Behavioural
Economics

Session 14

Joshua
Foster



Agenda

  1. Case: Peloton: Keeping Users Pedalling with Behavioural Theory.
  2. Choice architecture problem: pricing the Peloton ecosystem.

Why is exercising a difficult task for many people?

Our survey results.

About how many days per month do you exercise in a typical month?About how many days per month do you think you should exercise in a typical month?
$\bar{X}=11.68$
"Not enough."		$\bar{X}=16.3$
"Everyday but I struggle to do that."

How would you describe the Peloton Bike as a product?

How would you rank order these statements?

  1. Peloton is a tech company.
  2. Peloton is a media company.
  3. Peloton is a hardware company.

How would you rank order the profit potential of Peloton's products for the bike?

  1. Apparel.
  2. Bike itself.
  3. Virtual spin classes.
  4. Bike accessories (e.g. shoes).

Choice architecture problem: pricing the Peloton Bike ecosystem.

  • Bike.
  • Virtual classes.
  • Accessories & Apparel.

How do behavioural biases around fitness shape Peloton's pricing strategy for these products? What recommendations do you give Foley?

Instructions:

  1. Categorize a list of behavioural concepts according to their relative presence and effect on the value of Peloton's product ecosystem.
  2. Document specifically how the three most relevant behavioural concepts influence decision-making.
  3. Using your insights above, design a pricing model for the Peloton Bike ecosystem oriented toward consumer engagement and retention.
  4. Select a team member to report back to the class.

Team Task

With your team, take the next twenty minutes to complete the Miro board tasks. All teams will report back when time is up.

Peloton's Behavioural Pricing Strategy

  1. Bike: a large, upfront monetary cost.
    • Present Bias: we believe our future selves will exercise.
    • Buyers make the investment in their future health.
    • When the bike arrives they use it less than predicted.
  2. Concomitant subscription service: small routine fee.
    • The bike is over-priced without this.
    • Endowment Effect on bike: buyers pay for the subscription despite under-utilizing the bike.

People buy the bike due to Present Bias. They keep the bike due to the Endowment Effect.

Is Peloton's pricing model helpful to consumers, or manipulative?