Interest fee

WSJ News Exclusive | A Peloton bike and a subscription for a monthly pass? The company will test new tariff plans

Interactive Platoon Co.

The new chief executive of is looking to overhaul the stationary bike maker’s pricing strategy in a bid to turn the business around.

On Friday, the company will start testing a new pricing system where customers pay a single monthly fee that covers both the stationary bike of the same name and a monthly workout class subscription. If a customer cancels, Peloton will take the bike back free of charge.

Select Peloton stores in Texas, Florida, Minnesota and Denver will be offering a bike and subscription for between $60 and $100 per month for a limited time, an experiment that aims to find a price proposition that will help bring Peloton back to life. profitability without paralyzing growth.

If adopted, the model would be a major game-changer for Peloton, which has built a business around selling high-priced screen-equipped stationary bikes, as well as $39-a-month subscriptions to its fitness classes. training connected. The idea: sell Peloton as a fitness service that can be canceled at any time rather than a major purchase with a subscription attached.

“There is no value in sitting around negotiating what the outcome will be,”

Barry McCarthy,

who last month replaced co-founder

John Foley

as CEO, said in an interview. “Let’s go into the market and let the customer tell us what works.”

Alongside a price overhaul, Mr McCarthy, the 68-year-old former finance chief

netflix Inc.

and

Spotify Technology HER,

said he plans to reshape his management team, consider making simpler bikes and change the company’s capital expenditure strategy. Rather than investing primarily in bikes, treadmills and other gear, he said, Peloton will spend most of its money improving its digital interface and content options.

He said the inventors who control 70% of Peloton’s voting shares, including Mr Foley, have agreed to postpone any discussion of selling the company while he executes his turnaround plan. Mr. Foley still controls about 35% of the voting power even after selling about $150 million of his shares in the company since the start of 2021, said Ben Silverman, director of research at InsiderScore. This voting power is due to his holdings of Class B shares, which give the right to 20 votes per share.

Initially one of the pandemic’s biggest success stories, New York-based Peloton lowered its revenue forecast for several consecutive quarters and said it would cut about 20% of its corporate positions to help cope. to increasing losses as demand cools.

The subscription price of $39 per month has basically been around since Peloton’s inception. In recent years, the company has reduced the cost of its bikes and treadmills, either by reducing prices or by offering cheaper options. A Peloton bike in 2020 costs $2,495; now the cheapest model is $1,495, not including shipping.

CEO Barry McCarthy said a different pricing system could attract new customers and make the company more profitable.



Photo:

Brendan Mcdermid / Reuters

Under the test program, people get a Peloton and a membership that includes access to all of its courses for a single monthly subscription, with the ability to cancel at any time. The deals would be available at Peloton stores or studios, not online. Subscribers would pay a non-refundable delivery charge.

Mr McCarthy said a different pricing system could attract new customers and make the business more profitable.

His predecessor, Mr Foley, argued that Covid was just the start of Americans’ shift to online, connected fitness. Based on this assumption, Mr. Foley dramatically increased the company’s capacity, which proved to be well in excess of demand as legions of people returned to gyms and Peloton’s growth died out.

That misstep, Mr. McCarthy said, doomed Peloton.

Now, he said, Peloton needs to figure out how to tap into new customers and make more money from each subscription, while reducing its reliance on bikes and treadmills to generate profits.

Given Peloton’s ability to retain subscribers, McCarthy said, higher subscription rates offer significant profit potential over time. Even at $39, Peloton subscriptions are extremely cost effective, he said. He said he wanted to use models that have been successful at Spotify and Netflix and that Peloton has much higher retention rates than either of those companies.

“I’m a big fan of them charging more for subscriptions,” said BMO Capital Markets analyst Simeon Siegel. “But they have to internalize that, which will hurt their brand and reduce demand,” while making the business more profitable.

He said the fact that Peloton’s growth has slowed significantly despite the reduction in equipment price casts doubt on whether any changes to the pricing model will win over converts.

A Peloton spokeswoman said the ability for customers to cancel at any time differentiates the potential new model from previous price cuts.

Peloton went on a wild ride, announcing that its CEO was stepping down and thousands of jobs would be cut, despite an increase in sales at the start of the pandemic. Here’s why Peloton became a viral hit and why it’s touring now. Photo illustration: Jacob Reynolds

Peloton’s exercise equipment profitability is significantly lower than it was before the pandemic as the company grapples with higher production and logistics costs and excess capacity.

Equipment sales have been vital because physical machines, while more expensive to manufacture, generate more than twice as much revenue as subscriptions, said UBS analyst Arpiné Kocharyan.

So far, equipment sales have funded Peloton’s skyrocketing marketing spend, Ms. Kocharyan said. “If you have to get out of the product business, who is going to pay for that sales and marketing? ” she says.

Mr McCarthy said it is not yet clear what role the Peloton machines will play in the company’s future. He said about 80% of capital expenditure is spent on equipment, with the rest going to software. That should be reversed, he said.

Among the potential offerings, he thinks Peloton should consider developing: its own social media platform, more transparent ways for members to interact and compete with each other during class, and partnerships that could land Peloton courses on other devices, or allow outside content to stream. on Peloton screens.

For now, McCarthy said, Peloton will be fervently testing the market, a more reliable strategy than focus groups and consumer surveys. Netflix also conducted market tests to see what caused subscribers to drop the service or keep it, he said.

There’s not much middle ground between success and failure, he said.

“Either I will leave here successfully,” he said, “or I will leave with a greatly diminished reputation.”

Write to Sharon Terlep at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Stay connected with us on social media platform for instant update, click here to join our Jwitter& Facebook