Peloton's Introduction of a $95 Activation Fee for Used Equipment Subscribers
Peloton has made an important announcement regarding its subscriber model. On Thursday, it revealed that new subscribers who purchased their fitness hardware through the secondary market will now be charged a one-time $95 activation fee. This decision comes in response to the growing trend of consumers opting to buy lightly used Peloton equipment at a much lower cost compared to the typical retail prices.
The Rise of Secondary Market Subscribers The activation fee is applicable to subscribers in the U.S. and Canada. Peloton has witnessed a significant increase in new members who acquired used Bikes or Treads from peer-to-peer platforms like Facebook Marketplace. In its fiscal fourth quarter, which ended on June 30, the company observed a “steady stream of paid connected fitness subscribers” from the secondary market. Notably, this segment experienced a 16% year-over-year growth, highlighting its increasing importance for the company.
Financial Benefits for Peloton The company believes that a substantial portion of these secondary market subscribers are new additions to its user base and that they tend to have lower net churn rates than rental subscribers. Interim co-CEO Christopher Bruzzo emphasized during a call with analysts that this activation fee will generate incremental revenue and gross profit for Peloton. These funds will be crucial in supporting the company’s efforts to enhance the overall fitness experience for its members.
It’s important to note that while many Peloton subscribers make good use of the home workout machines, there are also numerous cases where the equipment ends up being unused, leading some to compare them to glorified clothes racks. Although these original purchasers paid for the hardware, a significant number have canceled their monthly subscriptions, which are a major source of Peloton’s income.
Potential Collaboration and Revenue Growth Ari Kimmelfeld, the founder of Trade My Stuff (previously known as Trade My Spin), which specializes in selling used Peloton equipment, estimates that there are around a million unused Peloton Bikes worldwide. He views this as a potential revenue opportunity for the company. Kimmelfeld had previously engaged in discussions with Peloton executives about possible collaborations. He pointed out that each time his company sells a used piece of equipment, it could potentially result in over $500 in annual revenue for Peloton. With the introduction of the new $95 activation fee, that annual revenue figure could potentially exceed $600 in the first year.
Consumer Perspective and Market Comparison Kimmelfeld doesn’t anticipate that the activation fee will deter consumers from buying used equipment. He told CNBC that despite the fee, customers still stand to save a significant amount of money as they can receive their purchases faster and at a lower cost compared to buying new. For example, Trade My Stuff sells first-generation Bikes for $499, whereas a new one costs $1,445. The Bike+ is sold for $1,199, compared to its new price of $2,495, and used Treads are offered at $1,999 instead of $2,995 new.
Moreover, Trade My Stuff has sold several thousand Bikes since its launch. It provides same- or next-day delivery in 14 major cities across the country, including Los Angeles, Denver, and New York City, and within three to five days for other locations. In contrast, a new Peloton purchase often takes much longer to be delivered.
Member Experience Enhancement Peloton justifies the activation fee by stating that it aims to ensure new members get the same high-quality onboarding experience that the company is known for. Christopher Bruzzo explained that those who purchase a used Bike or Bike+ will have access to a virtual custom fitting before their first ride. They will also receive a history summary detailing the number of rides the bike had before being resold. Additionally, the company is offering discounts on accessories like bike shoes, bike mats, and spare parts to these new members. Peloton intends to further explore this important channel and find more ways to improve the new member experience, such as providing early education about the wide variety of fitness modalities, series, and programs offered by its instructors.
In conclusion, Peloton’s implementation of the $95 activation fee for secondary market equipment subscribers is a strategic move to capitalize on the growing secondary market while also improving its financial position and member experience. The company is taking steps to balance revenue generation with added value for new members, and it remains to be seen how this initiative will play out in the long term.