Socio-Economic Analysis of Attendance Behaviour in Commercial Fitness Clubs

Why Some Members Utilize Their Membership Only Little


Doctoral Thesis / Dissertation, 2012
185 Pages, Grade: cum laude

Excerpt

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

LIST OF ABBREVIATIONS

1. INTRODUCTION
1.1. Problem Definition
1.2. The Problem's Topicality and Significance
1.3. Structure of the Thesis

2. STATE-OF-THE-ART - Empirical Findings
2.1. Utility and Costs of Attendance
2.1.1. Monetary
2.1.2. Social/ Motivation
2.1.3. Motivation
2.2. Extra Utility
2.3. SUMMARY

3. THEORY
3.1. PART I - Analysis of Supply and Demand of Gym Attendance
3.1.1. Analysis of Demand: Why People become Members of Commercial Fitness Clubs
3.1.2. Analysis of Supply of Gym Attendance - Constraints to Attendance in Commercial Fitness Clubs
3.1.3. Interim Conclusion
3.2. PART II - Analysis of Utility
3.2.1. Becker - Household Production Function - how often a member is willing to attend
3.2.2. Utility Theory
3.2.3. Expected Utility Theory

4. THE MODEL
4.1. Identification of Utility of Attendance, Costs of Attendance and Extra Utility
4.1.1. Identification of Utility and Costs of Attendance
4.1.2. The Attendance-Cycle Model
4.1.3. Identification of Extra Utility
4.1.4. Interim Conclusion

5. HYPOTHESES
5.1. To Hypothesis 1: (Expected) Gross UTILITY of Attendance
5.2. To Hypothesis 2: (Expected) COSTS of Attendance
5.3. To Hypothesis 3: Extra UTILITY

6. METHODOLOGY
6.1. Web Survey - Advantages and Disadvantages
6.2. Questionnaire and Pre-Tests
6.3. Data Collection and Participation
6.4. Data Selection
6.5. Procedure of Data Analysis

7. DATA ANALYSIS
7.1. Description of the Sample
7.1.1. Dependent Variable - Attendance Frequency
7.1.2. Independent Variables - Utility and Cost of Attendance
7.1.3. SUMMARY
7.1.4. Independent Variables - Extra Utility
7.1.5. SUMMARY
7.2. Measuring Bivariate Correlations - Dependent with Independent Variables
7.3. Regression Analysis - All Attendees
7.3.1. Testing the Relationship between Attendance Frequency and the Independent Variables
7.3.2. The Coefficient of Determination: R-Square and Adjusted R-Square
7.3.3. SUMMARY
7.4. Comparative Analysis - Infrequent vs. Frequent Attendees
7.4.1. SUMMARY
7.5. Regression Analysis - Infrequent Attendees
7.5.1. The Coefficient of Determination: R-Square and Adjusted R-Square
7.5.2. Analyzing the F-Statistic Score
7.5.3. Test for Multicollinearity
7.5.4. Significance of Individual Variables
7.5.5. Explaining the Results of the Regression for the Hypothesized Signs of the Coefficients
7.5.6. SUMMARY

8. INTERPRETATION OF RESULTS
8.1. (Expected) Utility and Costs of Attendance
8.1.1. Monetary Costs
8.1.2. Time Costs
8.1.3. Social Utility and Social Costs
8.1.4. Motivation Utility and Motivation Costs
8.2. Extra Utility
8.3. SUMMARY

9. CONCLUSION & OUTLOOK

10. BIBLIOGRAPHY

11. Appendix

LIST OF TABLES

Table 2-1: Empirical Findings to Utility and Costs of Attendance
Table 2-2: Empirical Findings to Extra Utility Independent of Attendance

Table 3-1: Particularities of Commercial Fitness Clubs - Constraints on Attendance
Table 3-2: Calculation Example ā€“ Average and Total Cost of Attendance

Table 4-1: Motivation Factors to Become a Fitness Club Member

Table 5-1: Determinants of (Expected) Gross Utility of Attendance with Hypothesized Signs
Table 5-2: Determinants of (Expected) Costs of Attendance with Hypothesized Signs
Table 5-3: Indicators and Formulations of Insurance Effect
Table 5-4: Indicators and Formulations of Convenience Effect
Table 5-5: Indicators and Formulations of Taximeter Effect
Table 5-6: Indicators and Formulations of Cognitive Dissonance
Table 5-7: Indicators and Formulations of Endowment Effect
Table 5-8: Indicators and Formulations of Option Value

Table 6-1: Percentage of Internet Access in Germany according to Income Categories

Table 7-1: Main Motivation Factors to Become a Fitness Club Member
Table 7-2: Attendance Frequency per Month with Number of Interviewees and Percentage of all Interviewees
Table 7-3: Determinants of (Expected) Gross Utility of Attendance with Questionnaire Reference Numbers (Ref. No)
Table 7-4: Determinants of (Expected) Costs of Attendance with Questionnaire Reference Numbers (Ref. No)
Table 7-5: Total Time of Membership in Months
Table 7-6: Insurance Effect ā€“ Testing Reliability of Indicators
Table 7-7: Taximeter Effect ā€“ Testing Reliability of Indicators
Table 7-8: Convenience Effect - Testing Reliability of Indicators
Table 7-9: Cognitive Dissonance - Testing Reliability of Indicators
Table 7-10: Endowment Effect ā€“ Testing Reliability of Indicators
Table 7-11: Option Value ā€“ Testing Reliability of Indicators
Table 7-12: Measuring Bivariate Correlations (B) of Attendance Frequency and Characteristics with Kendallā€™s Tau (2-tailed) at 5% Significance
Table 7-13: Measuring Bivariate Correlations (B) of Attendance Frequency and (expected) Gross Utility of Attendance with Kendallā€™s Tau (2-tailed) at 5% Significance
Table 7-14: Measuring Bivariate Correlations (B) of Attendance Frequency and (expected) Costs of Attendance with Kendallā€™s Tau (2-tailed) at 5% Significance
Table 7-15: Measuring Bivariate Correlations (B) of Attendance Frequency and Extra Utility with Kendallā€™s Tau (2-tailed) at 5% Significance
Table 7-16: Criteria for Goodness of Linear Regression Models
Table 7-17: Output of Regression Analysis of all Interviewees with Attendance Frequency as Dependent Variable
Table 7-18: Model Summary of Regression Analysis with All Interviewees
Table 7-19: Significant Differences ā€“ Infrequent (1-7) vs. Frequent Attendees (8+)
Table 7-20: Reasons for Non-Cancellation despite Intention - Infrequent (1-7) vs. Frequent Attendees (8+)
Table 7-21: Output of Log-Linear Regression Analysis - Infrequent Attendees (1-7) only with Attendance Frequency as Dependent Variable
Table 7-22: Model Summary of Regression Analysis with Infrequent (Attendees (1 - 7))

Table 8-1: Infrequent Attendees (1-7) - Effect of Significant Independent Variables on Attendance Frequency - with Coefficient Correlation (Coeff.), Exponential (Expon.), Strength of Impact (change in %),

LIST OF FIGURES

Figure 1-1: Decision Stages

Figure 3-1: Willingness-to-pay Function for Attendance Frequency Demanded
Figure 3-2: Consumer Surplus with Attendance Frequency Price
Figure 3-3: Input Factors to Gym Attendance - Income, Time, Human Capital

Figure 4.1. Attendance Chain with ā€œTime Cost Centersā€¯
Figure 4-2: Maslow ā€“ Hierarchy of Needs Projected on Sport
Figure 4-3 : Attendance Cycle Model

