But those cost reductions, as I said earlier, are still going to allow for continued investment in all of the key initiatives that we are focused on, including software content and hardware innovation. The next largest area will be marketing where our cost reductions are really focused on things like the brand and creative and a few other areas. But I want to be clear that we aren’t relying on significant media spend efficiencies to achieve our cost reductions. Although, we do see additional opportunities to scale back media spend at a higher efficiency. The third area while not mapped perfectly to lines in our P&L, is international. As Chris talked about earlier and mentioned that it’s still a growth area for us, but we are planning to cut our international operating losses in half, next year, over the next 12 months, by reimagining our go-to-market approach and being much more targeted and efficient.
And so what we are going to do is we are going to stay in all of our existing markets. We have no plans to exit any of those. But we are focusing on more of global strategies and capabilities. And then that allows us to really consolidate resources, so that we can focus on just local execution there.
Ronald Josey: Got it. Thank you.
Operator: Thank you. One moment for our next question. Our that will come from the line of Aneesha Sherman with Bernstein. Your line is open.
Aneesha Sherman: Thank you so much. A follow-up on international, please. So a few quarters ago you were talking about the growth potential in Germany and UK, and some of these bigger markets for FY ’24. Has your view changed in terms of the total upside of these markets or the kind of ROI of growing in these markets? I understand you are being more targeted and efficient, but has the total size of the pie-changed in your view? And then a quick follow-up on marketing. Chris and Liz, you both talked about investing in software and hardware and not as much on marketing. Ultimately, you do need to drive customer acquisition. How do you think about some of these short-term measures to conserve cash by cutting media spend and cutting sales and marketing and how they might impact acquisition in the next couple of quarters? Thank you.
Liz Coddington: Okay. Well, there’s a few questions there, definitely more than one. But I’ll start with the question about international, and really the question is about upside potential in international. Well, first of all, our international Paid Connected Fitness Subs actually grew 8% year-over-year in Q3. However, when we look at our LTV-to-CAC ratios associated with that growth, we are currently not hitting our target efficiency levels. And so we need to optimize our marketing investment levels to be much more efficient. And as we reduce our costs there to be more efficient, our growth may be a bit slower but it will be at a much better LTV-to-CAC level that allows for profitable growth, which gets at the point that Karen was making earlier.
Some of the specific changes — so we talked about some of the changes that we are making on the international side in terms of optimizing and consolidating resources, but we are also going to be focusing our marketing on segments where we have the highest product market fit. So we are not going to be focusing on reaching out to every single — every one and all of those markets. And we believe that by honing our messaging and targeting the right audiences, we will be much more efficient and be able to ultimately grow. We are still optimistic and we remain focused on international as a growth lever. And it is also important to note that while our growth is a bit slower than we had anticipated previously, we are really encouraged by the fact that we do see low Paid Connected Fitness Subscription churn internationally, at rates that mirror the US.
I also want to point out that our unaided brand awareness, is still really pretty low in international markets that we serve today, aside from perhaps maybe Canada. And we see a lot of untapped potential from new countries and markets that we may enter in the future.
Chris Bruzzo: And I would just add — this is Chris. I would just add — that’s a natural learning curve for companies as they engage in international markets to understand what works — what doesn’t, how to do it efficiently. I think, you are seeing and hearing a disciplined approach here from Peloton on how to approach those markets in a way where we maximize the number of people we reach and we do that in a way — that’s really efficient. And some of what Liz just talked about in terms of the product market fit, the quality of the experience and the kind of engagement and low churn, those are really great starting points. That’s where the strength of the company and its brand are. And so from there, we know we can grow. As it relates to the marketing question, I think it is important to realize that our focus is really shifting towards growing new audience, targeting new audiences, expanding to the incredible number of people who’ve yet to experience or have the Peloton experience.
And so it is also a great discipline. Just the same way we talked about, and I just mentioned in international, also in marketing, to bring an intense focus a real drive to getting the cost of acquisition in-line with the value of bringing new customers on, and that’s where our focus is. So we agree. There is still a good healthy investment by Peloton in marketing spending. But of course, we want the discipline of being efficient with that. And that will actually allow those dollars to return better and reach more people, and that’s the ultimate goal. So there is lots that are — a lot of — that has already been discovered as Lauren engages in the opportunity here at Peloton and I think there is – we are going to see lots of good return from her work.
Liz Coddington: I just wanted to add one thing. When we say that we pulled back on some of our marketing spending, we are not pulling it tremendously back in a way to release stifle growth. We are just looking at our LTV-to-CAC ratios and looking at the way that we can improve them and bring them back more in-line with our target investment levels. And then it’s not just about media spending. I keep calling it on brand and creative spending as well. That’s an opportunity that Lauren saw when she got here. We need to make sure that when we look at our marketing spend, that we are putting the right balance of working and non-working dollars in a more optimized way to work. And I just want to make sure that that comes through. That’s really what we are focused on there as opposed to pulling back on spending.
