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The Brainy Business | Understanding the Psychology of Why People Buy | Behavioral Economics

Feb 7, 2020

Last year on the show, there were behavioral economics analyses of Apple Card, Costco and Starbucks and this is the first time in 2020 we will be digging into a specific company. I’ll talk about the infamous Peloton ad that made the company’s market value drop $1.5 billion in three days: what happened in the ad and why it went wrong. Then I’ll explain what could have been done better and the behavioral economics concepts that back it up.

I also talk about my own personal experience with Peloton. I recently got one and I’m loving it. You’ll learn about the behavioral economics of financing options, the 30 day money back guarantee, as well as how they use the concepts of social proof, herding, reciprocity, and more in very smart ways. If you don’t have a Peloton, you’ll learn a little more about equipment, subscription, and app options. I also talk about some of the really cool things they are doing that align well with behavioral economics – including sharing a bunch of concepts I see in their set up, and we will wrap up with tips for your business based on successes from Peloton. 

As a note, I don’t do any work with Peloton and don’t know if they are working with anyone in behavioral economics or if they are familiar with any of these concepts or doing any of this intentionally. The stuff I talk about in this episode are my own thoughts and observations, not from any conversations I have had with anyone at Peloton.

If you work there or know someone who does that would like to Connect, please email 

Show Notes:

