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Peloton’s most recent public relations crisis offers a highly visible example of the serious consequences major brands can face when they move too quickly in responding to negative events involving their products or services.
Peloton’s stock plummeted after the inaugural Sex and the City reboot episode in which major character “Mr. Big” died of a massive heart attack right after riding a Peloton bike. The company’s stock price has yet to recover – which is bad enough – but the lasting damage to the Peloton brand may very well come from the company’s attempt to mitigate the initial damage by quickly creating and running a video advertisement parodying the episode featuring Chris Noth, the actor who played Mr. Big, along with the Peloton instructor who was on-screen while he worked out.
The company’s engagement of Noth to serve as a de facto Peloton spokesperson was immediately met with resistance as allegations of past sexual misconduct began to surface and become widely known. Unlike the appearance of a Peloton bike and instructor in the episode – which was not, as many have assumed, a company-paid product placement – the response ad inextricably connected Noth and allegations of past misconduct directly to the Peloton brand. The video was quickly taken down.
Linda and O.C. Ferrell, members of Auburn University’s Harbert College of Business faculty, offer a brief analysis of what went wrong, what could – and could not – have been anticipated, and how the company’s opportunistic response may have caused more reputational damage to the Peloton brand than the TV episode itself. Importantly, they seize upon this PR crisis as an opportunity to explain the risk-reward dynamics of product placement marketing, including important factors companies need to consider when their products or employees are featured on-screen. They also caution against the potential downside risks associated with the use of celebrity spokespersons to deliver key corporate messages, especially during a crisis.
|HCOB:||Let’s begin with the facts. First off, this was not a product placement agreement gone wrong. In fact, this wasn’t a formal product placement at all, right?|
|Linda:||That’s correct. According to Peloton’s global head of marketing, Dara Treseder, Peloton did not have a formal product placement agreement with either the show or
HBO. The producers of the show simply purchased the Peloton Bike+ featured in the
episode on their own. If there had been a product placement agreement, Peloton would
have been able to exert significant control over the use of its product and brand
in the episode, including script reviews and on-set monitoring to ensure compliance
with the use and brand equity terms that would have been agreed upon in advance.
But according to Peloton’s Treseder, the company did have prior knowledge that one of their products was going to be used by virtue of the fact that one of their trainers was to be featured in the episode. While not a product placement agreement per se, didn’t the use of one of their trainers on-screen warrant a closer look by Peloton into the role their brand might play in the storyline?
|O.C.||One would think so, but surprisingly, that is not always the case. Product placement
agreements typically undergo a rigorous review and negotiation process that stipulates
approved and non-approved uses. The use of the instructor, who is a Peloton employee,
should have risen to a high enough level for Peloton to engage and formalize the relationship
regarding the use of its employee. A key part of the Peloton experience is the subscription
service which allows for an almost ‘personal engagement’ with trainers. The prospect
of free publicity is sometimes intoxicating to a company, especially one whose stock
fell roughly 75% in 2021. This incident caused investors to lose confidence in the
Peloton brand and management.
|HCOB:||The cameo appearance of one of Peloton’s instructors in a popular TV show doesn’t
seem to be the main cause of the business ethics issue but rather it appears the scandal
involving the use of Chris Noth as a spokesperson seems to be the main issue, correct?
The ethics question arose because of the company’s response ad, right?
|Linda:||The use of Noth and their instructor in the follow-up Peloton ad certainly compounded
the damage. However, the problems started with Peloton not taking responsibility for
how a Peloton employee was going to be used in the episode “And Just Like That” in
the first place. They knew in advance about the employee appearance and did not exercise
the proper due diligence for a Peloton employee appearing in a high visibility TV
show. There should have been ethics/risk management provisions in their crisis management
plan stipulating how to deal with these types of events. Crisis management is based
on anticipating what might go wrong in all aspects of marketing and business ethics.
|HCOB:||Given everything that has happened to Peloton – both unintended and arguably self-inflicted
– and understanding that they are but one example among many, what best practices
can be employed when considering product placement opportunities? And what should
major brands keep in mind when trying to enlist celebrity spokespersons in responding
to product-based crises?
The good news is that when it comes to formal product placement agreements, steps can be taken right from the start to ensure positive brand equity is created. At the same time, years of hard-won reputational value needs to be protected from the downside risks that can come from handing over control of key corporate messaging to third parties in the entertainment industry.
It is important to remember that, unlike most fitness companies – which typically hire instructors as independent contractors – Peloton’s instructors are full-time employees. The instructor experience and the revenue generated from the subscription service that allows that connection, is a key part of the ‘Peloton experience’ and business model. That places a heightened responsibility on corporate management to ensure their employees represent the Peloton brand appropriately.
|O.C.||From a business ethics standpoint, it all comes down to ownership of corporate messaging, and a key component of that messaging is the behavior exhibited by corporate management – the choices they make. It is one thing to fail to recognize the potential negative impact of allowing one of your employees to appear in a TV show as a representative of your brand, it is quite another to deliberately choose to align your company with a celebrity simply because they have been associated with your brand in an unauthorized manner. Much more due diligence was needed prior to opportunistically churning an advertisement with all the players: Chris Noth, the Peloton employee trainer and the Peloton brand. It isn’t clear whether the allegations such as those lodged against Noth could have been foreseen, which makes the use of celebrity spokespersons even more of a gamble and why background checks and integrity clauses are critical.|
According to the Ferrells, a few key considerations can help both maximize the value of a given product placement opportunity while also protecting a company’s brand from the unintended consequences that visibility can create. Best practices in crisis communications can also help guide celebrity endorsements:
Bottom line, it pays to move cautiously, even when the urgency to respond can seem overwhelming. Better to have a sound crisis management plan and seasoned crisis communications consultants on call before hastily acting. In the words of Warren Buffet, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you will do things differently.”
Linda Ferrell is the John Roth Family Faculty Fellow of Marketing and Business Ethics at Auburn University’s Harbert College of Business. Her research interests include marketing ethics, ethics training and effectiveness, the legalization of business ethics as well as corporate social responsibility and sustainability.
O.C. Ferrell is the James T. Pursell, Sr. Eminent Scholar in Ethics and Director of the Center for Ethical Organizational Cultures in the Harbert College of Business at Auburn University. He has written leading textbooks in business ethics and marketing and serves as an expert witness in high profile cases dealing with marketing ethics issues.