Understanding bike pricing
is an important tool before your shop for a new bike.
Deciding what to pay for a new bike
is a first step in narrowing your choices. Price is
a metric that positions you on the “good/better/best”
continuum of fit and position, components, materials
and overall ownership experience. How do you decide
what to pay? Your options may be decided for you by
budget. Within those constraints understanding your
options and how bike prices work is powerful knowledge
before you hit the sales floor of the local bike shop.
Everything you need to know.
In this feature we will explain the
relationship of price and performance, the "P2"
Curve; What you can expect from the various price
ranges, what the "best" price range is,
where bike prices come from and how they are determined,
when the best time to buy is and other information
on price.
The Price/Performance “P2”
Curve.
Economist Arthur Laffer developed the
“Laffer Curve” to illustrate the optimal
rate of taxation to generate revenue for a government.
Laffer showed that too much or too little taxation
results in decreased revenue. He proposed a taxation
“sweet spot” that maximized revenue with
minimal impact on discretionary income- the high point
on the “Laffer Curve”.
The "P2" Price/Performance
Curve shows the highest value price range at $2000-$4000.
There is a similar curve in bike prices;
the “P2 Curve”. The P2
Curve is where Price and
Performance converge at minimum Cost
but maximum Performance resulting
in best Value.
There are a few terms worth defining
before discussing the P2 Curve.
Selling Price.
The price a bicycle ultimately sells for in a bicycle
store setting. This may be higher or lower than the
MSRP and is almost always different
due to a number of variables, upgrades, downgrades,
promotions, shortages and other factors.
Total Cost:
A fuzzy variable rather than a constant, Total
Cost includes Selling
Price combined with the time and
effort required to consummate a bike purchase. It
includes such intangibles as the value you place on
your time and your tolerance for lead times and bike
shop logistics as well as travel time to and from
the bike shop or shipping costs. Example: a bike’s
Selling Price may be very low but
if you have to wait too long or travel too far, or
constantly be re-fit then the Total Cost
goes up outweighing the initial Selling Price.
Total Cost is an intangible but has a very
definite effect on Value.
M.S.R.P.: Manufacturer’s
Suggested Retail Price. The price established for
a given bicycle by the bike brand itself. This may
vary upward or downward from the Selling Price
of the bike due a number of variables.
Bike brands assign values to bikes annually around
the Interbike Trade Show using M.S.R.P.'s.
Price Points:
Are price ranges that enable some basis for comparison
between models from different companies and from model
to model. For example, the “$2500 Price
Point” includes bikes from about $2249
MSRP to $2749 MSRP
give or take. Price Point is a range
used for general comparisons.
Value: Is a
function of Selling Price and Cost
compared against a list of ownership experiences we’ll
call Performance. When Price,
Cost and Performance are
in balance you’ve achieved the best Value
or what is popularly known as “Best Bang for
the Buck”.
Feature: Is
a characteristic of a bike. Bikes are composed of
a number of features, some may be unique to a specific
bike and some are generic. The best features have
an attendant Benefit. However, there
are some Features that have either
no or disputable Benefit.
Benefits: Bikes have Features
and Benefits. Ideally a
Feature provides a tangible Benefit:
An aerodynamic Feature on a frame
may provide the Benefit of going
faster with the same energy. The confusing thing is
some Features don’t have a
tangible Benefit. An example
is the textured surface on some aerodynamic wheels.
This is an interesting Feature but
there is no consensus that they result in a measurable
Benefit. The Value
of a Feature may be a personal decision
that determines the degree of Benefit.
Example: You may like the aesthetics of a Feature
even in the absence of a measurable Benefit.
Part of the reason we buy bicycles is emotional.
That varies from person to person. Because of this
a Feature such as color may provide
no Benefit to one person but a significant
Benefit to another person if it is
their favorite color. When you consider the Feature
on a bike ask what the Benefit is
to you.
If a bike has a feature, the
feature should offer a tangible benefit.
Performance:
A bike needs to be light, durable, dependable, aerodynamic,
and comfortable, fit precisely, have good stiffness
and look pleasing. The amalgam of all these Features
and Benefits results in a bike’s
Performance. People measure Performance
differently, and it is important to be clear about
your expectations of Performance
before you go shopping. The degree of Performance
you want is related to both Price and Cost. The resultant
interplay between Price, Cost
and Performance determines ultimate
Value.