  • [03:28] Peloton is a fitness company that sells equipment and features live streaming videos on a screen attached to the equipment.
  • [03:52] According to Peloton’s website, there now have more than 1.6 million members. They state over 55 million workouts completed in 2019, and in their last fiscal year (which ended in June 2019) the company made $915 million dollars.
  • [04:21] They also have a 94% 12-month retention rate.
  • [04:48] Over the Christmas holidays, they featured an ad about a woman who receives a Peloton from her husband as a gift. We then get to watch her video blog of her entire year riding the bike and she says she didn't realize how much it would change her.
  • [05:38] The internet hated this commercial. There was all kinds of backlash about the husband giving her an exercise bike and how it was sexist. It had negative coverage in all the publications.
  • [06:10] According to Business Insider, Peloton lost 1.5 billion dollars in three days after the release of the ad.
  • [06:33] In my opinion, the ad wasn't as bad as it was made out to be on social media. The real problem is mixed messaging (something many companies struggle with).
  • [07:03] The ads that Peloton makes are clearly directed towards wealthy people. They also only have very fit people in their ads (which is fine if this is a clearly defined niche).
  • [07:34] The other side of their brand is being a community opportunity for everyone to be able to have access to amazing fitness regardless of whether you have access (or time to go) to a gym.
  • [07:49] If you say you are for everyone – a community of all kinds of people coming together to support each other…the ads should reflect that.
  • [08:03] If you are truly only for wealthy people, you should say that.
  • [08:27] There is no reason that any business can’t target a high income or high net worth group of individuals. Just make sure that the messaging is clear.
  • [09:15] I think they do want to be inclusive – especially after having the bike for a month now. Their website is “One Peloton” and they share that messaging throughout all the workouts and interactions. They are very focused on their community.
  • [09:24] my recommendations: First the ad needed a teeny tiny back story where everyone knew that the wife actually wanted a Peloton.
  • [10:04] You cannot assume everyone who watches your ad or sees your message is coming from the same place as you.
  • [10:32] When you don’t provide the proper context in the backstory, people will fill it in with their own story, which could be loaded with negatives (especially when you’re talking about health, diet and fitness).
  • [10:45] Take a step back and look at your message from many perspectives and look for what people would disagree with.
  • [11:17] A noticeable difference in the protagonist from the beginning to the end would have made a big difference. 
  • [12:42] If you are going with the inclusive message, it should have closed with a very quick line like “One of the many stories of Peloton” which could then trim down to say “One Peloton”.
  • [14:22] Peloton has enough content for a ton of advertising if they take the time to find it within their community.
  • [14:46] Understand your market niche and who you are speaking to. When this is grey you can get into trouble.
  • [14:54] Bring people along with you in your story, you can’t assume they know the right context. It is important to share key elements to ensure the right message is being conveyed.
  • [15:19] Don’t overlook your community when creating ads and messages. You have a huge amount of people who love you and your brand and would be honored to be featured while singing your praises. Ask for stories.
  • [15:45] Even though Peloton went down 1.5 billion in value it doesn't mean that will last forever.
  • [16:18] Even though it wasn't the greatest way to go viral more people probably know about Peloton now.
  • [16:34] Availability bias is when you start to see something everywhere and then it gets more weight in the brain.
  • [18:06] The availability bias and the ad being everywhere pushed Peloton through the subconscious filter and got you to consider it.
  • [18:50] One of the reasons it was easy to join Peloton was in the framing of the offer. Their equipment is expensive, but they have a 30 day trial with a money back guarantee and a 0% financing option where you can pay for the equipment over three years.
  • [19:37] They have a 94% stay rate from people after 12 months, so their main hurdle is to get that bike or treadmill into your home.
  • [20:22] You can be part of the community by paying a monthly membership fee to access the content.
  • [21:14] There isn't a discount for people who bought the bigger thing (equipment) from Peloton - they actually pay more each month.
  • [21:39] It's important to note that you don't have to discount when you bundle things together or have repeat customers.
  • [23:11] The access to content, free trial and 0% financing are all examples of reciprocity. You pay each month to have access, but there is so much value it feels like a gift to have these great instructors, stats and details.
  • [24:11] Choice architecture (specifically structuring complex choices) is in play with over 20 new classes going live daily and more than 10,000 already on demand.
  • [25:02] You can easily search and filter for what you're looking for based on what matters to use such as type of class or instructor.
  • [26:26] Sometimes it's good that people have to search a little to get to what they're looking for (the subconscious is always scanning).
  • [29:56] Peloton uses concepts of herding and social proof to really enhance the community experience. You get all the goodness of being a part of a community without any of the awkwardness.
  • [32:40] The instructors walk you through what numbers to focus on (in their case “resistance and cadence”) and there is an overall output that ranks you on the leaderboard. Limiting the areas of focus is a framing benefit.
  • [34:37] Social proof is kind of like herding, in that it shows other people are there and liking the course. With Peloton, they do a FANTASTIC job of incorporating social proof and making you feel like part of a gigantic community.
  • [37:20] They shout out milestones throughout the class, starting high and working their way down. This helps with anchoring, another important concept for Peloton.
  • [38:25] Anchors are set in tandem with the social proof by announcing those in the live class who hit milestones. When they shout you out, they say, “I see you”.
  • [40:07] Another way they use anchoring is in tandem with commitments and precommitments – which help form good habits.
  • [41:34] These anchors help boost the amount you might have worked out otherwise, and committing in advance makes you much more likely to form a habit and reach a goal.
  • [42:16] Peloton wants and needs people to change their behavior; to use the app and equipment consistently so they continue to find value and pay the subscriptions.
  • [43:58] These little nudges make a big difference and help to show why Peloton is a smart company making (mostly) good choices.
  • [45:07] If you have a peloton and want to connect there, please follow me – as I said, my name is “BEthoughtful” all as one word…so it shouldn’t be too hard to find me. I look forward to seeing you there.
  • [45:30] SUMMARY OF TIPS: Know who you are speaking to and make sure your branding is aligned with that target market. Narrowing your focus is good and will help you better align with your right people.
  • [45:34] Context is important in any story you are trying to tell. You can’t assume people know the story or have the same background as you have when you came up with the story. Take the time to understand which details are important and show them in the right order.
  • [46:00] Use the stories from your community.
  • [46:17] It’s ok to have complex offerings with a lot of choices, but you need to make the structure of those really easy for people who are using your product or service.
  • [47:11] Anchoring is always important. Start with big numbers to help others see what is possible and set your anchors.
  • [47:29] Social proof – saying things like “I see you” and helping people feel  there is a bigger community present is critical for an online space if you want people to feel connected.
  • [48:18] Giving things away can trigger reciprocity and make people want to get more from you.
  • [48:30] It's ok to not have discounts for people who are buying other stuff from your company.

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