Determination and perception: Cristóbal Pérez on bike prices

In part 4 of this 7 part feature series, Cristóbal Pérez – a seasoned cycling industry professional with a track record of leading change – explores what the future could bring to our industry; the good, the bad, and the ugly. In each of these there is opportunity – if you can embrace the change required to unlock it.

With bike prices currently under discussion in the cycle industry, here Pérez explores pricing strategy in the market.

Prices: determination and perception

One thing is the cost, another one is the price, and a different one is the value.

Cost is what you as a maker, have to pay to produce something.

Price is the amount of money that you request from users to be for the acquisition of the product.
Value the perception of the buyer of your product that will finally influence how much they are ready to pay for it.

I have seen how companies set the price of their goods by using an Excel sheet (or shit) to easily and in one shot multiply their cost by a constant (markup) that will offer you in return the price at which they expect to sell their products to distributors and/or end users.

This is a mistake. In doing this, you will be diminishing the chances of selling out what you do not sell very well and making less money than you could with your best-selling stuff.

This is the cost-based pricing strategy. I prefer to say rule, though.

Perhaps you should apply a lower markup to what is not very well positioned in the market because of competition, stock, seasonality, specs, etc. That is, you make less money, but increase the chances (and units?) to get rid of what you need to clear from your range or warehouse or optimistic forecast. And with a lower likelihood of doing it using discounts.

Now the opposite. If you have a leading product in your range, warehouse, or forecast that is well positioned due to minor competition, better specs, or stock shortage, increase the markup and force an anxious market to pay for it.

This is the value-based pricing strategy. Indeed.

Using a cost-based rule, you set the selling price based on what you paid for the goods. You decide here.

Using value-based pricing, you set the selling price according to what your potential buyer is willing to pay for it. Client decides here.

At this point, I am sure that two questions will have lit the red light for some:

1st.- Clients always want to pay the least. So, in the value-based pricing scenario where the potential purchaser decides, this is not good for your company. This is absolutely true unless you carefully plan how to approach the market your products are aimed at. In English, you need to sell your brand, not your products only.

Think of this: you buy an iPhone at its tag price with no discussion. Next, you tell everyone. Same for Rolex. Or Ortlieb.

2nd.- Some brands never applied discounts but now they do. Well, market or sector circumstances might force you to go against your principles, but temporarily. In the face of big problems, big solutions. This case is not about a change in their policies, but an adaptative decision to a circumstantial and unfavorable stock/sales ratio situation. Say Specialized.

I will ensure that I make myself clear with a couple of examples regarding the cost/value-based pricing policies.

If your product A is positioned among a fierce million of similar options, the market does not value it very well, or it is easily replaceable for other options, set a lower price to be competitive from scratch in a price-sensitive segment. It is very common for every company’s “averaged product”. Good examples are the Renault Megane, Ford Focus, or the carbon framed/Shimano XT/Sram GX/Fox Fork/hardtail MTB.

If your product B is a leader on its own, highly positioned beaconing the surrounding arena, the demand is higher than your possibilities to cope with it, then set a higher price. Thus, you will bring more money home and elevate the aspirational side of your top-of-the-hill star. Say the Porchse GT3 RS, the Pornhub-worthy J. Laverack for Aston Martin bike, or the highest-end road bike gruppos from Shimano and SRAM.

Let us go to the limit to put things in black on white. The iPhone 15 Pro Max MSRP is 1469€ in Spain for its 256GB memory phone. The 1TB version almost hits the 2000€ bar with its 1969€ sticker. It means a 500€ gap for their internal storage volume, whereas the rest of the phone is the same. I expect that someone more into the phone industry could confirm that point and, if so, a single memory module does not justify the huge amount of money between them (I guess), but well-structured value-based pricing does (I am positive).

