The psychology of putting stuff on sale is pretty basic: it's only worth doing if it incentivizes your customer to do something they would not have done otherwise. In the bike biz, that usually means buying your product instead of riding their old bike another year or buying your product instead of your competitor's.
So you wouldn't normally put bikes on sale in the middle of prime cycling season, when riders are already lining up at bike shops, eager to swap their tax refunds and hard-earned paychecks for shiny new bikes they can take out for a ride in the warm spring sunshine. Because that would be shooting yourself in the foot and depressing everyone else's sales, including your own.
Yet every year since the Great Recession, major brands have started discounting bikes before St. Patrick's Day and keeping those discounted prices in effect until after Labor Day. And every year the industry manages to act surprised ... which, speaking of holidays, may be the biggest April Fools joke of all.
Welcome to the Prisoner's Dilemma game show
The rationale of putting products on sale is the same as the famous Game Theory problem known as Prisoner's Dilemma. Logic would normally suggest that if everyone holds prices, everyone benefits. But when there's an opportunity to drop prices, whoever sells out first gets the most benefit, which is to say, the most sales. Then everyone else drops their prices too, and all we end up doing is transferring the difference into the consumers' pockets who likely would have bought those same bikes, and at full margin, too, anyway.
It’s time for this industry to grow up and stop making more bikes than the market really needs. Which is to say, more bikes than cyclists actually want to buy and ride.
And who gets left holding the bag when the music stops? Everyone in the supply chain, but retailers most of all.
But every year, that's exactly what we do. And every year, we're surprised that it's not an effective tactic and that we have to continue extending the sale pricing throughout the regular selling season.
Like Alice in Through The Looking Glass, year after year it takes all the running we can do just to stay in the same place.
Please understand this is not a call for price-fixing. It's a call to avoid the endless rounds of needless oversupply that fuel equally endless rounds of needless price-cutting.
It's time for this industry to grow up and to stop making more bikes than the market really needs. Which is to say, more bikes than cyclists actually want to buy and ride.
The net result is that we've trained our consumers not to buy bikes at retail price. Only chumps buy at retail, riders tell each other on forums and chat groups. Just wait for it to go on sale.
And year after year, for most of the past decade, they've been absolutely right.
Until now.
How Trump tariffs + coronavirus change everything
But 2020 is different. First, because we came into the new year with historically low inventories of new bikes in suppliers' warehouses. And that's due to the Trump administration's tariffs, especially on e-bikes.
No one knew how long the tariffs were going to stick around. We still don't. So there was a huge oversupply as buyers struggled to get orders shipped before the tariffs took effect in August of 2018. Consequently, there was a season-long fire sale from most bike brands throughout both 2018 and 19. Just like the year before. And the one before that.
But in 2019, purchasers aimed to minimize tariff impact with a much leaner mixture of MY 2020 bikes: 25% less units valued at 19% fewer dollars. Put another way, we had four million fewer bikes sitting in inventory in January 2020 than the year previous, and we had taken something like half a billion retail dollars worth of bikes out of circulation.
But then came the second thing: the COVID-19 virus. Not only are inventories at a historical low, estimates by Specialized Executive VP Bob Margevicius are that factories in China will take at least sixty more days to recover and begin shipping product again. Which is another way of saying, "don't expect any new bikes until May or June at the earliest." And even then there will be bikes available in the summer months, as shortages of materials like frame tubing, rubber and components caused by virus-induced factory closures work their way through the supply chain.
In addition to delays and shortages, there are even whispers among industry PMs about "a delayed introduction" of MY2021, which could mean anything from a Thanksgiving premiere of new models, to New Years, Valentine's Day, to no 2021 model year at all, just a rollover and cosmetic refresh of 2020 models. Which would make a third reason not to discount an inventory that's in no danger of obsolescence.
Dig through the pile, get to the pony
None of this is particularly good news for people who earn their living making or selling bikes. But as my mentor Bill Fields used to tell me frequently, the trick is to look for the pony in this pile of horse puckey. (Actually, he didn't say puckey, but you get the idea.) And in this case, the pony just might be the opportunity to put an end to the oversupply/discount pricing juggernaut that's had the industry chasing its own tail for the best part of the last decade.
Regardless of what the news media tells us, the sun will rise again. Eventually even COVID-19 will run its course, the economy will recover and cyclists will want to go out for rides on new products. And if we avoid stuffing excess inventory into its maw, the market may even be ready to pay a fair price for all those great new bikes.
Rick Vosper has been helping companies in the bicycle business solve marketing problems since 1989. E-mail rick@rvms.com for a free consultation.
