Peloton runs into PR nightmare: here’s what it needs to do next
The exercise equipment brand is sweating after a product recall spurred Wall Street losses. The brand’s reputation is sure to suffer as consumers lose faith in fitness’s golden child. But can Peloton bounce back? Here’s what the experts say it must do.
Peloton has run into some trouble, with stock prices plummeting in response to a recall announced Wednesday
Fitness brand Peloton – known for its high-tech stationary bikes and cult-like following – announced Wednesday a recall of both its Tread and Tread+ treadmills following the death of a child and some 70 reported incidents associated with the products.
It’s unclear whether the brand failed to comply with certain regulatory requirements concerning safety, but last month the Consumer Product Safety Commission (CPSC) issued an ‘urgent warning’ imploring consumers to immediately cease their use of the Tread+ treadmill if they have pets or small children. The CPSC released a video alongside the announcement depicting a child being dragged under the belt of a Peloton treadmill. The agency is currently conducting an investigation into the viability and safety of the machines, focusing especially on the Tread+, the design of which may have contributed to the reported injuries and death.
Now the beloved brand is in a pickle. Robert Passikoff, founder and president of market research firm Brand Keys, says that even though Peloton’s recall was voluntary, consumer fallout is a given at this point. “One might be generous and say they’re doing all the right things now, but unfortunately it’s a lot easier for consumers to resonate with the negative stuff, rather than the positive stuff.”
There are, however, a number of steps that the brand can take to mitigate further damage to its image and start regaining consumer trust, according to experts.
Recall and remorse
On Wednesday, Peloton’s chief executive John Foley, who previously refused to issue a recall recommended by the CPSC, said in a statement: “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 the Tread+. 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. We believe strongly in the future of at-home connected fitness and are committed to work with the CPSC to set new industry safety standards for treadmills. We have a desire and a responsibility to be an industry leader in product safety.”
Following the announcement Wednesday, Peloton stocks plunged as much as 16%, equating to a loss in value of about $4bn. The hit came on the dawn of the company’s earnings call on Thursday, in which the company announced Q3 sales growth of an impressive 141%, citing supply chain upgrades that enabled faster deliveries. Spokespeople remained mum, however, on financial outlook in light of the recall. The company previously estimated that sales for this fiscal year could surpass $4bn.
“Any time you do a recall, people react with their emotions – whether it’s the stock market or brand loyalty, you see that kind of immediate reaction,” says Dr Karen Freberg, associate professor of strategic communication at University of Louisville and expert in crisis communications and social media. “I think that’s kind of what we saw [Wednesday]: people were like, ‘OK, we’re going to be taking a step back.’”
Some think it may be more complicated. Dini von Mueffling, who runs her own PR firm in New York and has helped numerous brands navigate crises, says that Peloton’s stock hit could be about more than just the recall. “The stock’s overall performance this year is not unlike other pandemic darling stocks that skyrocketed – such as Zoom, down 15% year to date, and Teledoc, down 20% year to date. These services, like Peloton’s, were essential with Covid. With gyms reopening, people no longer ‘need’ Peloton products the way they did this last year.”
However, the truth remains to be seen. A recent survey of more than 3,000 consumers suggested that demand for at-home exercise solutions is unlikely to drop off as we emerge from lockdown.
Peloton has recalled about 125,000 treadmills and will reimburse buyers accordingly (the Tread rings up at $2,495 and the Tread+ at a hefty $4,295). It’s worth noting, however, that Peloton will be forced to pay higher prices to buy back its treadmills than the costs at which they sold, because many of the units were financed by fintech company Affirm, who purchased the products at a discounted rate.
Peloton denied requests for comment for this story.
Activating instructors as ambassadors
Prior to the recall, Peloton’s success seemed to have no ceiling. Sales of the company’s bikes, treadmills, accessories and premium fitness classes have soared over the past year-plus, with consumers stuck at home with limited access to gyms. The brand asserts that 2.08 million customers either pay for mobile-only access to fitness classes or subscribe to full access to video classes each month, a 135% increase compared to a year earlier, per the earnings call yesterday.
