Over the last three sections of this EC-1, we’ve seen the genesis of Tonal, transforming from a series of prototypes in the mind of CEO and founder Aly Orady into a unique strength-training entrant in the luxury at-home fitness market. We’ve also seen how the company extensively alpha and beta tested its device, designed a launch and marketing strategy, and also cultivated a nascent community to hone the company’s products while engaging customers.
Yet, with Peloton such a dominant force in this market and multiple other fitness upstarts targeting the same affluent customer, there’s a natural question to be asked: Why should any customer ultimately spend upward of $3,000 on a base Tonal device? The answer to that question will determine Tonal’s eventual success, and that’s the theme we will explore in this fourth and final part of the EC-1 as we consider the competitive landscape of this white-hot market.
So what’s the product really like?
While the market is huge and the competitors are hungry, Tonal’s success pivots exclusively on whether the device itself is worth its quite prohibitive price. For me, using Tonal has been largely a positive experience, although it’s worth noting I received my Tonal loaner device within 14 days, far faster than the 10-12 week timeline that many customers have experienced in the pandemic-induced surge. The startup works with a third-party delivery service, which reminds the user the day before via email and also calls 30 minutes ahead of arrival.
Compact as the Tonal device is compared to gym weight stations, it was still a squeeze finding a spot in my crowded 900-square-foot apartment, and using it still requires me to move some dining chairs around to make space for my workout. While this probably won’t be an issue for many Tonal owners who live in larger homes (particularly in the suburbs), I suspect city dwellers may encounter similar challenges as I did.
The device itself is a high-quality piece of equipment that gym members who focus on strength training will appreciate. As someone who has been a gym member off and on for over 15 years, Tonal achieves Orady’s goal of replacing many weight stations, and there’s certainly some novelty to moving and rotating the arms into different positions versus hopping from station to station across a gym floor.
The catch to that flexibility is the learning curve. Despite a brief introductory tutorial, figuring out how to adjust the left and right arms into different positions for the wide array of weight sets (and even stowing the arms correctly when the product is not in use) can take several days to fully grasp — a reality one Tonal showroom employee acknowledged during a workout demo early on during my reporting.
I’ve enjoyed the fitness classes I’ve tried so far as well as how the device gauges, auto-adjusts and auto-increases the weight resistance based on my fitness level. As I struggled to finish a set, “Burnout” mode automatically lightened the load, which I definitely appreciated, and Tonal slowly ramped up the weights if it detected I could be challenged more. Likewise, the product’s form feedback feature is helpful for strength-training newbies like myself who might appreciate guidance on how to perform weight-lifting tasks safely and for maximum effect. The combination of all these benefits are definite improvements over going to the gym.
But as I worked out, my mind kept returning to the price, which unequivocally creates a major barrier to entry. Pricing it at $2,995 (plus another $495 for all but critical accessories) plus a $49 per month fee for the subscription, let’s just say that this isn’t a device geared for the masses or even the middle-class masses — it’s largely intended for people with luxe means who want to take strength training seriously (or already do). That’s ultimately still a substantial market, but it’s a slice that’s getting ever more competitive.
The race for a $29.4 billion market
Despite a slow start at launch due to its staggered local rollout strategy, the upside potential for Tonal is huge, with the global smart fitness market expected to reach $29.4 billion by 2025. The company did not disclose how many people own a Tonal; however, Tonal’s leaderboard in February indicated there are more than 14,000 people — a number Orady said represents a minority of the overall user base. (Shortly after asking about this figure, Tonal removed the total user count from the leaderboard in its mobile app).
It’s clear though that Tonal has a long way to go to achieve the reach and mindshare of a company like Peloton, a company that had a four-year head start. The indoor bike and treadmill maker publicly reports more than 1.09 million connected fitness subscribers and 3.1 million members total. That scale has helped Peloton finance rapid iteration, and to that end, Tonal employs a “fast-follower” approach, moving aggressively to update its software and mobile app with new features and is constantly uploading new classes to its content library.
While most customers in the high-end segment of gym equipment may buy just one device, the decision of buying a Peloton or a Tonal or another option isn’t necessarily a binary one. Peloton specializes in exercising the muscle groups in the lower half of the body, while Tonal is heavily focused on the upper half (although there are lower-body exercises available), which makes the products aimed at distinctly different constituencies.
A customer can definitely buy both, and indeed, a small cross-section of customers buy the two together with the aim to experience full-body workouts from the comforts of home. For example, in the grassroots “PeloTonal Group” which has roughly 6,000 members, people discuss their upcoming orders, offer advice and post photos of their home gyms with both devices. While investing roughly $5,500 in both a Tonal and a Peloton is a cost-prohibitive purchase many people won’t (or can’t) consider from a practical standpoint, Orady points to internal research that indicates almost 25% of Tonal owners also own a connected cardio fitness device.
Even if a customer only wants one device, the closest realistic direct competition today for Tonal is Tempo, which began shipping devices priced at $2,495 — roughly $1,000 less than Tonal’s full package — with features that count reps and calories burned, as well as feedback on users’ weightlifting techniques. However, that device relies on old-fashioned weight plates that users attach to bars that they then have to manually swap in and out depending on the exercise they are doing. To create a defensive moat against the competition, Tonal has filed over 40 patents around its digital weights and intelligence systems so its technology can’t be easily replicated.
So, can Tonal ultimately compete against other at-home fitness products like Peloton, Mirror, Tempo and others?
Marketing has been key for Tonal in helping to publicly differentiate the device’s all-in-one strength-training design, digital weights system and ability to adjust weights on the fly — features other at-home fitness products still lack. Mirror and Peloton stream a variety of classes, including strength training to a huge display, no less — and Peloton, obviously, has its bike and treadmill, but they all lack Tonal’s proprietary technology.
