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Price elasticity of demand - Peloton cuts price of bike as sales growth slows

Geoff Riley

27th August 2021

Are the wheels starting to come off the connected-fitness market dominated by businesses such as Peloton?

In a letter to shareholders, the company has admitted that price remains a barrier to achieving ambitious sales growth hence the second price cut within the space of the year. $400 has been taken off the price of their leading model equivalent to around a 20-25% price reduction.

This will be an interesting application of price elasticity of demand. Will the price cut be sufficient to attract many more buyers in a market that is becoming more crowded.

I stay clear of Peloton preferring a watt bike and a Zwift subscription instead. And with covid restrictions lifting in many regions, more fitness enthusiasts are heading outdoors.

A $39 per month Peloton subscriptions also looks fairly expensive contrasted with the improved deals available at many low-cost gyms who have responded to the covid crisis by offering more flexible subscriptions at reduced fees.

A key metric to watch will be the customer churn rate, which measures the volume of customers who leave their subscriptions each year.

Price elasticity of demand is lower when consumers have strong brand loyalty. Peloton is thought to have something of a cult status. Let's see how realistic this is in the next year or two!

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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