“Connected fitness” company Peloton is one of the few winners of a dismal 2020. As gyms shut their doors due to COVID-19 concerns, Peloton has capitalize on their misfortunes. Demand for its exercise bikes has been through the roof this year, so much that Peloton CEO and Co-founder John Foley warned customers that orders could be delayed through at least June 2021. For 2020, Peloton is forecasting an 89% increase in revenue YoY, at around $1.7 billion, and it’s achieving this even after cutting off of its paid advertising since March. How’s Peloton cycling laps around the competition without even breaking a sweat?
- Peloton was founded in 2012 in New York City. The inspiration came from CEO John Foley, who enjoyed cycling, but couldn’t aways fit a spin class in his busy schedule. He wanted to bring home the experience of trainer-led fitness classes.
- The first prototype bike was launched in 2013 with the help of a Kickstarter campaign that raised $307,000.
- The company hit profitability 2 years after the first bike was delivered.
- Peloton raised 6 rounds of funding that valued it at over $4 billion. It eventually IPO’d in 2019 and as of October 14, 2020, its market cap hit $38 billion.
- At the end of Q3 2020, “The Apple/Amazon/Netflix of Fitness” has over 2.6 million members.
Peloton’s equipment is priced almost 3 times above the average cost of similar products, positioning it as an affluent, premium product. However, it’s looking to appeal to more customers by decreasing costs and launching cheaper product lines.
- Bike ($1,895): Its signature bikes come with an affixed tablet where members can stream classes on-demand. A higher priced version (Bike+) offers more features
- Tread ($2,495): Similar to the Bike, this is a treadmill an option for runners. Also has a higher priced version (Tread+)
- Peloton Digital: $39/mo subscription service that allows users to stream unlimited classes on the Bike or Tread. For those who don’t have a Peloton machine, there’s a $19.99/mo plan.
Value To Customers
Peloton has innovated the fitness equipment space by transforming a basic stationary bike into an addictive passion.
- Convenience: Members can work out whenever you want. This is highly desirable if your busy schedule constantly interferes with your fitness ambitions, or if all gyms were closed due to an uncontrollable virus. People can easily hop on their Peloton Bikes whenever they feel like it and tap into thousands of potential classes. And even if gyms were opened, not everybody has access to quality instructor-led classes. You could live hundreds of miles away from civilization, but if you have WiFi connection, you’ll be able to access Peloton’s full library of workout.
- Content: The company has heavily invested in its content production. Peloton is creating 950 original programs a month with classes recorded and live streamed from Peloton’s studio in NYC. Like the old saying goes: content is king. Netflix strategically offers an overwhelming and diverse amount of programming on its platform to appeal to any type of viewer. Peloton adopts a similar approach with workouts that engage the beginners to the professional cyclists. This continuous stream of content keeps members engaged and coming back for more.
- Technology: Peloton is more than an exercise equipment producer, it’s a tech company. It has developed top of the line and innovative connected hardware that hosts a scaled network. This past April, over 23,000 participants tuned in for a single livestream. While everyone is working out. Peloton is collecting data on a members habits and behaviors, which are used to optimize the user experience. This opens up opportunities to recommend targeted workouts and create a social network between members. These efforts elevate them above competitors like SoulCycle and FlyWheel.
Peloton has significantly amplified its customer acquisition this year and it did it in an unexpected way. Rather than sink a lot of money in mass media advertising, the company capitalized off the grassroots investments it made over the years.
- Community: Cultivating a passionate and loyal fanbase around your brand only lays the groundwork for success. Peloton accomplishes this, online and offline, by providing great product experiences that exceed the expectation of members. There’s a unique thrill and satisfaction when completing a sweat inducing workout. If you share this sense of accomplishment with others, you all develop a bond. For years, SoulCycle built a cult like community around these aspect. However, building a genuine community is difficult because it requires brands to establish consistent and valuable touch points with customers. The key word is “valuable”. Celebrate customers and make them feel like they’re important because they are. Peloton consistently shoutouts its users in the live-stream sessions and leaderboards, which makes people feel appreciated.
- Word-of-Mouth: Once a passionate community was established, Peloton reaped the rewards of word-of-mouth marketing. People will share and speak highly about things they love, and people love their Peloton Bikes. A direct recommendation by someone you trust will always outweigh a paid ad. There’s just more credibility and organic, and it costs the brand nothing. Recognizing this, Peloton actually paused its paid media in March and its re venue just grew. Practically all brands dream about reaching this level of brand love. Peloton rarely has sales and leans heavily on its referral program as the main source of discounts.
- Influencers: Peloton lastly leverages off its employees aka instructors as an impactful marketing channel. When it comes to fitness classes, the most important people in the room are the instructors and people will follow them anywhere. Peloton’s trainers have become social media influencers and fitness celebrities, amassing hundreds of thousands of Instagram followers. Since they’re employees they’re exclusive to Peloton, making the product/service even more desirable.
Granted that the pandemic has help Peloton a lot if driving awareness and demand for further growth is still vey high even when we (hopefully) return back to normal.
- Membership retention rate is 95%, which is very impressive. This number is usually linked to customer satisfaction and is very important for a subscription product like Peloton Digital. Customer retention is more important than acquisition and with huge vault of content to keep member sticky, Peloton will see a dependable stream of subscription revenue. This could open up even more doors or opportunities to cross/up sell products.
- Peloton has 70 brick-and-mortar locations across the US, Canada and UK. There is so much room for expansion into new countries. Health and fitness is universal, so product adoption for Peloton can be expected to be high, as long as the companies cater to the specificities of different geo markets. With some gym chains going out of business, Peloton could look into adding to its gym location for cheap by absorbing empty locations. The gyms can act as a “sample” channel for people to test the equipment, funneling them to eventually purchasing.