Peloton: A model of success

"All right, first ride. I'm a little bit nervous, but excited. Let's do this."

And with that, Peloton's 2019 holiday season shopping commercial ignited a viral wave of online criticism and protracted cycle of national news coverage. The ad tracked a year in the life of a young mom gifted the $2,200 exercise bike by her husband. Critics pounced on the ad as "sexist and classist." Vox.com compared the ad to a horror movie. Internet memes exploded. Parodies were posted online. Saturday Night Live got in on the joke.

A CBS This Morning segment aired concerns about the ad promoting an "unhealthy marriage dynamic and peddling negative body images," but otherwise called the viral responses "much ado about nothing." Peloton marketing stood by the commercial, which continued to air during the holiday shopping season and beyond -- not only in paid television spots, but now with half a million views on YouTube and millions more on national newscasts.

After initially declining to comment, Peloton PR ultimately was forced to weigh in on the backlash, issuing a statement to the press:

“We constantly hear from our members how their lives have been meaningfully and positively impacted after purchasing or being gifted a Peloton Bike or Tread, often in ways that surprise them. Our holiday spot was created to celebrate that fitness and wellness journey. While we’re disappointed in how some have misinterpreted this commercial, we are encouraged by — and grateful for — the outpouring of support we’ve received from those who understand what we were trying to communicate.”

Minutes after the PR statement aired on CNBC, Peloton stock shifted negative, declining by up to 6% before ending the day down 1.6%. In the midst of that swirl, company executives had no way of knowing that the alchemy of an engaging holiday commercial, ensuing viral social media and national news coverage would crystallize by one measure into the most successful brand event in the company's history.

And just a few short months later, when the COVID-19 crisis shut down gyms nationwide and stranded exercise-minded customers at home, that brand lift would pay off big.

By the numbers

For any budding brand, the first goal of marketing communication is to drive awareness. People can't consider purchasing a product -- or donating to a cause or voting for a candidate -- before first knowing it exists. When the company founders first began building a prototype exercise bike in 2012, a peloton was a group of riders chasing the leaders in a stage of the Tour de France. Heading into the 2019 holiday shopping season, about one in three American consumers would say they had heard of Peloton, the brand. The company's integration of online media with old-line stationary bikes and treadmills was breaking through -- gradually.

In terms of consumer awareness, the 2019 media swirl was a steroid shot for the Peloton brand. From early December, when the Peloton holiday spot first aired, to New Year's 2020, awareness of the Peloton brand surged by 20%. At the time, awareness has been trending upwards on a pace of about 10 percentage points a year. The 2019 holiday media event doubled that pace -- in a month.

About one in three consumers saw or heard about the commercial in late 2019, according to YouGov daily brand tracking. But how many people saw or heard about the commercial because of the social media chatter and protracted news coverage, and how did the spot resonate with them? Tough to say. Traditional media measurement, as we saw in the previous blog, is plagued by reliability and validity challenges when it comes to gauging the reach and resonance of news.

The news cycle that eclipsed the Peloton holiday spot is no exception. The state of the art in media monitoring is to use Boolean search strings to capture traditional and social media mentions of companies, causes and candidates. Descriptive words in the posts and news coverage are then filtered through either machines or human coders to assess tonality. In the case of the Peloton holiday ad, if we multiply daily volume by average tonality scores to create a single News Stream score, we end up with a chart that looks something like this one.

Social media chatter about the Peloton ad started in early December, and lasted through New Year 2020. That cluster of coverage in the box to the right is typical of a breaking news story that runs for more than a day or two. As we will see later this semester, a cluster of news like this is a hallmark of a crisis trigger. More on that later.

You may notice something else about the News Stream. In terms of tonality, the coverage was considered -- by the media monitoring tools, at least -- to be largely positive. By comparison, the negative spike to the left, in late September 2019, corresponded to Peloton's initial public offering, characterized in national news coverage as a "fail."

That was one machine's read on Peloton's news and online chatter. But is that the way the coverage resonated with people? Take a look at the chart to the right. The chart includes the same news stream, with a line superimposed on top. That line reflects Buzz, a brand metric that tracks consumer responses to a simple and straightforward survey question -- Have you heard anything Positive or Negative about Peloton recently. Clearly, the news cycle dominated by the holiday spot coverage was negative. And the stock offering "flop?" Not highly negative, as determined by the black-box tonality scoring. Neutral, in fact.