Now, however, customer loyalty may wane as trust in the brand sinks with stock prices. What Peloton does in the coming days, weeks and months in response will certainly be a deciding factor in the brand’s future. “It’s not only how you respond in the moment, but what you do afterwards that’s crucial,” Freberg says. “It’s always good to be proactive in how you handle a situation – the worst thing you can do is not do anything.”
Freberg, a Peloton user herself, says the fitness brand is actually at a unique advantage in responding to the crisis due to its massive following of loyal users. She acknowledges that while it’s important that the company’s leadership speaks out, what may resonate most with consumers and help rebuild brand trust is seeing the community – and, in particular, Peloton class instructors – take action. “The face of the brand is the instructors. They are kind of influencers and brand ambassadors.”
She suggests that Peloton should leverage the platforms of their instructors, many of whom have garnered hundreds of thousands of followers on social media, to put out safety videos, help users understand how to set up and use their equipment correctly, and serve as spokespeople for the brand. “People in the Peloton community trust and are loyal to the instructors. In this time of crisis, Peloton needs to utilize them.”
von Mueffling, on the other hand, argues that what’s most important is the response from leadership. “The CEO needs to do a better job of being relatable. And rather than being on the defense in these crisis situations, more empathy and action can go a long way,” she says.
This isn’t the first time Peloton has found itself in a sticky situation. A 2019 ad that pictured a husband giving his wife a Peloton for the holidays saw widespread backlash and drew criticism for its alleged sexist undertones. “The big winner there, as we all recall, was Ryan Reynolds, who brilliantly used the actress in the ad for an Aviation Gin ad that poked fun at Peloton,” says von Mueffling. “Of course, just a few months later we were in the pandemic and everyone wanted a bike at home, so the controversy didn’t ultimately hurt sales of the brand much then.”
At the time, Foley seemed to minimize the backlash, and was quoted saying: “That was last week. We don’t have to do much more in order to be one of the great consumer companies of the next couple of decades.” von Mueffling says: “This reeks of arrogance, which consumers loathe. With women being the primary purchasers of Peleton products, this kind of tone does not sit well with them. Why not be humble? Why not tell your consumers that you’re listening to them and will always strive to do better?” The brand would do well to handle the current situation with more tact, she says – starting with Foley. “At the end of the day, customers who value brand integrity are looking at the leaders.”
Brand Keys’ Passikoff offers yet another suggestion: the brand’s bounce-back will require new incentives to re-establish brand loyalty. “They’re going to end up having to ‘premium’ their way out – they’re going to have to offer a lot of extras in order to be able to make up some of the deficit regarding brand equity as well.” Providing discounts, exclusive offers and other value-adding incentives may help the brand recover some of its losses on both the brand side and in the stock market.
The road to recovery
Regardless of how the brand responds to the conundrum moving forward, consumers are sure to be more wary.
It’s worth noting, however, that the problem of treadmill safety is not unique to Peloton. The CPSC reports that in 2019 alone, US emergency departments saw some 22,500 treadmill-related injuries. About 2,000 of those involved children under the age of eight.
“I got an iFit treadmill during the pandemic and I had to put chairs around it so that my dog wouldn’t come near it and get trapped under it,” von Mueffling says. “It would be great if Peloton could come out with the first treadmill with safeguards that prevent these types of problems. I don’t know if that’s doable, but if Elon Musk can put people on the moon, I have to believe that Peloton can do this.”
Most importantly, von Mueffling says, Peloton needs to demonstrate to consumers that it truly cares about their safety. “All consumers want to believe that their brands care about them. Peloton has an excellent opportunity to do the right thing.”
Freberg agrees that Peloton faces a steep climb ahead in order to regain some of the trust it has lost. “This is a challenge that Peloton has to face head on, but I think if they come together and utilize the community that they’ve built and are proactive [in mitigating the crisis], I think they can overcome this. As a consumer and as a member of the Peloton community, I feel comfortable with their products – but I’m going to see what actions they take to restore trust for other community members. Actions speak louder than words.”