Ownership Experience:
What is it like to own, ride, race and maintain a
bike over a series of years? Is the bike easy to maintain
and mechanically simple? Does it use widely available
replacement/wear parts and require commonly available
tools for adjustments? These are the things that determine
the overall quality of the Ownership Experience.
Some bikes use proprietary technology that requires
special tools and techniques for maintenance. A lack
of familiarity with these techniques and tools will
make the Ownership Experience more
difficult and likely cut into ride time. Consider
what the ownership experience will be with a given
bike as part of research.
What Should I Pay?
Determining what you should pay for
a new bike is a function of two variables:
1. What are Your Expectations?
How are you going to use your bike? Are you a beginner
learning if you like the sport? Are you a beginner
who already knows they will stay with the sport for
a number of years? Are you an intermediate rider ready
to improve their performance and enjoyment of the
sport? Are you a competitive cycling athlete (road
rider or triathlete) trying to optimize their own
personal performance or be more competitive with others?
Are you an enthusiast who appreciates performance
equipment and technology for athletic leisure riding?
Determining your expectations is the first step in
understanding what you need to spend.
Understanding the differences
in price ranges will help you make worthwhile comparisons
when shopping.
2. What is Your Budget?
In addition to the price of a new bike what else will
you need? Do you already own basic equipment like
good fitting, high quality bike shorts, a helmet,
cycling shoes appropriate for the type of riding you’ll
do? Do you own pedals? Will you need to modify the
bike to your individual use and, if so, what will
it cost? Remember that your budget is more than just
the cost of the bike itself. Your budget should include
all the costs associated with meeting your expectations.
Determine what you are willing
and able to pay and what that should buy before you
begin shopping.
The Price Points.
Bike brands differentiate their models
by component specifications, frame materials and design.
These variables result in the different price points.
Let’s look at the most prominent price points:
 |
Below $1000
MSRP. |
Road bikes below $1000 MSRP represent
a fair value in a first time road bike but are short
on features and benefits. Expect a low quality aluminum
frame with low end components and inexpensive wheels.
This is serviceable equipment but it will be heavy
and the costs of fitting it precisely may add substantially
to the overall cost of the bike. Bikes below $1000
MSRP are entry level bikes that will usually lead
a customer to an upgrade if they continue in road
riding or triathlons.
There are almost no triathlon bicycles
below $1000 MSRP. It costs more than $1000 MSRP for
a company to make a quality triathlon bike that can
be precisely fit and have dependable components, reasonably
light weight, good comfort and durability.
Because the costs associated with fitting
and upgrading a below $1000 MSRP bike tend to quickly
accumulate this price point represents a low price
but not much value since it will likely lead to another
bike purchase within two years for enthusiast cyclists
and triathletes. You can get greater value by “upgrading
up front” if you know you will be involved in
cycling or triathlons for a number of years. If you
think you’ll stay in the sport spend more on
your first bike.
Road bikes in this price category are
solid and can be fitted precisely to the rider due
to their modular stems, handlebars, seatposts, saddles
and cranks. Aluminum is the frame material of choice
in this category combined with mid range components
that offer dependable performance but only moderate
durability and heavy weight.
Triathlon bikes in this price category
also use aluminum frames with carbon fiber forks and
similar components to road bikes in this price category.
Rather than being modular the aerobars on bikes in
this category are usually adjustable making fitting
easy but adding weight and compromising aerodynamics.
The designs are functional but lack lightweight, aerodynamic
performance.
These bikes represent reasonable value
and are worthy of upgrades such as aerodynamic wheels
as long as those upgrades can be transferred to your
next bike. While triathlon bikes in this price range
have won major competitions most enthusiast/hobbyist
athletes and competitive age groupers still view these
bikes as low end and a stepping stone to a lighter,
more aerodynamic bike with better ride quality, mechanical
durability and overall performance. If you know you
will be in the sports of cycling or triathlons for
a few years this is another price category to pass
on.
This is the entry level to real performance
road and triathlon bikes. This is also the first price
point you may never need to upgrade from. You can
expect a bike in this price category that has dependable
mid-range components that are reasonably light weight.
Frame materials in this price category may include
some basic, low end carbon fiber frames. It also includes
some very high quality, top end aluminum frames.
In general it is better to own a high
end aluminum frame than a low end carbon fiber frame.
