Activist company

Peloton’s latest strategy to save the company is the 1 thing no company should ever do

It’s been a tough few months for Peloton’s new CEO, Barry McCarthy. Since taking over the ailing business from its founder, John Foley, in February, its stock has been steadily falling. It is now down 38% during his tenure. Not only that, activist shareholder Blackwells released a presentation blaming McCarthy for not turning the company around quickly enough.

Perhaps feeling the pressure, McCarthy announced his first big move to boost revenue by raising the price of subscriptions. The company will now charge $44 per month for a subscription that previously cost $39 in the United States. In a statement about the price increase, the company points out that this is the first time it has done so in eight years.

At the same time, Peloton is also dropping the price of its Bike by $300 and Bike Plus by $500. Never mind that just a few months ago Peloton raised their prices. Well, it actually stopped shipping and setting them up for free, and instead added $250 to $300 to the cost of its Bike and Tread products.

Now it still charges you delivery on the entry-level bike, but cuts the cost of the hardware itself, bringing the price down to $1495. Presumably, the idea is to lower the barrier to entry by lowering the cost of hardware in hopes of offsetting it in subscription fees.

It’s a great idea, except for the part where no one who didn’t buy a Peloton bike for $1495 in January will buy one now at the same price. Meanwhile, you expect your current customers to compensate for your poor planning and revenue issues.

The problem with rising subscription prices is that customers hate it. It’s one thing to pay more for something when a new feature is announced or there is additional value. When you have to pay more today than yesterday, but don’t feel like you’re getting anything more, there comes a time when you’re probably going to decide it’s not worth it.

To be fair, Peloton points out that the number of courses it offers today is way more than it was in 2014. That’s certainly true, but if you have to try and convince people that you’re giving them more of value by setting up an array, you’re probably losing the argument. Most people are just going to think you’re getting greedy.

This movement was, of course, inevitable. McCarthy has spent most of his career counting stacks of subscription dollars at Spotify and, well, Netflix before that. It’s hardly a surprise that the company is following a similar playbook.

Plus, subscriptions are a great business model. There are few things more desirable – as a business – than convincing your customers to pay $10, $20, or $40 a month for the rest of their lives.

Except that Netflix is ​​raising prices because there are hardly any new customers to sign up for its service. It’s already the default option for most households when it comes to streaming services. It has reached saturation in the United States, and the only way for it to continue to grow is to charge its existing customers more.

Also, Peloton is not Netflix.

Sure, the connected fitness company has a strong brand and a loyal following, but it’s a high-end luxury product. It worked well during the pandemic as people were looking for an alternative when gyms were closed and everyone was staying indoors. Its main problem is that it never occurred to anyone that there were a finite number of people willing to spend that much money on a stationary bike, especially once they started going out again.

Plus, Netflix is ​​pretty easy to leave as long as you’re going to miss the next season of Ozark. On the other hand, if you paid $2,000 for fitness equipment that also requires you to pay a monthly fee to access its best feature (the classes), it’s a little harder to stop paying for it. ‘Monthly subscription. If you do, you might as well have bought a much cheaper bike.

Which is sort of the problem. The last thing Peloton can afford is to alienate its current customers. Of course, it could be inevitable that the company will raise subscription prices. It might make sense on paper, and the company definitely needs all the help it can get. The thing is, the company didn’t get into this mess because of its customers. Charging them more to help them out is something no company should ever do.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.