Peloton shifts marketing focus to lifetime value

Peloton, the exercise brand, is shifting its marketing focus towards scale and lifetime value, rather than customer acquisition costs (CAC), as it aims to bounce back from a period of disruption.

The background

Having seen purchases of its at-home equipment and digital services rise as the COVID-19 pandemic took hold, Peloton saw a drop off in demand as a result of price sensitivity, growing competition and a return to in-person fitness regimes.

In response, it announced plans to halt production of bikes and treadmills, and also appointed Brian McCarthy as its new CEO last month with the goal of turning its fortunes around.

A shift in marketing strategy

As part of his recovery plan, McCarthy wrote to investors, Peloton will be rethinking “the framework we’re using to manage our marketing spending”. More specifically:

• In the past, it “effectively pegged the amount we were spending” on customer acquisition to the gross profits generated by its hardware.
• Now, however, the brand wants to “play for scale”, meaning that its thinking about marketing will necessarily evolve.
• “We’re changing our focus to customer lifetime value (LTV), which is the net present value of the gross profit per subscriber over the expected life of the subscriber,” wrote McCarthy.
• Under this model, the company admits it will “initially lose money on new subscribers due to the cost of attracting their business, as is the case for many digital platforms.
• However, “each new subscriber increases our enterprise value” provided their lifetime value exceeds this customer acquisition cost, noted McCarthy.

Wider considerations

• As Peloton adapts its strategy, it will need to “explore the dynamic relationship” between customer acquisition costs, churn and gross margins, according to McCarthy.
• The ultimate goal is to achieve faster growth by investing in a “better user experience” in pursuit of outcomes including higher organic growth and lifetime value.

Sourced from Peloton