It takes a certain amount of money to build a high
quality carbon fiber frame and this price category
barely achieves that. If you do select a carbon fiber
frame in this price category make sure it has basic
components such as Shimano 105 or SRAM Rival. Better
components on a carbon fiber frame in this price range
mean compromises were made somewhere. If you intend
to keep this bike those are compromises you may not
want: either spend more or stick with high end aluminum
as a frame material. With triathlon bikes in this
category all you need are aerodynamic wheels, an aerodynamic
helmet and snug fitting aerodynamic race clothing
and you have very fast equipment. The top of this
price category approaches the highest point on the
P2 Curve combining minimum cost with
maximum performance for optimal value.
Road and triathlon bikes in this price category represent
excellent value and very few tangible compromises.
This is the place where the P2 Curve
converges for maximum value. These are performance
oriented bikes that are extremely durable under all
road conditions, very light weight and use top end
components.
In this price category we see the beginnings of SRAM
Force equipped bikes, Shimano Ultegra and Dura-Ace
combination bikes with good quality carbon fiber frames.
Expect excellent ride comfort and component performance.
Going above this price category enters a point of
diminishing return. Durable, stiff, comfortable lightweight
molded carbon fiber frames dominate this category
and have lifetime warranties and can last indefinitely
even with hard use.
Triathlon bikes in this price category
approach the state-of-the-art with advanced carbon
frames and good frame aerodynamics. These are excellent
amateur level bikes that need no significant upgrades
and won’t need to be replaced even for talented
age groupers or athletic enthusiast cyclists. You
can spend more, much more, but the bikes don’t
get much better.
Compromises are almost entirely gone
in this price category. These are the same bikes we’re
seeing in the Tour de France and used to win the Ironman
World Championships. Professional level bikes usually
weigh less than 18 pounds depending on frame size
and nearly all use carbon fiber frames tuned for durability,
ride comfort, stiffness and aerodynamics. Road bikes
in this category are breathtaking to ride, the automotive
equivalent of driving a race turned Ferrari. These
bikes should fit precisely without compromise and
be individually configured to the rider.
Triathlon bikes in this price category
often include aftermarket upgrades such as aerodynamic
wheels. While this is an expensive price category
there is still value if the price of the race wheels
purchased separately from the bike total more than
the package wheel/bike price, as is often the case.
Road and Triathlon bikes in this price
category are spectacular performance machines but
begin to slide off the back of the P2 Curve
since it takes a lot more money to make a small improvement
over the previous price category. These are expensive
but if you can afford it you won’t disappointed.
Bikes in this price category are the
realm of the equipment enthusiast trying to achieve
the lightest weight or best aerodynamics or both.
These are often not race bikes but rather enthusiast
bikes for riders whose primary interest in the sport
is their equipment. These bikes don’t even appear
on the P2 Curve since they are often
fragile and use components and frames with weight
limits and are restricted to light duty use. They
require careful, regular maintenance and will offer
good to excellent performance but frequently use non-mainstream
components that have compatibility problems and are
tricky to install and maintain. These bikes are for
owners who like mechanical tinkering.
There are triathlon bikes in this price
category that are functional, high performance bikes
that have been pushed to this price with the added
cost of the very best aerodynamic wheelsets and component
kits along with electronics like power meters. I this
price point buyers usually aren’t concerned
with value, only with owning an “ultimate”.
The best purchase is one you
will not have to replace in 2-5 years.
Where do prices come from?
Bike prices are a result of the costs
to build, market and distribute a bike plus the costs
associated with maintaining the store that sells it
(online or brick and mortar) and an additional amount
retained as profit.
The costs associated with selling a
bike affect the price as does the demand for the bike.
More demand results in higher, more stable prices
whereas decreased demand erodes price if supply remains
constant. Additionally, a decrease in supply drives
prices up, a strategy high end bike manufacturers
use to maintain prices.
Bike shops buy bikes from bike companies
or brands that are generally distributors for manufacturers.
Few bike companies are manufacturers, but some are.
The decrease in manufacturing at the brand level actually
led to the tongue in cheek formation of an organization
called S.O.P.W.A.M.T.O.S. or “Soap-wham-toes”,
the “Society of People Who Actually Make Their
Own Shit.” The little band of cottage bike makers
meets annually at the Interbike Trade Show and generally
gets drunk while complaining about offshore production
as they become fewer in number. Modern bike companies
generally design and engineer bikes and contract qualified
manufacturers to make them. This is an optimal arrangement
as it maintains a good relationship between Price,
Cost and Value.
From left to right, Felt Bicycles
founder Jim Felt, Dan Empfield, founder of Quintana
Roo and publisher of Slowtwitch and Tom Demerly of
Bikesport, Inc. at the annual Interbike Trade Show
in Las Vegas.