If news volume and tonality in the media are a proxy for news reach and resonance with the public, there also should be a strong correlation between the media monitoring data and the YouGov tracking data. Spoiler alert. There isn't. In the case of Peloton, the correlation between the News Stream and net Buzz over the past two years was 0.03. In statistical terms, the relationship between the content and survey metrics is essentially random.

Over the past year, as an exercise in this class, we have run identical correlations between news streams and survey data for more than 40 companies. A perfect correlation -- published news and consumer recall moving in the same direction to the same degree at the same time -- would be 1.0. A perfect negative correlation -- published news and consumer recall moving in opposite directions to the same degree at the same time -- would be -1.0. In our class exercises, the correlations were generally random, typically well below 0.1, and often negative. The highest correlation was 0.24. Statistically, that's still quite weak.

Why aren't volume and tonality a statistical proxy for reach and resonance over time? Obviously, machines are not yet good at assessing how people will react to words used to describe a company, cause or candidate. Here's a bigger challenge. Content data cannot measure recall. Volume and tonality data measure what was published. Buzz about that news is a barometer of what people heard and saw. Tracking that Buzz over time gauges memory.

In many cases, a story that generates national headlines corresponds to little to no buzz. Earnings news, for example, is covered widely by the national press but garners little attention beyond investors. In other cases, news may have a shelf life of a week or two. The Krispy Kreme jab campaign is a good example. And in extreme cases, news has what could be characterized as long-tail recall that can extend for several months, and in extreme cases, several years or more.

That dynamic is critical when it comes to aligning news -- including PR-generated publicity -- to organizational outcomes. Here's why. Business relies on time-series data and multivariate analytics to manage virtually every significant decision that executives make. In marketing, for example, market mix models gauge advertising effectiveness and target spending. In sales, price elasticity models are used to set prices, and by extension, profit margins. Various other models are used to inform investment decisions, forecast market trends, and assess risk.

What exactly does a model look like? The chart below depicts two widely used approaches to demonstrate the success of marketing. Attribution models are used to tease out various things that would influence a consumer's decision to purchase a product or service, typically online. Market mix models, candidly, in practice tend to focus on demonstrating the success of major ad campaigns and refining ad spending.

Take another look at the chart above. In order to create business models, companies need reliable and validated data on sales, margins, market presence and other variables -- for both themselves and competitors. Business also is affected by the broader economic environment, including employment and consumer spending. In the case of Peloton, the economy also was widely impacted by social restrictions put in place to curtail the COVID-19 contagion. The high-end exercise bikes and treadmills became a hot commodity among consumers with more disposable income and less access to their traditional workouts.

Media data, meanwhile, can be fed into both models. On the marketing side, companies typically track ad spending over time. The challenge lies in the use of news coverage data. As we saw in the case of Peloton, news can contribute to significant shifts in key brand variables, including awareness, consideration, purchase intent and customer satisfaction. But a lack of reliable, validated data tracking news reach and resonance with consumers has hindered the ability of PR to connect to business outcomes. In statistical terms, in our experience, content data does not fit into business models. As a result, the news tends to wash out of business models.

But that does not mean news - including PR-generated publicity - is not a significant variable impacting companies, causes or candidates. Quite the opposite. While marketing results tend to be reflected in gradual gains over time -- year-to-year growth in Peloton awareness is a good example -- news tends to inflict even more significant shocks on brand metrics and business outcomes.

Treadmill recall

Peloton is a case in point. In March 2021, CEO John Foley emailed every Peloton treadmill owner in the company's customer contact database with tragic news. After learning that a young child had been accidentally killed after crawling under a Tread+ model Peloton, the company urged parents to take extra safety precautions, including storing keys outside of the reach of children.

"I’m reaching out to you today because I recently learned about a tragic accident involving a child and the Tread+, resulting in, unthinkably, a death. While we are aware of only a small handful of incidents involving the Tread+ where children have been hurt, each one is devastating to all of us at Peloton, and our hearts go out to the families involved."

Following national news coverage of the email, the U.S. Consumer Product Safety Commission opened an investigation into treadmill-related accidents. The regulators at one point asked Peloton to put them in touch with consumers who had reported accidents to the company. Peloton refused, citing customer privacy concerns. Foley in a second email assured customers the company had no plans to recall the workout equipment.

