{"id":10796,"date":"2020-02-11T16:35:47","date_gmt":"2020-02-11T21:35:47","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/peloton-winning-the-fitness-battle-losing-the-economic-war\/"},"modified":"2020-02-11T16:35:47","modified_gmt":"2020-02-11T21:35:47","slug":"peloton-winning-the-fitness-battle-losing-the-economic-war","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/peloton-winning-the-fitness-battle-losing-the-economic-war\/","title":{"rendered":"Peloton: Winning the fitness battle, losing the economic war"},"content":{"rendered":"

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Peloton’s customer value proposition is clear for current users: a highly interconnected fitness experience that starts in your home and can be as private or as public as you want. Durable hardware, integrated software, on-demand high-quality content, a curated pool of instructors, and an interactive, supportive community are critical to the delivery of this value proposition. Through the Peloton App, users can access the digital training content and exercise, even when they do not have Peloton equipment.<\/p>\n

So far, Peloton’s value creation proposition allowed the company to garner 1.4 million subscribers and revenues of $915 million in 2019, and a net promoter score of 91(which is higher than Apple and Netflix). However, as the company scales up, questions remain on whether the company can grow its operations and market share in a way that allows it to capture the value it creates. While the community aspect of Peloton is valuable, it seems uncertain whether this community will be durable and scalable in the long run.\u00a0<\/span><\/p>\n

Peloton’s hardware (e.g., bikes, tread) comes with an everpresent risk of technological obsolescence. As the company designs newer models of touchscreens and updates software, the upgrades compel users to buy the screens. The last screen purchase cost $750 ($350 for users with a discount code), which is almost one-third of the value of the bike. This replacement\/upgrade was met with mixed reviews by users on Peloton’s community. Since we expect iterative cycles of product development to enable the best-in-class experience for new users, Peloton will have to market harder to convince users that upgrades in screen functionality are worth shelling the periodic amounts of capital. Additionally, the company will have to contend with users who refuse to upgrade their hardware. Peleton can internalize the costs of support or surcharge non-upgraded users for the added service.<\/span><\/p>\n

Peloton selected a “both\u2026 and” strategy that ensured it was present as an app and a relatively expensive physical product. The core idea would be to use the app as a means to enhance the\u00a0triability<\/em>, allowing users to experience the product before eventually trading up into the full ‘bike’ experience. This strategy enables the company to benefit from the multiple revenue streams- while spreading out their fixed costs across more users. However, it also exposes Peloton to revenue cannibalization and substitution from its app. App users pay $12.99 per month to access a broad suite of classes, which they can take on any spin bike and derive the fitness benefit. It not uncommon to hear app users contend with whether to get the benefits of the app while using a more affordable bike option- as opposed to the pricey bike.\u00a0<\/span><\/p>\n

On the other hand, bike users spend $39 per month for the added value of a dashboard of metrics on one’s workout history and the convenience of having your bike. Is this value difference sustainable? Highly unlikely. With more ‘Fitbits’ and workout trackers, the value of the “metrics” dashboard will decrease since users will be able to substitute the utility. This other technology also takes into account their other workout activities, e.g., walking in a way that hardware in 1 place cannot.\u00a0<\/span><\/p>\n

As competition increases, the primary users who remain on the bike\/rower infrastructure will be users who value convenience or prefer not to go to the gym. This market is constrained in urban areas by the physical size of apartments (to buy more high-end equipment, you need to have space to put it in). In more rural areas, profitable growth is constrained by supply chain challenges e.g., costs of delivery, servicing machines, internet speeds, and the complexity involved in moving heavy equipment over vast distances in the US.<\/span><\/p>\n

The “One Peloton” maxim captures the vision of a digital space where all users can go for advice on workouts, to share milestones, complain and engage with instructors. While one could argue that community engagement is another defensible moat for Peloton, the community itself is not immune to the effects of scale. In a world of increasing political divides, trolls, and international tensions, there are posts on the Official Member page with users sharing about negative engagements e.g., harassment by other users. Users often advise each to go to subtribes to find support and avoid hostility. The social media experience of users is not entirely in Peloton’s direct control, even though it affects their brand. Cultivating a healthy culture on the internet is difficult- primarily when people hide behind their keyboards and cannot be held accountable for their effect on the community.\u00a0<\/span><\/p>\n

Sources<\/p>\n

Membership Pricing, Peloton: https:\/\/www.onepeloton.com\/membership<\/a><\/p>\n

Membership Pricing, Peloton https:\/\/www.onepeloton.com\/digital\/checkout\/digital-mtm<\/a><\/p>\n

Photo Credits: Peloton responds to backlash over holiday ad, says it was ‘misinterpreted’, TODAY.com, https:\/\/www.today.com\/news\/peloton-faces-backlash-ridicule-over-new-holiday-commercial-t169080<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Can Peloton win as a physical and digital product? Will the community aspects of the experience help it to stay afloat? The app might just eat the bike. 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