Bike companies sell bikes to a bike
shop at wholesale price. The bike shop marks this
up to cover their costs of business (Costs of Goods
Sold or C.O.G.S.) and the extra 3-7% retained as profit.
According to a survey of bike shops by the N.B.D.A.
(National Bicycle Dealer’s Association) a bike
shop needs to earn at least a 35%
margin over wholesale to break even on a bike sale.
This does not turn a net profit. In other words, if
a bike shop sells a bike for 35% more than what they
paid for it they are breaking even on the sale- but
they are not turning a profit. In fairness, a smart
bike shop builds payrolls into the costs associated
with selling a bike or COGS, so everyone is paid their
wage before the profit is calculated. A bike shop
may break even at the end of the year but all the
employees live comfortably since their payroll was
built into the cost of running the business. Any profit
left over is kept by the owners, distributed amongst
the staff and/or reinvested into the bike shop. As
bikes become more sophisticated the cost of selling
them escalates for the dealer since they require more
work to assemble, fit and test. This can erode profit,
increase price or both.
If you’ve been around bike shops
you know what they make in terms of profit. A well
run, efficient operation may net as much as a 7% profit
on overall gross sales (the total amount they sell)
while a less efficient operation nets about 3% profit
on gross sales. That means a bike shop grossing $1.5
Million in annual sales nets between $45,000 and $75,000
in profit. When compared to other retail categories
such as apparel, furniture, jewelry, real estate,
automobiles or consumer electronics, bicycles fall
at the low end of profitability. The costs associated
with selling bicycles are generally high compared
to other forms of retail, and this contributes to
bike Prices and Costs
and eats into profit. It takes a lot of work to sell
a bike: Customers have to be fitted, the bike has
to be built to their specifications and the customer
positioned on the bike. More mechanical work and modifications
take place during the fitting process. No two transactions
are the same. This is different from selling a $2000
wristwatch or sofa. From a business perspective bicycle
retail is not a particularly profitable category compared
to other forms of retail. As a result the motive for
running a bicycle retail store generally includes
an emotional attachment to the sport itself for the
owners and employees.
The Pliability of Price: How
Strong is the suggestion In “Manufacturer’s
Suggested Retail Price” (MSRP).
Bike prices are commonly represented
to consumers as an “M.S.R.P.” or Manufacturer’s
Suggested Retail Price. This is the price published
by the bike brand to position the bike’s Value
relative to other bikes. It may also be the actual
Selling Price. Some bike companies
publish a confusing schedule of prices called “Minimum
Advertised Price”, “Low Retail”
or other convoluted terms that attempt to distort
the perception of Value. Ultimately
a real Selling Price is the wholesale
cost of the bike plus the shop’s operating costs
plus a fair profit.
“Ultimately
a real selling price is the wholesale cost of the
bike plus the shop’s operating costs plus a
fair profit.”
Different factors affect pricing, how
do you know if what you’re paying is fair? Most
MSRP’s are fair and reasonable prices for both
the buyer and the seller. The MSRP represents a reasonable
profit above operating costs for the bike shop while
not extracting an unfairly high price from the consumer.
It’s up to the bike shop to provide tangible
services to the consumer in exchange for earning a
fair profit. These include stocking and assembling
the bike and maintaining a facility where the bike
can be fitted and serviced as well as having the necessary
tools, systems and staff to perform these tasks. Additional
services such as fitting, labor for modification and
upgrades will add to the MSRP. This is fair for both
parties since it gives the consumer a basis for expectations
and leverage for recourse and obliges the bike shop
to earn their money for services in exchange for competent
work. You get what you pay for, and you pay for what
you get.
If you understand the annual/seasonal
swings in supply and demand
you'll know the best time to buy and save.
When is the best
time to buy a bike?
Two things affect bike
prices over the course of a year. One is new model
introductions, the other is the seasons. Bike companies
have tried to moderate seasonal price swings by drying
up supply earlier in the year toward the end of summer
instead of late into fall. This helps prevent the
necessity of discounting inventory remaining at the
end of the year.
Some bike companies have
attempted to de-emphasize model years, staying with
proven designs and small component specification and
color/graphic changes. Bike brands have also gone
to earlier model year introductions in an effort to
reduce seasonality. Some of these strategies have
moderated seasonal swings in prices but there will
always be increased competitive pressure among bike
brands during the fall months. Beginning in late August
bike companies are competing with one another for
the next year's business from bike shops. This is
traditionally the time of year when bike shops can
easily change brands. For that reason bike brands
have to re-earn their place on bike shop sales floors.