This all sounds logical and it is pretty common in well-performing brands. Some companies are focused and dedicated to helping you develop the best pricing approach for your products and their Go-To-Market. Brands must put some thoughts and resources on that topic. If they do it, and do it well, their EBITDA will be safe, brand positioning fair, and competitors will struggle to catch up.

I bring this up now because I see a lot of buzz around bike prices lately. People complain about how expensive the bikes are. But I see it not only at the user level but inside the industry as well. As if we were not able to use any other value beyond price to sell bikes. That is, if we increase our bike’s price, we will be not able to sell more, properly or instead of competition.

In some cases, we, the industry, are becoming the loudspeaker of this motto and we are aligning with our buyers in a kind of Stockholm syndrome. We should go the other way around and be able to explain why our bike prices went higher than ever before.

The perception for ourselves and our clients is that bikes must be affordable, if not cheap, including high-end ones. The latter almost doubled its price. Not long ago, the best of the best from any brand rarely jumped over 8000€. Now, you can find this level bike for around 15000€. But the circumstances are not the same. Neither the bike.

It is also surprising for me to find complaints about high-end sports bikes, but nobody did it when a stunning Riese & Müler Superdelite can hit 7700€ as its starting price. Or a Cannondale Moterra Neo jumps above 6200€ if you want it. Or a pure German Stevens E-14 Gent that hits the 7119€ bar.

You buy what you can afford and it happens every day and all around you with higher acceptance than when your bike is the thing: your home, car, wine, watch, or vacation destination. You (and I) complain about what you wish but you cannot have, but it is (should be) half-heartedly felt.

Cars did it. Now, they sell less than before, at a higher price, with a healthy margin, and increasing their turnover. Out of the blue? No. As I said before, in a brand environment. And I am sure that they will change their pace and direction if needed, but nothing is forever or should be given for granted.

I am not supporting the car price increases as the consumer that I am, but this is a fact. For instance, the Dacia Sandero 2022 price was 8035€. In 2023, it is 13040€. 67% rise. For the Citroën C3, it is about 87%. Indeed, the new regulations and driving aids are now compulsory to be part of the factory equipment and those cars have improved their quality and available options.

But the market reactions drive decisions. Renault already announced a 20000€ electric car for 2026. The second-hand market has been reactivated as a source of cheaper cars. It seems that the basic cars will have no place in the future. It is as if the entry affordable cars were disappearing. I think that company cars will not let it happen or that, in some cases, a bike/cargo bike can fill this place.

Cars and bike situations are only partially comparable because Govs support cars with huge bits of help of all kinds, the implementation level of the car has nothing to do with the bike in most of the countries of the world, etc. But thankfully, we still have to walk this path, whereas cars try to find a way to keep their hegemonic position in our lives and bank loans. One of them is acquiring bike brands

What I want to highlight is that the market and current social and economic situations exert a huge influence on the reality of the companies. Now and in the future. Cars reacted to innovate, change, and adapt to keep on selling.

This is a good mirror in that particular. You can think the same way about so many industries forced to react and find a new way. You name them. I already suggested some.

I am not discovering the mineral water if I say that costs have risen like crazy in the last three years: raw material, products, logistics, etc. But, moreover, you as a brand can and must sell your products at the price you want and your positioning allows. Nobody should judge you but the market. We must be ready to explain and justify this before those coming to the bike from other environments and who are not contaminated by our poor self-approach.

I mean that everything changes not to be as before. But this happened constantly: the advent of TV, mobile phones, smartphones, Internet, cheap flights, B&B and so many more came to change the landscape. Prices and their relationship with the product in return included.

We have to work for a framework that allows us to sell bikes healthily for all of the involved and be ready to take our industry to a new level. Prices included.

To follow or connect with Cristóbal on LinkedIn, click here.

For links to parts 1, 2, 3 and 4 of the series, ‘Unavoidable change: Cristóbal Pérez on the future’, click here.

Part 6 of this series – Service – goes live in 2 weeks: Monday 11th of December.