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Ideas. Insights. Inspiration.

A Peloton Pricing Proposal

This problem stems from a massive, COVID-driven increase in demand for at-home workout solutions, so some would argue it's a great problem for Peloton to have.

I'd argue it's not.

Customers excited enough to spend $2,500+ on a new piece of fitness equipment want their bikes right away, not a few months after they place their order. Pelton shareholders are undoubtedly happy with the increased sales, but the company has implied in various releases that it isn't a fly-by-night fad and plans to be a long-term fixture in the fitness industry... and the in long-term, beginning a customer relationship with a disappointed customer is simply not a good idea.

Ideally, Peloton would be able to keep up with demand... but clearly, they can't.

So I humbly offer Peloton a very simple pricing proposal to help manage both order fulfillment and customer satisfaction:

Allow customers to choose between faster delivery at a premium price or a slower delivery that comes with increasing incentives.

How would it work?

Imagine you're ready to order a new Peloton.

You get to the payment page, and on that page, you're told that delivery of your bike could take several weeks due to increased demand. Then you're asked to choose which delivery timeline would be best for you:

  • Delivery in 1 week: $295 premium (equivalent to 10% of the purchase price when ordering a "Basics" bike in Canada)

  • Delivery in 2 weeks: $145 premium (i.e. ~5%)

  • Delivery in 3-weeks: Standard Delivery (i.e. no premium, but no incentives)

  • Delivery in 4-weeks: 1-month free programming once Peloton is received ($49 value)

  • Delivery in 5-weeks: 2-months free programming once Peloton is received ($98 value)

  • Delivery in 6-weeks: 3-months free programming once Peloton is received ($147 value)

  • Delivery in 7-weeks: 4-months free programming once Peloton is received ($196 value)

  • Delivery in 8-weeks: 5-months free programming once Peloton is received ($245 value)

  • Delivery in 9-weeks: 6-months free programming once Peloton is received ($295 value)

  • Delivery in 10-weeks: $445 discount (~15%-off based on someone who orders a "Basics" bike)

If you were presented with these options, which option would you choose?

Here's the thing: what you choose doesn't really matter from a customer-satisfaction perspective. What matters is that you would have a choice, and studies have shown that customers who are offered a choice tend to be more satisfied with the outcome... because they had a part in determining it.

If you are both a patient and value-driven customer, you might happily agree to wait a bit longer in exchange for increasing savings. And choosing to wait longer in exchange for greater value would be your choice, and as such, you'd likely be satisfied.

If you are an impatient customer who's willing and able to pay more for faster delivery, then you could choose a faster delivery option. That would be your choice... and again, you'd likely be happy to make it.

Can Peloton afford such a scheme? I don't know for certain, but my money is on "absolutely", for two reasons:

  1. According to the Q2 2020 Peloton Shareholder Letter, the average gross margin for Peloton equipment was 42.3%; on a $2,950 bike, that would equal a whopping $1,258 in profit... and the most expensive incentive I proposed costs just $445. I do realize that same report tells us Peloton lost USD $55.4 million... but on page 11, we learn it also spent USD $160.5 million on sales and marketing costs that probably weren't crucial at a time when people were already fighting over limited equipment inventory. Not running a few television spots to pay for an incentive program that delights new customers seems like a terrific trade-off, doesn't it?

  2. The incremental money collected from impatient buyers could be put towards the incentives used to help fund the incentives offered to those who decide to wait.

What would happen if every single Peloton customer chooses a 1-week delivery? That... would be unfortunate for Peloton. But I'd bet that would be a highly unlikely scenario: there are undoubtedly a lot of people who are stretching their budgets to buy the premium-priced spinning bike and would welcome a price-break. And if more customers choose faster options, instead of the -speedy-premiums going towards funding incentives, they could be put towards additional shifts (and/or overtime) at the manufacturing and assembly plants, as well as rush-delivery options with the couriers.

What if a customer signs up for a later delivery and then Peloton can deliver it sooner? Awesome! But should that happen, Peloton should let the consumer keep the benefits they signed up to receive. That under-promise / over-deliver would earn the company tremendous goodwill at a negligible cost.

Why bother with all this plan, instead of just making the customer wait? Because if you're Peloton, you want your customer's first Peloton experience to be a positive one... and making a customer wait for their purchase to be delivered is simply not positive.

To that effect, I'd actually go one step further with this proposal and include free access to the Peloton app ($16.99/month) for all those waiting for their machines so that they can begin participating in the Peloton community (and utilizing the online workouts that don't require any Peloton equipment) before their machine actually arrives.

This proposal isn't a perfect solution, perhaps, but it's certainly better than having the company take your money when you order the product and then deliver your product whenever they can manage to secure more inventory.

By allowing customers to help prioritize their shipments, and providing incentives for those who voluntarily delay receiving their equipment in exchange for added value, Peloton could better manage its limited inventory and maintain -- and perhaps even enhance -- its brand reputation.

Being customer-obsessed is a choice.

- dp

* Except where specifically noted otherwise, all prices and costs referenced in this post are in Canadian dollars.


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