This necessity for bike brands to compete for bike
shop business is usually centered around the annual
Interbike Bicycle Trade Show in Las Vegas. Interbike
is where bike shops buy bikes. This is a competitive
time of the year when new models are introduced at
the lowest possible price and previous model year
bikes are reduced for clearance.
"The best
time to shop is from August to March:
Prices are at their annual lowest."
From late August to the
middle of March is the best time to buy a bike if
you hope to take advantage of seasonal price swings.
Bike shops and bike brands are the quietest during
this time of year so a reduction in demand exerts
a downward influence on price. As April approaches
demand begins to scale up and bike brands are between
model years keeping prices high and stable. Smart
buyers always buy in the off-season. This also gives
buyers the opportunity to wait for bikes that may
need to be ordered and gives them adequate time to
get accustomed to new equipment before the main cycling
season.
“Negotiating” Price.
Unlike most retail where prices are
fixed from one sale to the next and transactions are
identical, such as buying a gallon of milk, bicycle
sales tend to be unique transactions- every sale is
different. Different saddles, different wheels, changes
in components for fitting purposes, etc. As a result
there is often variance between MSRP
and the Selling Price. Perhaps because
of this potential variability from MSRP
to Selling Price there is an occasional
tendency for consumers to attempt to negotiate price.
While the idea of a lower price unique
to your purchase may sound appealing there are drawbacks
attached to this strategy for bike shops and for consumers.
First, there is the question of expectations on the
part of the bike shop and the consumer. The bike shop
expects to perform a given level of service in exchange
for a given price. If the price is negotiated downward
some bike shops may feel they are no longer obliged
to provide the same level of service. The problem
is one of expectations. The consumer may not accept
this discounting of service along with price as this
is rarely a verbalized or written part of the negotiation.
Second, when a consumer asks for a lower
price in a small retail setting they are asking the
employees to accept a lower standard of living. Reductions
in selling price translate directly to lower payrolls
in small bicycle retail. From a corporate perspective,
if a salaried corporate manager normally made $2000
per week and his director asked him to accept $1500
on pay day for the same work it would seem unfair
and perhaps even offensive. This may erode the value
and strength of the relationship. If you are a competitive
or enthusiast/fitness cyclist you may rely on the
service and expertise of your bike shop before an
important ride or event. While being a good customer
does not entitle you to special treatment it does
entitle you to the same good service as all other
customers. This may be crucial before an important
race or ride so dealing with your bicycle retailer
equitably will likely result in them treating you
the same.
In high end bicycle shops customers
frequently come from a more affluent demographic than
the owner of the store and the staff. The customers
simply have way more money than the person waiting
on them. It is generally considered inappropriate
or even rude for an affluent customer to ask an employee
making a middle class wage for a discount that threatens
to further reduce that employee’s already modest
standard of living.
The best bike choice will
return many years of service and enjoyment with low
overall cost and good ownership experience.
Aren’t bike shops trying
to sell what they have and sell expensive bikes?
Like all businesses a bike store is
there to turn a profit and sell products. The right
bike shop will take responsibility for selling you
equipment optimally suited for the type of cycling
you want to participate in. Once the sale is done
they can further assist you by helping you maintain
and improve the equipment to further enhance you enjoyment
of the sport. They are also a resource for information
about the sport, events and even training and other
aspects of the cycling lifestyle, in person and on
the Internet.
A responsible bike shop turns a fair
profit and provides viable benefits to the customer.
It contributes to the sport by assisting in the production
of cycling events for all cyclists and athletes to
enjoy. Modern bike shops do this locally and around
the world via the Internet with information resources
all cyclists can make use of for free.
Before a bicycle shop can sell any bike
they first have to buy it. Perhaps the greatest service
a bicycle shop can provide the customer is assisting
them in finding the equipment best suited for their
individual purposes. Bike shops sell bikes but more
importantly they buy bikes for a living. Most bicycle
retailers have bought and sold thousands of bikes
and have deep insight into the real world experience
of what it is like to own what they sell. These insights
are invaluable to the new cyclist.
While every bike shop is in business
to make money they are also there to promote the sport
of cycling and triathlon and as an experienced, responsible
resource for the cycling customer both before and
after the sale. Those may be the best reasons to build
a relationship with the shop you buy a bike from whether
it is around the corner or on your computer screen.
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