On the most basic level, the Peloton brand is happiness.
I found myself in chicken-or-egg mode this week. As in the “which came first” query. But in this instance, it was which came first: consumer expectations or innovation?
Expectations drive consumer behavior in the marketplace. Ultimately, loyalty too. Innovation is great, but here’s the thing. Consumers can’t necessarily articulate what innovations they want. Oh sure, they recognize it when they see it. More accurately, they feel it. Otherwise, they must wait for some brand to present it to them. And then they decide whether this particular “innovation” meets (or sometimes even exceeds) their expectations. And that’s what determines whether a particular innovation will be a success.
To further complicate things, you just can’t ask consumers. You need to get under the radar. We measure expectations via a combination of psychological inquiry and some really neat higher-order statistical analyses. The analysis informs us as to how high is “up” when it comes to various aspects of what drives brand engagement, loyalty, and behavior. Using psychology to get under the consumers’ “radar,” provides a true measure of what consumers really expect – unconstrained by reality and gives us a really good fix on what consumers really feel.
We try and keep up with innovation and innovative brands via our annual Most Innovative Brands survey. Peloton first showed up on the list back in 2019. The brand had been up and running since 2012, but 2019 was the first time consumers acknowledged the brand for the innovations it was bringing to the exercise equipment category. So good for them! The ability to better meet consumer expectations is a leading-indicator of positive consumer behavior and, axiomatically, brand profitability. And Peloton posted profits.
For the category generally and the brand specifically, the next couple of years turned into a kind of “perfect storm” – but in a good way – given the pandemic, gyms closing, people sheltering-in, and folks feeling a desperate need to do something to protect their health like baking bread and exercising. In its first 8 years, Peloton signed up about 887,000 connected fitness subscribers. The perfect storm blew Peloton out of the luxury category into a sector some consumers thought of as a “necessity,” and that was good. In 2020 they showed a return of 400%. After a year of Covid-19 they had over 2 million subscribers.
On average, consumer expectations regarding individual values that drive a category grow at a rate of 25% a year. Brands only keep up at around 7%.
Peloton wasn’t the only home exercise brand available, but it apparently better met expectations consumer held for their Ideal, the yardstick consumers use. It’s also the yardstick Brand Keys uses to measure loyalty and engagement. In Peloton’s IPO filing, the company wrote, “On the most basic level, Peloton sells happiness.” Oooookay. Not the use of the word “happiness” with which we’re familiar, but let’s go with that for a moment.
Sure, the brand hit a couple of bumps along the way. They couldn’t turn them out fast enough to meet COVID-demand. And they were really, really, expensive. Then there was that Consumer Product Safety Commission report of people, pets, or objects “being pulled under the rear of the treadmill, including 29 reports of injuries to children such as second- and third-degree abrasions, broken bones, and lacerations,” words I’m betting did not show up anyplace in the IPO. Also, the expansion of the competitive set, including the likes of, MIRROR, Precor, Soul Cycle, Nordic Track, and Life Fitness, put pressure on the Peloton brand. Also, you’ve got to figure post-pandemic expectations will be amended with consumer access to the gym and, well, the outdoors.
To be fair, Peloton was not unresponsive to these issues – injured 6-year-olds having a way of focusing a brand’s attention notwithstanding. Peloton immediately stopped selling and distributing the Tread+ while it worked on a fix. In 2020 Peloton lowered its digital subscription cost, and their lower-priced treadmill was introduced this past August. This year, the brand has been doing a lot of price sensitivity advertising. Peloton recently lowered the price of its original bike, a reduction of 33% from where it was priced two years ago. So, price-promoting, something high-loyalty brands don’t usually find themselves having to do. Like Apple. Just saying.
So, consumers mostly-emotional expectations have changed again. They always do. They never decrease, just grow. And they always grow faster than brands keep up. On average, consumer expectations regarding individual values that drive a category grow at a rate of 25% a year. Brands only keep up at around 7%, which leaves a gap between what consumers desire and brands deliver big enough for the installation of a small home gymnasium or a smart, competitive brands to use to its advantage!
So, sticking with our theme, here’s some advice; There is no elevator to success. You have to use the stairs. One step at a time. And the first step is accurately measuring, understanding, and customer expectations.
Robert Passikoff is founder and CEO of Brand Keys. He has received several awards for market research innovation including the prestigious Gold Ogilvy Award and is the author of 3 marketing and branding books including the best-seller, Predicting Market Success. Robert is also a frequent contributor to TheCustomer.
Photo by Giorgio Trovato on Unsplash.
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