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Ray Keener: Is cheaper better?

Published March 14, 2014
A blog by BPSA executive director Ray Keener

Editor's note: Ray Keener is a longtime friend of Bicycle Retailer and writes occasional columns, blogs and articles for the website and magazine. Ray's background includes stints as a bike retailer, executive director of the Bicycle Industry Organization, editor of a trade magazine, founder of Growth Cycle and now executive director of the Bicycle Product Suppliers Association.

Fred Clements, executive director of the NBDA, recently asked this question on his blog: "Are casual bike consumers being frightened away from shops because of sticker shock?"

While Fred focused on selling used bikes as a way to serve lower-priced demand, that isn't every shop's option. Let's take a look at the new-bike numbers and see where the opportunity lies.

First the big picture. Looking at BPSA and Leisure Trends (an NPD Group Co.) stats for 2009-2013 we see IBD adult multi-speed sales in the $200-$300 price range dropping from 5 percent of units in 2009 to 1 percent in 2013.

And in the $300-$400 range sales plummet from 25 percent to 12 percent over that same period. Of course inflation, both monetary and spec, accounts for some of that, but surely not all of it.

IBD Adult Multi-speed Retail Sales 
  2009 2010 2011 2012 2013
$200-300 5% 5% 3% 1% 1%
$300-400 25% 25% 19% 14% 12%

So our perceived prices are going up and guess what? Mass merchants are still pumping out shiny $99 dual-suspension BSOs (Bicycle Shaped Objects). The gap between mass and IBD is definitely widening.

A quick perusal of company websites in 2014 makes the current IBD bottom clear—$369, $379, $399 retail for a mountain or hybrid. That leaves a pretty big price gap between the mass top-end and the IBD bottom.

I'm going to stick to a mass-to-IBD comparison here. Sporting goods stores like Dick's, Sports Authority and their ilk do bridge the gap. Their market share has been around 10 percent for decades, so let's focus on the 70+ percent mass share.

Before we go any further into numbers, here's a key question for which we have no data: How much cross-shopping takes place between mass and IBDs? The industry consensus (useful, but not always to be trusted) is not much. And we wouldn't need much of that mass market share to grow our customer count and add sales volume.

The reason there's so little cross shopping: Consumers don't identify their needs by quality as much as they do by price. They buy bikes they think they can afford for the riding they want to do.

Studies have consistently shown that most consumers understand that if they want a quality bike, then they need to get them from an IBD. Mass buyers aren't stupid, they understand their limited needs and budget.

OK, enough pre-ramble. Let's take a look at both the obstacles and the opportunity from lowering the IBD bottom to, say, $299.

I speak from recent experience that a $300 retail bike is not a piece of junk. I spec'd out a $160 wholesale bike for Community Cycles in Boulder from a major vendor. Steel frame, rigid fork, full braze-ons, steel bar and stem, seven speeds, cantis, QR alloy wheels. Nothing to write home about, but a very functional bike.

It can be done. So who doesn't want to do it? That would be most retailers and most suppliers. And it's a total chicken-and-egg conundrum. Retailers don't want to compromise their standards of what constitutes an IBD bike. Suppliers are concerned that if they stock $299 price-point bikes dealers won't buy them.

It's easy to say to the suppliers, as retailers have on the BRAIN website in comments about Fred's article: "Hey, make those bikes and we'll buy them." (Full disclosure: I work for suppliers as executive director of the BPSA.)

The suppliers would take all the risk and lower their ASP in the process. That's not a strategy that keeps product managers employed. We're all hooked on the premise that "expensive is better" — unlike our low-end consumers.

If I were still an IBD, I would stock but try not to sell $299 bikes. It's a chicken-and-egg thing again. I'd put banners in all my ads: "Fully assembled and tuned bikes from $299!" And gently upsell to my $379/89/99 priced bikes. (Anyone remember Support-Suggest-Support from Selling Cycling 2008? It's on YouTube.)

I would gladly sell them the $299 bike if that's what they wanted. The key is the come-on price starts with a 2. Just like top-end mass-market bikes. You're in the game! If you want to be. And I realize, not everyone does, retailer or supplier. There are downsides for both to lower the bar.

Fred's other question: "Does the industry's need to appeal to a wider range of people include offering good products for less?" I say yes.

Concerns about IBDs' financial health seem to focus on the Internet. NBDA surveys find that web competition are its members' No. 1 worry. In my opinion, IBDs will never lose a $300 sale to the Internet in the near future. Retailers can't stop the erosion at the high end — how about grabbing some share from the mass on the low end?

Next time I'll look in more depth at selling used bikes with a case study from a great shop, Penn Cycle in Minneapolis, that's doing it well — and why I wouldn't do it if I were still an IBD.

 

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