Figure 5-1: Determinants of Attendance Frequency

Figure 7-1: Age Distribution
Figure 7-2: Profession
Figure 7-3: Curve ā€“ Attendance Frequency per Month
Figure 7-4: Income Distribution
Figure 7-5: Average Time Costs of Arrival, Attendance, Training and Waiting Time in Minutes
Figure 7-6: Measuring Evidence of "Familiarity Gym" and "Relationship Trainer/Personnel"
Figure 7-7: Percentage Distribution of Attending alone vs. not alone
Figure 7-8: Experience in Regular Sporting Activities
Figure 7-9: Mean of Motivation Factors on 5-point Likert Scales
Figure 7-10: Mean of Extra Utility Factors based on a 5-point Likert Scales
Figure 7-11: Number of Infrequent vs. Frequent Attendees
Figure 7-20: Distribution of Gender ā€“ Infrequent (1-7) vs.
Frequent Attendees (8+)
Figure 7-21: Profession - Infrequent (1-7) vs. Frequent Attendees (8+)
Figure 7-22: Income p. a. - Infrequent (1-7) vs. Frequent Attendees (8+)
Figure 7-23: Single ā€“ Infrequent (1-7) vs. Frequent Attendees (8+)
Figure 7-24: Comparing Evidence of Motivation Utility - Infrequent (1-7) vs. Frequent Attendees (8+)
Figure 7-25: Comparing Evidence of Motivation Costs - Infrequent (1-7) vs. Frequent Attendees (8+)
Figure 7-26: Comparing Extra Utility - Infrequent (1-7) vs. Frequent Attendees (8+)
Figure 7-27: Attendance Frequency Intended per Week ā€“ Infrequent (1-7) vs. Frequent Attendees (8+)
Figure 7-28: Reasons for Frequency Not Maintained - Infrequent (1-7) vs. Frequent Attendees (8+)
Figure 7-29: Intention Cancellation of Membership in the Past and Future ā€“Infrequent (1-7) vs. Frequent Attendees (8+)

LIST OF ABBREVIATIONS

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1. INTRODUCTION

According to Deloitte (2011), by the end of 2010 a total of 7.31 m persons owned a membership card of a commercial fitness club in Germany. Although members pay on average € 46.90 per month for their membership (DSSV, 2010), it occurs that the price often lies above the actual utilization (Malmendier & Della Vigna, 2006). According to observations of fitness club managers, an estimated 30% of their customers attend only infrequently. Since under economic theory human beings are assumed to make rational decisions, it could be that people overestimate their future attendance when signing up (Stingel, 2007). Since most members are constrained by contract conditions where cancellation is only possible after one year, one would assume members who utilize their membership only little regret to have signed up because costs of membership outweigh benefits. However, it happens that members still do not cancel. Since the effort to cancel membership is rather little, the transaction cost theorem[1] cannot hold to explain this behaviour (Malmendier & Della Vigna, 2006). Moreover, the high number of members - 8.9% of the German population are commercial fitness club members (Deloitte, 2011) - comes as a surprise under profit maximization principles since for everything that is being offered in a commercial gym, there is a cheaper or even costless alternative - in monetary terms. Just to name a few: if "Health" is the driver to become a member of a fitness club, one could likewise just go running or biking. If "Meeting People" is the main determinant, one could surf the internet for contacts. If "Better Looks" motivates members to sign up, one could do sit- ups at home, get fresh air and take care of nutrition.

Since human beings are assumed to maximize their profits it seems to be a phenomenon under microeconomic theory why some members utilize their fitness club membership only little despite ongoing monetary costs. To find explanations, the following analysis will incorporate findings from social sciences into economic models, particularly into utility theory.

1.1. Problem Definition

What leads a member not to attend the gym despite ongoing membership fees? The development of a model is supposed to help generalize attendance behaviour of sport consumers in commercial fitness clubs and to find explanations why some members attend their gym only infrequently.

Thus, the central question that leads through the analysis is:

Why do some members of commercial fitness clubs utilize their membership only little?

1.2. The Problem's Topicality and Significance

The examination is relevant from two perspectives: from a theoretical point of view and from a practical standpoint.

The following paper adds to the field of behavioural economics, and here specifically to sport consumer behaviour which is still a very young field (Kƶnigstorfer, 2009). Particularly standard economic models fail to give satisfactory explanations why a consumer might be willing to pay for membership in a commercial gym despite low utilization. This behaviour is in contradiction to standard economic theory where consumers are assumed to maximize their profits (Taylor, 1998). Since consumers of commercial gyms are anticipated to be heterogeneous (versus members of public clubs), specific examinations are required. Further, non-consumption behaviour was only covered marginally in economic studies. Thus, missing coverage in literature and particularities of consumer behaviour with respect to sport make the thesis relevant from a theoretical and scientific perspective.

The thesis is also supposed to give practical implications and recommendations to fitness club managers and fitness club consumers. Because the fitness club sector has experienced strong growth rates since 1995 [2], competition in the fitness club sector has become tense. This requires managers of commercial gyms - in order to stay competitive and profitable - to have detailed knowledge on the behaviour of their clients. According to Deloitte (2011) total revenues of all 7,114 commercial fitness clubs in Germany amounted to € 3.9 bn in 2010. Studies show that 40% - 70% of members drop out within the first year of membership (Rampf, 1999). "This leads inevitably to a vast amount of resources to keep the number of members constant" (Deloitte, 2009, p. 2) resulting in high advertising costs. Since it is more expensive to acquire a new member instead of holding an existing one, the focus of fitness club managers should strongly be on keeping an existing customer (Woratschek, 1998). Underutilizing members have become an important asset to fitness club managers since they pay regular fees at no cost to the gym (e. g. usage of water, no depreciation of machines etc.).

Further, the thesis is also interesting to individual fitness club members who possibly pay regular monthly fees but rarely utilize their membership. With 7.31 m members in 2010 and an average membership fee of € 46.90 per month (Deloitte, 2011), an estimated 30% of low attendees[3] pay a total of approximately € 103 m p. a. to their fitness clubs despite low utilization. By finding explanations why consumers underutilize their membership, fitness club members might become aware of their cost-inefficient behaviour and be able to counteract in the future.

Thus, besides theoretical implications, the following analysis is also supposed to bring along practical recommendations.

1.3. Structure of the Thesis

Attendance in a gym incorporates three major stages in the decision-making process:

1) Decision to become a member
2) Decision whether to attend the gym or not
3) Decision to cancel membership

The thesis focuses on stage 2) but involves also parts of stage 1), since the decision to become a member and what fee to choose also influences the decision to possibly not attend. Also, stage 3) - decision to cancel membership or not - can play a role with respect to low attendance. Subsequently an overview of the three decision stages:

Figure 1-1: Decision Stages

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The main focus of the thesis - stage 2), whether to attend the gym or not - can be divided into three sub-phases as the figure above illustrates: the pre-, present- and post-decisional phase. According to microeconomic theory, in all of the decisional phases, a member decides whether to attend the gym or not by weighing costs against benefits.

The thesis on why some members utilize their membership in a fitness club only little is structured as follows: in chapter 2 state-of-the-art with respect to empirical findings will get elaborated. In chapter 3 theoretical assumptions will be analysed; here particularities of supply and demand of membership in a commercial gym will get examined followed by an explanation of how often a member is willing to attend the gym with the help of Becker's household production function and expected utility theory. In chapter 4 utility and costs of attendance as well as extra utility factors independent of attendance will be identified to form the model followed by the formulation of the hypotheses in chapter 5. Chapter 6 focuses on methodology, data construction and data selection. In chapter 7, results of the data analysis will be shown and interpreted in chapter 8. And finally in chapter 9, conclusions and an outlook will be drawn from the results.

