Frame and Wheel would like to price the frames somewhere between $2,000 and $2,500 per frame. This is pretty cheeky and perhaps unrealistic given that two of the four votes on the matter suggest that consumers are only willing to pay $500 to $1,000 for a 1000g unbranded frame (one voter is willing to pay $1,000 to $1,500 and one is willing to pay more than $2,000). Frame and Wheel beleives that using a revived brand that has some lingering glamor to it will allow the company to obtain a premium price; starting up a new brand will mean a lower price at the outset and high promotion expenses. Frame and Wheel notes that new entrant Ritte Racing (which is using the same basic frame as Frame and Wheel) retails their frame for $1,600 per frame: this is clearly good value and it is suitable for that company's younger target market). The fact is Frame and Wheel has no idea what the market will pay for its frames and given all of the economic uncertainty and competition, Frame and Wheel is certain that the achievable price will be lower than $2,000 to $2,500 range. Hence, the operations of Frame and Wheel Services.
Frame and Wheel Services is the trading division of Frame and Wheel, Inc.: this business provides ebay selling services for cyclists and independent bicycle stores who do not have the infrastructure, patience, time or the interest in selling their unwanted gear and bicycles on ebay. In addition to keeping Frame and Wheel busy, the business is an excellent way for Frame and Wheel to build its ebay presence and to research how much the market is willing to pay for a bicycle or a frame.
One observation so far is that the traditional auction is a very effective way to sell bicycles and equipment on ebay. Many sellers put high reserve prices or "buy it now" prices on their items because they are holding out for a price that will cover their cost or generate a profit. Many of these items languish unsold for months because used frames and bicycles lose their value as quickly as cars (or faster).
Another observation is that the market pays for a brand: there are hundreds of new unbranded carbon fiber frames on ebay that are being sold by trading houses or factories in Asia for about $300-$400 per frame. Very few appear to be selling. Meanwhile, Frame and Wheel sold a battered, but still rideable 2008 Cervelo Soloist frame (everything but the wheels) for about $1,800 in 2009. The point is that the market will pay for a used branded frame before it goes for a new unbranded frame.
Items that are put on auction invariably have more bids from more bidders and more successful sales. Auctions that have a high rate of success with good selling prices are the branded frames or bicycles that are lighly used or have been demonstration models. For example, Frame and Wheel saw a 2010 Scott CR1 sell for $940 or about 40% of its MSRP: it was a demonstration frame that sat in a window for most of the year (this frame sells for $2,300 new at the beginning of the year and it gets lowered to about $1,800 or less at the end of the year). Frame and Wheel believes that auctioning a new, branded frame with all of the benefits attributed to a new product (warranty, crash replacement, customer service, etc.) will yield a fair price and Frame and Wheel is likely to use this method to find out just what the price for the frames should be.
The attraction of this pricing approach is that it allows the market to decide the price without sacrificing benefits; it uses existing infrastructure, it matches supply and demand more effectively, it is clearly different and adds a promotional element; and, it encourages consumers to plan their bicycle buying activities more carefully. It also does away with the year end discounting that occurs each year at retailers. The downside is that it can be a pain to enter an auction in order to buy a frame, but Frame and Wheel cannot help noticing from its services business that there are a lot of people who are willing to do just that. Also, how this model can be reconciled with an agent is still a bit hazy. Finally, an auction model can create a negative perception about the brand.
The alternative is to simply price the frame at the desired price, develop a dealer network and support the brand with lots of marketing and discount the frame and the end of the year as the new models come rolling in. This is the traditional model and not very frugal, and certainly not any easier or less risky than something new.
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