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We also hand build custom alloys. Rims by Pacenti, Stans and Kinlin. Hubs by WI, Chris King, Tune and PowerTap.

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Wednesday
Jun292011

Subsidies, Sponsorship and Sexy Paint

Part of the cost of the modern racing bicycle is a subsidy, or some economic assistance that one buyer provides so that another doesn't have to. The most obvious place we see this is in amateur and pro sponsorship. The expense of giving racers pro deals and free equipment is built into the margins of products sold at retail. You're paying more so that others may ride for free or half-price. 

You won't be surprised to learn that subsidies don't sit well with our model. We think you should pay for what's important, and asking you to shoulder the burden of giving a fleet of our bikes to an elite team ultimately defeats our mission of getting excellent equipment into racers' sweaty gloves at the lowest possible price. So we don't do it, preferring instead to go to great lengths explaining to you how our bikes are just as good as competitors' even though you don't see our logo plastered all over some domestic pro squad's 1999 Subaru Legacy wagon.

"But Mike," I hear some of you saying, "you guys do sponsor teams. I know someone who is on one, and I might even be that person myself." It's true, we started sponsoring a number of teams when we launched last year, offering discounts on our own equipment as well as merchandise made available through other suppliers. But the economics of our sponsorship model were not based on a subsidy. Instead of raising our regular prices to support sponsorship, we started by pricing our products as low as we could afford, and then cut further into those thin margins for sponsorship. So if any subsidies were paid for our sponsorship program, it was Dave and I who paid them. Happily, I'll add - sponsorship did help us grow some mindshare within teams and gave people a reason to promote our brands and products to teammates. That was our intention - not to use sponsorship to sell products to other teams, but to harness the enthusiasm of racers who did like us and enable them to act as ambassadors within their own squads. We didn't even ask for our logo to be on jerseys, though most teams did add it.

But the downside to our sponsorship model was that the perceived value wasn't in our favor. If you charge $2500 for a frameset and offer sponsored teams a 40% discount, that's a big number by itself and represents a savings of $1000. That sounds like a fantastic deal, especially compared to our meager 10% discount. Saving $95 on one of our frames comes off as pretty weak compared to a grand. Of course, the net result is that our sponsored racers were able to buy our frame for $850, and those getting the awesome 40% savings on another brand were still left paying $1500. But that's a hard point to communicate, especially to someone who wasn't familiar with our story. So we're not going to do sponsorship the same way next year. Instead, we're organizing it more broadly around what racers want, because we're a what-racers-want company. More on that later.

The other place subsidies are starting to appear in the bike business is in paint. It's becoming fashionable to sell carbon frames raw, using minimal graphics and a glossy or matte clearcoat. Most brands though will hedge their bets on finish, offering blinged out versions of the same frame with intricate decals and paint schemes. As you might imagine, the minimalist schemes cost less to produce. But (aside from custom builders) I've never seen a brand that charges differently for the same frame depending on the intricacy of the paint scheme. As a result, the buyers who do opt for the minimalist look end up subsidizing the buyers of the more expensive blinged-out finish. So if you're on a glossy colored frame and your buddy rides the same frame in the raw finish, you owe him a beer. After every race. For a couple of years.

We totally understand the need to offer some choice. We launched last year with the Wheelhouse available only in a raw matte black finish, but for next year we're also (very likely) going to make it available in gloss white. (In fact, later this month in the Mid-Atlantic you will see the very first gloss white Wheelhouse out in the wild.) But because we think you should pay for what's important, the price of the white version will be a little bit higher, reflecting the increased expense of the paint. No subsidies. But we do still encourage buying your buddy a beer after the race. 

On the topic of sexy paint, our cyclocross demos just arrived - also in gloss white. We elected not to make these available in a raw finish at all, in part because the factory producing them for us includes a single color paint finish at no additional charge. Yes, the coat of paint adds weight, which cuts across the grain of our performance-oriented philosophy. But raw carbon is gorgeous in a way that raw scandium is not. We weren't confident we'd move a lot of unfinished scandium CX frames, which would defeat our mission. We don't just aim to make our stuff available to racers at the best possible prices; we're only successful if you all actually buy it. 

Tuesday
Jun282011

The most popular blog-published drivel from Year 1

Today is the 1-year anniversary of the very first post we published here on the November blog. That marks it as the official public start of the company, though Dave and I had been working behind the scenes for about two months before then. Two months isn't a lot of time for planning and organization, to be sure, but we also launched early in order to show you all the planning, organization, decision-making and progress in real-time.

