PELOTON: THE TACTIC THAT KEEPS PELOTON CYCLING ON

Morning, it's Niall!It's been a busy week here - as always. Do you feel like it's 10X harder to focus in summer too? I'm not sure if it's the sun, the time of year or the fact everyone and their dog is on holiday currently. As much as I love Summer - it's always a drag to work whilst everyone else lives it up!

Anyway, today's email is a cracker! So sit back, grab a cuppa and enjoy!

What you're in for:

- Why Pelotons are so expensive- Why no one cancels their subscriptions- How you can be the next Peloton

Est. Read Time: 5 minutes, 4 seconds.

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Company Overview

Valuation: $3.2 Billion (Source)

Revenue: $4.84 Billion (Source)

Peloton, technically speaking, is an American exercise equipment and media company. I say technically because from the outside they just seem like any other exercise equipment manufacturer, but the real money maker for Peloton is their subscription service - the media side of the company.If you know nothing about Peloton here's a VERY quick rundown of how they work:Buy a piece of equipment -> Pay a monthly subscription to use their software -> Get access to live classes + workout plans and more.The equipment is a mere vessel to sell their subscriptions. So, why do they cost thousands? That's exactly what we are going to get into!

Breaking Down The Strategy

Peloton has had a bad last 12 months. They have been all over the news for their stock price plummeting. Nonetheless, they're one of the most popular exercise equipment brands on the planet. But to common folk (like myself) they're completely unaffordable.Peloton Bike: $1,445Peloton Treadmill: $2,695

Outrageous.

But like I said before, Peloton makes A LOT more money from their media side than the selling of equipment - and the subscriptions aren't cheap either!

Peloton Subscription: $39.99 per monthPeloton Active Subscribers: 2.49 million

Again, crazy pricing. To me, the fact you have to pay $40 every month just to get full use of your 3 thousand-pound equipment is astonishing. And let me tell you, my tight-pocketed Dad would rather chop his hand off than commit to that. So why in the world are 2.5 million people paying it every month? Due to the sunk cost fallacy. The sunk cost fallacy revolves around the idea that we are more likely to continue an endeavour if we have already invested in it. Peloton are absolute masters at using this against their customers.

If 99% of other brands were in Peloton's position, they'd make their exercise equipment a loss leader. They'd draw people in by having their equipment cheaper than their competitors and try and make their money on the subscription. The reason you don't see anyone doing that (successfully) is because it would be a disaster. You'd be left with a lot of people with your equipment and very few active subscribers. Why? You didn't get your customers to make a big commitment - there was no sunk cost!

Peloton does the complete opposite. They purposely sell their equipment at a higher price to have customers make an up-front commitment. Not just any up-front commitment, a HUGE up-front commitment that to many people, probably took a good amount of saving to pay. So when your fitness commitment dies in mid-Feb you have two options:1. Admit to your spouse that you've blown £2000 on a bikeOR2. You eat the £40 a month and tell yourself you'll start using it moreYep, you're picking the latter just like the other 2.5 million users.

It's one of the greatest tactics I've written about yet. Mainly because it just didn't cross my mind at all - until it clicked. It's genius. Especially in the fitness industry where there are huge peaks and troughs depending on peoples' inspiration and motivation. Peloton makes feelings of motivation irrelevant because they're outweighed by the fear of having to admit you've blown £2K.So, if you've ever wondered why Pelotons are so expensive - now you know!But let's be honest, the thing you're really bothered about is how you can use the tactic in your business. So let me show you...

How To Implement It

The sunk cost fallacy is not just for product-based businesses. It's actually a great tactic for service-based businesses too. One of the main reasons contracts are cut short (especially in the agency world) is down to a thing called buyer's remorse. Which is essentially when you regret a purchase immediately after buying - we've all been there. When people are dropping thousands of dollars on a service, the daunting feeling becomes much more frequent. The sunk cost fallacy is one of my two favourite ways to rue it, and you can utilise it in 2 ways:

1. Get paid up-front: This is something you should be doing anyway, but I know TONNES of agencies that don't. To me, if someone isn't willing to pay up-front then they clearly don't trust you and clearly don't have a long-term vision of working with you.

Anyway, by having them pay up-front they have essentially sunk money into (sunk cost fallacy) and therefore will more than likely stay with you for a longer period of time.

2. Have a heavy set-up fee: Again, this is something you should be doing anyway, but this also helps implement the sunk cost fallacy. It means companies have to commit more money initially without overcharging for your service. With this method, you can keep your prices, whilst adding in the sunk cost fallacy - a perfect balance!

Note: If either of these doesn't sit right for you, let me assure you that neither of them are morally wrong. Both methods encourage a deeper commitment from the client - always a positive. Plus, they both should extend your "probation" period due to the commitment. Meaning you have more opportunities to benefit the brand long-term.And that's how the sunk fallacy cost can be an in-genius marketing tactic!

That's all for today!I'm signing off to go and watch the UFC, Pena VS Nunes. When you're reading this, the fights will already have finished, so shoot me a reply and let me know your thoughts on them!— Niall

P.S. Go on, let me know what you thought - Unreal / Okay / Horrendous

This has been a breakdown of Peloton's Sunk Cost marketing strategy. I hope you have learned something and can implement a similar strategy in your business!

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