The business plan: can the market justify the cost of the frameset

Frame and Wheel runs a poll on the topic of pricing the framesets. The results so far suggest that the market is willing to pay between $500 and $1,000 for an unbranded 1,000 g frameset and between $1,500 to $2,000 for a branded 1,000 g frameset. This suggests that on average the market is prepared to pay about a 60% premium for a brand. Frame and Wheel believes that the market can justify the cost of the frameset if the following conditions exist: the market feels like the frameset represents good value relative to other brands in the market; the market can choose components and wheels, and the frameset has the support of the IBS and the manufacturer.

Frame and Wheel has learned from selling bicycles on eBay that for the most part, the market wants to pay a price that it feels is good value rather than the price at which the seller wants to sell. This is evidenced by the numerous bicycles with a fixed price or buy it now price that linger unsold while the bicycles that are on auction get snapped up. The point is that fixed prices are prices that are selected by the seller, rather than the market; these prices reflect arbitrary minimums, psychological factors and an unawareness about how fast bicycle equipment loses its value (30% per year).

Frame and Wheel will most likely auction some of the frames on eBay with a reserve price that ensures that that the company makes a reasonable profit. The premium above that amount will be determined by the market, and will reflect seasonality, availability of frame sizes and perceptions about the brand among other things. This will ensure that the consumer feels like they are getting value because they will be paying what the market believes to be a fair price, rather than an arbitrary number that is recommended by the manufacturer (as if they would know, which they do not). 

Frame and Wheel envisages sending the frame set to the auction winner's favorite local bike shop, where it will be assembled, using components or wheel sets the consumer already has or can buy from their favorite local bike store (Frame and Wheel envisages paying the IBS a small sum for receiving the bicycle and doing the assembly work). Although the IBS has a higher cost basis for components and wheel sets than the manufacturer, the IBS is nevertheless in a position to offer discounts on these items to its core customer base in order to keep a good relationship with their customers. Frame and Wheel believes that if the customer is paying a fair premium for the frameset, has some choice about what to put on it and the support of the IBS, then the consumer will be able to justify the cost. Of course, Frame and Wheel will know more when this theory is actually tested.