Is the bicycle industry overlooking the value of used bikes?

The bicycle industry spends a lot of time focusing on how to sell more bikes, yet strangely overlooks the untapped value of the market it already has. Cycling iQ examines the potential benefits of a certified pre-owned program.

With very few exceptions, the moment a new road bike’s tyres meet the asphalt, a substantial portion of its value is lost.

Anyone who today buys a new bike can only guess how much it will be worth (in other words, how much money they will lose) when trading in or re-selling their bike at a given point in the future.

After all, the difference between what a road bike costs when new and what it’s worth on the pre-owned market depends on a lot of factors, including brand, condition, specification, ubiquity, selling platform, marketing spend (yes, this also applies to used bikes) and even the reputation of the person selling it.

There are more choices than ever for people in the market for a used road bike: large marketplaces such as eBay and Bike Exchange; cycling forums, where members can advertise to an informed community; even the traditional club race scene, where bikes are sold on the sidelines of a race.

Though the purchase of a second-hand road bike is technically similar to any other commercial transaction – an offer is made by the seller and acceptance of that offer is extended by a buyer – it can be a daunting and stressful process with far fewer protections than buying new.

For every buyer who has the technical and market knowledge to assess the value of a second-hand bike, there are others who risk paying hundreds, if not thousands, of dollars on a bike that might seem like a bargain yet actually be a few rides away from needing costly repairs in order to function optimally. Some pitfalls include:

  • the bike may have been crashed and/or repaired
  • the difficulty of assessing the condition of internal bearings (though seasoned wrenches know what to look for)
  • there likely will be no warranty (pretty much all major manufacturers do not have transferable warranties)
  • it may have history of multiple previous owners, all with different levels of transparency at time of sale
  • it may be stolen

Brands will go to enormous expense and lengths to lure customers into their respective retail networks to purchase a new bike, yet little or no concern is given to how a given bike can retain value during its entire lifecycle. Maybe it’s just not important, or is it simply too hard for a brand to create a system which helps customers mitigate the above-mentioned risks?

Audi certified

Well, no. There are several examples outside of the bicycle industry where brands have a dedicated platform for selling pre-owned products: it is common for auto manufacturers to offer certified pre-owned cars; Apple sells ‘refurbished’ products across its range; even golf club manufacturers such as Callaway offers certified pre-owned clubs.

Contrary to popular belief, selling complete bicycles is a relatively low-margin business. This is not helped by the fact that the second-hand market creates such a big gap in price between ‘like’ products – a challenge (for the brand) that a certified pre-owned (CPO) model helps to solve. But how could it work in the bike business?

 

CPO FRAMEWORK

A few essential ingredients, which most global brands are already in possession of, are required for such a program to get off the ground.

The first obvious requirement is the capability of a brand to keep track of its bicycles (and their owners) from the moment they leave the factory. Tracking data is commonly stored in a brand’s ERP (Enterprise Resource Planning) software, together with all other details relating to manufacture and shipping.

Once at the retail level, the serial number of a new bike would need to be recorded alongside the details of the new owner in a retail management system linked to a cloud-based database that can be updated by any one of a brand’s authorised retailers across its global network. Larger brands such as Trek have already invested heavily into such systems – the video below shows how Trek’s US sales reps stay across a wide array of (retail) customer information wherever they may be.

Secondly, the brand would need to create guidelines for assessing, certifying and valuing bikes which are bought and sold within its retail network. As the serial number of a given bike identifies its model year and service history, a trained mechanic would only need to methodically inspect the bike against a mechanical checklist (analogous to grading a diamond) and assign a value to it within that model’s expected value range (which the consumer was made aware of when he/she purchased the bike new).

Finally, there’s no point in creating a market for certified pre-owned bikes if there’s no online sales platform. Again, global brands are gradually rolling out online stores which allow consumers to purchase online and collect from their local retailer. A separate micro-site for pre-owned bikes might be the best option, given most brands are likely not progressive enough to integrate an Amazon-like offer to buy new or used into their existing websites.

The aim of such a program is to achieve levels of information integrity that ensure a brand can offer complete transparency about the history of a used bike to the next owner.

Now let’s look at the advantages of such a program to everyone along the value chain.

 

CPO BENEFITS

Possibly the most important aspect of a CPO program is the higher level of security (when compared to existing marketplaces) extended to both buyers and sellers.

Firstly, for buyers: with the correct program and policy settings, it should be possible for a brand to give guidelines as to how much a customer’s new bike would be worth within a certified pre-owned program, in X years time, given a certain usage and condition.

When the customer is ready to sell, an authorised dealer would manage the certification and be involved in the transaction either via a trade-in program or simply by providing the hybrid (online/physical) marketplace for its sale.

Sellers would benefit from knowing exactly what they are buying, and should be entitled to have the remainder of the warranty period transferred to them. Brands often use their warranty programs as ‘sales arguments’, so transfer of warranty to a subsequent owner is one major advantage of a CPO that is not found in current used marketplaces.

Retailers would also enjoy additional revenue streams from trade-ins, the re-sale of CPO bikes, and would also be in a better position to sell other products to buyers of both new and used bikes.

Finally for the brand, a CPO could provide some valuable insight to questions such as “how long do our customers keep their bikes for?” and “what do our customers buy next?” As the brand’s retail network facilitates more CPO transactions over time, alternative marketplaces would have less influence on brand image and perceived value of a given product.

