Peloton’s Marketing Resilience Is Tested by a Recall Misstep and Evolving Fitness Choices

Over the past 24 months, Peloton’s marketing team has faced a greater series of challenges to its brand fitness. So far, the connected home exercise company has only gotten stronger. But as it currently extricates itself from product safety questions, Peloton will have to figure out how to meet more long-term risks to solidifying its aspirations of being the leader in health and wellness. Last week, the company said it would recall all treadmill products following an accident that left a 6-year-old boy dead. The details of that tragedy were shared publicly by the company in March. At the time, Peloton disputed the recommendation of a product recall by the federal government’s Consumer Product Safety Commission. That U.S. regulatory body found Peloton’s treadmill products could pose a danger to small children and pets. The stationary bikes, which are Peloton’s primary product and sell for roughly $1,900, were not included in the regulatory review. Nevertheless, Peloton took a defensive position regarding the Tread+, which were part of its expansion plans. Peloton backpedals The move was a reversal and appeared to represent a turn toward damage control. In addition to the recall, Foley said the company was wrong to push back against the commission’s recall. On Thursday, Peloton posted a fairly positive earnings report, which called for $4 billion in revenues for the year. That figure was in line with previous expectations the company set for investors. But the earnings report was dominated by the treadmill recall, which CFO Jill Woodworth said would cost $165 million. But analysts weren’t too concerned about a relatively small loss in revenue from treadmill sales. Rather, it was the company’s image and marketing strength that was of greater concern. In response to an analyst’s question about Peloton’s concern for its “brand health,” Foley acknowledged that it has “ebbed and flowed over the last two years.” He was referring to the Pelton’s “cringey” 2019 holiday ad. The spot was criticized for being sexist and tone-deaf and sparked weeks of viral negative chatter across social media. “Right now, we feel like we have some work to do to get back on the right side of the line with trust and safety and let people know what we stand for,” Foley told analysts. In many ways, Peloton was able to ride out the brief social media storm in early 2020 when the world went on lockdown in the face of the Covid-19 pandemic. During the past year, it has cultivated a sense of community with online sales of stationary bikes and streaming on-demand fitness classes. Peloton needs to work out But as cities gradually reopen, the exercise brand will have to weather the way it mishandled a tragic situation as it faces more long-term threats to its relationship with consumers. “Any lesser brand could face a major setback at this moment,” said David Berkowitz, principal of consultancy Serial Marketer. “Peloton's biggest challenge until now has been filling backorders because they're too popular. That 'controversial' ad was a Twitter controversy rather than a real one. This would also be worse if it was about their core bikes; Peloton isn't yet synonymous with treadmills or even home fitness.” Peloton’s ambitions to expand its image and product scope with treadmills is on hold until it can begin to satisfy consumers’ safety concerns. Foley categorized the mea culpa as a “big day for mending trust and telling the market and our consumers and our members that we're going to prioritize safety. And we plan to have an industry-leading brand, one of the special brands, one of the most trusted brands of the next couple decades.” Still, he didn’t dismiss Peloton’s short-term financial and marketing pain. But there are steps Peloton can take to ease its strains. What are the marketing lessons learned from Peloton's holiday spot? Marketing prescription: Take a Tylenol Even if a brand feels it’s being unfairly blamed when an accident strikes, the default response should always be to go “above and beyond what’s expected,” said Allen Adamson, founder of marketing firm Metaforce and adjunct professor at New York University’s Stern School of Business. In essence, that means owning the situation and demonstrating that the brand is taking charge to set things right by ensuring similar situations won’t recur. The brand playbook for dealing with unforeseen catastrophes was written by Tylenol in 1982 after six people in the Chicago area died within a few weeks of taking the pain-relief capsules, which were found to have been tampered with. Johnson & Johnson generated positive press for organizing a massive recall and for its sensitivity and openness with the public regarding the investigation. The incident led to changes in over-the-counter packaging of medication. Ultimately, Tylenol regained respect, and sales quickly recovered. “The discussion wasn’t whether Tylenol was good at easing headaches, but whether the packaging prevents tampering,” Adamson said. “The way they addressed the safety issue is still the gold standard for how a brand deals that appears to come from some unintended consequence. In this case, it's not the efficacy or the experience of getting fit using Peloton. It's a support component. After initially failing in that, Peloton corrected course quickly. But they should have done that in the first place.” The brand’s next wellness challenge The worldwide market for nutritious food and exercise equipment will surpass $6.8 trillion by 2024, up 19% compared to nearly $5.8 trillion this year, according to a recent report from investment bank Credit Suisse. Peloton can still capture a large portion of that spending, but it’s facing increased competition. The competition is coming from interactive health platforms like Apple Fitness+. But that potential rivalry only seemed to validate Peloton’s model. It’s competitions are instead the brands that Peloton took market share away from when the pandemic hit: physical gyms and workout studios that were forced to temporarily close or limit members following social distancing measures. In recent months, gyms like Planet Fitness, which once saw itself as a brick-and-mortar business, began presenting themselves as more of a bricks-and-clicks company. While many facilities have reopened, not everyone is comfortable with jumping back into in-person workouts. A Gartner study found that on a list of activities consumers most looking forward to post-pandemic, only 11% selected exercising at a gym or fitness studio. Staying connected Still, that number is expected to rise as the numbers of Covid-19 cases in the U.S. ebbs. And that could hamper Peloton’s growth over the long term. But here, too, its business model and marketing positioning have clear advantages built in to address these looming threats to future sales. “The brand's fanbase was built on the bike and on the relationship due to the experience it offers,” Adamson said. “That makes Peloton more of an experiential brand than a product brand. But as people get out of the home now, the explosive growth it’s relied on is over. Gyms are now going to start competing again after being on the sidelines last year and trying to shift to on-demand, at-home services. Peloton no longer has the playing field to itself.” Whether Peloton is in shape for the battles its waging is also an open question. The company’s CFO told analysts last week that, after a period of scant advertising activity, Peloton has “ramped up media investments in recent weeks coinciding with our greatly improved order-to-delivery outlook.” Still, Woodworth added that Peloton continues to expect sales and marketing expenditures to be “materially lower as a percent of revenue” compared to last year. For the next few months, the best answer available to Peloton on all its challenges is to rely on tightening the relationship with its devoted users. “If you have 10 friends on Peloton that you race against, are you going to ditch that suddenly and get something totally different like the Mirror or a home boxing gym, let alone some bike knockoff on Amazon?” Berkowitz posited. “Probably not. That’s where Peloton’s brand strength remains, even now.” These 10 Peloton Instructors Have Evolved Into Their Own Brands