"You may also have read news reports suggesting that CPSC believes that we should stop selling or recall the Tread+. I want to assure you that we have no intention of doing so. The Tread+ is safe when our warnings and safety instructions are followed, and we know that, every day, thousands of Members enjoy working out safely on their Tread+."

In early May, the company reversed course, formally recalling both the Tread+ and limited edition Tread equipment and offering full refunds. This time, the company made the announcement in a joint press release with the CPSC, with CEO Foley apologizing for Peloton's initial response to the federal regulatory investigation.

"The decision to recall both products was the right thing to do for Peloton’s Members and their families. I want to be clear, Peloton made a mistake in our initial response to the Consumer Product Safety Commission’s request that we recall theTread+. We should have engaged more productively with them from the outset. For that, I apologize. Today’s announcement reflects our recognition that, by working closely with the CPSC, we can increase safety awareness for our Members."

As you might imagine, news coverage about the fatal accident, federal investigation and product recall were coded as highly negative by media monitoring firms. That corresponded with negative shifts in Peloton Buzz with consumers. Although more than 16% of consumer had a negative Impression of the Peloton brand at the height of the crisis, up ten percentage points from the pre-crisis levels, communications tactics that included reaching out directly to customers at the start of the crisis may have mitigated the damage.

A Big mistake?

With holiday shopping in full swing in 2021, Peloton was back in the headlines. During the opening episode of a Sex and the City reboot streaming on HBO, star Carrie's husband Big dies unexpectedly while working out on his Peloton. According to BuzzFeed coverage, Peloton marketers had agreed to the product placement and lined up real-life instructor Jess King for her star turn. No one, it seems, had insisted on reviewing or approving the show's plot line.

"HBO procured the Peloton Bike on their own. Peloton was aware that a Bike would be used in the episode and that Jess King would be portraying a fictional Peloton instructor. Due to confidentiality reasons, HBO did not disclose the larger context surrounding the scene to Peloton in advance."

-- Peloton spokesperson Denise Kelly

Following the HBO premier episode, Peloton rushed out an ad featuring a very much alive Chris Noth, who played Big on the show, and then just as quickly shelved the ad after Noth was implicated in sexual assault allegations. Peloton PR, meanwhile, was working to spin Big's untimely death in the press. Responding to media inquiries, the company issued a statement attributed to Dr. Suzanne Steinbaum, a cardiologist and member of the company's health and wellness advisory council.

Diagnosing the fictional death of a larger-than-life character on a popular television series, Dr. Steinbaum attributed the fatal heart attack to an "extravagant lifestyle" while promoting the health benefits of spinning.

"I'm sure SATC fans, like me, are saddened by the news that Mr. Big dies of a heart attack. Mr. Big lived what many would call an extravagant lifestyle — including cocktails, cigars, and big steaks — and was at serious risk as he had a previous cardiac event in Season 6. These lifestyle choices and perhaps even his family history, which often is a significant factor, were the likely cause of his death. Riding his Peloton Bike may have even helped delay his cardiac event."

-- Dr. Suzanne Steinbaum

The next big opportunity?

In September 2022, a shake up at Peloton accelerated. Co-founders John Foley -- the former CEO -- and Chief Legal Officer Hisao Kushi announced plans to leave the company, and were followed to the door by CMO Dara Treseder. The departures come on the heels of a $1.2 billion quarterly loss for Peloton, which has posted net losses for six straight quarters.

The current CEO, Barry McCarthy, who came out of an early retirement to lead the company, has spent the year cutting costs by $800 million and working to reinvigorate the firm's exercise subscription model. Workers have been laid off, stores have been closed, and the once-exclusive exercise bikes are now being hawked on Amazon. Peloton shares are down 75 percent on the year.

So what's the key to McCarthy's turnaround plans? He says it's marketing -- and more specifically a push to raise consumer unaided awareness for the company's digital app, which enables customers to join in on Peloton workouts on any piece of stationary equipment.

“We need to lean in and figure out whether or not we can actually increase the unaided brand awareness in a cost-effective way,” McCarthy said during an investor conference. “That’s the marketing challenge. And so that’s what we’re trying to sell for now.”

Maybe it's time to spin out another holiday commercial?

Here's your comment prompt:

Reread Dr. Steinbaum's quote, above.

Was her statement positive, negative or neutral

in terms of its impact on the Peloton brand?

Just post your one-word response below.

Positive, Negative or Neutral.

We will discuss why you feel this way in class.