Tuesday, January 11, 2011

Information Is Power and the Race to the Bottom

A recent event on a 29er based website was amazing to watch.  A press release went out about a new carbon fiber bike frame from Europe.  The pricing reflected a premium product, near $1800.00.  Two years ago, that would have been a marketable price, though still high, but CF 29er frames were priced at that level for the most part, if you could get them at all.

Then, over that last year, something changed all that.  There are not many places where a CF bike is made.  Pretty much all of them are overseas/Asia and a lot of that is now in China.  Aside from the major players like Specialized, Giant, Trek, etc, who may have special arrangements and proprietary molds/specs/designs, basically anyone with a checkbook and a marketing plan can ring up China and order their own branded CF frames.  How many do ya' want?

Now that is still not all that remarkable, but what happened next is...the Chinese factories began offering these CF frames direct to the end user for a very cheap price.  It was not at all unusual to see a frame that was identical down to the frame bosses, etc, offered for a third of the cost of the original frame as was sold by the company that developed the CF frame initially.  This could be the EXACT same frame...or maybe not, but it was something that I am not sure that bike companies expected.  Now I have not seen a complete copy of a Specialized Stumpjumper Carbon S works and I doubt you ever will.  But if you were the kind of small to mid size company that shopped from the catalog of CF frames that were somewhat pre-designed and expected to have a certain profit margin in that product, you may just have the composite rug pulled right out from under you.

That brings up the original mention of the thread about the Swiss offered CF frames and what happened there.  The post was made, the readers let out a collective guffaw at the inflated cost over what was offered here for a huge discount, and the raspberries rang out over the innerweb.   The challenge was thrown out to the company marketing the Swiss bike..."tell me why I should pay that much for what looks to me to be the SAME product?"  Good question.

Lesson number one:  "Information is power".  The internet empowers the consumer in ways that companies are struggling to keep up with and anticipate.   The end result of this example?  The Swiss bike will be re-priced before it is even launched.  Wow.  That is remarkable.

Lesson number two:  "The Race to the Bottom" has begun.  And, I am not so sure that is a good thing.  Follow along here for a minute.  A bike company spends money and resources to develop a CF frame and have it manufactured by a Chinese company.  They expect a certain financial result from their efforts.  Customers enjoy a quality frame with a proven warranty and or dealer network with support in case of any issues.  The pricing of the product reflects all this assumed cost and all is well.

Now the Chinese (in this case, anyway) begins selling what looks like a very similar product both in style and performance for a 50 to 70 percent discount direct to the consumer.  It may not be the same frame.  Was the product cheapened in any way?  How much QC was actually put into this?  No one knows for sure.  But that cheap price will entice many to buy them anyway.  Now the consumer is empowered and the other companies will have to prove their worth to justify the increased cost of their offerings, but if they cannot forecast a reasonable enough profit to make it worth their while, they may just pass on developing anything further.  Now the consumer still can buy a cheaper frame, but do the smaller companies still offering the CF stuff have the resource dollars to continually refine the product?

Not likely.  That is not good for the consumer.

Race to the bottom=Walmart CF bikes?  Shudder!

Will it happen that way?  Maybe not.  Maybe the quality will be very high for all those bargain bin frames.  But I always remember something an engineer for a very significant American company told me after they had exported all the technology and intelligence to Asia for their manufacturing:  "They (the Chinese) have no trash cans."  Meaning?  Well, what we may reject for our standards is just fine for you to buy directly from the 'Perfect Joyous Butterfly' factory in the Land of the Dragon.

And, if the cheap frames begin failing and the customer experience is not that high after all, and the cost of improving that requires an increase in costs to make up for that...we will likely see an upswing in pricing from the direct sellers too.

Either way, what once was looked at as a 'premium' product...that being a CF MTB frame...will never be the same now and may just become a commodity to the lowest bidder.

No comments: