Why Don’t We Earn More Money in the Bike Industry?
By Tom Demerly for tomdemerly.com
Was at the dentist today. $2,297.00.
My dentist is excellent. Truly. Does a fine job, professional and current on modern dental techniques. Great staff. Nice guy too.
As luck would have it my dentist is also a triathlete. While I was at his office I picked up his bike and brought it back to our bike shop to do a tune-up on it. He’s got a nice bike. He should.
I got to thinking: Why can my dentist command $2500 for services, but I will only bill him about $90-150 for his bike tune-up that takes about the same time? And before you argue that your teeth are a serious “health issue” I will suggest that your bike brakes are too when you need to avoid a collision with a car.
Why is the bike industry unable to command prices for service and products commensurate with other industries? Why is a doctor, a dentist, a plumber, an HVAC repairperson or an auto mechanic so much more expensive to hire than a bike fitter, bike salesman or bike mechanic?
Why are similar things so cheap in the bike industry, when they are priced consistently higher in other industries?
Like any single economic question, there is not one singular answer. It is worth inventorying the reasons why the bike industry, benchmarked against other industries, is habitually under-charging- especially for service- despite growth in demand and technology in cycling.
U.S. culture teaches us bicycles are children’s toys. Labor rates for servicing a Jet Ski, motorcycle, snowmobile or an RV are similar to automotive repair rates. But fixing a bike is something we grew up doing in our driveway. Our value calibration of bicycle service starts in our driveway as a kid. Because the bicycle industry as a whole remains largely unsophisticated compared to Apple and Tiffany’s stores, that value calibration of bike retailers remains lower than other consumer experiences.
What can the bike industry do to change the perception that bikes are toys and labor should be cheap or free? There are a few answers, but the most apparent are to provide a more modern and sophisticated presentation of services and an updated visceral customer experience congruent with newer high-end client services and retail.
Let’s go back to my dentist’s office.
Days before my appointment I always receive a text message reminder from his office. They also phone me and leave a message with a reminder.
The dentist’s office has a trained receptionist, a “Concierge”, who coordinates services, attends to questions and generally administers logistical concerns with patients. It is her only job- to facilitate a smooth and pleasant transaction. She also handles the payments. The entire payment process is segregated to a different staff, a different physical location in the building. This helps solidify the payment experience as finite, non-negotiable, consistent and repeatable.
My dentist’s office is clean and modern, beginning with the exterior of the building. The signage and everything that transmits his brand message is attractive. His treatment spaces are spotlessly clean and meticulously arranged, not only for obvious sanitary reasons, but also to transmit the impression that this is serious business.
Bike shops, by comparison, are less formal places where employees dress in shorts and T-shirts and customers “hang out”. You act how you dress, and you charge how you dress too. The vibe in bike shops is decidedly less professional, and consequently, so are the prices.
For these and other reasons my dentist can command $2500 for a service that takes about the same time and experience as rebuilding his Shimano Di2 carbon fiber triathlon bike. He collects more than ten times the revenue I do for a service that is more similar than dissimilar. And remember my analogy about your bike brakes being as important as your cavities when you’re riding toward an intersection at 20 MPH.
And before old timers argue that a more polished, cleaner, professional approach won’t work in bike shops, I will argue that it likely will, since most adult cycling customers are actually new cycling customers whose benchmark of what a customer experience should be is formed in retailers like IKEA, Apple, Victoria’s Secret and Abercrombie– not hanging out with the guys at the local bike shop. In fact, it is likely the only bike consumers that still want a homy, small-town, casual “buddy-buddy” personal feel to bike is the guy behind the counter, not the customer in front of it.
Tiffany’s is a high-end jeweler made famous by the movie “Breakfast at Tiffany’s” and is still famous for a few reasons, one of which is their iconic “Tiffany blue” (trademarked) brand color. Buy any engagement ring of a given size at Tiffany’s and it is roughly ten times the price of an equivalent sized ring from the corner jeweler. It also carries a consistently higher perception of worth and brand identity.
From 2007 to 2015 Tiffany’s revenue grew 60.49% according to Morningstar.com. That is despite the brutal recession in the U.S.
How does Tiffany’s command a price often ten times higher than an apparently comparable product and still increase sales, even during the recession?
There are several reasons my dentist and Tiffany’s can command more revenue for seemingly similar services and products to the adult cycling industry.
Firstly, they ask for it. And dress for it.
Setting price immediately establishes a value calibration. When I lived in the Middle East I noticed this value calibration is often highly nuanced. The Arabs (and Chinese) invented commerce as we know it today. They know, unless you ask, you will never get the price you want.
Tiffany’s has also established uniqueness and differentiation through their fortunate product placement in a popular old movie and in every brand message they send, right down to their packaging and bags. When a person walks through a high-end shopping mall with a Tiffany blue bag in their hand, it not only calibrates our perception of the customer as affluent and discerning, it also spreads the brand message of Tiffany’s. It’s advertising. And it bolsters our impression of the customer.
By comparison most bicycle retailers use customer bags that look like you should empty a cat litter box in them.
Tiffany’s also maintains a quiet, reverent display and sales environment. A salesperson in Tiffany’s is never interrupted by a telephone ringing on the sales floor. Phone calls to the stores are answered off the sales floor. A phone never rings in the shopping spaces.
e-Bay is backwards retail. People list items, often used, sometimes of dubious value, on e-Bay and consumers compete upward for price in the auction format. Think about that: compete upward.
