Image Credit: Tony Webster
The Peloton product managers have had it pretty good for the last few years. When Peloton first showed up on the market, their brand of expensive at home exercise bikes really took off. People liked to be able to exercise at home while pretending to exercise with other people via video links to live classes. Then the pandemic hit. Sales really took off – people could no longer go to the gym and the Peloton bikes were a great substitute. However, as the pandemic faded, so too did sales of the pricy bikes. Now the Peloton product managers had a problem on their hands. How were they going to keeps sales growing?
Peloton Product Managers Start To Change
The Peloton product managers are looking to overhaul the stationary-bike maker’s pricing strategy in a bid to turn around the company. They are going to start testing a new pricing system in which customers pay a single monthly fee that covers both the stationary bike and a monthly subscription to workout courses. If a customer cancels, Peloton would take back the bike with no charge. The plan is for select Peloton stores for a limited period to offer a bike and subscription for between $60 and $100 a month. This is an experiment that aims to find a price proposition that will help return Peloton to profitability without crippling its growth.
If it gets adopted, this new pricing model would be a major shift for Peloton, which built a business around selling high-price, screen-equipped stationary bikes with $39-per-month subscriptions to its connected workout classes. The new idea is to sell Peloton as a fitness service that can be canceled anytime rather than as a major purchase with a subscription attached. The product managers believe that there is no value in sitting around negotiating what the outcome will be. The plan is to get in the market and let the customer tell them what works for customers. The Peloton product managers are planning additional changes. They want to manufacture simpler bikes, and upend the company’s capital spending strategy. Rather than investing primarily in bikes, treadmills and other equipment the product managers want to spend most of their money improving its digital interface and content options.
Peloton was initially one the pandemic’s biggest success stories. The $39-a-month subscription price has existed since Peloton’s creation. In the past years, the product managers have lowered the cost of their bikes and treadmills, either by cutting prices or offering cheaper options. Back in 2020 a Peloton bike cost US$2,495; now the cheapest model is $1,495, not including an additional delivery charge. The product managers believe that a different pricing system could draw new customers and make the business more profitable. The going forward plan is that under the new test program, people will get a Peloton and a membership that includes access to all its courses for a single monthly fee, with the ability to cancel it anytime. The offers would be available through Peloton stores, or studios; however, they would not be available online. Subscribers would still be required to pay a nonrefundable delivery fee.
The Way Forward For Peloton
The product managers hope that a different pricing system could draw new customers and make the business more profitable. The Peloton marketing message is that Covid-19 was only the beginning of Americans’ shift to online, connected fitness. Based on that assumption, the product managers increased the company’s capacity, which turned out to be well in excess of demand as after Covid-19 faded legions of people returned to gyms and Peloton’s growth sputtered. The product managers realize that that misstep led to Peloton’s current marketing woes. Now the product managers have to figure out how to tap new customers and make more money on each subscription, while at the same time reducing their reliance on bikes and treadmills to deliver profits.
The product managers believe that given Peloton’s ability to retain their subscribers their higher subscription rates can carry big profit potential over time. Even priced at $39, the Peloton subscriptions are hugely profitable for the company. Going forward the Peloton product managers want to employ models that succeeded at Spotify and Netflix. The good news is that currently Peloton has far higher retention rates than either of those companies. The challenge that the product managers are facing is that if they charge more for subscriptions that that will hurt their brand and will probably end up lowering demand even if it makes the company more profitable.
The product managers believe that the ability of customers to cancel anytime differentiates the potential new model from previous price cuts. Profitability of Peloton’s exercise equipment is sharply lower than it was before the pandemic, as the company struggles with higher production and logistics costs and excess capacity. The product managers realize that equipment sales have been vital because the physical machines, while more costly to make, generate more than twice as much revenue as subscriptions. Equipment sales have funded Peloton’s marketing spending. Roughly 80% of the company’s capital spending goes toward equipment, with the rest spent on software. That should be reversed going forward. In the future, the product managers will look at developing their own social-media platform, more seamless ways for members to interact and compete with each other during classes, and partnerships that could either land Peloton classes on other devices, or allow outside content to stream on Peloton’s screens.
What All Of This Means For You
The Peloton product managers currently have a tough job. Their product used to be a high-flying expensive exercise bike that came with a monthly subscription. However, when the Covid-19 pandemic started to fade, the people who had bought the bikes decided that they wanted to go back to the gym and usage dropped off. Now the product managers have to take a look at the new world order and find ways to once again make their product a success.
One approach that the product managers are taking is to charge their customers a single monthly fee for both the bike and the subscription service. This would be a shift for the company. Customers could now cancel their subscriptions at any time. The hope is that this new pricing system can draw in new customers and once again make the company profitable. Peloton got into trouble when their product managers incorrectly thought that people wanted to work out more at home than at the gym. Once people sign up for the Peloton service, they seem to stick with it. Going forward the product managers have plans to use social media and partnerships to further grow the company.
Peloton has been a successful company in the past. Their product managers are now facing the challenge of finding ways to once again recapture that success. Their approach to making changes to the way that the company prices its products may be what the market is looking for. They are going to have to carefully roll this new offering out and then see how the market reacts to it.
– Dr. Jim Anderson
Blue Elephant Consulting –
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Question For You: Do you think that allowing customers to cancel their subscriptions is a good idea?
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What We’ll Be Talking About Next Time
Ok, so I think that we all have to agree: the metaverse has arrived. For anyone who didn’t realize that Facebook has renamed themselves to “Meta”, the metaverse is going to be a big deal. If you enjoyed the book / movie “Ready Player One” you know what I’m talking about. There is a big bet going on right now that really smart people are going to be able to create a digital world that we’ll all be able to put on headsets and drop into at any time. In this world we’ll have digitally drawn bodies and we’ll interact with other digital creations – sorta like Facebook, but you can actually see people. This all holds a lot of promise, but what does it mean for product managers?