Peloton Interactive Inc.’s Crisis and Solution

Subject: Case Studies
Pages: 3
Words: 703
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Study level: Bachelor

The Crisis Faced by Peloton

Peloton Interactive Inc. is a fitness media and exercise equipment manufacturer based in the United States. It is best known for its high-tech stationary bikes and treadmills, which can be connected to the Internet, allowing users to participate in virtual classes and compete against other users. Due to the COVID-19 pandemic, Peloton saw tremendous growth in 2020 as people purchased its equipment and services during the lockdown, even leading the company to acquire a commercial fitness firm Precor for $420 million, its largest acquisition ever. However, since then, the company has been embroiled in scandals and steeply declining sales and participation. First, the company has gotten a reputation for causing potential health concerns, especially after television shows portrayed characters as having heart attacks on the Peloton bikes. Second, the company faced significant backlash over equipment safety, issuing a massive recall of treadmills in 2021. Finally, in addition to the PR crises, the company has suddenly faced issues with price sensitivity (Peloton is considered a luxury brand, with equipment worth over $1500 not available to most) and a rapidly declining market share as well as stock price (Segal, 1).

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Summary of the Company Response to the Crisis

Initially, the company attempted to take incremental steps to respond to the crisis. It took steps in an attempt to market a better image for its company. It also quietly announced that it would be halting the production of its bike equipment. While it was likely a cost-cutting measure, it had the opposite effect of showing the company was in trouble from a combination of factors such as falling demand and consumer trust, resulting in significant stock price drops. It was rumored that one of the larger tech or fitness companies, such as Apple, Amazon, or Nike, may be interested in acquiring Peloton. Then, after a lack of success in perception or business outlook, given that the indoor season is ending, Peloton suddenly announced massive reorganization, with its CEO and co-founder John Foley stepping down. A new experienced CEO Barry McCarthy is taking the reigns along with a series of other changes of executives, with the mission of reforming the company and starting a ‘new chapter in a “comeback story.” However, at the same time, Peloton is forced to cut 2800 jobs or 20% of its workforce (Thomas, 2).

Evaluation of the Company Response to the Crisis

In his book Winning, Jack Welch talks about the importance of candor. It is a highly underestimated value but can lead to many positives. He argues that lack of candor essentially blocks solutions based on smart ideas, fast action, and good people contributing. Companies like Peloton do not demonstrate candor either to the public or even to their employees, using purposefully ambiguous and carefully crafted PR statements to address public and stakeholder concerns. The company, just like a person, seems to feel ashamed to admit its wrongdoings until it is way too late, and even then, taking steps of avoidance. Installing new management may be effective, as Welch also indicates that mission and values come from the top, trickling down to all aspects of the business; however, if the inherent model of business and purpose is not changed, then there will be little effect (Welch, 3).

Strategic Overview of Internal Memo

The memo should strategically focus on several objectives. First, it is meant to bring transparency and information to the employees. In a time of crisis and uncertainty, communication with relevant information and addressing major concerns are crucial to ensure stability and continuing function in the face of crisis. Institutional crisis communication is essential for effective crisis management (Tanović, 2021). Next, it is meant to motivate, as the crisis and layoffs have created a demotivating atmosphere and likely demoralized the workforce, with fears that more layoffs may follow. Finally, it is meant to outline the future actions of the company in order to ensure everyone is on the same page and working towards common objectives to improve the conditions in the company. The memo should focus on who the audience is and how they are addressed to demonstrate both the leadership of the person writing it and address the needs of the employees (Boutin, 5).

References

Edward Segal. 2022. Peloton Faces Challenges Before It Can Recover From Their Latest Crisis. Forbes. Web.

Lauren Thomas. 2021. Peloton’s new CEO, Barry McCarthy, says he’s ‘here for the comeback story,’ an internal email shows. CNBC. Web.

Jack Welch. 2005. Winning

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Merima Tanović. 2021. Analysis of Effective Crisis Management and Crisis Communication in Public Sector Organizations.

Roger Boutin. 2020. Four Keys to Crisis Communication. Forbes. Web.