Consumers want the pricing, the selection and the convenience of the Internet and the community, service and support of the local IBS. The IBS wants the relationship with the customer, the option to compete with the Internet and a manageable and current inventory. The problem is that an IBS cannot compete with price and selection of the Internet: the IBS has overhead costs, labor and only so much space and capital for inventory. Meanwhile, the consumer is unable or unwilling to address maintenance issues for a bicycle and will always want to have an IBS nearby to provide support service and community.
This condition is a function of the industry’s “push” model of production: bikes are made in very high volumes in Asia and pushed out into the distribution network each year. The IBS ties up working capital in inventory buying bikes and gear that may not be sold and that is at risk of becoming dated or obsolete as it sits on the floor. The company seeks to solve this problem by allowing the IBS to act as an agent for the company’s frames. This means that the IBS orders the frame from the company when there is a consumer who would like to buy one on hand; this is the “pull” model (Please see this post and others on frugal innovation). The IBS takes a percentage of the price and then works with the customer on choosing component groups and wheels. Ultimately, the IBS builds the bike for the consumer. This develops the relationship between IBS and customer and it minimizes the IBS investment in inventory, which improves their cash flow. Meanwhile, the consumer obtains a high quality frame at a lower price point than what can be found at the IBS, the consumer chooses the exact components and wheels he wants or he uses his existing components and wheels; and, the consumer maintains a relationship with the local IBS.
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