Price pressure, the '06 model year and what consumers REALLY expect

Triathlon Forum
1

"'That’s a hot looking bike. I had no idea that QR was going to be trickling down the full-carbon frames to their ‘lower end’ stuff. ’

Lower end stuff $3,799! I paid $2.150 for my full ultegra 2004 Caliente, $3,799 isn’t low end where I live. Full carbon or not that is more then a Dura Ace Cervelo P3."

Attention industry guys: The above is an excerpt from a posting made in a thread on this forum.

Industry guys, product managers, sales managers- what does this tell you? As you go to Interbike with your “programs” and “commitment levels” and “buy ins” for 2006 are you aware of how the industry has changed? Do you *really *understand how consumers behave?

Industry guys: Ask yourself this question: Are you living in a dream world? Is the behavior you expect from consumers at the buying level realistic? Have you seen and documented the behavior you expect from consumers in high enough numbers to make your plan for 2006 viable?

Next year, will your dealers come to Interbike 2007 and say “Thank you for great product, good delivery and fair prices- we need to increase our order for 2007…”

Industry guys: did you read Page 56 of the August 05 issue of Forbes magazine, or are you just going to pretend those numbers don’t exist?

Industry guys: Do you know that 9 bicycle retailers- some of them very well established with strong credit histories and good lines and strong clientele closed their doors and went out of business within 40 miles of my store?

Industry guys: Do you know why we had a record gross sales year when other retailers closed?

Industry guys: It is show time. Are you thinking in the context of a new economy? Or is it just another trade show for you?

Industry guys: Are you listening?

2

Wow!

Thank you Tom.

3

Exactly!

I’ve been in the sport almost as long as Tom, seen many changes but this is not good. Don’t get me wrong I’m a ‘techhead’ and love this new stuff but what is it doing to our sport? Seems similar to F1, teams with the most cash wins majority of the time. Use to be a time when showing up at an Ironman with a set of race wheels was pretty hot now 5-10k for a bike? If you are a Pro or cash rich, hey go for it but I’d bet money the majority spending it are looking for false sense of free speed. You want to get to the ‘big show’ train harder not spend more.

4

hey tom, did you fix that link with the arcole that kept on showing the colnago?

5

Nope. Guess I’m not listening… :slight_smile:

6

I have a Colnago MXL that just developed a crack and its out of warranty. I’m not even walking into a bike shop for a replacement, I’m riding the $400 Gitane 1973 singlespeed until something pops up in the Classifieds or on Ebay.

Its freakin’ ridiculous.

7

Since I’m not an “industry guy” do you mind answering your own questions?

Not being an industry I came up with several answers to some of them…most I’m sure are not likely right.

~Matt

8

Everything goes in a cycle. When things get too pricey and complicated, simple sounds real good again.

9

Well, if you’re not listening you don’t deserve to be in business (which is why shops go down, why some famous bike companies are riddled with debt and desperately trying to sell). But in truth, you can never get it all right. My two favorite conundrums when it comes to what consumers want (we have tens of thousands of people giving us feedback each year) can be described by feedback that roughly goes like this:

Conundrum 1: I love how Cervelo continues to push the envelop, don’t change a thing

Conundrum 2: I love that I can actually afford to buy one (this is usually when they speak about how Julich wins Paris-Nice on a $1200 frame or how you can actually buy the bike Zabriskie did the fastest TT on), but why is it so hard to get my hands on one.

Conundrum 1 is not really that relevant, it is merely funny that people don’t want to change the changing. Conundrum 2 cuts into what you are alluding to. You can’t prevent certain companies from pushing the envelope, it’s human nature. And chances are that these new finds are expensive. I don’t really see the problem with that, as long as you keep giving people an option at the lower end as well.

In our specific case, of course a Soloist Carbon at $3199 is not an entry-level frame. But we are not expecting people to move up from the Soloist to the Soloist Carbon. We are keeping the Soloist for all those who want it (and given its palmares there are plenty of people who do), and in fact the price of the Soloist with Ultegra will go down from the $2499 that is was 2 years ago (we didn’t have a Soloist with Ultegra last year due to Shimano allocations). And for people wanting to buy the absolute best frame they can, the Soloist Carbon will probably mean they can actually spend less money than they did on their last frame, as $3199 is definitely less than some of the frames these people would have been buying before.