Since that first post a year ago, we've spouted off over 100 more times here on the blog. It's all available over in the archives on the right if you want to browse. If you just want some highlights, here are the 5 most popular posts based on the number of times each was viewed:

1. All-In-One Mythbusting with Cav
As much as we aim squarely at the amateur racer, anytime we talk about the pros the traffic meter lights up.  

2. Re-Premium Branding
Next best thing to writing about pros is writing about their bikes. 

3. Carbon Fiber Violins and Scandium TT Frames
Google may have tipped the scales on this one. Who knew so many people were going to search on "Carbon Fiber Violins"? 

4. The Bloody Bleeding Edge
In which Dave breathes a sigh of relief that our strategy is to be a fast follower, not a technology leader. 

5. When the Wheels Come Off
This may be a case of a misleading title garnering unwarranted attention, coming as it did after we sold our 43g DoubleSecretUltraLight Ti Skewers on a Frugal Fridays. The post is about product failures - not in general, but ours specifically. It happens, and when it does we're not going to sweep it under the floormats of the team minivan.  

Dave and I are partners by vocation, but as bike racers we are competitors by nature. The fact that 3 of the top 5 (2, 4, 5) were written by him is not lost on me. The game, as they say, is on. I'm taking my posts altitude training to prepare for Year 2. 

Monday
Jun272011

Mailbag Mondays, 6-27-11 edition

We spend a lot more time responding to email than we do engineering carbon fiber layup processes. Even though we answer each message specific for the person who emailed us, some of what we reply may be of consequence to other customers as well. So every Monday that we remember to do it, we'll publish Mailbag Mondays here, with a few of the emails we received and the responses we sent.

Email #1: Wheel Weights Questions

Hi,

I am planning to preorder a wheelset in November. I thought I had my mind set on the 50mm tubular, because it was your lightest wheelset. But I just found out today that you also have the 38mm in tubular version, and you will have some hub choices for custom build in the near future.

Questions:

1. Is the 38mm tubular your lightest wheelset? How much does it weigh with standard build?

2. What is the weight of the front/rear Novatec hubs?

3. What kind of hubs will be available for custom build? Do you think these hubs will be available for preorder in November? Are they going to be a lot more pricier than the Novatec?

Thanks!

--

Hi <Dude's first name redacted>-

Thanks for the note. I'll answer your questions in order:

1. Yep, the 38mm tubular is the lightest we offer. With our standard (20/24) build it's around 75g lighter than the 50mm tubulars, so just below 1300g.

2. The Novatec hubs are 76g / 245g.

3. We know we will offer custom builds with DT Swiss and C-4 hubs. We are working to secure agreements with <fancyass hub brand name #1 redacted> and <fancyass hub brand name #2 redacted> as well. Of these, I believe the C-4 are the lightest, shaving about 35g off the complete wheelset. They will be pricier, to be sure. Dealer agreements with these premium hub brands require us to sell them at MSRP, which is an upcharge of about $500 per wheelset. We expect to have them all available within the next couple of weeks, which means that the current pre-order (deadline of July 5) would be the first where rims for a custom wheelset with these hubs are available. The July 5 pre-order is expected in late September, so the custom wheelset would be ready mid-October.

If money is no object and you have an affinity to a particular hub brand, or you want color choices not available in our standard builds, then the custom program makes sense. If weight is important and cost not far behind, the 38mm tubular is outstanding. We didn't spec it with cheap hubs to lower the price; we organized our entire model to lower the price so that we could spec it with really nice hubs.

regards,

Mike

--

Email #2: 38mm Clinchers

Reading a lot of great stuff about your products, and it sounds like your 38 clincher is a great all-around wheel set.   I am a 165lb or so Cat 4 (aspring to 3) 'crosser that dabbles in the occaisional road race.   Yes, I know...tubies are the best for 'cross, and at your prices i'd like to have one set for each discipline, but my real question is whether your standard build 38 clinchers will stand up to the rigors of a midwest cross season.

Thanks, 

<Dude's first name redacted>

--

Hi <Dude's first name redacted>,

Thanks for getting in touch. 

We're not big fans of carbon clinchers for cross.  The build is going to do fine with your weight, that's not an issue at all.  The issue is the brake track.  I don't know what the Midwest cross season looks like, but I know what the Midatlantic cross season looks like.  It looks a lot like trying to go as fast as humanly possible over cracked pavers and roots and rocks and all manner of other sharp pointy things, all while having the least possible amount of air in your tires. 

Our rims have been used in some races where we were slightly horrified to see them used - the "Roubaix wannabe" type events all spring and some other "not quite paved" extravaganzas since.  They've made it through all this and more, but cross is a horse of entirely different color. 

