After its debut in 2012, Peloton saw steady growth in its business until the pandemic when demands for the products increased exponentially. This pushed the company’s revenue up significantly and even tripled the company’s valuation.
Despite this success, the company is presently in troubled waters with a decline in product demand, and navigating safety and security issues.
What can you learn from Peloton as a small business owner? Read on to find out:
4 Lessons Small Business Owners can learn from Peloton
Know Your Audience
Peloton’s target audience is fitness enthusiasts who want to have great workouts from the comfort of their homes. However, with an entry price of $2,495 for the Peloton bike, it is evident Peloton has its eyes on higher-income households.
The entry price cut out a large segment of otherwise interested buyers who would have loved to own a Peloton, narrowing down the number of people that could purchase a Peloton bike or treadmill for their homes. Although Peloton has a subscription service that allows fitness enthusiasts to subscribe to instructor-led sessions and virtual classes for sessions like HIIT and Yoga, the bulk of the company’s revenue comes from the sales of bikes and treadmills.
Pricing can limit the size of a potential customer base, and small business owners can learn a lesson from this example. It is important to know your audience and understand your target market when considering pricing, products and services that fit within the financial reach of prospective buyers.
Know Your Product
Like other fitness equipment, Peloton’s products such as bikes and treadmills typically only need to be purchased once by the customer. Then, once the item fulfills the customer’s needs, the chance to secure repeat purchases from that same customer might be limited.
Peloton did not foresee some of the faults that became associated with their products. Security researchers identified a vulnerability that, when exploited by hackers, could give them control over a customer’s Peloton bike. The unique design of the treadmill also increased the possibilities of injuries which led to the company recalling thousands of treadmills and reimbursing customers – an enormous strain on the company’s revenue.
Business owners need to consider the pros and cons of their inventory carefully. Is your product something that consumers will purchase again and again, or a one-time investment? What are the potential issues that the product might encounter, and what are the stakes? By considering these factors, owners of small businesses can be better prepared for the issues that they may face in the marketplace.
Know the Demand
The worldwide lockdown in 2020 gave Peloton a much-needed boost. The company’s valuation went from $1.82 billion to $4.82 billion, and the company’s market capitalization soared to $50 billion.
What made this possible? People were stuck with working out at home since they could not go to the gym, which led to a spike in demand for Peloton bikes and treadmills. As a result, Peloton couldn’t meet the demand and even had cases of missed deliveries.
To help with the increase in demand, Peloton purchased Precor, a company that produces fitness machines, for $420 billion. However, demands began to decline with the ease of the lockdown, which made it possible for people to start going to the gyms again. As a result, Peloton had more products in stock than the market needed. In January 2022, the CEO, John Foley, announced that the company would stop the production of its bikes and treadmills due to the decline in demand for the products.
The lesson here is to think carefully before expanding your business. What kind of demand are you responding to, and is it stable? Will you be able to service existing clients comfortably whilst also gaining new revenue?
Look at the big picture
Just as the pandemic served success to Peloton, it also put the company in a tight spot once lockdowns began to ease. Then, issues emerged. Peloton could perhaps have prevented some of the negative backlash by recalling its treadmills earlier.
As a small business owner, you too might encounter a scenario where you’d like more time to reach a decision, but you could find yourself in a position where you’ll need to take swift action.
While it is not clear yet if Peloton will rise from the ashes, as a small business owner, you may find that you can learn valuable lessons from looking at how businesses like Peleton make decisions and respond to arising issues.
Staying on top of business news is just one part of building a successful small business. With Benchmark One, you can keep things running smoothly day by day, and turn relationships into valued customers faster.