Inevitably the result is that both of those bikes will be tough to get. Yes, we will double our production, but based on all the data we have it will not be enough to meet demand. The only alternative is to price it “where the market can take it”, but then you end up in the situation you describe of an unobtanium sport.

I realize that this does not address the true entry-level side of the market, obviously a Soloist with Ultegra is pretty darn close to the top of the market already in terms of performance, but we have never made $500 bikes so I have no clear picture of how that side is developing. But from what I do know, the pressures at that side of the market are enormous, and if anything prices are going down (mostly due to teh fact that the big box stores are putting better and better bikes on the floor - though I am using the word better in a relative sense).

10

gerard, pleeeeez keep the soloist centaur? :slight_smile:

for everyone’s info, it was just posted on the serotta forum that serotta is releasing a full-carbon frame that can be fully customized … for $8000. that’s $8k for the frame only. make of it what you will.

11

“Well, if you’re not listening you don’t deserve to be in business (which is why shops go down, why some famous bike companies are riddled with debt and desperately trying to sell). But in truth, you can never get it all right.”

100% true.

12

I love this forum.

13

Tom - excellent post…it seems to me that there needs to be a compromise on both ends.

Consumers - Need to understand/demand performance differences rather than bling/bling.

Manufacturers - Need to be able to prove their performance differences in common-man terms.

I don’t see either of these happening…but I do see lots of new-sexy-expensive bikes. I hate to single out Cervelo, but no one is stepping forward with any information why a P3C is “better” than a P3, other than a few grams and different sizing. I imagine the same for the carbon Soloist. Are we really suppose to rely on “The CSC guys say it rides better”. (Don’t get me wrong Gerard, I like my Soloist…and I can tell you why I like it over my old road bike)

How much $$$$$ is wrapped up in perceived value which I usually call the “the Driver syndrome”. You know…the hacker golfer than buys a $500 driver, goes to the range…hit 499 duffs, (1) 300 yarder and then claims its the best driver he’s ever used.

The other crap is this carbon craze. My gosh…it MUST stop or the industry must come out with some sort of carbon standard. It was so much easier to buy a frame 5 years ago…

Rant off, I gotta eat.

14

“I don’t see either of these happening…but I do see lots of new-sexy-expensive bikes. I hate to single out Cervelo, but no one is stepping forward with any information why a P3C is “better” than a P3”

I’m not speaking for Gerard, but I suggest that no one may have ever said the P3C is “better” than, for instance, a P3SL.

They are different products. They have different size runs. Both are the “best” bike for you if they suit your needs and fit accurately and optimally.

15

"'That’s a hot looking bike. I had no idea that QR was going to be trickling down the full-carbon frames to their ‘lower end’ stuff. ’

Lower end stuff $3,799! I paid $2.150 for my full ultegra 2004 Caliente, $3,799 isn’t low end where I live. Full carbon or not that is more then a Dura Ace Cervelo P3."

Thanks Tom,

I put out my little bitch about the bike prices and you take it right to the guys who can do something about it. I love my 2004 Caliente, the frame the parts the paint the fit and the value. Now because I have a Cali I was interested in the thread about the 06. But can anybody tell me how I will be one second faster on the $3,799 06 then I am today on the 04?

For that $1,649 I could buy myself a nice second bike or a computrainer, a coach, a power tap, take the family to Disneyland to make up for all the time I spend training. But I don’t think it will buy me any speed over the 04. I think QR had a home run with the bike in 04. A lot of people told me they looked at the 05 Cali but didn’t like the flame stickers and paint so they bought a different bike. My answer if I were at ABG would to put a more attractive look on an already impressive bike. Not go to the high dollar carbon fiber drawing board.

Thanks

Dave

16

I respectfully disagree. I think there are some companies (and I would hope we are one of them) that explain in layman terms what they are trying to achieve. I think if you read through a description of our technology, one may not understand all the intricacies but you can form an opinion if it makes sense or if it sounds like B.S. If it sounds like B.S., don’t buy it. If it makes sense, keep it on your list of potential bikes (of course a bike needs to meet more criteria than that to buy it).

At the same time, there are consumers who go through the trouble to figure these things out. But I will agree that this is not easy, as the amount of information varies greatly from manufacturer to manufacturer. Toss in there that information on the internet and even in the magazines is usually wrong, and you have trouble.

