Week 4: Peloton - Sinking Ship?

On February 19th, the New York Times published an interview with Barry McCarthy, who was recently appointed CEO of Peloton. Peloton, known for it's massive boom in sales in the early days of the pandemic, has seen a drop in sales so severe that it's share price has, at times, dipped below it's initial public offering (I.P.O.) price. McCarthy was brought out of retirement after a successful career as CFO for Netflix (1999-2010) and Spotify (2015-2022), where he had developed Netflix's streaming model and taken it public, and had developed Spotify's advertising strategy and helped push it into podcasts.

Getting a glimpse into the mind of a high-profile, high-impact marketer is fascinating, especially as he's not stepping in a the captain of a calm cruise: Peloton is in crisis mode. It comes as no surprise, given his work history, that McCarthy is planning a subscription model for Peloton. High entry points made it profitable upfront, but now that everyone who could afford the high price has purchased the product, it's his job to even the keel of demand. He notes "Can you become a profitable company by only cutting costs and have long-term success? I think the answer to that is clearly no. [...] Selling subscriptions with a really low entry price. Playing around with the relationship between the monthly recurring revenue and the upfront cost to find some sweet spot in the consumer value proposition that gets people to buy into the user experience and affords you a really good margin." McCarthy also point out that with Netflix, the wider the subscription base, the more stable your income is - perhaps common sense, but worth restating. Peloton has made a name for themselves by marketing to the young, the cool, and the wealthy, to those with enough disposable income to own the space for a Peloton and the visuals to make their machine the fashionable trend.

McCarthy, however, seems to be anticipating this lower entry point cheapening the brand. When asked if he would consider joint ventures, he names big names with brand appeal, replying "Yeah, I would. Which ones? I don’t know. Should we do something with Amazon? Should we do something with YouTube? Is it Nike? Should we do a co-branded thing with Adidas and with retail? There’s a big opportunity in apparel." Combined with his analogy later on comparing the company to a team trying to win the Super Bowl, in which he states "we're going to put the best players on the field we can," McCarthy carries no sentimentality into the strategy. This gives the feeling that this plan will move like a political campaign: analyzing every home field for the advantage, personal connection when the culture calls for it, and cool distance when the people push back on over-familiarity. 

It will be interesting to see which market McCarthy and Peloton will focus on next, or if they will target many at once. On the one hand, focusing on getting the most out of one market before moving on means that Peloton can hold on to its elite and exclusive status for that much longer, making them something to be desired and a status symbol. On the other hand, larger markets mean the loss of control over who buys them and loss of control over how they're perceived. The second they become commonplace,  the next home bench press - useful still, but regarded as bulky, ugly, and cheap - they lose all of their allure as a status symbol. Again, perhaps common sense, but worth stating. Coming back from being the boring and cheap is a success story in and of itself - the revival of the Thermos as Hydroflask is still in recent memory, and Yeti has been making the camper cooler en vogue since 2006. But it takes time, to let the shame of the fall from grace settle into quiet but sustainable background noise, and that's time that Peloton doesn't have. 

With the dramatic fall they've had, all eyes are staring a hole in the company, meaning McCarthy has to move, and fast. While the ideas he speaks about in the interview seem unfinished, his history of success is promising. We don't know how fast Peloton is actually taking on water, or how fast the bailing needs to be done. If McCarthy is truly successful, we will never know.