第 332 期：Peloton 的风险与宗教

AllyLoveYall

Today’s public markets seem to penalize the cults of personality. For an example, look no further than WeWork’s current debacle. In a sequence of events that may remind you of the ouster of Uber’s founder and CEO, WeWork also raised venture capital from Softbank and Benchmark. And the company’s board happens to be at odds with its own founder and CEO, just in time for a long-anticipated initial public offering.

It’s kind of stunning how quickly Adam Neumann has become a pariah. I have always thought the business was of questionable value. But it goes to show you how many people are ‘outcome over process.’ And the second the IPO stumbles, the knives come out.

Nick O’Brien

Two venture-backed companies with growing losses and questionable paths to profitability and only one of them looks to clear the bar to IPO. One possesses a cult of personality in Adam Nuemann, the other lords over a cult of fitness thanks to consumers like you. A notoriously fickle industry, Peloton has combatted the ebbs and flows of fitness micro-trends by recruiting and retaining top management. To Peloton, retention is the KPI.

Led by John Foley, Peloton is equal parts: quality of product, quality of programming, and quality of its users.  These users are Foley’s collective x-factor. It’s also a cohort that is more vulnerable than you’d think.

Peloton reported an impressive $915 million in total revenue for the year ending June 30, 2019, an increase of 110% from $435 million in fiscal 2018 and $218.6 million in 2017. Its losses, meanwhile, hit $245.7 million in 2019, up significantly from a reported net loss of $47.9 million last year. [1]

As Peloton nears IPO, the company has chosen to experiment with a new sales promotion. The expectation is that Peloton will bolster a few key metrics: new users, new subscriptions, and number of streams. By instituting the “30 day guarantee” found in informercial fitness products like NordicTrack and Bowflex, Peloton runs the risk of reducing lifetime value (LTV), increasing churn, and ostracizing the company’s highly motivated base by marketing to casual users and moving down market.

In the beginning, Peloton buyers were required to purchase the equipment in full. By partnering with Affirm, the consumer finance startup, the hardware / software company opened the doors to 0% financing over 36-48 months. This opened the product to middle class consumers without degrading LTV and average order value. This week, the company took one final step to reduce friction.  But while analysts laud the move as an enabler of growth, I’d argue that it may backfire.

Peloton is unlike anything that we have seen. For power users, the matte black cycle has become a source of inspiration, motivation, and even accountability. Personalities like Ally Love and Alex Toussaint have become household names. Just this summer, tennis legend Chris Evert made note of her apreciation for Ally Love during the broadcast of Tennis’ US Open. She noted that Love was “her spin instructor.” Before that moment, they’d never met in person. In my own household, I ocassionally ask my wife about her training sessions, “How was Alex, today?” She laughs every time; the running “joke” between us is that she refuses to stream another instructor.

The cult of Peloton isn’t anchored by the equipment. Rather, it’s the company’s human resources that remains the draw. And surprisingly, the company seems to be willing to manipulate it for short term growth.

IMG_0113As of the June filing of the the company’s S-1, Peloton showed over 511,000 subscibers and nearly 85 million cumulative sessions. To many users, it is an addiction of sorts. But the addiction is less a result of the physical product and more of a product of its efficacy. That takes time to materialize, much longer than a month. The hardware company’s marketing flywheel is perpetuated by the consumers who evangelize it. I’d argue that the time horizon to understand its value is closer to three months. A one month trial seems like a churn engine, not an acquisition funnel.

I’ve sold a number of colleagues on owning a Peloton of their own. This is commonplace, the S-1 suggests a high rate of word of mouth sales. In selling the product to peers, I’ve noted that the rides are painful but well worth the commitment. The hardware is beautiful and the augmented live stream is extraordinary. But it’s the sense of accomplishment and the commitment to the platform that I have found to be most valuable to the product’s brand equity. So yes, part of the lock-in stems from the commitment to ownership.

Understand the dualing strategies in the fitness industry:

  • Planet Fitness thrives on low motivation, short-term commitment, relatively minimal lock-in, and low attrition. The costs are so low, many members forget that they are still paying. This is by design. Costs are minimal because volume is key. If every member showed on the same day, there would be no space to exercise. Planet Fitness is a gym model.
  • Equinox thrives on high motivation, network effects, longer-term commitment, and low attrition. Costs are relatively expensive;  this cost prevents overcrowding and funds amenities. The network and those amenities keep customers coming back. Equinox is a club model.
S1
A high participation, high retention model resembling a club model.