Tonal’s early ads portrayed an innovative product that offers serious weight-training features that at times surpassed gym weight stations, which longtime fitness buffs and newbies could use in the comfort of their own homes — a compelling offering, particularly during the pandemic.
The company, to its credit, has experienced a surge in demand for its product since the pandemic struck, with Tonal CMO Christopher Stadler telling TechCrunch the company has seen 800% growth in revenues from December 2019 to December 2020. The company also announced in early March a partnership with Nordstrom, which will more than triple the number of physical retail locations Tonal has, raising its visibility further with some shoppers.
What’s curious — and perhaps the most important question long term for this market — is if these startups will ever expand their product lines across multiple muscle groups. Most of these companies have specialized in just one device, and even Peloton, which has two, both target lower-body muscles and cardio exercises. Will Peloton one day get into strength training to take on Tonal and to a lesser extent Tempo? Will Tonal add a cardio hardware product to its existing device or as a separate offering? Those product roadmaps will ultimately have huge implications on the future of this market.
Bidding wars for fitness instructors
For Tonal, the medium-to-long-term outlook is promising, but the startup still faces some notable headwinds — most notably around its on-screen talent.
While we’ve spent a lot of cycles analyzing Tonal’s device itself, and it is indeed one of the major barriers to entry for competitors, ultimately Tonal is a media company that has to deliver content regularly for its paying subscribers. Tonal’s users want to build an emotional bond to coaches as we saw in part three of this EC-1, and that means that a critical battlefield for this startup — as well as every other connected home fitness startup — is getting and retaining the best on-air talent.
Fitness instructors are plentiful, but fitness instructors who are compelling in front of the camera — and have significant followings — represent a much smaller pool of individuals. Just as with YouTube, Instagram, Twitter and Twitch, there are a finite number of influential instructors, and it’s far more efficient to hire away camera-ready talent from other companies than spend months scouting for and grooming inexperienced instructors to potentially become the next big “hit.”
Peloton, for instance, has poached much of its high-profile talent from SoulCycle and Barry’s, and although they undergo auditioning and months of training to become Peloton instructors, they already have significant experience “performing” in front of an audience. Tonal, as we saw in part one, started by poaching talent from nearby gyms in San Francisco’s SoMa neighborhood.
The intensity of this competition is going to become even more keen with the looming specter of Apple Fitness+, which while nascent, should not be underestimated given the tech giant’s vast financial resources and huge existing smartphone and smartwatch user base. Indeed, Apple appears to be ferociously competing to draw top talent, poaching Tonal coach and product manager of curriculum Kelly Savage in 2020 to work and teach on the tech giant’s own exercise tracking app.
One component that will become increasingly important to Tonal’s strategy is converting its high-profile celeb-athlete investors into brand opportunities and guest instructors, a strategy CMO Stadler strongly hinted at during our discussions. Being able to take a strength-training “masterclass” from any of these big names — Stephen Curry, Serena Williams and Maria Sharapova, among others — would help set Tonal apart from its rivals through sheer star power.
Strength for the future
Tonal is poised to be a strong contender in this market, but even if it can continue to iterate its product and retain its key on-screen talent, there are a few more steps in the short to medium term it has to get right. The company needs to reduce those lengthy delivery wait times of 10-12 weeks to avoid blowback that other companies like Peloton experienced during their own demand surges. Stadler emphasized that it has significantly ramped up production of devices, but supply chains in general are ever-changing, as the cargo ship stuck in the Suez Canal the past week can attest to.
“There’s no one bottleneck — there are bottlenecks everywhere,” adds Orady of the supply chain. “It’s been a real challenge, but we’ve actually managed to double our supply several times over. … And we are catching up, although we’re not caught up yet.” Investors may love that insatiable demand, but consumers most definitely do not.
Expanding its physical retail footprint is also a smart move. By focusing on smaller installations in Nordstrom stores, Tonal is both cutting down on the need for more showrooms that require renting out retail space while also increasing brand visibility in heavily trafficked department stores. (Nordstrom, for its part, expects overall sales growth of 25% in 2021, which bodes well for Tonal if that can directly translate to more purchases.)
While the company is in a good position now with increased demand for its products, it will ultimately need to make some crucial spending decisions for the sake of expansion, including increased marketing across different channels such as TV to further raise brand awareness and prestige and building out more physical retail locations, which will become more important for sales conversions once again as soon as the pandemic lifts and more people go out.
One key open question is price. It seems inevitable that Tonal will have to drop the price of its device, a decision that would go a long way for growth. The startup doesn’t need to do that now, but eventually, the current sales surge will cool off, and the company’s goal is obvious: get as many Tonal devices into as many homes as possible. Trimming the cost, as Peloton did with its original bike in September 2020 by cutting the price by $350, will be essential in making the device more compelling to a wider number of customers, who will still have to pony up for that monthly membership to stream Tonal’s classes anyway.
Tonal has come a long way from a magnet strapped to a cord. Several years of careful product iteration while overcoming the resistance of reticent investors was the company’s first heat of the race. But now it needs to run like hell and seize the luxury at-home fitness market that Peloton popularized. It has a unique niche, a founder and team with fortitude, and really strong customer traction data that should make fundraising easier going forward. But it’s still a race, and like any marathon, the company needs to go the distance to win against other racers who are just as bent on crossing that finish line as it is. That’s ultimately a heavy weight to push against.
Tonal EC-1 Table of Contents
- Part 1: Origins
- Part 2: Product launch
- Part 3: Community building
- Part 4: Competitive landscape and future
Also check out other EC-1s on Extra Crunch.
Updated March 30, 2021: Updated language to indicate that Tonal includes some lower-body exercises and isn’t exclusively limited to upper-body exercises.
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