Why a cheaper treadmill is a key strategy for Peloton’s continued growth

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Despite being known as a cycling company, Peloton has many other options for workouts. Through its Peloton digital app for smartphones, tablets, Apple TV, and Roku, it offers boot camp classes, outdoor runs, weight lifting, and even meditation classes. Peloton also offers a treadmill with a similar experience to its cycling classes. Peloton is hinting at more energy (watts?) spent in this category, though.

In a recent Barron’s Investing in Tech call, Peloton’s chief financial officer Jill Woodworth had this to stay about their goals for the treadmill.

“The only category that we have spoken explicitly about is our desire to have a lower-priced tread, or a tread that’s priced more in line with our existing bike,” Woodworth said. The price of the company’s stationary bike starts at $2,245, according to the company’s website, while its treadmill begins at $4,295.

Peloton’s revenue growth is going to depend on subscriptions in the future as selling hardware over and over isn’t a sustainable business model.

Asked about the skeptical view that Peloton’s app, which charges $12.99 a month, could draw users away from its $39 monthly membership, Woodworth characterized the app as “somewhat of a lead generation tool for our connected fitness.”

Peloton’s customer funnel looks like this:

1. Free trial to Peloton digital on smartphone, tablet, and smart TV apps
2. Sign up for $12.99 monthly digital subscription
3. Sell hardware (bike, tread, etc.) with $39/month subscription
4. Sell high margin merchandise such as apparel. In the future, I expect Peloton to move into supplements, meal replacement shakes, running shoes, and other fitness gear, etc.

For Peloton, it’s about pulling customers into their ecosystem and continuing to sell things. The bike and treadmill, even if they make a profit, are just mechanisms for the brand itself. In the past, we saw Under Armour purchase MyFitnessPal (and now wants to sell it) and Asics purchase Runkeeper. At the time, those purchases made a lot of sense, but the Apple Watch has reduced the need for dedicated running apps on iPhone.

With Peloton, once you get into the ecosystem, you are likely to stay in it because of that initial investment. Once someone purchases a Peloton bike, they are very unlikely to consider another connected fitness company unless it’s 10x cheaper or 10x better. This is the precise reason they need a cheaper Peloton treadmill.