Peloton Interactive (NASDAQ:PTON) is making great progress in capturing its addressable market. Connected fitness subscribers more than doubled to 1.09 million last quarter. Peloton has estimated its serviceable addressable market to be 14 million, but management discussed three things on the recent earnings call that could raise that number.

1. Lower prices

Peloton primarily makes money from selling connected fitness products (the Peloton Bike and Tread) and subscriptions to workout programs. It's likely Peloton will expand its product portfolio with other exercise equipment over time, but right now, there seems to be plenty of opportunity in just improving the existing lineup.

A man using a Peloton bike in a bedroom.

Image source: Peloton Interactive.

The new Bike+ was recently introduced to go along with Tread+. Along with the new model, Peloton is reducing the price of the original Bike by $350 to $1,895. Peloton also released a new basic Tread model that will be priced at $2,495, which is almost half the price of the current Tread+. 

There is no better way to increase the size of the addressable market than to lower prices. Not only does management expect the lower prices to win over more customers, but the sales opportunity of the lower price Tread could be huge long term as CFO Jill Woodworth explained during the call. 

"We do believe, of course, lowering the price of our product will have an impact on our serviceable, addressable market," she said. "And obviously, the introduction of the lower price Tread, we've said this before, we think of two to three times the opportunity of Bike."

In the short term, however, the lower price on the original Bike will be most impactful on Peloton's results, since it is the company's top seller. The lower prices will pressure Peloton's gross margin in the short term, but management is more focused on growing gross profit dollars, not margin. The gross profit from selling products helps fund the acquisition cost of new subscribers, where the subscription content is the most profitable part of Peloton's business. 

2. Expanding strength training content

With Bike+, Peloton is doubling down on strength training. Bike+ now includes a rotating screen that allows members to hop off the bike for strength, yoga, and stretching during a workout session. This will make Peloton's connected fitness products more competitive with one of its top rivals, NordicTrack, which already offers this feature on its flagship bike model. 

"We need to win strength from my perspective," CEO John Foley said in September. "We think that our approach here is going to be a winning approach with respect to other products in the marketplace." 

A woman lifting weights next to a Peloton Tread product.

Image source: Peloton Interactive. 

3. Trade-in program

To encourage upgrades, Peloton is now offering customers the option to trade in their original Bike for the new Bike+ model in return for a $700 rebate and other accessories. Foley credited Peloton's investments in logistics for its ability to offer a trade-in program. 

"That logistics footprint becomes a pretty powerful reverse logistics platform for the buyback program and the eventual certified pre-owned product that we will offer to the consumers in the coming year," Foley said. 

The trade-in program, along with the plan to sell refurbished products, is another way Peloton is aiming to make its products more accessible to the masses. Foley noted that "it has long been [Peloton's] goal to democratize access to fitness." 

Making its products more affordable

The advantage of Peloton's steady growth each quarter is that as it grows larger in terms of revenue, it gets easier to invest in expanding its distribution and manufacturing capabilities, increasing efficiency, adding new content and features, and lowering the prices of its products. That's the advantage of increasing scale.

"As member engagement rates continue to climb, we're lowering our members' cost per workout," Foley said. 

And by increasing the value proposition of the platform, Peloton can neutralize its biggest weakness, which is the steep entry price to own a Peloton product. The more it can accomplish that, the higher this growth stock can climb in the long run.