Chris Bruzzo: And it is important to note, as Liz mentioned there, the amount of marketing adjustments that she just referenced a minute ago includes our fixed costs, includes head count. And we have made some really tough decisions, and we are going through that restructure plan today. And so some of those reductions in costs related to marketing are about head count or about fixed costs. So you shouldn’t necessarily think of it all as a reduction in media spending. That’s just not going to be the case.
James Marsh : Great. Thank you for the question. Next question please.
Operator: Thank you. One moment for our next question. And that will come from the line of Michael Graham with Canaccord Genuity. Your line is open.
Michael Graham: Thank you. And really helpful set of communications here. I just wanted to ask about the — with the relaunch of Tread+ just maybe talk about the market size for Tread and how incrementally you think the subscribers there are going to be to the business.
Liz Coddington: Sure. So as we’ve said previously, we estimate the Tread market to be roughly 2 times — or the at-home treadmill market to be roughly 2 times that of bike. And as we said also, it is a much smaller share of our connected fitness hardware sales compared to the bike. So for us, we see a large opportunity market-wise and then a large opportunity for us. We also see that our current Tread and Tread+ sales still skew towards existing members. And so what you are going to see us try to do is really take steps to focus marketing efforts on educating potential customers about our Tread, and connecting running with the Peloton brand. And the goal of these efforts is to explain to these potential customers how — what Peloton can offer them in terms of Tread and running offerings.
So a great example of that is the fact that we launched that New York Road Runner Scenic Collection on Tread and Tread+. And that allows members to run the New York Marathon course using metadata and auto inclines with the course’s gradient, which is really a pretty amazing experience, and we believe the first of its kind to be able to be offered. And then, again, when I — when we talk about Tread and opportunity for us, we do see a significant opportunity for us to improve awareness of Tread. For us, that unaided awareness is roughly about 24% in the US, and that’s like our bike unaided awareness is about double that. So lots of opportunity for us.
Michael Graham: Okay, thank you.
Operator: Thank you. One moment for our next question. And that will come from the line of Andrew Boone with JMP Securities. Your line is open.
Andrew Boone: Thanks so much for taking the question. Can you talk about your learnings from the app strategy over the last year? In what way should we expect those to evolve going forward?
Liz Coddington: So in terms of our app strategy, I think we have had a lot of different learnings. Yes. So first of all, in Q3, our paid app subs underperformed our forecast. We saw lower additions because of softer trial demand than we had expected. And we also had underperformance in our Peloton for business channel, and that was really related to the timing of deals and when we expected them to happen. And then also where previously in Q2, we had seen lower churn than we were expecting, in Q3 we saw slightly higher churn because we saw some of the subscription cohorts whose legacy pricing expired, we saw higher churn from them. But one key learning that we did have is the fact that we’re seeing more subscribers select the App+ tier.
And so as a result of that, despite the subscriber decline, we did see our app revenue increase quarter-over-quarter. And we’ve been talking a lot about media spend. But while we are improving our LTV-to-CAC, we are still below our investment targets. And so we have to — we are actively evaluating our app tiering strategy. that includes like looking at pricing, looking at our tier structure. And in order to have a disciplined investment framework, and we are scaled back marketing spend for app, until we establish a better product market fit and we see that we can grow our app more efficiently. So let me talk just really briefly about the subscriber acquisition funnel. So we are looking at ways to improve that. We see an opportunity to improve our conversion from app download to trial, and then also from — then from trial to conversion.
And then one example of an improvement we’ve recently made was removing the free tier or making it less visible, which moves us in the right direction. And then we still believe in the app. The app is an important part of our Peloton fitness experience and platform. We are continuing to invest in app product innovation. We have lots of exciting offerings on the way that Nick’s team is working on. But we’re not ready to share them yet. And we do expect it to be an iterative process, as we continue to learn. I also want to point out that beyond just our paid app sub base, the subscribers that just pay for the app, it is an important part of our connected fitness subscription offering as well. And on average, we do see the majority of our connected fitness subscribers also use our app on a monthly basis.
Chris Bruzzo: So another great area of where the company is showing discipline and learning. So as we’re making these adjustments to tiering strategies and pricing, as we are watching members who had the legacy app actually upgrade, as we are adjusting what the experience is like for groups based on what we’re learning, of course that means we have to optimize our acquisition funnel. And this is a digital product, and we can have — we have a lot signals as to what’s working from an acquisition standpoint and what isn’t. And so that just becomes like a constant process of optimizing. So you’ll continue to see us do that, whether it’s the product, how it’s targeted, and the way we are driving acquisition.
James Marsh: Great. Shirley, we have time for one more question, please.
Operator: Thank you. And that question will come from the line of Jonathan Komp with Baird. Your line is open.
Jonathan Komp: Yeah. Hi, good morning. Thanks everyone. A bit of a follow-up, I’ll toss it out to the group. But could you maybe just spend a little time maybe diagnosing a little better. In your view, some of the challenges in returning to growth overall, and I guess the question really is the spending that you are doing and maintaining, are you spending on the right things? How do you know that? Are you really just beholding to some of the industry trends that are still an overhang? Just any more thoughts there would be helpful.