2. STATE-OF-THE-ART - Empirical Findings

Specifically to the field of sport consumer behaviour only very few empirical studies were released. Particularly, an economical approach to under- utilization of membership in fitness clubs was not developed so far. With respect to attendance in fitness clubs - and thereupon an analysis of utility and costs - the following works marginally outline low attendance behaviour in commercial fitness clubs:

Table 2-1: Empirical Findings to Utility and Costs of Attendance

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Table 2-2: Empirical Findings to Extra Utility Independent of Attendance

illustration not visible in this excerpt

The following empirical analysis will be structured according to findings that are relevant for utility and costs of attendance in fitness clubs followed by an analysis of findings that are relevant for extra utility of fitness club membership independent of attendance:

2.1. Utility and Costs of Attendance

2.1.1. Monetary

Malmendier and Della Vigna (2006) examined how much it costs not to go to the gym by mathematically calculating the price of non-attendance. In their paper "paying not to go to the gym", Malmendier and Della Vigna (2006) focussed on comparing consumer behaviour with respect to contract choices and actual behaviour by conducting a survey among members of fitness clubs in the USA. They empirically examined behaviour of 7,978 members in three health clubs in New England, Boston. By tracking attendance (with the help of digitalized systems of the clubs and billing records), they found out that people tend to overestimate future attendance. Also, they could show that health club members rarely change the type of contract they initially enrol in. Also, low-attendance consumers delay cancelling their contract despite small transaction costs. According to Malmendier and Della Vigna (2006), overestimation of future attendance leads consumers to choose flat rate contracts.

2.1.2. Social/ Motivation

With respect to empirical studies in the field of social and motivational aspects of attendance behaviour in commercial fitness clubs, it can be drawn on the findings of Fuchs (1997), Rampf (1999) and Wagner (1998) who empirically analyzed factors that lead people to uphold a sporting activity or to drop out.

Fuchs (1997) conducted a longitudinal section study among residents of sky scrapers in Berlin and examined determinants for adherence to sport participation. Herein, he particularly examined the effects of vulnerability, self-efficacy, social support and expectations of outcome.

Fuchs (1997) described in his "Berlin Hochhausstudie" that physical pain can hinder a person to uphold exercising. With respect to selfefficacy[4], Fuchs (1997) could show that selfefficacy has an impact on initiating and on continuing a sporting activity. Further, he showed that social support has a motivational effect on upholding a sporting activity. Social support can come from family, friends and partner, colleagues or other persons.

Fuchs (1997) also examined expectations of outcomes. Particularly negative outcomes will have an impact on future sport consumer behaviour in that consumers stop or delay an activity, respectively. Fuchs (1997) showed that the higher the perceived costs, the lower the probability to become or stay active.

Rampf (1999) examined Dropouts of fitness clubs versus those who kept their membership in a fitness club and stayed active. In this, she particularly focussed on person- and situation-dependent factors. In total, she collected data from 232 people in four fitness clubs, with 143 stayers and 89 drop- outs. In a cross-section study, she collected data with the help of a standardized questionnaire.

According to the examination of Rampf (1999), time was the main determinant for dropping out. Stayers tend to have a better level of fitness, a better body concept and participate more often in group programmes. Stayers show a higher level of motivation and fun and are more convinced by the benefits of exercising in a gym. Dropouts are not content with the coaching of the trainer and do not feel to be known personally. Both, stayers and Dropouts feel that membership fees are too high.

Similarly, Wagner (1998) conducted a longitudinal section study with 288 participants of a health sport programme organized by an insurance company. She examined factors that lead participants to uphold or drop out of a sport programme.

In total, 50% of the participants dropped out of the health programme. Wagner concluded that upholding a sporting activity is determined by personal, social and programme-specific factors while determinants change during time. As follows the determinants that mainly lead to upholding a sporting activity:

For personal factors: selfefficacy.

For social factors: trainer and social belonging to the group.

For programme-specific factors: exercises in and structure of the course as well as location and timing.

2.1.3. Motivation

Zarotis (1999) defined motives to become a member of a fitness club. Allmer (1978) and Zeelenberg (1996), on the other hand, tried to capture the dynamic processes of an activity and the impact of expectations or experiences on consumer behaviour, thereupon.

Zarotis (1999) conducted a survey and collected data from 3,248 participants (1,889 females, 1,342 males) in health-oriented fitness clubs to find out about the main motives to become a member of and doing sports in a fitness club. The survey was a combination of interviews and questionnaires to be filled out by participants. The sample included people who signed up for membership after a counselling interview in the fitness club and also those who did not. He built seven main motivation factors and attached a total of 15 questions to the main motivation factors. These are:

Fitness/Health

Looks

Psychological Experience[5]

Cognitive Dimension[6]

Social Dimension

Performance

Neuromuscular Dimension.[7]

The item that was named most (by 83.3% of the participants) belongs to the first group "Fitness/Health" and is "Improving Physical Fitness." "Losing Weight" is the second most important item with 49.9% and is part of "Looks." The third most important motive that was named belongs to "Pschycological Experience" and means to "counterbalance to stress in job."

In his study, Zarotis (1999) categorized the items as either extrinsic or intrinsic motivation. The three most named motives, however, turned all out to be extrinsic motives. "I want to exercise easy and relaxed" as intrinsic motive was named as fourth most important item. Thus, Zarotis (1999) argued that first extrinsic incentives need to be satisfied before intrinsic motives will become evident. Zarotis (1999) further argued that since none of the traditional motives such as performance, competition and success were named under the top three motives, there is a shift in motives towards health, fun, well-being, looks or counterbalance to work. He also found out that there are significant differences of motives between men and women.

Women are more health-oriented and more concerned about losing weight while men are more interested in building up muscles. Also, it is more important to women to be coached and have information on the training effects.

Zeelenberg (1996) in his dissertation "on the importance of what might have been" empirically examined anticipated regret, causes and consequences of post-decisional regret. For his experiments, he used standard, context-free and gamble paradigms. The study was conducted with students from the University of Amsterdam and the University of Leiden. The number of participants varied between N= 40 and N=313.

The results were as follows: negative emotions such as regret have an impact on decision-making. Zeelenberg (1996) developed "the regret life-cycle" involving three phases (anticipation, cause and consequences). He found out that anticipated regret produces a tendency to delay decision-making. One reason for this delay is that people want to gather information in order to make a better decision, and thereby prevent regret. Similar delay effects are expected for experienced regret. Thus, regret is related to thinking about what went wrong and wanting a better outcome in the future, and will motivate people to think more carefully about their subsequent decision. Zeelenberg (1996), however, did not conduct his study in connection with sports.

With 45 top athletes who qualified for the canoeing world championship, Allmer (1978) empirically examined sport consumer behaviour with respect to future target-setting and the willingness to continue doing the same sport. He conducted a survey with the help of a questionnaire including 15 items with 5-point Likert scales.

Allmer (1978) found out that continuous failure or disappointment can lead athletes to switch activities or to give up a certain sporting activity. However, reactions are different if deviations from targets are due to too little effort. People will be motivated to exercise when there is a discrepancy between the current level of physical fitness and the expected level of fitness. The person will try to level out the discrepancy. If the discrepancy is too large and if success does not set in, athletes lose motivation to uphold exercising. As a conclusion, precise and realistic goals are crucial to uphold exercising.

2.2. Extra Utility

Regarding flat rates (as common for fitness club membership) Lambrecht (2005), Stingel (2007) and Mitomo, Otsuka, & Nakaba (2009) examined on extra utility that might arise independent of usage.

The above-named researchers released studies in the field of mobile phone and internet providers. They found out that people pay more with flat rates than they actually would under different tariffs. Since this is in contradiction to economic maximization principles, they reasoned that consumers must have utility independent of usage. As follows determinants of extra utility under a flat rate as defined by the researchers:

Insurance effect: people are risk averse and prefer to have certainty on payments.

Taximeter effect: with a flat rate, people do not have to think of costs every time they consume.

Convenience effect: with a flat rate consumers save searching and information time once they intend to exercise.

Option Value: extra utility is given with a high variety of services offered for the same price under a flat rate where the service can be used at any time. As characteristic, a flat rate gives the option to use more at the same price (Lambrecht, 2005).

Lambrecht (2005) empirically examined existence, reasons and consequences for flat rate and pay-per-use biases. With the help of an internet service provider, Lambrecht had access to a sample of 10,882 customers to identify tariff choices (one out of three broadband tariffs). 1,078 of these customers also participated in an online survey.

