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A STRATEGIC ANALYSIS OF PELOTON 2

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A STRATEGIC ANALYSIS OF PELOTON

1
Introduction

Peloton is the largest interactive fitness platform in the world with a loyal community of

over 3 million members. The company pioneered connected, technology-enabled fitness

programs, and the streaming of immersive, instructor-led boutique classes which can be

accessed anywhere at user’s convenience. Their instructors guide classes through a

variety of fitness and wellness disciplines, including indoor cycling, indoor/outdoor running

and walking, boot camp, yoga, strength training, stretching, and meditation. The company

was founded in 2020 by John Foley, Hisao Kushi ,Tom Cortese, Graham Stanton and

Yony Feng who are also members of the company’s management team. (Peloton, 2020)

Kurutz (2017) noted that Peloton's main products include stationary bicycles and

treadmills that allow for monthly subscriptions from customers around the world, availing

them remote participation in workout sessions that are streamed from the company's

fitness studios.

The bikes currently retail at $1,895 and $2,245 for the Bike and Bike+ respectively while

the Tread and Tread+ sell at 2,495 and $4,295 respectively. The brand’s content can be

accessed at a monthly subscription fee of $39 through the Peloton Bike, Peloton Tread,

and Peloton App, which provides a full slate of fitness offerings, anytime, anywhere,

through iOS and Android devices as well as most tablets and computers. Subscribers

who choose not to buy the hardware products can access the company's classes on

cycling, running (both treadmill and outdoor), yoga, and meditation through the app at a

2
monthly subscription fee of $19.49. Peloton also sells branded accessories and apparel

(Peloton, 2020).

According to the company’s 2019 prospectus, the company had a +103 year on year

growth with 563k connected fitness subscribers, a 94% retention rate of average 12

month connected fitness subscribers with a revenue of $915million as shown in figure 1

below, with a loss of $195.6 million in fiscal year 2019. Peloton has forecasted $3.5 billion

to $3.65 billion in revenue for fiscal 2021 (Gurman, 2020)

Figure 1: the growing trend of fitness enthusiasts opting for fitness (Investing,com)

The Fitness Industry in The Face of Covid-19 Pandemic

According to the latest IHRSA report, the total fitness industry revenue was an

estimated $96.7bn in 2019, up from $94bn in 2018. In revenue terms, the fitness industry

growth rate was 2.9% globally. The industry was however hit hard by the coronavirus

pandemic; 230 million gym members globally were unable to attend workout sessions at

3
the gym. As the pandemic persisted, 64% of the world’s fitness sites were forced to shut

down. (Wellness, 2020)

Figure 2: the growing trend of fitness enthusiasts opting for fitness tech (IHRSA 2019 Report)

There’s a growing demand for Fitness Tech as shown in Figure 2 as against fitness club

membership. It has taken the pandemic to show the world that in-home workouts are the

future of fitness. Major workout brands like

Peloton, SoulCycle, FightCamp, and Tonal were compelled to accelerate emerging digital

efforts to take fitness into people’s homes, using smart devices and equipment that offer

a similar experience to working out in a high-end fitness studio or gym complete with state-

of-the-art equipment and expert trainers (Kurutz, 2017).

Companies like Life Fitness have also invested a lot in innovative technology aimed at

making integration possible with basic client devices such as Apple and Galaxy watches.

4
FlyWheel released a physical bike product with features like “at home live streaming” and

“on-demand content” that are similar to Peloton’s (Lesage, 2019).

Peloton has benefited from the lockdown measures during the COVID-19 pandemic.

According to a May 2020 estimate as shown in figure 2, its stock price increased by 36%,

online searches for "Peloton" almost tripled since the end of February, and quarterly sales

jumped nearly 61% to $420.2 million (Reuters, 2020). Peloton’s global membership base

hit 3.1 million at the end of June, more than double a year earlier, as gym closures due

to Covid-19 and the social distancing campaign, increased demand for at-home workouts

and analysts believe Peloton Interactive is well-positioned to come out a winner post-

pandemic. Unfortunately, Peloton has seen some negative impacts from the deadly virus;

the company, just like other players in the industry closed its retail locations due to the

Covid-19 pandemic restrictions and stopped allowing customers to attend in-studio

workout classes (Bursztynsky, 2020).

Figure 3 Increase in Peloton’s stock price as a result of Covid-19 lockdown (McKenna 2020)

5
Peloton Markets and Customer Profile

According to Peloton’s co-founder & CEO, John Foley, the target demography of the

brand is individuals who do not have "time to go to the gym" but based on household

income and purchasing power, Peloton's price point clearly indicates that they target the

upper class. The company's S-1 form (IPO filing) says they target consumers with

household incomes over US$50,000. According to the brand's IPO prospectus,

consumers under the age of 35 and with incomes under US$75,000 are its largest

growing demographic. Therefore, Peloton also targets non-affluent consumers with

household incomes between US$50,000 and US$75,000. Peloton customers are highly

invested in community and personal experience. They want quality and they're willing to

pay for it. They are also willing to complain, loudly, about things not being up to the quality

they desire (Varun et al, 2019).

