The business plan: impact of economy on buyer

The state of the economy will clearly have an impact on demand for performance carbon racing frames; these items are very much discretionary items for all but a very few people. Most consumers will delay purchases of new carbon road frames until their confidence about the economy or spending power improves; other consumers will search for second hand frames on eBay or settle for a lesser expensive model. Some may decide to upgrade their existing frame or repair it. In 2008, when the financial crisis sank in to the local economy, demand for high end carbon frames dropped of a cliff: the local shops were stuck with floors full of bikes, demand was non-existent and sale representatives were trying to stuff more frames into the distribution network because the manufacturers were flooded with frames. Frame and Wheel heard rumors of sales representatives from manufacturers selling frames out of the back of their cars. Clearly, a weak economy has an impact on demand for carbon frame bicycles.

Frame and Wheel believes that less tangible factors such as demographics and passion influence demand for carbon frames. The so called MAMIL (Middle Aged Male in Lycra) wants a carbon frame because he is seeking to improve his fitness, he has the income and all their friends have high end performance bicycles. This market is not very big, but it is a feature of the cycling demographic. Also, committed racing cyclists will buy a new carbon frame regardless of the economy because they need the technology to remain competitive. Clearly, these buyers represent a very small segment of the market: most consumers are middle market buyers who want an affordable bicycle that they can ride out the door.

Frame and Wheel appreciates that its performance carbon frames are more likely to sell in an strong economy. However, the company will adjust prices according to demand using the auction function on eBay. Frame and Wheel takes the view that more consumers are purchasing their cycling equipment on eBay. Indeed, the company's experience selling items on eBay suggests that there is large number of people who prefer to obtain their equipment through this channel. Frame and Wheel postulates selling its frames through this channel using the eBay store function and PayPal, at least at the outset; this will help raise the profile of the company in the on-line market and allow the company to sell frames at a discount using the auction function. 

For example, the full price of the frame could be $2,500, but an auction sale could be arranged with a reserve price of $1,750, implying a 30% discount. This discount is typically what occurs at the end of year sales at the IBS. The company will have to pay fees on each transaction (about $58 for a frame selling for $1,750 and $65 for a frame selling for $2,500) and the company may have to bear shipping costs; nevertheless, these costs are lower than investing cash and time in building an e-commerce function. Additionally, this approach allows the market to set the price and it again encourages buyers to purchase their frames during the off season.