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« Supply and Demand | Main | On the road again »

Bikes and Auto Insurance: Do they run on the same business model?

I am sometimes asked: “You were a frame builder, so you didn’t actually make complete bicycles?”

I explain that I built frames that either had the ‘dave moulton’ name on them, or Fuso, or Recherché. And when these frames were later built up into a bicycle, the assembled item became a ‘dave moulton, Fuso or Recherché bicycle.

I further explained that the bike business is not like the auto or motorcycle industry, where a company manufactures all the parts, and then assembles them into a car or motorcycle. When it comes to high end bicycles the components are either Shimano, Campagnolo, or Sram. And even the lower priced bikes are mostly built up with the lower priced Shimano groups.

Even the big three American companies, Trek, Cannondale and Specialized design and produce a frame with their company name on it, and that’s it. All three companies’ bikes are then built up with Shimano, Campagnolo, or Sram and the end consumer gets to decide which he/she wants.

Notice I said the Big Three “Produce” a frame. With a few exceptions they don’t actually make it. That is done in a factory in China or Taiwan, and it is possible that some of these different brands are made in the same factory. Frame design is pretty standard these days, same angles, tube lengths, fork rake, etc. No one is going out on a limb to make anything too radical.

So all three are basically selling the same item, each is no better, no worse than the other. This is why there is so much spent on marketing, the cost of which gets added to the cost of the bicycle, and passed on down to the end consumer. In most cases the consumer gladly pays this price because the marketing has convinced him that it should cost this much for the very best bike.

It occurred to me that this business model is not far removed from that of the large auto insurance companies. The Big Three bike companies assemble a bicycle with a frame that costs about the same as their competitors’ frame, with the same components that also have a fixed cost.

The Insurance companies assemble a package of insurance services that boil down to the same repairs carried out by independent body shops all over the US, at the same basic cost. The reason we see so much advertising on TV for auto insurance is because these companies are all going after the same consumer.

The one who spends the most on marketing, convinces the consumer that their insurance is the best, when if the truth be known, each is probably no better, no worse than the rest.

Part of bike marketing is supporting a professional team, which is a tremendous cost, Specialized does not support a team, but is an equipment supplier only. Cannondale used to have a team, but had to give up when costs got too high, and like Specialized stay in the sport as equipment supplier In other words, they are co-sponsors of teams.

This just leaves Trek with a fully sponsored factory team. So it will be interesting to see if they will continue to support a complete team. And if so, will their product cost more, and will it be perceived as better?


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Reader Comments (5)

I recall a presentation made some years ago by a VP of Kodak (kids - just Google it) who claimed "All products are excellent."

What he meant that regardless of what brand of widget you bought - it would do the job. The differences between the different products are either miniscule or imaginary. Like the studies that show people rate the same wine more highly when told it is very expensive.

I was under the impression Trek still made some bike frames in the USA? And while I am well aware the carbon fibre comes from about three Japanese sources and even most carbon frames are made on contract in Taiwan (by Giant?) there are more than just differences in the paint (just cast an eye on the seatpost/top tube junction. integrated brakes, etc.). So I think there are some substantial differences between brands still. Which will bite you in the wallet when you meed a part in three years.

One thing I wonder about is just how much TdeF results affect sales. Certainly at the very top "wannabe pro" end, but the average recreational cyclist (80% of the market?) Not so sure

February 26, 2018 | Unregistered CommenterSteveP

The vertically integrated auto company died when Ford closed River Rouge over 30 years ago. Now auto builders out source nearly everything, they are just make the body and then assemble a vehicle.
The same situation permeates almost every product that we buy. There are very few things that are actually made from beginning to end by the person selling them.
Art work may be the exception, but even then all of the physical inputs (paint, canvas, and brushes) a purchased from other sources.
The things that we value as customized are not because someone made all of the parts them self, but rather that adjustments and selections were made with us personally in mind. I have always bought bare frames (custom or not) and assembled my own bikes. I gives me chance to select equipment that I want and it aids in my understanding of the strengths and weakness or my machine.

February 26, 2018 | Unregistered Commenteredstainless

It's like the early days of motorcars.........A buyer would order a chassis and then have a coachbuilder complete it. For luxury cars, this went on into the 30's. Like then, most people who know bikes will order a frame and fork that fits then to a "T", and then either build it up themselves, or have a shop finish it.

February 26, 2018 | Unregistered CommenterBill K

It’s interesting to see riders on top end bikes look over at me as I ride up to them on my steel Russ Denny Fuso. Most either say nothing (quickly looking away) or compliment the bike.

The point is lost to those throwing disparaging glances askance: The bike has nothing to do with how you ride.

When racing the 70’s and 80’s I don’t recall comparing bikes to see who was racing on the latest, best equipment. It was only a casual inquiry into whether one was using Shimano or Campagnolo. And then only a few eccentrics riding something like Phil Wood, Suntour, Klein, or such.
We rode knowing it was the training we had done that determined how well we did. Or if it was “Our Day” out on the road. We didn’t even bother with elaborate plans before racing, another learned lesson that no plan determines how events unfold.

First learn how to ride. And that takes many years. Buy a bike that is at the price point well before the top, or latest. (This also applies to building computers, another lesson learned in the 90’s).

How you sit on the bike is more important than what you are sitting on.

February 27, 2018 | Unregistered CommenterSteve

As a luthier, I can tell you the bike industry has evolved pretty much like the guitar business. Most products are being made in Asian factories who simply build in batches: one batch for Ibanez, the next for ESP, then PRS... and the USA names do it too: the Gibson Corporation outsources their Epiphone, Steinberger, & Tobias brands to the Samick factories in South Korea.

Right now Gibson is at the verge of bankrupcy, and they are still holding to their outdated business model of ridiculously overpriced USA-made products. But thanks to the power of the Internet, more users are turning away from Gibson and their $5000 guitars to invest that money into a truly one-of-a-kind product designed and built by hand by one local artisan: just like the bespoke framebuilders of today.

March 8, 2018 | Unregistered CommenterAlexander López

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