Strategic Analysis of Peloton

To adequately carry out a strategic analysis on Peloton’s internal and external

environment, it’s important to carefully understand the strategic plan of the company.

From the company’s 2019 prospectus, the following can be deduced:

 Grow Subscribers continually

 Create interactive features that strengthen the bond within its community

 Produce the best fitness content in the market

 Design new products and upgrade old products to set industry standards

 Expand the company’s reach geographically and in market share

6
  Continually emphasise the value of at-home workout

Based on the aforementioned objectives, the analysis of their current environment and

their competences within the covid-19 restrictions will give a clear picture on where they

are and the way forward post-Covid.

Internal Analysis - SWOT

An internal analysis using the SWOT framework is credited to Albert Humphrey, who

developed the approach at the Stanford Research Institute (SRI) back in the 1960s and

early 1970s. (British Library) https://www.bl.uk/business-and-ip-centre/articles/what-is-

swot-analysis

SWOT analysis as a way of drawing together an understanding of the strengths,

weaknesses, opportunities and threats an organisation faces. Johnson, (Whittington, R.,

Scholes, Regner, & Angwin, 2017) (See Appendix 1)

Strengths:

Peloton’s customer base is huge and has been growing since the covid-19 restrictions

with very high customer retention rate. From what experts think, even after covid-19

restrictions have been relaxed, people will still not want to rush back into the gyms and

fitness studios. The company’s customer base is remarkable one at a community of over

3 million people, post- Covid-19. This is expected to grow even more with the recent plans

to introduce smaller and less expensive products. Peloton’s continues to enjoy a

community of members are extreme brand loyalists, who bond greatly due to shared love

7
of the service. For instance, the advert controversy which Ortiz (2019) which Peloton

suffered in 2019 would have been a big blow to their customer base. Fortunately, they

have spent years building a vibrant and loyal community and this community proved vital

in helping Peloton absorb the shock of that controversy.

Weaknesses:

The company has reported delays in delivery of equipment due to Covid-19 .The

pandemic has impacted the company's ability to manufacture its new products and forced

it to pause deliveries across most of the U.S. https://www.onepeloton.com/showrooms.

As such Peloton is not able to meet up with the increasing demand for their products

(Cosgrove, 2020). In order to meet growing demand post Covid-19 lockdown,

Peloton recently acquired one of its major manufacturers in Taiwan in October, in an effort

to mitigate supply issues but the acquisition will not be fully online until December 2020.

The covid-19 pandemic and the resulting restrictions have led to idle facilities around the

world. Peloton has had to shut down their showrooms for lack of visitors in their

showrooms, gyms and studios. With post-Covid lockdown restrictions being lifted around

the world, efforts are currently being made to reopen these facilities gradually

https://www.onepeloton.com/showrooms, However it is very unlikely that the facilities

would be used at optimal capacity for a very long time to come as a result of the new

changes in lifestyle post-Covid.

8
Also, considering the bulkiness of some of their products such as the Tread and need for

professional set up, Peloton had put a hold on its distribution as a result of Covid-19 social

distancing policies (Garun, 2020).

Business Opportunities:

Due to Covid-19 restrictions, home work-out is now a thing of necessity, rather than a

choice and Peloton has positioned itself to maximise this opportunity. As earlier stated,

Peleton enjoyed a boom with many gyms closed, and "is preparing to launch a cheaper

treadmill and a new high-end bike," (Gurman, 2020)

Additional growth opportunities include growth into foreign markets, and expansion in the

product line. According to the company, one of the biggest opportunities in foreign

markets is in the Canadian market (Rosalyn 2020).

Threats:

Although Peloton has announced that it will reduce the cost of its most popular spin bike

by $350 to make it more accessible to more people, (Newcomb, 2020) there is still the threat

of stiff competition from the rivals

For example, the Echelon Smart Connect EX3 costs less than the current price of Peloton bikes

and the Nordictrack s22i Studio Cycle bikes comes with a 1-year NordicTrack iFit membership

with live cycling classes and cross-training options like yoga, boot camp, and strength

training https://www.healthline.com/nutrition/peloton-bike-alternatives#

9
In a letter to its shareholders, Peloton stated that supply is also a top concern. They listed

the loss of any one of their third-party suppliers or manufacturers as a risk alongside

delivery concerns. (Peloton, 2020).

