How Peloton’s brand strength reduces CAC

Peloton’s recent launch of a Corporate Wellness program is a perfect example of how brand strength reduces customer acquisition cost (CAC), according to an analysis by Below the Line on Substack. 

How it works

Partner companies of Peloton’s Corporate Wellness initiative, which was unveiled last month, can offer employees free or subsidized access to one or both of:

1. Peloton Digital, which includes online fitness classes and doesn’t require owning any of the exercise brand’s hardware (and usually costs $12.99 a month).
2. Connected Fitness memberships, which require a Peloton bike or treadmill (typically costing $1,895 or more) and a subscription ($39 a month).

A virtuous CAC cycle

• Ram Parameswaran of Octahedron Capital has noted that the gross profits on Peloton’s hardware business, standing at $760 for a bike purchase, more than pay for its CAC, which comes in at $500 to $600.
• Peloton has explained that it is building a Digital to Connected Fitness upgrade path that is seeing 20% of Digital subscribers convert to its higher-priced offering.
• The Corporate Wellness program widens Peloton’s conversion funnel, explains analyst and Below the Line author Kevin LaBuz, by helping it cheaply acquire new customers, then potentially drive revenue and customer lifetime value.
• That’s only possible because the strength of the Peloton brand makes it a desirable partner for companies like Samsung, SAP and Accenture Interactive.

Key quote 

“The genus of the program is that Peloton’s partners are subsidizing its CAC. It’s a low-cost gamble with high potential upside” – Kevin LaBuz, Below the Line. 

Sourced from Below the Line