At the height of the functional fitness craze, CrossFit’s growth was driven by high participation, efficacy, and peer-to-peer evangelism. Patrons from traditional gyms paid a premium to join one of 7,000 grungy, glorified garages and warehouses around the world. These customers were seeking a twisted enjoyment of challenging workouts (and the physical transformation that followed). But more importantly, they sought an active community. Peloton is shifting from the exclusivity of the club model to the inclusivity of the gym model. And this is where things become trickier for Peloton. The new pricing strategy conflicts with the longterm viability of its market position.

Nothing happens in a month

The 30 day trial promotion has been widely reported in publications like Bicycling Magazine and Shape.

This new offer is a clever way for the brand to give potential long-term customers a true taste of the bike experience and the wide variety of workout classes. For you, it’s a great way to try before you buy. [2]

This messaging conflicts with many of its value propositions. If I had to guess, it was likely a point of conflict within the c-suite. The company’s corporate structure is unique. It has nine members in that c-suite. Yet, a chief of marketing (CMO) is not one of them. It’s one example of an unfortunate trend in consumer retail.  After three years as PepsiCo’s senior brand manager, Carolyn Blodgett left a short stint with New York Giants organization to become Peloton’s senior marketer. As an SVP, it’s likely that she reports to the Chief Revenue Officer (Tim Shannehan) or the Chief Content Officer (Jennifer Cotter).

In this way, the lack of a singular vision may play a role in Peloton’s decision to test a trial system. While pricing incentives aren’t rare in SaaS sales or the marketing of physical goods, they do tend to be the tip of the spear for brands seeking to introduce further discounts and incentives. And they spell trouble for a company that will be largely defined by the best practices of fitness clubs and software-based network effects. Peloton will have a hard time explaining the supremacy of its product as the trial periods grow from one month to three or four. Or worse, when the $2,300 cycle that you paid for is on sale for $1,200 over the holiday season. Pricing incentives are a slippery slope.

With marketing and real estate costs eating into Peloton’s net profitability, the writing is on the wall.  The company believes that growth costs have become too expensive and with a $1.2 billion IPO in waiting, the story of efficient growth may determine the company’s viability over the next two quarters. Unfortunately, this may be a short-sighted injection of growth.

Like WeWork’s attempt to silence its cult of personality, Peloton risks weakening its cult of fitness. Only one of these seems intentional. It’s unclear whether Peloton’s management fully understands the risks involved. The company’s strength is two-pronged: its on-screen talent and its cult-like early adopters. The market may reward Peloton for leaning on new methods of influence and acquisition. However, their management won’t begin to see the unintended effects of mass adoption (and increased churn) until its marketing flywheel begins to sully.

In the unfortunate case of that happening, Peloton will become just another in-home cycle with a screen. And in that case, consumers will see a lot more of the words Peloton Infomercial 20:00 in their cable guide’s lineup. And that’s no place for a religion to be sold.

Read the No. 332 curation here.

报告人：Web Smith |大约 2PM

Additional reading: Peloton vs. Tonal (Member Research)

 

Member Research: Tonal vs. Peloton

Which fitness company will own your spare room? From the design and machining of everything from barbells to mechanical implements, engineering is at the core of the equipment industry. But it’s not the heart of it – most successful equipment manufacturers understand that fitness is a religion. The heart of a fitness movement isn’t tangible and it certainly isn’t traditionally quantifiable. Fitness is one of the foremost belief systems in North America. And the connected fitness companies that achieve long term growth will not be because of product alone.

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第 286 号DTC 健身品牌

DTC

Silicon Valley wants to redefine the fitness membership. Through the adoption of connected devices like the Peloton bike, there’s been an inflection point as consumers seem to be trickling away from the current model. No longer do you have to drive to a place to be in a community. As Americans become more health conscious and driven to maximize performance, the DTC equipment industry is a timely bet on the next generation of  fitness data-driven IoT (internet of things).

Venture-backed startups are taking the same page out of the direct-to-consumer playbook that became a launchpad for digitally vertical native brands.

Whereas the Fitbit-phase of wearables emphasized individual fitness, the next generation of connected devices seem to be incorporating community in ways that could emerge as a challenge to the status quo: community-driven fitness facilities. Venture-backed startups are taking a page out of the direct-to-consumer playbook, the same page used by digitally vertical native brands like Warby, Harry’s, and Away.

