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by Dave Rome
December 5, 2017
Photography by David Rome
TECH NEWS BROUGHT TO YOU BY BIKEEXCHANGE
Ever needed a spare tube in a hurry, dropped into a local store you don’t typically visit, and walked out feeling cheated? You’re not alone. A number of retailers overlook how cleverly pricing everyday convenience items can affect the perception of their store as a whole.
For the cycling industry, is the inner tube just one factor in why an increasing number of retailers are struggling to compete with an online world? CyclingTips tech writer and content strategist Dave Rome, once a wholesale and retail industry worker, believes so.
In theory, there’s nothing wrong with pricing a regular inner tube at or over US$8 / AU$10. The profit margins on this common item are high at this price, but it’s within the range of what a consumer will pay without argument.
However, the reality is that many e-commerce players have eroded the perceived value of the inner tube (and other popular items). It’s to the point that the inner tube is often seen as a disposable commodity and something that fewer and fewer spend the time to repair.
Now let’s consider an old marketing pricing strategy: the loss leader. Still an extremely common practise, the loss leader aims to offer a popular item at a below-market price point. It’s designed to draw in consumers and hope they fill their carts (either physical or digital) with other, more profitable items while they’re there. Sometimes businesses use this strategy just to get consumers in the door. Other times, it’s to cross-sell, and in other circumstances, it’s purely there to hurt competitors.
However, there’s something very clever about the loss leader strategy, and one plenty of online retailers understand: it also helps build a perception of low prices overall.
Studies have shown (such as this, published in the Harvard Business Review in 2013) that consumers use specific and familiar reference products to benchmark a store’s overall prices. In the marketing world, these are known as key value items, or signpost products. Retailers that offer low prices on a select few popular products are considered to be better value across the board than retailers that sold the same key value items at higher prices, but actually had lower prices overall.
Now I can assure you that a number of online retailers are using (or used to use) the loss leader strategy on the humble inner tube to convert business. Some are probably doing it just to ensure the competition is hurting in trying to match price. I’m not at all advocating for independent retailers to try fight that fight; they should be able to make a profit on every item sold and let those participating online retailers suffer with their 1-3% annual profit in the meantime.
However, it’s one thing to be competitive in a fight to the bottom; it’s another to be ignorant to the greater market, and I’m suggesting physical bike stores should not sway too far in either direction.
Now put yourself in the position of needing a tube. You’ve found your favourite tubes online in a ten pack for $60. You’ve bought this before to save money but you’ve burned through them faster than expected after a hard winter. You need a tube for tomorrow’s ride and so you go into the nearby store you haven’t shopped at for over a year.
You walk in. You’re surprised by the improvement in friendly service, or perhaps you see a familiar face. Tick. You like looking at shiny new bikes, something you haven’t done since taking to online shopping. Tick. And when it comes time to make your purchase, you ask for three road tubes with a 60mm valve. No problem, they’re in-stock and within reach of the counter. Tick. The tubes are rung up on the computer and the retail assistant says, “That’ll be AU$42”.
Your heart stops. A giant end-of-play buzzer sounds in your head. You quickly do the math. If you add just one more tube at this price, you could get seven of them for free online.
It was all going so well up until this point. As a consumer, you were thinking the vibe of the shop is great. You love looking at shiny things. The staff were helpful. But because they’re charging three times the price for something so basic, you feel like they’re taking advantage of the fact you’ve gone out of your way to make this purchase. You instead buy just two tubes and decide right then that you’ll stock up on tubes online so you don’t get ripped off again. The game for that retailer is over.
For the shop, it continues to get even worse.
You go to buy your spare tubes online to find that the $60 isn’t quite enough for free shipping (another tactic, done on purpose), and so you follow that clever carrot down a path of what else you may need. Perhaps it’s energy gels, maybe its CO2 (if they can be posted to you), or maybe you just buy a tyre, just in case. It’s a vicious cycle, and one that is directly impacting that local shop that tries their hardest to give back to the cycling community.
To the shops out there reading this and charging a high price for regular tubes, I promise you this is a daily occurrence. Whether the consumer realises it or not, that single inner tube, energy gel or CO2 canister purchase is a low-investment test, and like milk or eggs in a supermarket, it’s a key value draw card to the cycling industry.
Please the consumer and you may just have a customer for life. But if you treat every sale only as a way to maximise profits, chances are you’ll end up with another vocal person in the bunch stating, “bike shops are too expensive”.
In my head, a regular tube should only ever cost US$8 / AU$10. Sure, something lightweight, long-valved and/or latex should cost more, but that reads like a fair price for a standard butyl tube of a recognisable brand.
Yes, going lower to compete with online stores that think profit is optional is a battle physical stores can’t and won’t win. But to me, a store that charges a ceiling of $10 a tube is loudly stating that they’re at least trying to be competitive. Add in friendly and helpful customer service, and that’s the store I’d return to.
Ok, so I admit it: this isn’t really just about inner tubes. But that simple product is yet another representative example of why so many stores are struggling to compete in a world where online shopping is often not only cheaper, but also more accessible than brick-and-mortar retailers.
The more sales of these everyday items go online – sales that used to be the store’s bread and butter – the more shops feel the pinch in their margins. And in a crazy roundabout way, the more the stores struggle to compete with price, the more they’re incentivized (or forced) to hike their prices in order to survive. It’s certainly a trend we’re seeing, and it’s not sustainable.
In the end, the stores that are thriving are often the ones who recognise that customers are willing to pay a higher, but fair, price provided there are additional perceived value in shopping there – be it high-quality and friendly staff, visible support in the local community, expert service staff, or whatever. Other stores that either focus on competing with the heaviest hitters on price or stick to the same profit margin percentages they did a decade ago aren’t likely to survive in this new world.
The other side of this is that as a consumer, you should be savvy to the pricing tricks the big online retailers use to convince you to type in those credit card details at 11pm. Sure, great deals can be had online, but the massive pricing gap that once existed between online and brick-and-mortar retailers is slowly narrowing. With the help of local distributors, physical stores are becoming more competitive. And there are also a number of brands (such as SRAM), who are strongly supporting the local bike shop by actively eliminating international sales of its products.
In addition, many online retailers are now realising that they were running a little too close to the red line in terms of margins, and so their prices are increasing across the board. Brand-name inner tubes that were once $4 online are now often a much higher figure, and the same can be said for other commonly shopped items such as chains, tyres, brake pads, and energy food.
My suggestion is to not fall into the trap of always assuming online prices are lower; sometimes, it’s just a ploy. Give shops a chance to compete with that price, but understand that they almost always have to factor higher overheads, higher cost prices, and local taxes into the number on the box. Also consider that good local shops give back to your local cycling community in ways that online stores never will.
What do you think? Does the price of everyday items at the bike shop affect your perception of the shop? Or have you found a shop you love, where price is no longer even a factor?