In this latest episode of the How Would You Beat podcast, we looked at how companies in the fitness industry - or even the larger health industry - can beat Peloton’s highest point of success and also avoid landing in the soup that Peloton finds itself in today. The conversation led us to questions like “how can companies rightsize manufacturing?” and “what is the most accurate way to estimate your customer segment size?”
What happened to Peloton?
Peloton was riding an amazing demand wave before the pandemic. This demand continued during the pandemic's early months. Creating a platform for the fitness community had worked for the brand, and this was reflected in its stock price until Peloton made some big mistakes. Now Peloton’s stock is down 75% - 80% since its peak, and its cash flow is so badly hit that there are plans to lay off 40% of employees.
So what happened?
Peloton's bike-and-screen product helped consumers who are trying to stay fit overcome the difficulties of fitting workouts into a packed schedule.
Demand exploded a few months into the pandemic, fuelled by gyms and other forms of fitness (that involved stepping out of the house) becoming off-limits while people were stuck at home.
The problem was that this need was temporary, which directly translated to a spike in demand that would only be fleeting in the larger scheme of things. Peloton ramped up manufacturing to meet this sudden burst but couldn’t keep up because the demand had come out of nowhere - they had not anticipated it. However, by the time they had a sufficiently large volume of inventory, the demand had begun to dwindle, as lockdowns were eased and people returned to their former workout routines.
Peloton was left sitting on enormous inventory, with demand falling far behind. They offered discounts up to $400, but the market’s response never met the projections that had guided the increased production.
Peloton is now experiencing a problem that it had never witnessed before this sudden spike in demand (which should have actually been a good thing).
Peloton has a serious cash-flow problem.
Peloton did get one thing right: Its product. The product succeeded in creating a platform for the fitness community and its customers appreciated this tremendously. The bike got rave reviews from its customers, so it is safe to say that the product itself wasn’t the problem; it delivered customer value. The company simply overestimated the size of the demand.
How could Jobs-To-Be–Done have averted Peloton’s crisis?
The Jobs-to-be-Done framework helps companies arrive at an understanding of how to better respond to customer struggles by breaking down a customer’s job into job steps. Once you have the job steps - and there are many job steps for every job that your customer has - it becomes easier to understand the needs and struggles that the customer faces at each job step.
For a product to succeed, it must accurately and efficiently solve the struggles that your customer faces at various job steps while getting a job done. The customer must be willing to pay to eliminate this struggle, which means that they need to face the struggle frequently enough.
If Peloton had taken the Jobs-to-be-Done approach for fitness apps, they might have noticed that their customer was not everyone in the market for fitness solutions. Their market was actually a smaller and more specific segment of people who were trying to stay fit amidst a schedule that did not afford them enough time for fitness activities that involved a commute and fixed timings.
When the pandemic came along and lockdowns were imposed, people who did not have the needs that made gyms a poor solution during normal times, suddenly did. Everyone needed to stay fit without leaving the house. However, when people were allowed to leave the house, the number of people who needed an at-home workout dropped drastically. This momentary demand spike is what distorted Peloton’s view.
However, had Peloton been looking at its market as people for whom gyms did not get the job done because of their specific needs, they would have had a more conservative forecast.
Peloton might have been able to recognize this if they had adopted a Jobs-to-be-Done point of view for fitness apps. For example, if Peloton had a constant pulse on the customer’s job through a quantitative survey mechanism, they might have noted that the demand was temporary because they would already have an accurate picture of the size of their target customer segment, based on the struggle with the job that led consumers to “hire” Peloton.
Additionally, they might have guessed that the market was almost saturated because by knowing exactly who their customer is, they might have also known their market share. For example, hypothetically speaking, say Peloton already held 40% share of the “prefers to work out at home” segment before the pandemic. They would have rationalized that growth after this point warrants a closer look.
Maintaining this pulse on the customer’s job helps companies:
- Understand who your segment is
- Forecast demand based on the unmet needs your product satisfies
In this case, Peloton would have known who its core market was and that would’ve steered them towards recognizing the temporary demand spike for what it was. That recognition would ideally have resulted in them choosing a safer route when responding to the temporary demand instead of manufacturing complex hardware, where backtracking is costly once production is ramped up.
The bottom line is that quantitative analysis of the Job-to-be-Done can give you insights into three fundamental business areas:
- How well your product is solving your customer’s struggle
- How much of the target segment you have already penetrated
- Opportunities (by way of unmet needs and underserved segments) that can guide your company’s growth
If you want to learn more about thrv and our Jobs-to-be-Done approach, be sure to sign up for our free course.
