Subsidies, Sponsorship and Sexy Paint

Bicycle Biz Economics Glass Houses

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. 


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  • Dave on

    Steve -A few things. First, the forks available to us with disc posts have alloy steerers, and we definitely wanted to be able to switch hit on that for our testing purposes. Second, it's a grams/$ thing, which isn't necessarily a closed book. There's fluidity in product and pricing between now and when the order goes. We also wanted a fork with a mounting hole for a fork-mounted cable stop, and that was available now in the fork with the alloy steerer. All evidence is that the fork-mounted cable stop helps a lot with shudder. So there's a lot of stuff that we'll be able to test, and you know, it will be great if all of the right answers are available in an all carbon fork that works in the money column as well. Whether that happens or not, we'll see.ThanksDaveoh yeah, the name…

  • Steve on

    I think I saw on FB the cross fork is carbon w/alloy steerer. I'm curious about that. That's a slightly heavier design. More durable? Part of the chatter/shutter solution?Can't wait to throw a leg over one of those…um…uh…what's the name again?;-)

  • anoncx on

    A NAEMS IS ANONCX CXOCROSS FRAEMS YAS????!!!!!!

  • Richard on

    You can also offer the Wheelhouse frame with no decal options and slash another $10 or so from the price :-)


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