Peloton cuts the price of its most popular bike by 15%

cnn.com/2020/09/08/tech/peloton-new-products/index.html

New York (CNN Business)

Peloton is cutting the price of its original at-home exercise bike by 15% and unveiling new fitness products, a sign that the company believes the pandemic has permanently changed people's workout routines and that it can further grow its fervent fan base.

Beginning Wednesday, its core bike will cost $1,895 a $350 reduction with the

monthly financing rate dropping $9 to $49 a month. With a slightly more attractive price point, Peloton (PTON) wants to maintain its blockbuster year and enlist new members even as gyms across the United States reopen.

Peloton is also moving upscale with a new model, called the Bike+. For $2,495, the new

bike has a larger screen to stream its classes, enhanced speakers and a new feature that automatically changes the resistance depending on the teacher's instructors. The screen can also be tilted so customers can do floor workouts with its new, full-body classes launching September 15. Existing members can trade in their working bikes for a $700 credit to use on the Bike+.

The price of its treadmill remains $4,295. Peloton is adding a new lower-priced treadmill next year for $2,495. Peloton founder and CEO John Foley told the Wall Street Journal on Tuesday the changes were originally supposed to be announced in April, but the pandemic paused its plans as people began ordering its products en masse and sparked a delay in orders. Lowering the prices and expanding its portfolio is aimed at attracting new members that might think it's just for the wealthy, he said.

"As consumers increasingly work out from home amid the pandemic, these new product offerings should help Peloton expand its [market base], particularly as they help reduce the total cost of ownership for consumers," AllianceBernstein (AB) analysts wrote in a new note.

Peloton, which releases earnings Thursday, has had a blockbuster year so far. Revenue

jumped 66% according to a May release, largely benefiting from closed gyms and workout studios. Peloton shares rose 9% in early trading Tuesday. Its stock is up more than 200% for the year

Q14: While the news report does not give variable costs, making it difficult to assess contribution margin, if we assume that the revenue jump of 66% (given in the report) is actually break-even sales percent, we can calculate the contribution margin (and hence the variable costs) by plugging the numbers in the formula for break-even sales percent. For calculations, let's stick to a single product- core bike. The current cost of the bike is $1895, there will be discount of $350, giving the new price of $1545. The contribution margin is approximately: