Focus and Performance - A reason why.

I ran across this post from VeloReveiws.com website after my podcast invertiew with Josh Boggs. I feel it needs to be revisited. Please read all of Josh's comments as he is coming from the IBD world. Have a read.

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Podcast #2 and Focus Bicycles: Price Fixing Pricing

• Posted by Rick Ankrum on February 5, 2010 at 2:44pm in Official Product Reviews
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I found the interview with the Focus Bicycles rep to be interesting if I was a bike shop owner. But as a consumer I have a problem when the manufacturer tries to control the retail price of the product. As far as I know this is not looked upon favorably by most states.

Performance Bicycle shops should have the freedom to price the product at the level they think will earn them the profit the market place will support. If Force does not think this is correct then they should not select them to sell their bicycles.

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Permalink Reply by VeloReviews on February 5, 2010 at 4:43pm

I will admit, I cringed when I heard that too. The concept of M.A.P. (minimum advertised price) is legal. Price fixing or dumping, is not. I would be most curious to get Josh's take on this. Thanks for sharing your point of view Rick.

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Permalink Reply by Josh Boggs on February 6, 2010 at 6:24am

I've definitely got some thoughts on this topic. Got to head to work right now, but I'll chime in a bit later. Great discussion topic, Rick. Thanks for using the site.

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Permalink Reply by Josh Boggs on February 6, 2010 at 7:22pm

Rick,

Thanks for bringing this up. Without getting into too many details about specific pricing, I'll try to explain my standpoint and why I think Focus is taking a good approach to this potentially sticky situation.

When Focus started bringing bikes into the United States, they started developing their US dealers, and like most reputable brands, they had planned on keeping it IBD (Independent Bicycle Dealer) only. After developing those dealers, Focus announced a partnership with Performance Bicycles, a huge chain and internet retailer, which posed a concern to those dealers who had already partnered with Focus on the IBD side. A lot of dealers, including myself, see Performance as a threat, based strictly on price.

All bike and equipment companies have dealer price lists with a MSRP, and sometimes a Minimum Advertised Price, which is the lowest that a dealer can sell it for, according to the dealer agreement. It's not just the Performances of the world that are held to these standards... IBD's are required to agree to these things, too.

Because some major internet retailers like Performance buy in such large quantity, they get a much larger price break on the parts, but keep their margin the same. Because they also import their own house brand bicycles, they have access to OEM parts and prices, which are significantly lower than even standard wholesale pricing. As an IBD, we check prices periodically, and lots of times find that some major internet retailers are actually selling parts and accessories for less than what IBD's can buy them wholesale.

The question is... when do you tip the scales from "great deal" to "cheapening the integrity of the product?" Focus Bicycles is not in the bike business to NOT make money. They, like a lot of other brands that set pricing guidelines, spend a lot of time and money in research, development, and importing some of the best bikes in the world. If you continuously discount prices on the bikes, they, in my opinion, become less and less desirable in the industry.

If Focus had not limited Performance's pricing, they most likely would reduce pricing and hurt the current dealer base trying to sell the same bicycle at their shop. For instance, my shop doesn't have the buying power that Performance does. If we both bought the same bike from Focus, their pricing would obviously be better, giving them a higher margin at the same retail price. If they drop the price to sell the bike, I can't... I simply won't make enough. They will, more likely than not, turn the bikes a lot quicker than I do at the lower price. IBD's can't drop their prices because they will lose their ass and go out of business.

If Focus hadn't protected their dealers by not opening up Performance's in a certain territory and had not set MAP's, I would have raised hell with Jeff and Brian (my Focus buddies) regarding it. They would have totally discredited themselves in the industry by not living up to their promises of four months prior at Interbike, where they built their dealer base. You have to protect what you've already got going, and IBD's are where it's at. Folks who shop the discount dealers aren't in it for the one-on-one customer service experience... they've either been burned by a shop, or just don't have a shop that "gets it" like I think our shop does. I'm glad they took care of the dealers that helped get them rolling in the US.

Obviously, I could go on for days about this, as I am SLIGHTLY opinionated on the subject... I'll just leave it at that, for now. More discussions for another time. Thanks, again, for your question. Keep them coming!!!

