[CR]KOF Pricing - Is a $20k Frameset Viable?

(Example: Racing:Roger de Vlaeminck)

Date: Wed, 15 Mar 2006 10:27:31 -0800 (PST)
From: "Brett Horton" <bretthorton@thehortoncollection.com>
To: classicrendezvous@bikelist.org
Subject: [CR]KOF Pricing - Is a $20k Frameset Viable?

I have enjoyed reading this never ending thread. However, the comparative rational (shotguns, cars, etc) used to somehow justify the raping and pillaging of the rich is incredibly flawed. Based on a few of the posts, the inference can easily be drawn that, with a conspiracy of thought and action, the cloaked triad of supreme KOF'ers can somehow manipulate pricing and demand with a flip of the switch. Based on what? That H&H can sell a shotgun for $50,000?

Time for a little reality check. First, one has to determine if a bicycle can be a "Giffen good."(ie the higher the price, the higher the demand) On the assumption you have convinced yourself there is a line of people willing to pop $20k, how do you plan to speak to these people? How will go about shaping their decision to purchase your output at a price multiple several times that of a more common item?

If you think you are going to fetch $20k for a bike and all the other current costs of production will remain the same, you are wrong. It speaks to why a modern carbon wonder bike that is factory line produced will often sell for more than a full custom steel bike. The makers of the carbon wonders have invested a significant amount of capital into sponsorship of UCI Division One teams, they take out repeated ads in magazines world wide, and they constantly exhibit at trade shows, bringing fresh product variances to the market on a consistent basis. Many have spent years and years creating brand awareness. Alternatively, some newcomers have dumped incredible amounts of resources in a short period of time to accelerate their brand visibility. BTW, all of those things take money and business risk. Many, if not most of the companies that fall into this "carbon" category, have a diverse product base and the available cash flow to somewhat minimize their risks.

Not that it can't be done. Don't forget, there was a day way back when, a guy named Ernesto Colnago was a team mechanic and budding solo frame builder. What differentiates his monetary success with that of other builders from the same era was, among other things, his vision, drive, and even luck. (But even with all this, how many premium priced Ferrari Colnago branded bikes were sold worldwide?)

If I look at the pantheon of American KOF builders, I can only see one guy that could remotely be in a position to pull the gig off. But even in his case, he would likely need outside capital / investors to front end the cost necessary to make it happen. Conservatively, unless you could ramp production rates up significantly, you would be expending $3,000-$4,000 as a minimum per frame in branding expense for the first 5-6 years. Oh, and your investor / outside money-person would probably like a return on their money as well. If you think these numbers are too steep or otherwise unbelievable, try this: Calculate the cost of advertising and trade show expenses alone for a branding campaign that would truly speak to your perspective buyer base. Then divide that by your maximum output. And don't forget, you're going to have less time to produce your product because you will be increasing the time you spend in trade show booths. You might very well find $3,000-$4,000 per frame is low.

From the outside looking in, it seems to me the price increases of the last few years from KOF builders can be attributed more to the rise of prices of production factory frames than anything else. I would argue that at present, like it or not, custom made steel frames are the lagging red haired step-child to factory frames when it comes to product pricing.

Save the flame email. This has nothing to do with appreciation of custom built steel. This has to do with economic reality. You want big prices? You want to create a Giffen good? Then draft a viable business plan, round up the money, embrace your new life replete with partners, and fire up the torch!

Brett Horton San Francisco, California

Don Wilson said: but $10K to $20K for a bike, if custom bikes were marketed correctly and effectively, wouldn't even make today's wealthy blink.