Lambrecht (2005) and Skiera (1999) captured factors that add value to flat rates and found out that consumers not always maximize their consumer surplus. To measure the impact of the effects on flat rates, they conducted three different analyses. In a survey with students and through a quasiĀ­experiment they found out that the insurance effect, taximeter and overestimation effect positively influence a bias towards a flat rate; however, not so the convenience effect.

Stingel (2007) in her empirical analysis examined the choice of tariff of mobile phone users. She particularly focussed in her study on the insurance, convenience, taximeter and overestimation effect. Besides conducting a survey, Stingel (2007) observed behaviour of mobile phone users to determine a flat rate bias and overconfidence effects. 584 decision-makers in companies participated in a quasi-experimental choice of tariff survey and gave access to 4,324 users in their data base.

She came to the conclusion that the estimation and insurance effect have an impact on the choice of tariff of business clients. Also the convenience effect can be a reason for the choice of tariff. The taximeter effect could not be confirmed. The estimation effect turns out to be most significant.

Mitomo, Otsuka and Nakaba (2009) empirically tested factors that influence preferences for flat rates in mobile phones. The results showed that loss aversion and dependency upon reference points[8] have a significant influence on the consumer's preferences for flat rates. Mental accounting, ambiguity aversion and cognitive dissonance were also identified as determinants for such preferences.

2.3. SUMMARY

As the analysis of empirical studies above shows, answers to the question why consumers of fitness clubs pay for fitness club membership they possibly do not utilize were not covered. A few authors released studies with respect to sport participation but not in light of fitness club membership under a flat rate. Malmendier and Della Vigna (2006) conducted their survey in American health clubs and focused on tariff choices. Fuchs (1997) and Rampf (1999) mainly focused in their study on reasons for stopping a sporting activity. Rampf, however, distinguished among those who cancelled their membership and those who stayed active in their fitness club. Wagner (1998) focused on those who upheld an activity rather than stopping. Particularly Fuchs (1997) and Wagner (1998) did not conduct their survey in fitness clubs. Zarotis (1999) put his focus on why people become members of fitness clubs but not on attendance behaviour. Allmer (1978) analyzed psychological reasons for stopping a sporting activity but conducted his survey with top athletes. Here, the question arises whether the same behaviour is applicable to fitness club members. Zeelenberg (1996) developed a general regret life cycle but not in the field of sport consumer behaviour. Stingel (2007) and Lambrecht (2005) examined mainly the choice of tariff of internet and mobile phone providers, respectively and tried to find answers why some users pay more with a flat rate than they would with a different tariff. First, as Malmendier and Della Vigna (2006) they focused on tariff choices (from fee menu) and second, they conducted their study among mobile phone and internet users. However, usage is different for fitness club members in that variable costs of attendance play a crucial role.

The evidence of extra utility that comes with membership independent of attendance might be one reason in finding explanations why some members utilize their fitness club only little. However, variable costs of attendance might be another factor to hinder a member to attend the gym. Also, time as a crucial input factor for sport participation was neglected. Thus, particularly with respect to attendance behaviour in commercial fitness clubs none of the studies so far examined the question why people pay for fitness club membership they rarely utilize. An economic approach and model explaining the phenomenon of underutilization of membership in fitness clubs has not been developed.

3. THEORY

3.1. PART I - Analysis of Supply and Demand of Gym Attendance

3.1.1. Analysis of Demand: Why People become Members of Commercial Fitness Clubs

To find explanations why some members utilize their membership in a fitness club only little, it needs to be elaborated on what drives supply and demand of gym attendance. First, demand will be analyzed - and herein also the question why people decide to become a member in a fitness club - and second, supply to identify constraints of consumer behaviour with respect to gym attendance.

The fitness club industry and now increasingly multi-functional commercial clubs (Kaiser, 2002) has experienced strong growth rates over the past decades, whereas the sector of non-profit sporting clubs had immense slowdowns in membership growth.[9] According to Deloitte (2011), 7.31 m Germans were members of commercial fitness clubs in 2010. To better understand why some members pay ongoing membership fees but attend only little, the following section tries to find answers why people increasingly demand for membership in commercial fitness clubs.

3.1.1.1. Changes in Income and Work Time

After World War II, wealth has increased immensely in Germany. While an employee in 1960 earned on average € 1.27 per hour in Germany, a worker today receives € 14.05 on average per hour. An employee today earns eleven times more than in 1960, while the price of goods only quadrupled during the same time (Institute of the German Economy, Cologne on purchasing power 1960 vs. 2009). In addition, global sourcing of products and services has increased the number of products available in the markets. Not only have diverse products and services become affordable to households but they have also become a matter of taste. While in former times goods were only bought as a means to an end, goods are now chosen according to personal preferences for fashion and style. While most people only possessed a few pairs of shoes a few decades ago, most shoe cabinets are overcrowded nowadays. Money has become abundant and households are able to spend money on extra goods and services besides for pure satisfaction of basic needs.[10] In this, it could be argued that fitness clubs reflect the over-consumption of nowadays society where consumers are willing to pay fees for membership in a fitness club which they potentially do not utilize.

Furthermore, time available for leisure activities has increased as well. According to the German Ministry of Labour and Social Affairs (2006) average working hours per week of a German male employee decreased steadily from 47.5 hours in 1960 to 38.1 in 2005.[11] Nevertheless, because of an increase in productivity, time has become almost unavailable in welfare states (Linder, 1971). In this, people tend to also become more productive outside work during leisure time (Linder, 1971).

Not only have work and leisure time assumptions changed but also the attitude towards work and leisure time. Work is seen as an obligatory task to earn money while a new awareness of leisure in redefining personal goals and values has become apparent. The generation of today shows higher demands towards leisure (vs. the work-oriented older generation) and selfĀ­fulfilling (Opaschowski, 2000). In this, life philosophy of the German people from a performance-focused to a joy-focused society had a profound impact on the demand for sport (Opaschowski, 1996). Growing membership numbers in commercial fitness clubs reflect a longing for self-determination and a compensation for foregone lust of life at work (Gratton & Taylor, 2000).

Further, demographic changes have become apparent with higher membership ratios of the elder. Social barriers for the elder to go to a fitness club seem to be lower due to wider acceptance resulting in new demanders for sporting activities. Particularly the attitude towards health and wellshaped bodies in the 21st century has increased demand for sport consumption (Rittner & Mrazek, 1986; Opaschowski, 1996).

To sum up, an increase in the demand for fitness club membership is determined by the following factors (Schilz, 2000):

Increased welfare of the population

Reduction of work time with an increase in real wages

Decline in the importance and meaning of work

Increase in meaning of leisure and establishment of sport as lifestyle with new body awareness.

3.1.1.2. Changes in Social Values

Particularly, "Lifestyle" and "New Body Awareness" can give explanations why demand for membership in fitness clubs has increased immensely. Self- actualization, spontaneity and individuality have become increasingly important which has an impact on sport consumer behaviour (Heinemann, 1995). In favour of self-actualization in the post modern era, not only creativity, spontaneity and freedom are prevailing but also hedonistic values such as adventure, excitement and emotional needs (Klages, 1981) all of which can be realized in commercial fitness clubs. At the same time being sporty or seemingly sporty has become a symbol for wealth (Freyer, 1995). Being attractive physically is increasingly important with respect to social acceptance (Opaschowski, 1987).

Being equipped with products and services of certain brands is a "must have" and status symbol. Thinking of several brands, sporting goods can serve to express the belonging to a certain social class. The same is true for commercial fitness clubs where exclusivity of being a member of a certain club is given through the fee of membership (high membership fees exclude people from lower social classes, see Horch, 1990). Also, with a membership card of a commercial gym, people are perceived as being sporting - although they might not. To look sporty - not only through a well shaped body but also through sporty clothes and membership cards of fitness clubs - a person can be perceived as sportive in a non-sportive situation (Rittner, 1985).

