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What Should I Pay?
By Tom Demerly

 


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.

 

$1000 to $1800 MSRP.

 

 

 

 

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.

$1800 to $2500 MSRP.

 

 

 

 

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.

$2500 to $4500 MSRP.

 

 

 

 


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.

$4500 to $8000 MSRP.

 

 

 

 

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.

$8,000 to $15,000 MSRP.

 

 

 

 

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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© Tom Demerly, Bikesport Inc.
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