The stock of Peloton Interactive (PTON -5.26%) recently surged to new highs, as demand for its exercise bikes exceeded supply as the pandemic kept more people at home. But as anyone who has shopped for at-home workout options knows, Peloton is not the only company offering interactive fitness equipment. It faces competition from other brands, such as NordicTrack and ProForm, but continues to gain new customers in droves every quarter.

Here are three ways Peloton is investing to distinguish itself and grow its brand in the $600 billion global fitness industry.

A man using a Peloton bike in his home.

Image source: Peloton Interactive.

1. An expanding music library

It can be very challenging to maintain motivation to work out at home. Having a good selection of music is a good start to keep members satisfied with their at-home workout, and Peloton says it has the largest selection of songs. 

It's building a robust music platform that curates playlists with members' preferences. Here is how the company described it in a registration statement before its IPO last year: "We have over a million songs under license, representing the largest audiovisual connected fitness music catalog in the world. Our curated music is as diverse and dynamic as the members we serve, delivering a custom-fit-and-finish musical experience created by instructors and music supervisors on our production team."

Peloton says that members rank the music selection as one of their favorite aspects of using its fitness products. Members can "like" songs and save them to their profile, as well as integrate Apple Music and Spotify so they can sync songs they like with their favorite streaming service. 

Staying motivated to work out in your home can be challenging, but it's the digital features of these products that explain why Peloton continues to see extremely low cancellation rates. The average monthly churn rate during the fiscal third quarter was the lowest in four years, with only 0.46% of subscribers dropping their plan. 

2. A varied fitness platform

Spending more than $2,000 for an exercise bike would cause some people to sweat. And that doesn't count the $39 per month to access the workout programs. There are ways to justify the price of membership compared with alternatives, but it's not going to be everyone's cup of tea, so that's why Peloton also offers workouts through its digital app for $12.99 per month, and the number of people who choose that option is growing rapidly. 

Subscribers to this digital-only option grew 64% year over year last quarter, reaching 176,600 compared with 886,100 people who subscribe to workout programs on their bike or treadmill (the "connected" plan). In the fiscal third-quarter earnings report, the company said that over 60% of connected fitness subscribers are also using the Peloton app. 

What's more, over 80% of users taking the free 90-day trial on the digital app are engaging in categories that don't require any equipment, such as strength, yoga, and meditation. 

Peloton is rolling out the digital app to several platforms to spread brand awareness, and it's working. In the fiscal third quarter, the company saw over 1.3 million workouts taken across Amazon Fire TV, Apple AirPlay, and Alphabet's Google Chromecast. 

3. A deep pipeline of new features in the works

Peloton expects to report between 1.04 million and 1.05 million connected fitness subscribers for fiscal 2020 (which ended in July) when it reports its financial results for the fiscal fourth quarter on Sept. 10.That would represent growth of 104% year over year at the midpoint of the range.

It seems to have its strategy down pat for growing brand awareness, but the next challenge will be retaining the customers who joined during the pandemic. To accomplish that, management continues to invest in research and development to introduce new features. 

Peloton recently launched a tags feature that allows members to find groups based on favorite charities, their employers, and more. In one week since its launch, more than 50,000 tags have been created. "Tags are simple yet highly flexible way for members to express themselves, connect with others, and work out together," said CEO John Foley in the company's call with analysts. That's just one example, but there's more on the way that could add up to an addictive workout routine. 

"In a good way and an exciting way, it feels like we do at this point have a significant backlog of innovation and R&D that we are looking forward to bringing to market," Foley said during the conference call.

All of this helps explain why Peloton continues to tear up the fitness market with skyrocketing growth. It expects to report revenue growth of 128% year over year at the midpoint of guidance in its earnings report next week.

With the stock up nearly 200% year to date, there is bound to be some volatility, especially around earnings. But with the momentum Peloton is experiencing and the growth opportunity over the long term, a dip in the share price would be a good buying opportunity.