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The Many Hats of the Bicycle Product Manager

Part 2: Modern Distribution Channels: It's Complicated

by John Neugent

Tech articles | Commentary articles | Product Manager series part 1 | Part 3

John Neugent probably knows more about bicycle wheels than anyone else alive. Maybe more about bikes as well. He's spent his life in the bike business, at every level. He now owns Neugent Cycling, a firm devoted to delivering world-class equipment at the lowest possible price. If you are in the market for a set of wheels, please, check out John's site. He really knows his stuff. —Chairman Bill

John Neugent

John Neugent

When I started out as a product manager in 1982, very few people had any formal training in their positions. The bike industry was, and in many cases still is, populated with enthusiasts who figure things out as they go. Because the industry now sells far more quality products and because industry, in general, has more formally trained people than 35 years ago, that has changed somewhat, but the fundamentals are the same no matter how sophisticated the products or the market. I spent a year as a full-time marketing consultant to Lee Iacocca on his E-bike project. Mr. I, as we called him, is acknowledged by many to be one of the best marketing guys of the 20th Century, and I had no college degree. His comment to me in my job interview was as long as I had common sense, and was willing to work hard, the degree didn’t matter.

Fundamentally, the job of a product manager is to make money on something the company is selling – be that a bicycle or a warranty program. The many pieces of that are in sales, marketing, engineering, industrial design, distribution, profit margins, and anything else you can throw into the soup of product life. Everything can be perfect but if the vendor can’t deliver you are out of luck. Or you can have great success, but if a vendor’s vendor substitutes inferior materials you can face disaster. Look no further than the air bag recalls facing most major car makers today for a perfect example.

Each part of the puzzle is important, and maybe even critical but let’s look at the one most people focus on – sales. No matter what you have done leading up to sales, without sales you have no income, and cash flow is the life blood of a business – without it everything dies.

One of the major issues facing all companies now is how to choose a channel of distribution. Consumer direct, now with Internet sales, is easier than ever but getting noticed is no small task, and the different means of getting noticed change daily. Selling through brick and mortar retailers (bike shops) means you need to increase prices to give them a fair profit, and if you use a distributor, you also need to give them a fair profit.

Business people will say “You have to look at the long term.” This is a euphemism meaning that in the short term you are going to lose money. That’s all well and good if you have the money to burn in the short term – especially since there is very seldom any real guarantee that those same people will support you down the road.

The more people you have to go through to get to the customer, the more difficult (and expensive) it is to communicate your message. On the other hand, if you have 100 retailers selling your product instead of just yourself, there are 100 more people to make the sale.

Also, everyone in the channel of distribution needs to make a profit. Just throwing out some very rough numbers, factories often make 40-50%, brands (where they don’t own the factory) make 40-60%, distributors make 30-40%, and retailers make 40-60%. So each time you include an extra layer in the distribution channel it adds to the retail price. If I am selling through all of those channels (which most companies are) adding $1 to the cost could easily add around $8 to the retail.

There is no right or wrong way to sell something but as a product manager you have to be aware of all of the costs to be able to calculate the retail price. The more costs you have, the more critical it is to make sure you are saving every penny you can. That is why you will typically see product managers “save” on bottom brackets, headsets, stems, bars, saddles, and even wheels. Bikes are complicated and when price shopping people generally compare frame materials (carbon, aluminum, steel) and component group (Dura Ace, Ultegra, 105, etc…) because these are the most expensive parts of the bike.

Canyon is now entering the US Market selling bikes consumer-direct, and they are attracting a lot of attention because bike shops are concerned about them under-cutting prices. From personal experience selling complete bikes online consumer-direct, it’s not going to be an easy thing to do. Most people buying a quality bike want to make sure the size is right and want to test ride it before they buy it. But Canyon has been very successful in other markets so my guess is they will try different things until they find something that works for them. But don’t forget that any of the other bike companies can do the same thing, and they will if they see it’s more profitable.

Part 3 of this series will cover marketing.

John Neugent was was one of the first to establish quality hand building in Taiwan around the turn of the century. He now owns Neugent Cycling, a firm devoted to delivering world-class equipment at the lowest possible price.