3.1.1.3. Body Concept

By being a member of a fitness club, one can decide to attend or not, or to put it differently, to consume sport - actively or passively. Longing for a well- shaped and aesthetical body reflects a new body culture that has evolved (Apraku & Nelles, 1988). Since the beauty ideal depends strongly on the social environment and since in our society sport is closely linked to attractiveness, easiness, juvenileness and vitality, the symbolism of sportiness has become an important tool for social acceptance (Gsell, 1993). Differences in the interpretation of the ideal of beauty is also given with respect to gender and age. While women focus more on losing weight, men put more emphasis on building up muscles (Rittner & Mrazek, 1986). Staying and looking young has become more important to the elder. Nevertheless, socio-cultural standards form the own expectations and attitudes which can explain why people want to be members of commercial fitness clubs. In this, not only leisure and consumption but also the definition and exposure of oneself have become more important (Kuhlmann, 1998).

Expectations and perceptions represent a changed understanding of sports in our time. Interestingly enough, Mrazek and Rittner (1986) found out that people who are not interested in doing sports actively, make increasingly use of the symbolic means of sports. Examinations by Egger (1992) showed that only 20% of sold sporting goods were actually used for sporting activities.

Being a member of a fitness club, a person has the ability to express oneself and to expose a sportive lifestyle (Rittner, 1989). In this, fitness clubs promise social success and psycho-physical stability (Rittner, 1992). "To seem fit" has become more important than "to be fit" (Mrazek, 1985). "Fit" embodies to be efficient at work, to be able to handle stress and to be flexible (Schilling 1970). Thus, fitness is proclaimed as the new ideal of the complex industrial societies (Mrazek & Rittner, 1986) and a synonym for success and social acceptance (Mrazek, 1988). To be (or seem) sportive can be expressed through the consumption of sport fashion, accessories or membership cards of fitness clubs without actual utilization.

3.1.1.4. SUMMARY

Real income has increased over the past decades leaving people the freedom to spend money on extra consumption besides pure satisfaction of basic needs (nutrition etc.). Also a decline in working hours per week allows for more leisure activities. Demand for fitness club membership has increased due to changes in income and work time but also due to changes in social values and thereupon in the body concept. According to the particularities of sports explained above, a member might have benefits from pure membership independent of attendance (e. g. image as a status symbol).

However, even if a member's demand for gym attendance was high, a consumer might not be able to live up to his demand due to limitations in supply. A consumer's decision on whether to attend the gym or not depends not only on his wants but also on the conditions of the commercial fitness club. Since a member's attendance decision is constrained by the given framework, closer attention needs to be paid to the particularities of a commercial gym. Generally it can be said that commercial fitness clubs are different with respect to location, size, equipment, programme offer, personnel, opening hours and membership fees (Schubert, 1998).

3.1.2. Analysis of Supply of Gym Attendance - Constraints to Attendance in Commercial Fitness Clubs

3.1.2.1. Definition of Commercial Fitness Clubs

According to US Legal (2010),

"commercial fitness clubs may be defined as any firm engaged in the sale of instruction, training, or assistance in a programme of physical exercise or weight reduction, which may include the use of a sauna, whirlpool bath, weight lifting room, massage, steam room, or other exercising or weight reduction machine or device."[12]

Goffmann (1963) defines the purpose of the gym as improving one's own fitness, styling and taking care of the body. Further commercial fitness clubs are like non-profit sporting clubs in that a group of voluntary members derives mutual benefits from sharing production costs (Sandler & Tschirhart, 1980). As non-profit sporting clubs, commercial fitness clubs are defined as organizations whose members collectively consume a good or service they could not finance by oneself (Cornes & Sandler, 1986).[13] Further, fitness gyms are described as commercial institutions accessible by everyone who has the cultural and economic prerequisites to become a member (Sassatelli, 1999). A commercial fitness club gives economic incentive for membership (status symbol e. g.) (Horch, 1983). Thus, high membership fees can be used to symbolize the exclusivity and those who can afford it could experience a gain in prestige. Horch (1990) describes this as the "snob-effect" explaining that the comprehensive and exclusive endowment of a fitness club pleases the individuality and vanity of a member.

The interests of a commercial fitness club are steered through market mechanisms (Horch, 1983). Nevertheless, a commercial fitness club is a voluntary organization with services as its core. Members are not involved through their personal engagement like in non-profit sporting clubs but through payments of fees. In this, in commercial fitness clubs members are heterogeneous regarding motives, attitudes, characteristics, demographics, social background and values (Horch, 1983).

3.1.2.2. Characteristics of Commercial Fitness Clubs

Whether a member utilizes his membership or not depends also on the service endowment of the club and its perceived quality. The following table shows characteristics of the service offer as typical in commercial gyms and explains why these factors might hinder a member to attend:

Table 3-1: Particularities of Commercial Fitness Clubs - Constraints on Attendance[14]

illustration not visible in this excerpt

Thus, the location of the gym, size of the gym, opening hours, the equipment (such as machines, sauna and showers) number of programmes, and the total number of members[15] play an important role in the economic decision- making process whether to attend the gym or not. On the side of soft factors, image, perceived service and quality of the gym (e. g. child care), identification with the group (friends who are already members), competence of the personnel and trainers are crucial determinants (Rampf, 1999) in the attendance decision.

The analysis of supply - and herein the characteristics of commercial fitness clubs - has shown that many factors can be a constraint on gym attendance. Even if a member demanded to attend, he might not be able to because the gym is not open at the time, congested or the programme of choice is simply not offered. Also as a particularity to sports, Gratton and Taylor (2000) make aware of the difficulty that the consumer faces in making rational decisions because a member is unlikely to have sufficient knowledge about future benefits that will follow from attending the fitness club.

Attendance behaviour in commercial fitness clubs is puzzling and not easy to capture. What makes the consumption of sports - and here in commercial gyms - even more complicated is that the consumer does not know in advance how high his utility will be in the future and whether he will get satisfaction out of attending the gym or not - except the consumer already has some knowledge from former experiences about doing sports and himself (Kahneman, Wakker, & Sarin, 1997). Learning processes and satisfaction are very individualistic variables and strongly depend on one's own effort and willingness to participate actively.[16] In this, the outcome of attending the gym is uncertain since it is "produced" with external factors and depends on the member's involvement.

3.1.3. Interim Conclusion

As the analysis of demand has shown, an abundance of money might lead persons to over-consume, namely to pay for fitness club membership despite low or non-utilization. Connected with changes in social values, the body concept might lead people to consume sports in different ways but actively. It has become fashionable to be sportive. As the analysis of supply has shown, a member - even if he wanted to attend the fitness club - might be constrained by the particularities of the club (e. g. opening hours). Further, as a particularity to services as incorporated in fitness club attendance, a member does not know in advance whether the promised service will live up to its expectations. To meet expectations, diligence on the part of the consumer (intensity of training) as well on the part of the provider must be given (Becker, 1976). The particularities of supply and demand of gym attendance can be summarized as follows (Meffert & Bruhn, 2000):

Provision: future benefits of services are uncertain

Uno-Actu: consumer and provider need to be at the same place at the same time

The producer (provider) is part of the product. The service provider as a person needs to have good chemistry with the customer to produce utility

The consumer is part of the product: the consumer is actively involved in the production process (service)

Individuality: services depend on situations and persons

Heterogeneity: since persons are involved there is no standardization leading to possible fluctuations in quality.

Within this context, it becomes obvious that a member's attendance is not only driven by demand and supply but also by the interaction of these. Since the consumer himself is part of the production process, production and consumption take place at the same time and are inseparable. Producer and consumer must be present at the same time in the same room (Herder- Dorneich & Kƶtz, 1972). Thus, time coordination of supply and demand need to be congruent (Heinemann, 1995) but also match the own subjective expectation (Frey, 2010). The output and utility depends on the intensity and quality of the input of the consumer (Becker, 1976).

