Background research on the market

This is some research I did earlier this year on the idea of an advisory service for online consumers of bicycles and bicycle accessories. It didn't go anywhere, but some of the observations and the ideas are still relevant.

The Internet impact on consumer behavior

Tim Brewer of Peak Performance reports that consumers frequently went into his store, tried out or inspected gear and then either demanded prices they saw on the Internet from on-line retailers or simply left the store to purchase the same products on-line. Peak Performance went out of business in November 2009. 


Consumers shop on line in 2009
Consumers are increasingly comfortable making their purchases on line. On-line retail sales grew 4% to $24.8b from the beginning of November to 18 December 2009. Meanwhile, on-line retail sales on Cyber Monday, the first Monday after the Thanksgiving holiday increased 5% y-y to $887m in 2009 and represents a record level of spending.

The Internet  changes habits and preferences.

 For example, consumers are increasingly browsing for their purchases online rather than in stores and in some cases they are ordering their purchases online and then picking them up at physical locations. Consequently, retailers recognize that filling huge spaces with merchandise is inefficient and costly. Some large retailers are making their locations into more “enticing destinations” by setting up “experienced-based” areas that create showcases and allow consumers to test merchandise. One only needs to visit an Apple store to get a feel for the showcase model.

The traditional bike market

The traditional independent bicycle store (IBS) carries an inventory of about four brands of bicycle that it believes is suitable for their market. The bike store carries an inventory of essential accessories such as helmets, gloves, tires, etc. and they employ two or three mechanics who do bicycle assembly and repair. The bike store actively promotes its expert and friendly maintenance and support services. The tacit understanding or “contract” is that a bicycle purchased from the bike store will have the full benefit of this support and service in addition to some privileges.

Consumers respond to this message. Consumers want maintenance and support services and they take comfort in knowing that the local bike store is committed and able to do so. Consumers also respond to the idea of receiving privileged services from the bike store in exchange for purchasing the bicycle and other gear. Bike stores formalize this understanding by establishing, sponsoring or affiliating themselves with bike clubs and encouraging new and existing customers to join. Members of these clubs receive typically receive discounts on accessories and express maintenance services.

The problem is that the Internet has opened up new options for the consumer. There are now a variety of highly advanced online bike stores that offer wide variety, customization, convenience and competitive pricing. Consumers want the selection, pricing and convenience of online bike stores, but they also want the support of local bike stores. 

Consumers fear that if they purchase from online bike stores, they will not receive the same kind of service and support from local bike stores when their bike needs service or if there is a warranty problem. Indeed, many consumers report feeling guilty about not supporting their local bike store and ultimately make purchases from them even if the prices are higher or the product is not exactly what they are looking for. These consumers are trading price and selection for loyalty and security.

Additionally, making online purchases can be time consuming and bewildering. Consumers report the following: they do not know which online retailer they should buy from; they do not know what they should buy; they do not have the time or the desire to do the research themselves; they want to talk to someone face to face; and they want to see and test the products first.