What Luxury Brands Can Learn From Peloton’s Treadmill Crisis

Key Takeaways: Connected fitness is one of the hottest categories worldwide, attracting millions of consumers and creating entirely new business models and ecosystems. Some market analysts expect connected fitness to become a much bigger market than traditional gyms. Peloton has become practically synonymous with connected fitness in the US, announcing a Q1 2021 growth of 232 percent. Peloton now expects to increase its annual revenue from sales of bikes, treadmills, and subscription services to 3.9 billion. Less than a month after it fought the US Consumer Product Safety Commission about its urgent warning about its products, Peloton decided to recall all of its Tread+ and Tread treadmills. Connected fitness is one of the hottest categories worldwide, attracting millions of consumers and creating entirely new business models and ecosystems. Some market analysts expect connected fitness to become a much bigger market than traditional gyms, a trend that can already be observed in China, the world’s biggest fitness market. Keep, the world’s largest fitness platform, has more than 200 million users who exercise on average 4.6 times per week. In the US market, Peloton has become practically synonymous with connected fitness and recently announced a Q1 2021 growth of 232 percent versus last year — a result many other companies only dream of. Peloton now expects to increase its annual revenue from sales of bikes, treadmills, and subscription services to 3.9 billion, which is a significant increase over previous estimates. These results are driven by the passionate support Peloton gets from its owners and members. I am one of them, owning a Bike and the Tread+ and using Peloton almost daily for all different sports activities. Like myself, millions of subscribers enjoy the classes by trainers like Robin Arzon or Jess King, who have become superstars with hundred of thousands of social media followers. Buying a Tread+ can cost more than 5,000 when you include installation, accessories, and taxes. Many of the Tread+ buyers are among Peloton’s most devoted, most enthusiastic, and most active brand advocates. When brands create so much hype, they do it because consumers feel they get extreme value. And that means brands must be aware of the responsibility they carry. I have used the comparison of luxury with a love relationship because all the same rules apply. The more value and desire a brand creates and the more hype it gets, the more it makes customers trust and fall in love with it. Hence, brands that create extreme value carry extreme responsibility to nurture those love relationships. Over the past months, an increasing number of reports came up indicating potential safety issues with Peloton’s treadmills. According to The New York Times, the US Consumer Product Safety Commission issued an “urgent warning” in April for Peloton’s Tread+, going as far as to urge owners to immediately stop using them after reports of 72 adults, children, and pets being pulled under the belt of the treadmill, resulting in injuries and the death of one 6-year-old boy, according to the reporting. As if this was not already bad enough, Peloton's second, lower-priced treadmill faced issues with its screens falling off the machine while in use. Sports influencers like DC Rainmaker, a leading voice in the running world, called this out in a recent article titled “Peloton Tread Screen Falls Off Mid-Workout, Peloton Says to Fix It Yourself.” That does not sound like love. And in press articles from The Wall Street Journal to The Financial Times, news outlets worldwide were featuring stories about customers who tried to contact Peloton over the past few weeks about issues surrounding the Tread+, gaining no definitive answer until now. When the most devoted customers feel alone, there is a risk of breakups. Less than a month after it fought the US Consumer Product Safety Commission about its urgent warning, Peloton has now decided to recall all of its Tread+ and Tread treadmills. The brand now warns consumers to operate the devices safely away from children and pets. However, on its website, info about the recall was hidden deep in the chat function (as of May 6, 2021), where it only comes up after answering a series of questions, stating, “In cooperation with the U.S. Consumer Product Safety Commission (CPSC), we are announcing a voluntary recall of all Tread+ units due to a risk of serious injury or death caused by the Tread+ pulling and entrapping users, children, pets or objects beneath the treadmill.” The rest of the website remains unchanged at the time of this publication, and it actively advertises both products without any prominent warnings. In times of real-time consumer interactions with brands, this is a missed opportunity to gain back trust. The Financial Times estimates the cost of the recall at 165 million. But the true damage to brand equity may be significantly higher. Continuing to actively advertise products on its website seems to contrast with Peloton’s CEO, John Foley's statement: “I want to be clear, Peloton made a mistake in our initial response to the Consumer Product Safety Commission’s request that we recall the Tread+. We should have engaged more productively with them from the outset. For that, I apologize.” His statement is the right one and a very strong message. But a different approach, showing consumers true love and compassion, must follow now. While it is laudable that Peloton has now changed its position and recalled the machines and put out warnings, these actions may be too little, too late if they are not followed up with a completely different and more proactive consumer-centric plan. If John Foley and his team take the right approach now, Peloton will emerge from this crisis even stronger. Crises are always opportunities to strengthen a brand's equity if they are addressed in a timely, proactive way. When things are done reluctantly or not quickly enough, brand equity can erode fast, especially if it's a brand that generates so much demand and desire. What can we learn? Confronted with a crisis, luxury brands must remember that they are in a love relationship with their customers and that it is their responsibility to project signs of love consistently. Brands will always be confronted with the unexpected, and things can always go wrong. When I lead luxury masterclasses, I ask participants why they “broke up” with luxury brands in their private life. Their breakups — no less than the total destructions of brand equity in the eyes of a customer — are almost always the result of massive disappointment with how they felt they were treated and never because something went wrong. That is where brands need to be careful. Brand equity relies on how people feel — not the brand’s intentions. When people felt the brand was proactive, bold, understanding, transparent, communicative, and gave them a fair and understandable way forward, they valued the brand even more. As such, a crisis can increase brand equity significantly when addressed correctly. In contrast, when people felt they, as clients, were not the top priority, they broke up with the brand. And when they broke up, they were extremely emotional, outspoken, and vocal, as one can expect in a breakup. Therefore, when a luxury brand is faced with a crisis that can affect consumers, it must be extremely fast in communicating and acknowledging its mistakes by stating facts, showing a way forward, and offering proactive support so that customers don't feel let down. There can’t be any ambiguity in messaging, and the response needs to be real and authentic and feel that way. As in love, feelings matter in a crisis. Peloton built its reputation and market position because consumers love the brand. Focusing on what made the brand so powerful in the first place is what can bring Peloton out of its crisis. The stakes for luxury brands are extremely high. They are built on extreme value creation, which is always in the eyes of the beholder (the customer). A significant part of a brand's value is intangible, which means it can dissolve faster than non-luxury values. If consumers don’t feel love and compassion in a crisis, they will break up and move on. But if they do feel it, they will stay. Sometimes it is as simple as that. Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the professor of luxury strategy and extreme value creation at Pepperdine University in Malibu, California. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a global keynote speaker, and holds luxury masterclasses in Europe, the USA, and Asia. Follow @drlanger

What Luxury Brands Can Learn From Peloton’s Treadmill Crisis

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Published May 10, 2021

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What Luxury Brands Can Learn From Peloton’s Treadmill Crisis