Thus, when signing up for membership, a member might know the service offer of the commercial fitness club but might be unaware of the actual utility he receives from attendance. To explain the phenomenon of low attendance of commercial fitness club members, one of the crucial determinants to be examined is the choice of tariff since attendance frequency is approximated at the time of sign up for membership (Malmendier & Della Vigna, 2006).

3.1.3.1. Characteristics of Membership Fees and Definition of Infrequent Attendees

The analysis of supply and demand has shown how difficult it is for a consumer to anticipate actual demand when signing up for membership. Since the consumer has to choose a tariff before actual consumption, the expectations of his own input, the estimated attendance frequency plus the expected service quality are crucial determinants in choosing an appropriate fee.

Members - when signing up - are typically confronted with a membership menu including diverse tariffs (Malmendier & Della Vigna, 2006). It can be said that the estimation of costs based on the expected attendance frequency is the main determinant for fee choices.

As described by Malmendier and Della Vigna (2006), membership menus mostly have three different pricing structures:

1. Membership with yearly contracts and automatic renewal, where a member pays a fixed price per month with unlimited access.

Here it needs to be mentioned that most clubs give discounts (such as gold or silver cards) for members with long-term memberships.

2. Monthly tickets to be cancelled every month, where a member has a fixed price per month with unlimited access.

Monthly tickets are more expensive than the fee for a yearly pass divided by twelve.

3. 10-day-passes[17], where a person pays per visit.

These passes have a fixed price for single use with no expiration date.

Thus, yearly contracts and monthly tickets with fixed prices and unlimited access can be said to be flat rates (Malmendier & Della Vigna, 2006; Lambrecht, 2005; Stingel, 2007).

Most recent developments of fee options show that fitness clubs offer fixed prices for basic usage and charge additional fees (per usage) for extra services such as using the facilities (shower) or diverse programmes (yoga, pilates etc.). When signing up for a yearly pass, fees are usually to be paid in monthly instalments. Commonly, the cancellation period is at the end of the

contract period and short (2 weeks) in that a member needs to remember by himself when to cancel. If the deadline is exceeded, the yearly pass will be renewed automatically for another year.

Yearly passes are usually more attractive and cheapest with frequent attendance whereas pay-per-use tickets are relatively expensive but pay off if a member attends the gym infrequently. Therefore, to choose the optimal fee, a consumer needs to have knowledge on his future behaviour (Malmendier & Della Vigna, 2006). If buying a yearly pass but using the gym infrequently, a member will be punished in that the fee per usage on average is higher than with a pay-per-use ticket.

As a theoretical approach, to clarify what it means if a member underutilizes his membership, a calculation example based on typical fee menus (see also Malmendier and DellaVigna, 2006) as follows:

A member can opt among the following tariffs:

illustration not visible in this excerpt

Table 3-2: Calculation Example ā€“ Average and Total Cost of Attendance

illustration not visible in this excerpt

Assuming a person attends the gym twice per month, owners of a 10-day- pass will be best off with a cost of attendance of € 10.00 and a total cost per month of € 20.00 compared to a total cost per month of € 50.00 for owners of a yearly ticket and € 70.00 for owners of a monthly ticket. If a person attends five times per month, the owners of a 10-day-pass and yearly ticket have the same cost per attendance (€ 10.00) and a total cost per month of € 50.00. The owners of a monthly ticket will be worse off.

Now assuming a person attends the gym seven times per month, owners of a yearly ticket will be best off with € 7.14 per attendance. Owners of a 10-day- pass and monthly ticket will be clearly worse off with higher costs per attendance (each € 10.00) and total monthly costs of € 70.00.

As table 3-2 clarifies, the owner of a yearly ticket will always be better off compared to the owner of a monthly ticket and the owner of a 10-day-pass when attending the gym at least 5 times per month for one year (assuming attendance to remain constant). When using the gym only once or twice in one month, the owners of a yearly or monthly ticket pay above actual utilization and would have been better off with pay-per-use tickets. Here costs are above benefits. These members are said to underutilize membership.[18]

However, since fee structures of commercial fitness clubs are very diverse regarding amount and service access it is difficult to compare data and to capture "underutilization" mathematically. As a more practical approach and as a benchmark, infrequent attendance should be defined as a frequency below average. According to R. Kamberovic (personal communication, October 18, 2011) average attendance frequency of fitness club members is 2.1 times per week. Dressler (2002) found out that 73.5% of fitness club members in the city of Viersen attend between two and three times per week. According to Grosser, BrĆ¼ggemann, & Zintl (1986), to have training effects, breaks between training sessions should be no longer than 72 hours meaning that a member should attend every third day to have adapting effects from training. Taking the findings together, this would mean that infrequent attendance can be defined as a frequency below eight times per month. Thus, a member who attends the gym less than eight times per month can be said to underutilize membership. Therefore, for the following analysis infrequent attendees are referred to as those who attend seven times or fewer per month.

At the time of sign up for membership, a member faces uncertainty in decision-making because he is not perfectly knowledgeable on possible future events. Even if possible future events were known, the intensity might be unknown (Backhaus, Aufderheide, & SpƤth, 1994). As mentioned before, since person-related factors play a role with respect to gym attendance, the choice of fee is a decision under uncertainty since a member today might either change his preferences in the future (find another hobby, fall in love etc.), be confronted with work time or income changes (becoming unemployed) or be faced with sudden physical limitations (e. g. injuries) while still bound by contract with obligations to pay monthly fees. Thus, limited rationality is given when a consumer intends to behave rationally - namely to utilize membership where utility is maximized - but does not due to incomplete information. Limited rationality is not the same as irrational behaviour but shows that rationality and information on future events is limited (Lambrecht, 2005).

Thus, members of commercial gyms have to make two decisions when signing up for membership in a commercial gym. First, what fee to choose and depending on this, the attendance frequency. Therefore, uncertainty comes with both decisions. The first decision determines the amount (fee), the second decision the attendance frequency. Since the decision on attendance frequency is delayed it can be said that these decisions are sequential (BĆ¼schken, 1997). Whether the fee was chosen in a profit- maximizing way also depends on the duration of the contract where the duration is usually pre-determined. Thus, the decision which fee to choose is made at a certain point in time, whereas the decision on how frequently to attend the gym is delayed into the future. Since those two decisions are sequential and since a fee is chosen before the beginning of first attendance, the phenomena of underutilization occurs after signing up for membership.

Nevertheless, since the thesis is based on the assumption that members preferably opt for a flat rate contract (yearly or monthly) light needs to be shed on why members preferably opt for flat rates with the help of the willingness-to-pay function developed by Skiera (1999).

3.1.3.2. Willingness-to-pay Function

Under microeconomic theory, a consumer will choose a fee that maximizes his consumer surplus (Pindyck & Rubinfeld, 1997). Projecting this on fitness club attendance, consumer surplus can be defined as the amount a consumer is willing to pay on top of the fee for using the gym (Skiera, 1999; Varian, 2003). It's the difference of the willingness to pay and the actual fee. Further, it is assumed that human beings make rational decisions by trying to maximize profits and satisfaction.[19] Consumers choices have been illustrated in models such as demand equations. If quantity demanded equals quantity supplied, the market is said to be in equilibrium (Pindyck & Rubinfeld, 1997). For consumers this means that at a given price, a certain quantity of attendance will be demanded; if the price goes up, quantity demanded will go down. The model assumes markets to be symmetric and consumers to be perfectly informed. Thus, under profit-maximizing assumptions, one would expect that with a flat rate attendance frequency of fitness club members would be very high. According to observations, it occurs that members who have a flat rate do not attend at all. To explain this phenomena, the willingness-to-pay function can give insight why members preferably opt for yearly contracts under a flat rate but attend only infrequently in the end.