Bike exchange 02052016

 

DOES IT MAKE SENSE?

Currently, there is no evidence that any major bike brand has the desire to step into, let alone control, the market for bikes that it produced but are now outside its retail ecosystem.

Yet CPO programs are used by some of the world’s biggest and most respective brands because of, but not limited to, some of the reasons mentioned above. It’s not as if bike brands would be throwing themselves into completely unchartered waters.

Major bike brands such as Giant, Specialized and Trek potentially all have the retail network and capabilities to launch a certified pre-owned program in the near future, though it is difficult to imagine how a brand such as Pinarello (with its smaller scale) or Canyon (in the absence of a retail network) could embark on such a project.

However, the way the bike industry currently operates makes it seem improbable.

It’s usually the case that individual markets are controlled by a few dominant brands which tend to adopt a brute-force approach to growing market share – by pumping more product into stores and crowding out competition. This inevitably leads to large amounts of surplus product being liquidated before a fresh supply of new model year bikes arrive.

The ongoing binge/purge cycle would seem to blunt any chance of a CPO working, as retailers would likely be scrambling to clear out excess inventories of new bikes as opposed to used ones. The large price swings inherent to this cycle might also narrow the price benchmarking between new and CPO bikes to a point where the latter is not viable.

It therefore seems the biggest barrier to anyone in the industry adopting CPO is the industry itself.

  • LO

    Within a retail context there’s no reason to assume that trading in pre owned bikes need lead to reduced margins. If the pre owned bikes are primarily collected through a trade in on a new purchase.

    Yes the margin on reselling any CPO product would be relatively low but I’d expect less discounting off the sticker price of a new bike if a fair trade in is offered: Lower margins on the trade in but higher margins on the new sale would lead to similar overall margins and (hopefully) higher volumes

    • This is what I’d expect too, though until it’s properly implemented by a large brand it’s all theoretical.

      I did find a couple of examples of independent retailers in the US who run partial versions of a CPO and it doesn’t appear to be a drag on their business.

  • Richard Manson

    Margins on CPO programs do not HAVE to be all that …… well, marginal. In the auto industry, the margin on a new vehicle may be 10-15% while on a CPO may be 25-30% or more which is why trade-in is 25-30% less than retail and wholesale value even less than trade-in. This holds true in both OBM/OEM dealership CPO programs and well established and organized per-owned only lots. This may never happen in the bicycle industry since, like in the auto industry where they are all OBM/OEM or re-sellers of such, make most of the revenue (whether or not they are OBM, ODM, or OEM’s ) from a sale of a new unit and since the CPO would not benefit them except for the occasional upgrade or replacement parts that are manufactured and ran through OBM/ODM/OEM’s distribution channels. As with the auto industry, the one who stands to benefit the most from a CPO program would be the local retailer/dealership and thus a program such as this would need to be spearheaded at this level since the OBM’s are incentivized very little to implement such a program.

    But this is why we all live in a “throw away” society and give little thought to recycling or conserve. I got my last bike from a guy that used it for 4-5 yrs and since he was done with it, dismantled it and stored it in the attic of his garage where I am sure it would have stayed for some years until he did some spring cleaning threw it in the aluminum scrap bin where I have seen him throw many gently used parts that were still in great shape. It turned out to be the best bike I have owned to date. He sells nothing online since he does not know how. How many people are like this. I was lucky enough to know him and benefit from his unwanted bike. We are the type that could benefit from a CPO program. But we live in a world where we are taught to keep buying new and consuming products and to just throw away what we don’t want anymore. And so the circle of un-recycled life spins.

    • Thanks for your thoughts Richard.

      I think there is a large incentive for a brand/manufacturer to be the first-mover on a CPO program. The proposed consumer-side benefits of such a scheme should win additional market share away from those brands who don’t offer a similar program. If, in addition to good warranty support and customer service, a brand can offer transferable warranty and a re-sale ‘guarantee’ then this is potentially a deal-maker for someone who might be planning to upgrade in a few years.

      Totally agree with your closing sentiment re: the throw away society we live in. The used market for any consumer product – be it bicycles, appliances or clothing – is a goldmine for astute buyers.

  • David

    Perhaps this is a digression from the original thread, but what happens to discontinued and overstock bikes at the local bike shop at the end of the bicycling season? After a bicycle is marked down, do the bicycle mfg.s buyback the unsold bicycles from the dealers? Great website!

    • Cycling iQ

      Thanks David, glad you like it here!

      It’s extremely rare – almost unheard of – for a manufacturer to buy back unsold bicycles at the end of a season once it’s with a retailer. Depending on where overstock sits in the supply chain (retail/wholesale/brand/manufacturer), and at what stage of completion it is, (ie, unpainted frames at the factory) it will either be progressively discounted, moved to another market where there is more demand, re-configured as a ‘new season’ product or, in some rare cases, scrapped. Overwhelmingly, lower consumer price is the preferred mechanism for clearing the market and manufacturers/brands don’t get involved beyond this.

      • David

        Awesome information, thanks so much. I’m a young aspiring entrepreneur and as an aside I’ve found your website to be extremely informative. Thanks for doing this!

336x280ad

Video