Bikes and Auto Insurance: Do they run on the same business model?
Mon, April 15, 2019 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 (4)
Trek was pretty much unknown until Lance Armstrong, Wonder how much they made from him and the fraud that he was, Also, did Trek know about him and what he was doing, or did they not care, is making a profit and money all that matters?????
John,
What annoys me about Trek is, they dropped Greg Lemond and stopped producing his line of bikes, because he spoke out about Lance Armstrong, but never apologised to him, or admitted they were wrong after the truth came out.
Dave
While I understand the premise of what you are stating, auto manufacturers don't manufacture all of the parts to make their vehicles either. At least some components are purchased from other manufacturers. The most obvious example is tires.
But if you look much closer, other components are also purchased. Notable examples are electronics, climate control, entertainment systems, and air bags. There are plenty of OEM companies that supply the auto manufacturers with original parts; some private labeled, others not.
Of course the outsourcing varies from manufacturer to manufacturer, and some of the suppliers are spin offs or partially owned subsidiaries from some of the larger vehicle brands.
The electric guitar industry operates very much alike the bicycle one. Stablished brands like Fender, Guild, Ibanez or PRS already have a handful of designs they did a long time ago. Those are made by computer controlled woodcarving machines in some offshore factory, and once they are painted and buffed, the outsourced components are installed. And everyone buys them from the same suppliers. It's a method that cuts costs while assuring consistent quality.