By building systems that allow community to be gained outside of physical retail outlets, these tools are aiming to become the new medium for instruction and training.  These internet-enabled equipment manufacturers aren’t just selling plastic and metal, they’re selling virtual community. With the advent of polished functional fitness gyms like Orangetheory, Soul Cycle, and CycleBar, fitness consumers have grown to value the ability to: a) train with a group b) and track progress over time, with the use of a provided IoT device.

Zooming out of the studio and looking at the big picture, Orangetheory Fitness has 930 locations worldwide. Since it opened its first studio in Fort Lauderdale in 2010, there have been no closures. As a global franchise, CEO Dave Long reported that network-wide annual revenue is set to cross the billion dollar mark this year. Long’s vision is to open 300 new locations a year, as the brand aims to shift towards international expansion.

Inc. Magazine | April 2018

DTC fitness brands like Peloton are building brand equity by servicing the same needs but in the privacy of one’s home gym. Tonal and Mirror recently launched to add the same experience to the functional fitness experience. Get to know the growing list of players in the DTC fitness space:

Tonal’s practice of automatically assigning weights based on performance and encouraging exercisers to push their limits is both convenient and motivating — but could also be dangerous. The machine’s handles have buttons that release the weights, as well as an option for “spotting,” which will reduce the load if the machine senses it is too difficult.

Mirror’s screen gives exercisers cues to work harder or ease off based on their heart rate, while offering workout options tailored to a person’s injuries or pregnancy. Mirror also has the option for one-on-one training sessions, which use the device’s camera, for an extra $40 to $75.

 

Mirror and Tonal will likely endure the inevitable pushback. One look at the comments section of the New York Times feature and you’ll be reminded that fitness is a religion and equipment is often its proverbial scripture. However, Peloton avoided a lot of the initial pushback for several reasons:

  • Peloton is firmly positioned as a luxury status symbol
  • spin classes are easier to address by way of Peloton’s screen, the user is stationary.
  • the average person who attends a spin class needs less instruction on safety and form. The average person who will begin a functional fitness regimen will need a considerable amount of instruction on safety and form.

Issue No. 265: Can a DNVB achieve modern luxury? 

Peloton is not a traditional luxury product, but it shares consumers with traditional luxury brands. Think about the type of living arrangement necessary to house a wi-fi enabled bicycle or a $4,000 VR treadmill. It’s a brilliant piece of hardware that blends community with product and service. The brand’s proposition explicitly states that the purpose is to free the owner to focus more on experiences.

Peloton’s value proposition is as much about what you can accomplish away from the treadmill. Why take the time to travel to a gym? That time could be better spent elsewhere. This is the mark of a modern luxury brand.

Both hardware platforms will have its detractors but their early adopters, ease of use, and scalability (novice to enthusiast) will determine whether or not the products will achieve long-term viability.

2PM Data: the overall market

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Brick and mortar fitness facilities (US): projected revenue
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Projected growth in the wearables industry: projected units sold

As interest in gym membership rises, in tandem, with the demand for fitness trackers, smart home kits, and gaming consoles – there’s been no better time to innovate in this space. But the tell will be whether or not platforms like Mirror and Tonal can build community around their equipment. Or whether products like Whoop can continue innovating on the droves of consumer data that they are receiving each day.

CEO of Mirror, Brynn Jinnett Putnam said to the New York Times, “We’re looking to be the next screen in people’s lives. We desire to be an immersive platform, not just a piece of gym equipment.” This quote is a lot to unpack. Whereas Tonal’s system excludes the need for outside equipment so they are directly competing with equipment manufacturers. But Mirror’s take is what Silicon Valley wants to hear; they are hoping that a screen and programming will unlock a greater use for your existing equipment. Only time will tell whether immersive platforms attract the attention of a very specific demo: the high maintenance, upper middle-class gym goer, with ample space in on their spare room’s fortified wall, a strong broadband connection, and a willingness to leave behind their existing fitness community for a purchased one.

If and when manufacturers like Mirror and Tonal figure this out, it could spell trouble for your gym. Spin franchises are already beginning to adjust to the threat of Peloton and as the threat of connected cycles continues to grow as also-has brands rise up in the wake of Peloton’s premium pricing.

Read the rest of the letter here.

By Web Smith |About 2PM