The business plan: can the customer buy

Frame and Wheel saw an article in a local magazine in July of this year that summarized the demographics of the cycling market. The article complemented a story about the Tour of the Catskills and made the following observations. Cyclists are on average about 35 years old, they are married with families and they hold professional jobs and earn about $80,000 a year. Frames and Wheels would add that the average cyclists increasingly buys their gear on line: pre-race parking lot banter is full of conversations about where and how a frame or bike was obtained on line. USA Cycling breaks down its 66,800 membership in their 2009  demographic report: 87% of USA Cycling members are men, 17% are from California, 31% are age 35-44 and 22% are 45-54 (or in other words 53% of the membership of this organization is a masters or enthusiast cyclist). USA Cycling notes that membership increased about 6% in 2009.  Of course, more work is needed on this question, but these numbers suggest that the average cyclist has the income and the interest in obtaining a performance frame. Accessibility is the challenge for the company. 

Frame and Wheel envisages scaling out distribution using the agency model and the Internet. The agency model means that an Independent Bike Store (IBS) can become an agent of the brand without any cost or risk: they perhaps obtain some basic display merchandise and a link from the website; they are not obligated to purchase an inventory of bikes (they can purchase a demonstration bike if they wish); they order a frame when a customer wants one. They are rewarded a commission on every frame they order from the company. To get the agency model established, Frame and Wheel will scale out distribution by using eBay Stores. This is a low cost and effective way to reach consumers. The company will offer to send the frame to the customer’s favorite IBS and when this happens, the company will have a reference for potential agents. 

Frame and Wheel plans to experiment with the idea of using the auction method to sell frames: the reserve price will be set high enough for the company to make its profit, but at a level that generates interest to the consumer. For example, the reserve price might be set at $1,600, and from there market demand can determine the premium and ultimately the retail price. This makes sense to the company because it encourages consumers to purchase frames during the off season when there is less demand; it also means that extra large or small sized frames might sell for less than the standard size frames, reflecting more accurately supply and demand. Most importantly, the company will provide all the benefits typically provided to buyers of new frames: warranty, crash replacement, customer service, some free merchandise, etc. The risk is that the consumers might assume that the frame is used or second hand and it may therefore dilute the value of the brand. It could also create pricing complexities for an existing agent and it might be too time consuming for the company to manage all the auctions. Nevertheless, it might be a good way to start out.