We will be rolling out our cross-focused alloy tubulars for this fall, which will have an clincher counterpart.  We think that either of those are a perfect wheel for cross, and there is always the RFSW carbon tubular.  THAT is a great cross wheel. 

Others in our shoes (and others using the same rims we do, even) might give a different answer, but we just don't think it's the right move. 

Let us know if you have any other questions. 

Best,

Dave

--

Email #3: Postage to Aussie

Howdy!

Was wondering how much does it cost to ship a pair of wheelset to Australia?

Was wondering in case of wheel failure, do i have to ship the wheel back to the States, before i can get the replacement wheels?

Cheers mate!

-- 

Hi There,

Thanks for getting in touch. 

Freight costs that we've looked at are pretty out of hand ($500 for frameset to JPN, for example), so with that it's just not something we'd prefer to do for wheels.  It's too far away and shipping is too expensive for us to provide our normal level of service.

Thanks

Dave

--

Email #4: newbie wheelbuilder lives close, train me!

Hi, I live in <nearby town name redacted> and I commute to DC all the time. I know yall are north of the city but I am interested in doing something other than cleaning dog shit full time. I am an avid biker, handsome and 27 years young.  Let me know if you need a wrench. Thanks, <dude's name redacted>

XXX-YYY-5555 (cell) (-yes its a real number..yes I have been slapped giving it to a girl at a bar..)

-- 

Hey <Dude's name redacted>-

Thanks for the note. We had a huge response to our post about wheelbuilding help, and have brought on some people to help us in the near-term. Still, your background in cleaning dog shit appeals to us so when we finalize the program we have in mind for training wheelbuilders, we'll definitely let you know about it.

best,

Mike

Friday
Jun242011

Pre-Order Evolution: In which we paralyze you with tantalizing choices

We've made some changes and clarifications to our Pre-Order programs, particularly with respect to wheels. Our goal is to have wheels available for purchase almost all the time, but even when we do we will still allow our customers to pile onto our orders with suppliers through our Pre-Order program. Pay for what's important to you - if you want to shave $100 - $140 off a wheelset in exchange for waiting a couple months to receive it, you can do that with us. If you want your wheels today immediately now, you can do that too.

The New Cool Thing about Pre-Order though is not just that you save money - you get more choice. With wheelsets, for example, we don't yet have the demand to stock 38mm or 85mm tubulars, like we do with carbon clinchers. But with pre-order the sky's the limit - if we can get it through our suppliers (which we can), you can pre-order it. Really want a 28-Hole 58mm rear rim that we don't normally stock? No problem. 

Here's what's new: 

  1. The Pre-Order Calendar. We have published all the Pre-Order Deadlines for the next year and a half, so you can plan when you want to make a purchase instead of waiting by the inbox for us to tell you that it's game on. But go ahead and subscribe to our email and we'll tell you anyway. 
  2. Whatever we carry you can always pre-order. Previously we limited pre-orders to a specific wheelset, like RFSW tubulars for CX or RFSC 38s. Now, whenever a Pre-Order deadline looms, you can pick up any of our wheelsets, whether they are out of stock or not. Let's say we've got RFSC 85s in stock but you don't need them until a triathlon in the fall. Pre-Order them and save $140 in exchange for your willingness to wait.
  3. Pre-Order Non-Stock wheelsets. All of our rim depths (38mm, 50mm, 58mm, 85mm) are available in both tubular and clincher. We don't stock wheelsets using all those permutations, but you can now pre-order them. 8 different wheelsets are available for Pre-Order, each in either our standard (20/24) or SOB (24/28) build. Pricing and ordering for each is all on our Wheelset Pre-Order page
  4. Pre-Order our carbon rims in any quantity. We launched carbon rims last Pre-order with a minimum of 4 per order. Now you can order 1 or 2 or any positive integer of your choice. Any rim type, any rim depth, any drillings you like. The only thing you don't choose is the price. We did that for you, but we kept it low. Pricing and a "Add to Cart" button are right there on the Rims page
  5. We bring the bling with custom wheels. We're just finalizing dealer accounts with some additional hub suppliers and will soon roll out the details of our custom wheel program. You start by pre-ordering the rims you want built into custom hoops. When they're en route, you select your hub brand, hub color, spokes, nipple color and decal color. Yep, we build them for you to your specs. We don't want to publish all the hub brands until agreements are complete, but email us and we'll tell you whose hubs we expect to have on offer, and give you pricing guidelines so you can make a decision for the current pre-order.

The current pre-order is open until July 5. 

