Peloton’s new chief executive, Barry McCarthy, has only been at the helm of the connected fitness company for about a month, but is already testing ways to attract new customers and make the business more profitable.
Peloton confirmed to CNBC that on Friday it will begin testing a new pricing system, in which customers pay a single monthly fee for their workout equipment and for access to Peloton’s on-demand fitness classes. If a user chooses to cancel, Peloton will take the bike back for an additional delivery charge, the company said.
The test will run for a while in Texas, Florida, Minnesota, and Denver, for a monthly fee of between $60 and $100 per month. Customers will only be able to choose this option in Peloton’s physical stores or at its fitness studios, not online.
Peloton spokeswoman Amelise Lane said Peloton created the limited-time pilot in select markets in the United States to explore various pricing models and options for new members.
“It aligns with Peloton’s belief that intuition drives testing and data drives decision-making as the company sets course for the next phase of its evolution and growth,” Lane said in a statement. press release sent by e-mail.
The company is trying to convince skeptical investors. A Wall Street analyst has previously questioned whether the new pricing plan could end up weighing on Peloton’s brand and finances. Shares are down around 79% in the past 12 months. In recent weeks, the stock has traded below its IPO price of $29 and closed Wednesday at $23.44. It was unchanged in premarket trade.
Platoon members who also own a piece of company gear pay a monthly fee of $39 to access workout classes including cycling, meditation, yoga and running. Digital-only members pay $12.99 per month.
The biggest initial expense comes with business equipment. Peloton’s original Bike currently retails for $1,745 including delivery and setup, while its Bike+ sells for $2,495. The company last August slashed the price of its bike by about 20% to $1,495 excluding delivery, hoping to appeal to more consumers with a cheaper option.
McCarthy has also already made it very clear that prices could drop further as he aims to grow Peloton’s user base beyond the Covid pandemic.
The former Netflix and Spotify executive, who took over the CEO role from Peloton co-founder John Foley, has been tasked with bringing Peloton back to profitability as the company grapples with declining demand for products home workouts and increased supply chain expenses.
“I think we have a huge opportunity to scale the business model and dramatically increase the [total addressable market] for new members by lowering the cost of entry and playing with the relationship between monthly recurring revenue and initial revenue,” McCarthy said in an interview with CNBC’s Jim Cramer last month.
While the bundled pricing strategy is just a test and it’s unclear if and when Peloton would incorporate this idea on a permanent basis, BMO Capital Markets analyst Simeon Siegel raised questions about the damages that it could cause to Peloton’s finances and its brand.
“For a company that has been plagued with logistical issues, it now allows people to return their gear, anytime,” Siegel said. “They’re getting more into the delivery and logistics game. Rather than getting away from it.”
Additionally, Siegel said Peloton has, to its credit, been able to keep churn rates so low because people don’t want to leave the service once they’ve made such a large purchase for one. of his bicycles or treadmills. Peloton’s Connected Fitness average net monthly churn was 0.79% over the last period.
“But if it becomes easy to cancel and come back, what will it do to unsubscribe?” said Siegel. “Does Peloton become a winter experience for customers who rent the bike for four months every year and then return it when the weather is nice? It becomes a very expensive customer.”
The Wall Street Journal first reported on the pricing tests.
This story is developing. Please check for updates.