Re-’Tread’ing Growth at Peloton
Peloton, defined by Merriam-Webster as the main group of
cyclists in a race, launched in 2014 with a stationary exercise bike
offering online connectivity and interactivity. The bike itself was not
different than a traditional exercise bike apart from a massive, Android
based, tablet attached to the handlebars. Through the tablet users would
be able to engage in live interactive workout sessions, on demand
workout sessions, or scenic rides. Since that time, Peloton has launched
a treadmill, Peloton Guide (a device similar to the Microsoft Kinect
Sensor), and an apparel line. While Peloton has vertically integrated
the production of these physical products, make no mistake, the core of
Peloton is software and content development. In line with this, Peloton
developed an app allowing users to participate in workouts without
needing to purchase Peloton equipment.
According to Peloton co-founder John Foley, “… every household
in America and then Germany and the U.K. and Canada and Australia and
future markets, every household is going to want to be a Peloton
household” (Peloton Interactive Inc at Goldman Sachs Communacopia
Conference (Virtual) - Final, 2021). Peloton’s key customer segment is
comprised of individuals and households seeking a fully interactive and
immersive workout experience combined with at home convenience. Customer
relationships are extremely personal as well as automated through
interactive live training sessions with a Peloton trainer, curated
workout selections based on workout histories, and on-demand workout
sessions that can be completed independently. Peloton harnesses
internet, tradeshow, word of mouth, and physical store channels to
promote offerings and attract customers. Peloton’s value proposition is
high quality exercise content and equipment from the convenience of you
home at a price point that rivals traditional gym memberships.
To reinvent the metaphorical wheel of the traditional exercise
bike and other exercise machines, Pelton’s key activities, resources,
and partnerships revolve around the consumer experience. Pelton’s key
activities are software development, sensor development, and content
development. Key resources include Peloton’s in house trainers, a
diverse and continually growing content library, and global supply
network. Peloton’s key partnerships lie with corporate wellness programs
as well as the hospitality industry. Through corporate partners, Peloton
is able to offer its products and services to employees of a company at
a discount or with another company provided incentive. Partnerships
within the hospitality industry allow Peloton to place its equipment
where potential customers try the Pelton experience with no strings
attached. Past CEO John Foley, touted the success of hospitality
partnerships stating, “For every 1 we place, we sell 7 Peloton bikes”
(Peloton Interactive Inc at Goldman Sachs Communacopia Conference
(Virtual) - Final, 2021).
As a result of vertical integration Peloton has much simpler
revenue streams supporting very complex and faceted cost structures.
Wherein lies the current challenge Peloton faces. During the COVID-19
pandemic, Peloton overextended the growth in costs while experiencing a
massive and, as we now know, temporary growth in revenues. This
overextension lead to C-Suite changes with the departure of John Foley
and arrival of Barry McCarthy as CEO in February of 2022 as well as Liz
Coddington replacing Jill Woodworth as CFO in June of 2022. Along with
the CEO change in February, Peloton laid off employees and began
transitioning warehousing to third parties. Peloton has also backpedaled
on the price reduction of the Bike+ increasing prices on the Bike+ as
well as the Tread August 12, 2022 (Q4 2022 Peloton Interactive Inc
Earnings Call - Final, 2022). The Bike+ price reduction in 2021 was made
as a result of Peloton finding they had a negative customer acquisition
cost, the reduction making the product the “lowest price indoor
stationary bike with a 22-inch screen” (Peloton Interactive Inc at
Goldman Sachs Communacopia Conference (Virtual) - Final, 2021). Other
cost structures at Peloton are manufacturing, logistics, customer
support, content development, research and development, and retail
stores. Peloton has four main revenue streams, new and pre-owned
equipment sales, apparel sales, subscription fees, and equipment
rentals. While iteration has been very slow in the new equipment
category, Peloton is releasing a rower machine this year. Generating
subscribers are the ultimate goal and central revenue stream for
Peloton. Currently Peloton is reporting an average churn rate of 1.41%
but this number was released in conjunction with a plan to increase
monthly subscription fees so it is uncertain whether the churn will
continue to trend down (Q4 2022 Peloton Interactive Inc Earnings Call -
Final, 2022).
Overall, Peloton is a strong candidate for a $1,000,000 dollar
investment. While there is still more to be done in order to correct the
over-spending and over-extension of the business during the COVID-19
pandemic, the hardest parts are behind them. Peloton has high brand
recognition coupled with consumers preference for working out at home,
as reported by Shanthi (Rexaline, 2021). These factors will undoubtedly
drive Pelton’s growth in the coming years and will keep them ahead of
the pelaton.
References
Peloton Interactive Inc at Goldman Sachs Communacopia Conference
(Virtual) - Final. (2021). Fair Disclosure Wire. Business Insights:
Global. Retrieved September 18, 2022, from http://bi.gale.com.uc.idm.oclc.org/global/article/GALE%7CA678094731?u=ucinc_main