As for P3 SL vs. P3C, our real interest in testing is in the design phase, when you can actually do something with the test results. So we know how well certain design aspects of the P3C do vs. the P3 SL, when the final model comes out (any model) it is very likely that we haven’t done a windtunnel test of the final version at that point. So we know quite accurately how well it performs, but we do not have the exact numbers on the final version. Usually it means we know it will be at least at a certain level, but we don’t know how much better than that it will be (because the mock-ups are never as clean aerodynamically as the final product).

We do such a test eventually, but usually when we are actually going to the tunnel for something else, something that is in development. Even worse, once we have all the data we have to get our lazy butts in gear to write up a proper test report and put it out, something we are even less inclined to do. Especially with so many other things to do. That said, expect a pretty big body of test data to become available in the next couple of months, and I think you’ll be surprised.

17

You hit the nail on the head Dave.

Here are some factors exerting downward pressure on retail prices of discretionary goods: Housing prices in our region are dropping rapidly both seasonally and due to a glut of supply of homes for sale. Downward price pressure on real estate is tempered with upward movement of mortagage rates, especially adjustable rate mortgages already closed on homes at inflated prices. That will dry up people’s money. The assumption that “real estate is always a safe bet” is turning into the dot-com bust of the next five years. Fuel prices are hitting everyone. Delivery costs, cost of driving, cost of commuting is hitting everyone’s bottom line. That dries up discretionary incomes driving down ticket averages at the bike shop. The average tri bike sale in 2004 through July 04 was $1839.41. Now it is $1427.19, a net decrease of 22.5% in average ticket. People are going to lower price points as a result of having less discretionary income. Dealers bought huge quantities of high end inventory in 2005- some local dealers were sold a bill of goods that “the triathlon market is exploding- it is where you need to be”. Dealers bought fit equipment, re-merchandised and re-tooled to try to capture the high end road market and the high end tri market. Their shelves were dripping with carbon fiber inventory. But consumers weren’t bitting. As we go into the end of the '05 model year a glut of inventory corresponds with a shortag of inventory from the key selling seasons of March, April and May. Regionally, our job market is a disaster. Ford Motor Company is under substantial pressure to reduce all payrolls. Northwest Airlines began a major labor dispute today. All of the big three are advertising “employee discount pricing” on automobiles. Bike dealers need to provide a commensurate buying program- if not a better one. People *need *an automobile to go to work and buy groceries. They don’t *need *a luxury bicycle above $1000 at retail. Layoffs and job eliminations are a daily headline in Southeastern Michigan. 400 jobs eliminated by another automotive vendor closing this week. That is 400 jobs on the street in a contracting labor market- most of these people DO have those adjustable rate mortgages that are beginning to adjust upward as the value of their “From the $250’s” home starts to slowly stagnate.

Any way you shake there are no market pressures compelling the consumer to spend *more. *There may be industry pressures to charge more, but the consumer sets the price by determining what they will ultimately buy.

18

Just a brilliant big-picture view of our marketplace with MI as the example. Add me to the list of potential bike buyers in the next 6 months, and I’ve been disappointed to see price points drift north thtey way they are. If I had been ready to buy earlier this year, the QR Kilo, the Felts, and both Duals were offering great options at what I consider a reasonable price point for my financial circumstances. I’m worried that too many bikes will be leaving my price range, and the ‘right bike’ for me suddenly woon’t exist. And if I’ve learned anything from you and others on this forum, it’s that I’d better buy nothing at all before I buy the wrong bike. Now who in the industry benefits from that?

19

Well, the '06 year is pivotal in the industry for a long list of reasons.

It is up to the vendors to listen to the consumers.

So far, only a couple have done a good job of giving consumers reasons to buy.

Cervelo offered an exciting and compelling new product in '05 in the form of the P3C. Consumers wanted it, it was priced fair and as a result they bought them.

Felt put Dura-Ace equipped bikes at price points where many other manufacterers were trying to sell Ultegra 10.

Felt responded to the need to be the market value leader. Cervelo responded to the need to be the market technology leader. But both companies listened to the rumble in the tracks: They listened to the consumer instead of trying to do things the same old way.

20

Agreed. In fact, I think that the P3C was more than fairly priced when you consider it in relation to the rest of the high-end market. And it seems that Felt put a lot of pressure on others to competitively spec bikes from here on out.

A question: I read Tim DeBoom mention that Trek would be aggressively pivoting into the tri market. How will this affect much smaller companies and how they find success in an increasinly fickle market?