Skiera (1999) developed the willingness-to-pay function (WTP).[20] According to him, the willingness-to-pay function describes how much a consumer is willing to pay for a certain quantity demanded of attendance, where marginal willingness to pay describes how much a consumer is willing to pay for every additional attendance.

In this, it can be said that the willingness to pay (cost) equals the utility which a consumer receives for the quantity demanded of attendance [21], while the willingness-to-pay function describes how much a consumer is willing to pay for a good or service without using it.

Based on the law of diminishing returns, Skiera (1999) illustrates how much the marginal willingness to pay decreases with every additional attendance and shows that consumers are not willing to pay more than a maximum amount even if quantity demanded was high.

Generally speaking, it is assumed that the utility a consumer receives from membership - given the consumer's willingness to pay a certain amount for it - depends on the expected quantity of attendance (Lambrecht, 2005). This in turn means that the willingness to pay is always the same for a given quantity and independent of the fee chosen (Skiera, 1999).

Based on Skiera (1999), the following figure illustrates how much a consumer is willing to pay for every additional attendance:

Figure 3-1: Willingness-to-pay Function for Attendance Frequency Demanded

illustration not visible in this excerpt

The downward sloping curve of marginal willingness to pay shows that the willingness to pay diminishes with every additional attendance. While the marginal willingness is € 40.00 for one attendance, it decreases to € 15.00 at six attendances and becomes € 0 with more than 7 attendances per month.

The upward sloping willingness-to-pay curve shows, how much a consumer is willing to pay per month in total. For two attendances, the consumer is willing to pay € 60.00 and for four attendances € 80.00. However, since there is a saturation of demand evident [22], a consumer is willing to pay € 90.00 the most, no matter whether attendance per month will be six times, ten times or more. Thus, the willingness-to-pay curve flats out at € 90.00. Since Skiera (1999) could show that there is a maximum of quantity demanded for a price of zero meaning saturation of demand is evident [23], a consumer will choose an attendance quantity where he maximizes his consumer surplus. To recall, consumer surplus is the price a consumer would be willing to pay in addition to attendance (Skiera, 1999; Varian, 2003). The consumer surplus is the difference between the willingness to pay and the price.

The following figure illustrates the maximized consumer surplus as the difference between the willingness to pay and the actual price:

Figure 3-2: Consumer Surplus with Attendance Frequency Price

illustration not visible in this excerpt

Source: modified from Skiera (1999)

As figure 3-2 illustrates, a member would maximize his consumer surplus under a flat rate if he attended more than five times per month. Since - at this point - his willingness to pay (see curve) is higher than the flat rate of € 40.00, he maximizes his consumer surplus and pays less than he would pay under a pay-per-visit ticket (such as a 10-day-pass).

According to Skiera (1999, p. 42), "if a consumer has to choose among several fees, he opts for a fee where he maximizes his consumer surplus." In this, it is assumed that he will choose the fee where his quantity demanded is higher (Skiera, 1999; Lambrecht, 2005).

Generally it can be said that in traditional microeconomic theory it is assumed that a consumer maximizes his consumer surplus and will always choose a fee - given more fees are offered - where the consumer surplus is maximized with respect to the anticipated attendance demanded.

According to Malmendier and DellaVigna (2006), people tend to overestimate their attendance. Thus, the willingness-to-pay function can explain why members preferably opt for a flat rate contract. In many cases, consumers choose a tariff although they would - according to their actual attendance frequency - pay less with a different tariff (Train, McFadden, & Ben-Akiva, 1987).

Thus, for the following analysis it is assumed that members opted for flat rates which is - per definition (see Chapter 3.1.3.1) - given with a monthly or yearly ticket where members pay a fixed price with unlimited access.

3.2. PART II - Analysis of Utility

3.2.1. Becker - Household Production Function - how often a member is willing to attend

Being a member of a commercial fitness club and having a flat rate, a member has the flexibility and freedom to decide how often to attend the gym within the given framework of the gym (e. g. opening hours). The following section analyzes how often a member is willing to attend with the help of the Becker household production function and expected utility theory.

Having a flat rate, the attendance decision can be assumed to be mainly driven by variable costs. In this, Becker's (1976) input factors of the household production function - income, time and human capital - will be elaborated in more detail in the following section.

According to Becker (1976), households - given income and prices to be fixed - are assumed to maximize utility. Given a high number of substitutable products and services in the market[24], households decide how to use their scarce resources. Therefore, small changes in income and cost of attendance might result in changes in demand. According to Rampf (1999), one of the main factors for dropping out are financial reasons. In her examination, 19% of the members cancelled membership because of too high membership fees. As Becker (1976) argued if income goes up, demand for leisure will also go up because leisure becomes relatively cheaper. However, due to particularities with respect to the demand for attendance in fitness clubs under a flat rate, this may not always be true.

Taking only the income factor into consideration, a member would be assumed to attend the fitness club very often since with a flat rate fixed costs of attendance decrease with every additional attendance. Assuming variable monetary costs of attendance to be rather low (e. g. fuel, drink, equipment), whether a member decides to attend the gym or not depends not only on income but also on the time available for gym attendance.[25]

Becker (1965) was the first to abandon the neoclassical perspective, namely that consumption is an activity with no time constraints. Thus, demand is also dependent on time resources to produce a consumer good. Since time is a limited resource and thus a constraint on consumption, available time is to be distributed among both activities: work time and consumption time where consumption time is the sum of all time inputs for all consumption goods. Further, in Becker's household production function (1976) an increase in time to produce a certain unit would tend to reduce the consumption of the same unit. Therefore, satisfaction obtained from consumption of market goods depends upon the amount of time with which they are consumed where value of time changes over lifetime (Becker, 1965).

Thus, an individual's capability to consume is not only dependent on money but also on time available for attendance in the fitness club. As Becker (1976) presumes households are producers themselves. The production process includes not only market goods but also time input by the consumer to produce a consumer good with proper utility.

In order to maximize utility, Becker (1976) assumed that time through monetary income can get turned into goods and thus, argues that money and time are interrelated.[26] In this, time could be allocated in such a way as to earn more money. And to put it in general terms, "households maximize utility when the total price of consumption equals the sum of direct and indirect prices" (Becker, 1976, p. 103). However, households will not achieve full income by offering their entire time; otherwise, there would be no time left for recovery or consumption. With no sleep nor time to eat, no income could be earned at all.

As Becker's (1976) model suggests, if market prices or income change, time allocation decisions will be influenced. Thus, if market prices or income change, this will have an impact on the prices of the consumption goods. In this, income also reflects the opportunity cost for consumption time.

Based on Becker (1976), if money and time were available, a consumer might still not be able to produce a consumer good with proper utility. Here, Becker refers to human capital. Human capital is the third input factor of the household production function and a decisive criteria whether a person is capable of consuming most efficiently.[27] A members' capability to consume (e. g. physical/mental constitution/upbringing/social background/gender/ status) is crucial for determining the level of satisfaction - or to put it differently - perceived utility.

According to Becker (1964), human capital is a means of production like income and time. Additional investment into human capital will yield additional output. It can be invested in human capital through education or training. Here, Becker assumes that the "present value of the marginal cost of investing in human capital equals the present value of future returns" (p.123). Thus, the capability to consume, namely the current rate of return, depends on the skills, knowledge and experience. Therefore, Becker (1976) assumes that there are differences of productivity with respect to age. While investment in human capital is higher in younger years, it declines with age. Becker (1976) argues that a decline in investment in human capital with age is due to the fact that the remaining time to have returns from the investment becomes less meaning that the cost of the investment in human capital rises with age. Those who invest in human capital are assumed to work less at younger ages but work a lot (earn the returns on the investment) during the age from 30 to 55. Becker (1976) expects that in this age group individuals work more hours and take less leisure time.

Thus, physical constitution as well as socio-demographic factors are part of the household production function to apply to attendance behaviour in fitness clubs and can explain why some members might be or become infrequent attendees.

