Peloton has subtly discontinued the unlimited free membership tier on its fitness application. This comes less than a year since it was unveiled as part of a major company rebrand. Officially, this move is a reaction to the failure of the free tier in converting users into paid subscribers.
A Shift in Strategy
Peloton’s free membership option, once integral to its growth strategy, was cancelled for new users over the past few weeks, according to the company. All those who had registered for the free membership before this decision will keep their access. However, new users interested in Peloton’s app now need to choose between two subscription tiers costing $12.99 and $24/month, both with an offering of a seven-day free trial.
Company Rebranding and New App Strategy
In May last year, the company presented a brand overhaul that marketed it as a fitness entity for all, positioning its digital app as a centerpiece in its marketing push. The rebrand introduced a new app blueprint, including the unlimited free membership and two other paid options, each with diverse content levels.
The rebrand was aligned with CEO Barry McCarthy’s vision to morph Peloton from a hardware-focused firm into one invested equally in its app. With the downtrend in the company’s sales, he planned to pull in new clients who were captivated by the brand but not ready yet to invest heavily in their equipment. McCarthy, a former Netflix and Spotify executive, was intent on having a free tier on Peloton’s app, banking on the notion that free users would be enticed by Peloton’s content and eventually opt for a paid subscription, offering a wider range of classes, once they sampled the app and craved more.
Results of the Strategy: A Misfire?
This bet now appears to have backfired. McCarthy conceded in a November investors’ meeting that the revamp was not as good “at engaging and retaining free users and converting them to paying memberships” as projected by the company. Shortly afterwards, the unlimited free tier ceased to be an option.
Learning From Lessons
During a conference organized by Morgan Stanley in March, Peloton’s CFO Liz Coddington placed on record that the company had learned rather quickly that the free tier was undermining the conversion efforts of free-trial members into paid subscribers. This forced the company’s shift towards a free-trial model. She added, “We still have a lot of opportunities to improve the app,” highlighting that better engagement strategies were required to ensure conversions from trials to paid subscriptions, and to retain the users.
Future of the Company
Despite a drop in app subscribers during Peloton’s fiscal second quarter, which ended on December 31, Coddington stated that the firm firmly supported its app strategy, as it continues to be a vital part of the firm’s business plan. On the other hand, Peloton’s shares dipped more than 6% in Monday trading, down over 45% this year. This has slimmed down the company’s market capitalization to approximately $1.2 billion, a far cry from the $47 billion value it held during the peak of the Covid-19 pandemic.