External Analysis - PESTLE

Using PESTLE to analyse Peloton’s will help us identifying critical external factors that

may affect the business. These factors may be opportunities or threats; the opportunities

if maximised could help the business gain competitive advantage while the threats could

grow so severe, the firm is compelled to shut down. This analysis is done analysing the

Political, Economic, Social, Technological, Legal and Environmental factors. (See

Appendix 2)

Political: there is minimal involvement governments around the world in their fitness

industries. For Peloton’s home country, the U.S.A, there are only state laws that govern

the activities of workout studios and fitness clubs, not at national level. There is little or

no legislation on at-home workout activities.

Economic: there was minimal economic activities for the most part of 2020 due to covid-

19 restrictions leading to the closure of Peloton showrooms across the globe.

Nonetheless, record surge in income, demand and membership were seen despite the

closure of showrooms and the projections as earlier indicated is that this will remain so

post-covid.

10
Social: in today’s world, the society has a lot of consideration for health and fitness

regardless of hard times like recession and pandemic restrictions. This will continue to

make the fitness industry thrive.

Technology: tech-savvy customer base and target market are willing to transition from

location and outdoor workout sessions to interactive at-home workout session via

screens, headphones, etc.

Legal: vague patent and copyright laws and licenses lead to legal battles between

industry giants. The emergence of interactive programs and general workout content

leads to intellectual property infringements. Peloton has started to to strategic steps to

protect its patent and intellectual propriety.

Environment: environmental consciousness characterises today’s business scene.

Companies are easily boycotted for failure to engage eco-friendly production processes.

Peloton seeks to be proactive about this but seams to fail in its product packaging.

External Analysis Porter’s Five Forces

For our final analysis, we look to the five forces to define and measure Peloton’s rivalry

in the fitness industry. This framework was developed by a Harvard scholar, Michael

Porter for analysing a company’s completive environment. Porter’s five forces will be

applied to Peloton’s external environment.

11
 Threat of new entrants: Low

Massive investment funds and

advanced technical knowhow
required.

Current industry giants are

capable of frustrating new
entrants out of the market.

Supplier power: Moderate
Major manufacturer has been
acquired to resolve supply
issues, however other suppliers
may seek higher rates
Rivals:
Buyer power: Moderate
Intense competition:
although the rivals firms Oligopolistic market makes the
are few, the size of capital company a price maker, however,
involved in the business accessing larger markets require
makes for intense price cuts
competition.

Threat of substitutes: High

Easy manipulation of equipment

makes it easy to repurpose for
content or totally circumvent
product

12
Threats of new Entry:

To threaten Peloton’s position post-covid, new entrants must possess two features;

massive investment funds and advanced technical knowhow. Obtaining these two in a bit

to challenge peloton for market share and profits, new entrants will face an uphill task but

not impossible and as such Peloton is doubling all efforts to stay ahead of the game with

more creative contents and new product lines..

Threat of Substitution:

Due to the relatively high cost of Peloton products, people may opt for less expensive

generic bikes, have these bikes retrofitted with cheap touch screen tabs and log on to

free workout contents online. They may not enjoy the premium content Peloton provides

its customers and subscribers but they have found ways to circumvent the high costs of

Peloton's products whilst using Peloton's innovative ideas.

Bargaining Power of Suppliers:

Peloton acquired on of its major manufacturers in Taiwan in October, in an effort to

mitigate supply issues (Cosgrove, 2020). If a company can, it is always advised, take

charge of your business’ immediate environment and this is what Peloton has done.

Bargaining Power of Buyers:

The bargaining power of consumers lies in the number of alternatives in the market;

currently, there are but a few, so driving Peloton’s prices down may be another uphill task.

From another perspective, the said products are long term durable products with very

slow rates of depreciation, so replacement orders are far from frequent. Equally, multiple

13
purchases seldom occur; Peloton thrives on referrals (word of mouth) and adverts, so

one individual buys one unit of a product, uses it for years and will have no direct impact

on the price after purchase.

Competitive Rivalry:

According to Rick Broida (2020), there are a number of brands selling workout bikes at

relatively cheaper rates than Peloton’s such Bowflex, Echelon, Myx Fitness, NordicTrack

and ProForm. https://www.cnet.com/health/best-peloton-bike-alternatives-5-great-

indoor-exercise-bikes-that-cost-less/ . However, not all these substitutes avail their

customers all the features made available by Peloton. It is advisable that Peloton

establishes uniqueness in its products and content. Peloton announced it is cutting the

price of its flagship bike by a few hundred dollars and unveiled a new higher-end bike.

RECOMMENDATIONS

1. Fast track production of less expensive new line of products

In consideration of the concerns regarding the size of Pelotons products in the living

quarters of users and the expert installation required for set up, it is important that the

next line of products to be introduced should be designed to address these concerns and

as soon as possible in order not to lose share of the addressable market.