Why do people compete upward for price on e-Bay when normal market forces exert downward pressure on pricing in retail?
Two reasons: Time component and repeatability of transaction quality (different from item quality).
e-Bay auctions end at a specific time, and the expiration of an item’s availability manipulates our perception of its value. e-Bay is also competitive since supply on unique items is finite and limited. When it’s gone, it’s gone. Both of those components exert an opposite competitive effect on pricing.
The quality of the transaction on e-Bay is almost always identical. This is different than the conduct of the seller and the quality of the item being sold/purchased. But it makes a case that the quality of the transaction (separate from the item in the transaction) is a key driver in our perception of price.
If the transaction experience is inconsistent and/or below industry standards it devalues the purchase price. Buy an antique figurine at a local resale shop, pay $10 for it. Buy the exact same figurine on e-Bay, pay $20, $25, $40…. Whatever the final bid is. People negotiate upward in a proven, repeatable transactional template with finite constraints on supply and uniqueness rather than commodity.
How can bike shops leverage these strategies to improve both the customer experience while raising revenues and profits?
The good news is there are tons of opportunities for the bike industry to provide a better experience for its customers. Of course, the reciprocal is that our current standard of customer experience is poor and lagging behind professional offices and forward thinking retail brands like Tiffany’s, Apple and others. Still, this creates a massive “empty space” where bike retailers could be earning more and providing a better experience.
Step One: Recalibrate the Bike Shop Experience.
Why do you stand in line at a cash register when paying for a $5000 bike when you sit in a comfortable chair at an automotive dealership or at Tiffany’s to pay for your car or engagement ring?
Seated checkout in a non-cash/wrap setting is a small but significant step in recalibrating customer’s experience and perception of what it is to shop at a specialty bike retailer.
Having one staff member in each shift designated as the “Concierge” who greets, directs customer traffic and may also administer the customer checkout experience during slow traffic hours is another key experience quality feature that recalibrates customers’ perception of our industry.
There are many, many other opportunities for bicycle retail to improve the customer experience by changing the transaction environment and appearance and also by adding tangible value to adult bike sales and service.
In fact, there are enough for me to fill a book with.
A problem in the bike industry is that few bike retailers and service providers are benchmarking outside our industry for ways to make the experience better in our industry. Until that changes, we’ll keep hanging out with our customers before and after shop rides in cool shorts drinking expensive beer while earning cheap wages.
“Nobody knows the future, you can only create the future.” Jack Ma, founder of Alibaba.com.
You should check out Stadler in Germany. They have a type of concierge, though they need it, everyone of their stores is about the size of a WalMart. They sell everything from kids bikes to top end Cannondale, Cervelo, and other big name bikes.
Excellent article. Thank you for the thought leadership in this. Makes us all consider throwing out the sandals and putting on the dress shoes.
The dentist one seems pretty obvious to me. 1) Most dentists spend 7 years minimum learning how to be a dentist. 2) the average dentist comes out of dental school with $210K in debt and 3) often times, it is not the consumer but an insurance company who pays for dental work.
I love my LBS, they are good to me, I’m loyal to them however, none of those guys spent 7 years of education while going into 6 figure debt getting up to speed on their profession.
You make several excellent observations Chris. By comparison, I’ve likely spent about $1.5M-$2.5M USD on my preparation to fit customers on bikes. Specifically,this includes costs incurred in education, including college, private fit certifications (admittedly nothing like training a dentist- not as lengthy and involved), costs for living in Europe while learning fit, costs traveling all over the world gaining experience in endurance sports and the industry (I’ve competed on all seven continents, including Antarctica), buying at least four fit bikes, going to coaching certifications for both triathlon and cycling (but I am not a coach and do not coach athletes), building fit facilities and studios- some good and some not so good. I think Dentists and physicians follow a very formal, accredited curriculum on the way to become credentialed. We don’t have that in the bike industry, and that is to our detriment. Still, I’ve dumped a fortune into this industry and I’m reminded of the saying, “You know how to make a million dollars in the bike industry? Spend three million…” 😉 Thank you for reading Sir.
If you keep expanding analogies you need to do it equitably on the other side too. You have many good points on the low valuation of some services and good ideas to increase willingness to pay, but be fair and consider the capital cost of setting up a modern dental practice (20 – 100K medical machines all over the place) if you are going to roll your capital costs into a comparison to dental education.
Aaron, you make good observations and comparisons in your remarks. The financial barriers to entry for a retail bike store are much, much lower than a dental office. I should have done a better job of clarifying that I was comparing a modern, high-end bike retailer in the 3000+ square foot range with a full fit studio and POS system. That is still a little less than a dental office with X-ray machines, dental chairs, instruments and other diagnostics, but the gap in earnings remains enormous. I think the educational pathway for dentists adds a perception of value to their craft too, whereas there really is no accredited, academic pathway to become something like a “Master Bike Fitter” or “Master Bike Retailer”. You can’t earn a Masters in Bicycle Retail at Columbia University. That certainly makes a difference in the prices bike retailers can collect for services.
This gives me an idea! I’m gonna start a crc style dentistry online store selling cheap drills and hand held x-ray machines and stuff people can use at home. Might even do a few YouTube tutorials too. In ten years correlation between poverty and bad teeth will have significantly declined!
The funny thing is, I think I’ve pulled three teeth in my life. One in Tanzania, the other one my own in Jordan I think. It worked pretty good and it was easier than routing Di2 cables in a Cervelo P5. 😉