According to the definition of Becker (1976), human capital - as a means of production - is also interrelated with the other input factors of the household production function: income and time. In this, human capital can also contribute to saving time and increasing income. With more skills, experience and knowledge, a consumer can be more productive and generate a higher output within a shorter period of time. Therefore, human capital can raise full real income. Particularly with respect to sports, human capital can lead to increasing marginal returns in the production of consumption rather than - according to traditional economic theory - diminishing marginal returns over time. With more efficient training, time can get saved leaving time available to earn more money and vice versa.

Conclusively, under household economic aspects, the input factors of consumption are income, time and human capital (Becker, 1976). Whether to attend the gym or not, a member has to make three decisions: how much money to spend, how to use the available time, and how to make most efficient use of the own capabilities to produce a consumer good with proper utility. As follows an illustration of the three input factors money, time and human capital projected on gym attendance:

Figure 3-3: Input Factors to Gym Attendance - Income, Time, Human Capital

illustration not visible in this excerpt

Source: modified from Becker (1976)

As figure 3-3 above illustrates, to apply Becker's household production function to a member's decision whether to attend the gym or not depends on income, namely to be able to pay for membership fees and for variable costs of attendance.[28] Whether a person can afford membership fees and variable costs of attendance depends on a person's fixed costs (e. g. rent, insurances). The higher the fixed costs deducted from income, the less money available for leisure activities. However, a person might not only have one hobby but more. Therefore, some of the available money might be spent for alternative activities such as going to the movies or having dinner with friends. Additional expenditures of attendance can arise which might include refreshments or equipment. In addition, travel costs to and from the gym will also claim a fraction of income and need to be taken into account. Thus, with high variable costs to get to and from the gym, a member might decide not to attend the gym. Under utility maximizing aspects, monetary costs of alternatives must also be taken into consideration to make an optimized decision.

As Becker's (1976) model suggests, not only money is crucial for a person's ability to exercise in a gym but also time aspects. After work time only a certain time span can be filled with leisure activities where some of the time is needed for the satisfaction of basic needs such as sleeping, eating, household and family. Time for gym attendance also includes travel time to and from the gym as well as time for changing clothes, taking a shower or socialising with others. Thus, total time costs of attendance might lead a member to decide not to attend the gym. Under utility-maximizing aspects, time costs of alternatives must also be taken into consideration to make an optimized decision.

Further, when it comes to working out in a gym, all of the above economic variables under the household production function would not hold with no skills nor proper physical nor mental constitution on the side of the member. Even if money and time were available, an injury or too little discipline will hinder a member to exercise. Endowed with skills, education, sociability and experience, a member can make most efficient use of his training session and thus experience increasing marginal returns. An untrained person will most likely take longer to conduct a given training programme than an experienced and talented person where automation of processes has set in (Blum & Friedmann, 1991). Thus, under Becker (1976) human capital is the third crucial input factor to decision-making whether to attend the fitness club or not.

To explain non-attendance in commercial fitness clubs with the help of Becker's household production function it can be assumed that members who do not or only infrequently attend the gym have relatively high income [29], have relatively little time or do not have the physical nor mental capacity to produce proper utility of attendance. It can also be argued that these members who do not attend have high opportunity costs of attendance, meaning that they either could earn more money during time of attendance or spend their valuable time on an alternative with higher utility, respectively.

[...]


[1] Ronald Coase in his paper "The Nature of the Firm" (1937) discussed the concept of transaction costs. Coase argued that whether a firm makes a transaction (buys in the market) or produces internally depends on transaction costs.

[2] Growth rates of new members in commercial fitness clubs in Germany between 1990 and 1999 were 151,8% whereas public clubs experienced only a growth rate of 13,5% (Breuer & Hovemann, 2002, p.63).

[3] As stated in personal interviews with fitness club managers.

[4] Fuchs (1997) refers to selfefficacy as to have faith to attain a certain goal independent of competence. Selfefficacy arises from successful former experiences.

[5] Psychological experience here means to have counterbalance to a stressful job.

[6] Cognitive dimension means to be professionally coached and to get information on training effects.

[7] Neuromuscular dimension aims at improving the neuromuscular performance.

[8] "Dependency upon reference points" comes from Prospect Theory and is based on expected probabilities. Whether something is evaluated as a loss or gain depends on ones own reference point. Positive and negative consequences of a decision are compared to the reference point. An outcome above the reference point is felt as a gain, an outcome below the reference point is perceived as a loss where losses are valued stronger (negatively) than gains (Kahneman and Tversky, 1979).

[9] Growth rates of new members in commercial clubs in Germany between 1990 and 1999 were 151.8% whereas public clubs experienced only a growth rate of 13.5% (Breuer & Hovemann, 2002, p. 63).

[10] In economic terms: normal vs. inferior goods.

[11] Entwicklung der Wochenarbeitszeit 1960-2005. Retrieved from http://www.sozialpolitik- aktuell.de/ datensammlung/5/abb/abbV9.pdf

[12] Retrieved from http://definitions.uslegal.com/f/fitness-club/

[13] or just a few

[14] Retrieved from http://www.associatedcontent.com/article/1293150/the_theory_of_clubs

[15] Determinant for duration of waiting time and number of possible contacts within a specified amount of time.

[16] Through education one learns to utilize consumer goods as well as time in the consumption experience (Owen, 1969, p.46)

[17] According to own observations, only contracts with monthly or yearly memberships are offered officially. However, 10-day-passes can always be bought as an alternative. Fitness club managers are reluctant to sell 10-day-passes but if persistent, managers sell these too, although not advertised nor officially included in the membership fee menu.

[18] It also needs to be mentioned that behaviour between underutilizing and utilizing the membership can fluctuate. Particularly members who are aware of the fact that they are underutilizing their membership and are planning to dropout can become enthusiastic about training in a gym again shortly during the cancellation period and therefore prolong membership for another year. After prolonging membership for another year, members might fall back into their old attendance behaviour. It also needs to be mentioned that the personnel and trainer of the fitness club will undertake any effort to convince a potential member to sign up for a long-term binding contract by emphasizing the importance of regular training associated with benefits of a flat rate contract.

[19] Also referred to as Homo Economicus.

[20] The above model has often been applied and is the basis of microeconomic analysis with respect to pricing theory (Lambrecht, 2005).

[21] Generally, willingness to pay and utility are mostly used as synonym in literature (Lambrecht, 2005).

[22] Law of diminishing returns.

[23] See also: Henderson & Quandt (1958) who pointed out that ten ice-creams in one hour have a different “joy”-level than if consumed within a month.

[24] This is particularly evident for the fitness club industry where density of competition is high.

[25] Members reason the disruption of exercising mostly with “missing time” (see Rampf, 1999).

[26] Also referred to as substitution effect.

[27] Becker (1976) also points out that productivity of employees depends not only on their ability and the amount invested in them both on and off the job but also on their motivation and the intensity of their involvement.

[28] Also, with respect to flat rate contracts, a person must be certain about future income since most members are bound by contract for one year.

[29] This is based on the assumption that a member has a flat rate where the fee remains the same for any given frequency of attendance per month and thus, alternatives become relatively cheaper and greater in number with higher income.

Excerpt out of 185 pages

Details

Title
A Socio-Economic Analysis of Attendance Behaviour in Commercial Fitness Clubs
Subtitle
Why Some Members Utilize Their Membership Only Little
College
Sport Academy Cologne  (Institut für Sportökonomie und Sportmanagement)
Grade
cum laude
Author
Year
2012
Pages
185
Catalog Number
V197829
ISBN (eBook)
9783656239529
ISBN (Book)
9783656240372
File size
1984 KB
Language
English
Tags
Commercial Fitness Club, Behavioural Economics, Non-Consumption, Utility
Quote paper
Maren Mueller (Author), 2012, A Socio-Economic Analysis of Attendance Behaviour in Commercial Fitness Clubs, Munich, GRIN Verlag, https://www.grin.com/document/197829

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