Avoiding Peloton's Wild Ride
Summary:
- Peloton’s wild success and massive drop make it a fascinating story
- The fitness company has been plagued by several mistakes which are symptoms of root problems
- To bounce back, Peloton will need to adopt an innovation system, mitigate critical risks, get closer to their target audience, and apply strategic foresight within a shifting marketplace.
Peloton is one of the most fascinating stories in business over the last decade. They broke into the market with an innovative product targeted toward a niche segment with almost perfect timing. The COVID pandemic fueled massive demand for their products, and the company rode that wave all the way to a peak market capitalization of almost $47 billion USD in January 2021.
Since reaching the top of the mountain, they’ve seen their valuation crash through the floor, with their market cap dropping all the way to $2.99 billion as of October 2022. In case math isn’t your strong suit, that’s a drop of roughly $44 billion dollars! Their latest financial reporting also showed a $1.24 billion loss in the first 3-quarters of 2022.
So where did Peloton go wrong, what can we learn from it, and how might they bounce back?
Pelo Potential
Before we dive in, it’s worth noting that the author of this article owns a Peloton bike and is a big fan. The quality and efficiency of the workouts are unmatched, and the organization’s strengths give it massive potential. This isn’t an article to rag on Peloton, but rather to seek to understand what happened and where they can go from here.
Climbing the Hill
Peloton first launched in 2012 with little fanfare and didn’t release the first version of their bike until 2014. This bike was released via Kickstarter, and upon seeing success, the company quickly opened showrooms across the US to give people an opportunity to experience the bike first-hand. The company grew exponentially while releasing new products over the years, and achieved wide notoriety by the time the COVID pandemic hit in 2020.
Sales soared throughout the first two years of the pandemic, as potential customers dropped their gym memberships in favour of the premium at-home option offered by Peloton. It was the perfect storm of having an ideal, innovative solution at the exact moment it was needed by the masses.
Time to Sweat
Unfortunately for Peloton (and their shareholders), the good times did not last. A series of issues plagued the company, including the lasting effects of some advertising, a recall of their Peloton Tread product, unfortunate brand placement, and the impact of traditional gyms and fitness studios re-opening. Many of the issues noted above are symptoms of deeper challenges, which we’ll break down below.
The Root Problems
Root problem #1: Innovation isn’t a moment; it’s a system.
Peloton’s success all started with a breakthrough innovation in at-home fitness, providing a premium, studio-style experience anytime and anywhere. The trouble is, innovation within the company has largely stagnated since then.
They have tried to release some new equipment (including the aforementioned treadmill debacle), and tried releasing a new version of their flagship bike (with only minor/incremental improvements), but have missed the mark so far. Meanwhile, competition has been springing up all around them. Established fitness brands such as Bowflex and Nautilus have released competing products, while new entrants like Echelon have attempted to offer a similar experience at a reduced price. These competitors have often innovated faster than Peloton, with unique new offerings coming out regularly.
The situation described above is precisely why we tell our clients it’s imperative that they leverage a proven, repeatable system for innovation. By using an innovation system you move from a state of relying on ad-hoc ideas toward a state of consistently identifying and testing new ways to meet the needs of your target customers.
Root Problem #2: Poor mitigation of critical risks
Innovation deals with a lot of unknowns. That’s why it’s necessary to identify the greatest risks that could sink an idea and then work on strategies to mitigate those risks. The more meaningfully unique an idea is, the more stressed we get. If we don’t rely on a system to test meaningfully unique ideas, we tend to avoid them altogether because they become overwhelming and scary. Critical risk mitigation is the antidote to this fear, because it prevents you from going straight from idea generation to implementation, and tackles the risks that could sideline the project along the way.
We tackle risks using Plan-Do-Study-Act (PDSA) cycles of learning. When applied properly, they can catch costly mistakes before they’re made. If Peloton had embraced this approach, they could have avoided many of their wounds over the past year and a half, from poorly planned products to scaling the organization too quickly based on shifting pandemic-related market conditions.
Hindsight is 20-20, but by leveraging PDSA cycles to mitigate critical risks you can radically improve your chances of success.
Root Problem #3: Distance from the target customer
Part of Peloton’s success was that they identified a market niche of affluent individuals who were willing to pay a premium for an up-scale experience. They knew this market well and understood how to relate to their target audience. As the company began to scale, however, they failed to build the same type of relationship with a broader audience and lost touch with their core niche in the meantime. “Peloton” is a cycling term used to describe a group of people who ride together, but lately it’s felt as if there’s much less togetherness between Peloton and its users.
These challenges can be avoided by consistently staying close to your target audience, especially as it shifts over time. An organization needs to be constantly engaging their audience as part of ongoing stimulus mining and prototype testing to better understand their evolving desires and pain points. If you do this consistently, you’ll avoid the same pitfalls that have plagued Peloton in recent years.
Root Problem #4: Lack of Strategic Foresight
The final topic we’ll tackle is a lack of strategic foresight. Peloton’s leadership looked at the remarkable growth seen during the pandemic and assumed they would be able to keep that pace going well into the future. What they failed to recognize was that much of their growth was simply circumstantial due to the COVID pandemic and that the world would shift back to a more normal state before too long. When that shift occurred, demand plummeted and the resale market became flooded with second-hand Peloton bikes belonging to folks who wanted to return to in-person fitness.
This could have been avoided by recognizing the potential threat, and devising plans to reckon with it. Scenario planning of this nature would have greatly improved Peloton’s reaction to the rapidly shifting marketplace and provided a runway to plan accordingly. It appears that they missed the boat on this front, and it has cost the company billions of dollars and thousands of employees.
Wrapping Up
Peloton is a unique and intriguing story. They still benefit from a cult-like following of dedicated fans to go along with a strong, established brand. If they want to avoid being sold for pennies on the dollar of what they were once worth, they’ll need to address the core problems noted above by adopting an innovation system, mitigating critical risks, getting closer to their target audience, and applying better strategic foresight within a shifting marketplace. Win or lose, it’s going to be a wild ride.
If you want to learn more about a proven, repeatable system for innovation, you can Ask Us Anything or download our ebook, Innovate with Confidence.
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