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Permalink Reply by Rick Ankrum on February 6, 2010 at 9:00pm

Thanks for your perspective from the IBD side. I can understand your concern about Focus deciding to add Performance Bike.

Your story sounds familiar if you substitute WalMart for Performance and the local merchant for the IBD. Focus makes a choice to alter their channel by adding Performance who can sell a large number of bikes and can ask for a discount. As a customer I should make a choice about where I buy based on a number of factors.

In my day job I am in a corporate purchasing department. As such I see manufacturers faced with the same dilemma on channel support. Sometimes they support their channel, sometimes the lure of more sales breaks ranks.

Back to the factors I should look at (not always in this order): price, quality and service. To work on the Walmart angle they usually rule on price. Service is not W's strong point. Here the local merchant can run rings around W. Quality is not in control of the merchant directly but they can choose their supplier and they should look for for the same factors I am looking for. Service is where the merchant (IBD) can shine; some do, many don't.

Now regarding price controls. Focus or any other supplier has a problem with a commodity product and then to differentiate their product to justify a price. I think you don't see luxury goods being discounted for very long and still be classified as luxury. Luxury sellers control their distribution chain.

As a consumer I want competition in those factors I mentioned above. Without competition there is no way to determine the true value and the manufacturer has no reason to push the product development. Focus is stymieing this competition.

Josh Boggs said:

Rick,

Thanks for bringing this up. Without getting into too many details about specific pricing, I'll try to explain my standpoint and why I think Focus is taking a good approach to this potentially sticky situation.

When Focus started bringing bikes into the United States, they started developing their US dealers, and like most reputable brands, they had planned on keeping it IBD (Independent Bicycle Dealer) only. After developing those dealers, Focus announced a partnership with Performance Bicycles, a huge chain and internet retailer, which posed a concern to those dealers who had already partnered with Focus on the IBD side. A lot of dealers, including myself, see Performance as a threat, based strictly on price.

All bike and equipment companies have dealer price lists with a MSRP, and sometimes a Minimum Advertised Price, which is the lowest that a dealer can sell it for, according to the dealer agreement. It's not just the Performances of the world that are held to these standards... IBD's are required to agree to these things, too.

Because some major internet retailers like Performance buy in such large quantity, they get a much larger price break on the parts, but keep their margin the same. Because they also import their own house brand bicycles, they have access to OEM parts and prices, which are significantly lower than even standard wholesale pricing. As an IBD, we check prices periodically, and lots of times find that some major internet retailers are actually selling parts and accessories for less than what IBD's can buy them wholesale.

The question is... when do you tip the scales from "great deal" to "cheapening the integrity of the product?" Focus Bicycles is not in the bike business to NOT make money. They, like a lot of other brands that set pricing guidelines, spend a lot of time and money in research, development, and importing some of the best bikes in the world. If you continuously discount prices on the bikes, they, in my opinion, become less and less desirable in the industry.

If Focus had not limited Performance's pricing, they most likely would reduce pricing and hurt the current dealer base trying to sell the same bicycle at their shop. For instance, my shop doesn't have the buying power that Performance does. If we both bought the same bike from Focus, their pricing would obviously be better, giving them a higher margin at the same retail price. If they drop the price to sell the bike, I can't... I simply won't make enough. They will, more likely than not, turn the bikes a lot quicker than I do at the lower price. IBD's can't drop their prices because they will lose their ass and go out of business.

If Focus hadn't protected their dealers by not opening up Performance's in a certain territory and had not set MAP's, I would have raised hell with Jeff and Brian (my Focus buddies) regarding it. They would have totally discredited themselves in the industry by not living up to their promises of four months prior at Interbike, where they built their dealer base. You have to protect what you've already got going, and IBD's are where it's at. Folks who shop the discount dealers aren't in it for the one-on-one customer service experience... they've either been burned by a shop, or just don't have a shop that "gets it" like I think our shop does. I'm glad they took care of the dealers that helped get them rolling in the US.

Obviously, I could go on for days about this, as I am SLIGHTLY opinionated on the subject... I'll just leave it at that, for now. More discussions for another time. Thanks, again, for your question. Keep them coming!!!