It is important to start to build a relationship with another large market – the entire

middleclass - with relatively cheaper products as more people would rather work out from

14
their home even social distancing is no longer enforced by law. This is because there will

still be a considerable level heightened reservation around use of shared public spaces.

2. Take more control over Manufacturing

Peloton’s dependence on its manufacturers and suppliers puts it at risk especially as it

doesn't currently have backup suppliers in place.

According to Peloton’s Chief Finance Officer, Jill Woodworth’s, the company is faced a

massive disequilibrium as they are unable to meet demand with supply. Jill stated clearly

that upstream supply chain constraints are keeping them from maximising the surge in

demand (Cosgrove, 2020). Peloton’s recent attempt to resolve this issue by acquiring

their Taiwan manufacturer is laudable but not sufficient. Taking ownership of only one

manufacturer may not totally resolve the supply shortage. More acquisitions are

recommended in order to have more control on production and meeting their customer’s

demand given the current circumstances of anticipated continued increase in demand.

3. Re-purpose the Idle Facilities:

Peloton’s 81 redundant showrooms can be re-purposed for other business use so as to

generate some income and reduce waste and cost inefficiencies. Post lockdown, many

people will still be wary of using the gyms and visiting the studios as before the advent of

Covid-19. As such, the company be still be running large overheads costs on leases and

rentals of spaces while still having a huge number of their community members working-

15
out from home. If predictions by renowned scientists and public health experts are

anything to go by, 2021 may not be any different from 2020 (Kelleher, 2020).

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APPENDIX 1: A SWOT Analysis of Peloton

Table 1 A SWOT Analysis of Peloton

Strengths Weaknesses

 Impressive Customer Base  Inability to adequately supply products on

 Celebrity-like Instructors with great a timely basis or in sufficient quantity.

influence on members of the community  Idle Facilities due to covid-19 restrictions

 High retention rate and customer  Treadmill too large and complex for

satisfaction and brand loyalty consumers to reasonably assemble on

 Big Focus on Customer experience as a their own

Growth Strategy  Material weakness in financial reporting

 Vibrant Community & Goodwill  High Sales and Marketing costs

 Diversified Offerings – Hardware, contributing to the company’s reported net

Software, Content, Retail etc losses in previous years

 Several subscription offerings

 Premium products - bikes have great

ergonomic design, with great technology

19
 Business Opportunities Possible Threats

 Continued widespread need for At-Home  Potential inability to adequately supply

work-out even after covid-19 restrictions products on a timely basis or in sufficient

 Growth opportunities in foreign markets quantity.

such as Canada and Expansion in the  Peloton’s competitors such as

product line to target new market such as SoulCycle, Echelon and NordicTrack,

lower middle-class. etc are offering similar services at lower

 Technology and Social Media leverage to price

expand reach of target consumers

APPENDIX 2 : PESTLE ANALYSIS FOR PELOTON

Table 1: PESTEL Analysis for Peloton

Opportunities Peloton Threats

Little or no legislation on at-home workout P No significant political threat

activities. An opportunity to collaborate with

governments to set standards and policies.

Pervading willingness to spend scarce E Minimal economic activities for the most

resources on fitness and workouts despite part of 2020 due to covid-19 restrictions

economic downturn

Very enthusiastic society as regards health S

and fitness regardless of hard times

20
 Tech-savvy customer base and target T New investment in Technology required

market are willing to transition from location to produce new lines of products that

and outdoor workout sessions to interactive don’t require expert set-up.

at-home workout session

L Vague patent and copyright laws and

licenses lead to legal battles between

industry giants

Peloton products do not emit dangerous E Environmental consciousness

substances and have little or no issues with characterises today’s business scene.

eco-conscious community Companies are easily boycotted for

failure to engage eco-friendly production

processes

APPENDIX 3 : RECOMMENDATIONS

Table 1: Recommendations

Structural Weaknesses Recommendations

 Idle Facilities due to covid-19 restrictions  Re-appropriate Idle facilities to create new

 Treadmill too large for consumers to streams of income.

reasonably assemble on their own. 

 Competitors offer much lower priced  New line of treadmills that require little or

versions of products no expertise to setup.

21
  New line of less expensive products in

order to reach the large market in the

middleclass

Possible Threats Recommendations

 Potential inability to produce on a timely  Take charge of all production processes

basis or in sufficient quantity. to ensure exclusive supply. Create Pre-

 Peloton’s competitors such as delivery programs to engage customers

SoulCycle, Echelon and NordicTrack) pending delivery. Establish a detailed

are hinting to offer similar service at tracking system to eliminate

lower price uncertainties about orders and

shipping.

 Cut prices to push more rivals out of the

market.

22

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