 

Thursday
Jun162011

Cost-Based Pricing, Value-Based Pricing and Awesome-Based Pricing

I've written previously about how we set our prices. We use what is called cost-based pricing: we start with what it costs us to procure and deliver a frame or wheelset to you, and then add to that amount an amount of margin (or profit) that makes the effort required on our part worthwhile. If we chose higher margins, we'd make more on each sale but have fewer sales overall. If we charged less, we wouldn't make as much on each transaction and we'd grow to resent all you cheap bastards taking advantage of us every time we shipped a frame or wheels.

Parenthetically, we don't think if we charged less that we'd sell more, as is usually the case. We think our prices are about as low as they can go to allow us to still convince you that our products are of excellent quality. Right now when people ask, "What's wrong with your frame that it only costs $945" we can reply convincingly "Nothing. The question is what's wrong with what you paid for your last frame." But if our in-stock frames were $700 we think people would write us off as a couple of hucksters. I don't think we could convince you they're every bit as good as the $2K-$3K frames we compete with. You'd hear our arguments, but that delta is just too large. So in addition to our prices being as low as we can afford to make them, we think they're also as low as you'd give credence to.

What a lot of other brands do is offer value-based pricing. Value-based pricing sets the price for consumers at what they perceive the product is worth to them. Don't get thrown by the word "value" - value-based pricing is a terrible deal, as it has customers paying for brand prestige, projected benefits of the features instead of the features themselves (like safety features, for example - "never mind what they cost Volvo to install, they protect my family and I'll pay whatever they ask"), and other forms of psychological differentiation

The right way to use value-based pricing is to earn it over time. Charging a premium for perceived value is an effect of brand equity. Yet in the bike business, many brands try to use value-based pricing as a cause of brand equity. As if a brand that has never sold a bicycle can suddenly show up and ask $2800 for a frameset, and by pricing that way alone they should be considered alongside the major players that have spent a decade or three earning their position in the market. Premium positioning solely through premium pricing is a great trick if it works. But it rarely does, so brands should probably just knock it off and either deserve the price they charge, or charge the price they deserve. 

Let's talk about Neil Pryde Bikes for a minute. And no, I'm not changing the subject. There is an article in the June 15th Bicycle Retailer magazine about their "modern distribution model." The company is huge in windsurfing and decided to get into the bike business, owing largely to their relationships with carbon fiber suppliers in the far east (the company is HQ'ed in Hong Kong) and their experience with international sourcing and distribution. They inked a partnership with BMW Group DesignWorks USA (the Singapore branch, not the one in the USA or Bavaria, as the name may suggest) to tack some more extra-industry prestige onto their own brand, signed Martek in Taiwan to manufacture the frames, and launched with two framesets at $2600 - $2800. 

As a bicycle industry colleague, what I like about Neil Pryde Bikes is that they designed their business model around a competitive advantage of theirs in fulfillment. Owing to their expertise in shipping large windsurfing equipment around the world, and being a bigass DHL customer, they came up with a model that houses frame inventory and assembly capabilities in the Far East, and ship directly to customers from there within a few days of receiving an order. They save money on inventory, warehousing, distribution and shipping. The model lent itself perfectly to a direct-to-consumer online sales approach, so that's how they launched. 

As a bicycle industry competitor, what I love about Neil Pryde Bikes is that despite having a cost advantage that allows them to centralize inventory, cut out an entire tier of distribution (the very expensive retail tier at that), and ship for less than just about anyone in the industry, they still charge three times what we do for a very comparable frameset. Selling direct certainly plays to convenience, but ultimately it's a truncated value proposition for consumers. The bike industry is built around a customer's ability to go into a shop, see, pick up and throw a leg over a bike, repeat as necessary, hem, haw, and then buy. We don't offer our customers that option, so we sell frames for $945, with our apologies. We know our experience is not ideal, so our price sure is. Neil Pryde offers a similar imperfect selling channel, yet they charge a premium for it. Their pricing, then, is no coincidence. Going beyond value-based pricing, they price at a level so high that it appears the aim is to achieve some exclusivity. It's Awesome-based pricing, or pricing selected to exceed a perceived value and throw a halo around the brand.

The trouble with exclusivity though is that it's incompatible with volume. There just aren't that many riders on the Gentle Dentists Saturday AM club ride willing to plunk down $7K or more for a falootin' frame with no racing pedigree or even cycling legacy. To Neil Pryde's credit, they saw this not long after they launched. The Bicycle Retailer article is about how they have switched their model to one that sells through dealers in addition to direct. (If you needed proof that theirs is in no way cost-based pricing, you have it in this move - their pricing didn't change, even though they added an entire tier of distribution.)

Their U.S. rep is quoted as saying, "After three months we said, 'we made a mistake We need dealers.'"

At those prices, they sure do need dealers. But who is thinking about what dealers need?

We are. More on that soon.