Distribution for Electric Bicycles In 2016
Electric bicycles, once scorned by the western bicycle industry for more than a decade, are becoming the major profit driver of the bicycle industry, world wide. Larger tickets, larger margins, larger need for after sales service and for more dealer support are all benefits for the bike industry. And a bike that is easier to pedal, extends range, utility, and comfort is a big benefit for the consumers.
They are also becoming a part of nearly every category of cycling. Their earliest use was almost exclusively for transportation. But now we have electric mountain bikes extending the range and scope of MTBs. We have electric assisted road bikes, cargo bikes, pedicabs, and more.
We even have electric bike races, and “mechanical doping” helping to cheat in conventional cycle competitions.
The prediction of a few years ago – that electric assist would become a ubiquitous part of the bicycle transmission in nearly every category, is coming true.
And electric bikes make money. A refreshing point in an old, tired industry that has accepted low margins as a matter of course for nearly a century.
Many new players seek to enter the field.
At least 400 brands for electric bicycles exist, today, in the western world. And another similar number, or greater, in Asia.
Many of these “brands” are companies destined to fail. (Of the more than 160 brands in the USA, only about 95 imported any product last year) Many are tiny. A large number are the conventional bicycle brands that have added an electric bike product or line. A few are car or motorcycle companies that are seeing the opportunity. A few are specialists in electric bikes with sufficient resources and skills to take advantage of the current lack of a dominant brand to build a new and likely to succeed business. Some are hobby businesses.
For any new entrant, this is a daunting situation.
For any supplier, it is difficult to know who will be successful, and who will fail. Giving support to the right player can be golden. To the wrong, maybe a disaster.
And there are no simple rules. The biggest and best businesses of yesterday have often failed suddenly in recent years. And brands we never heard of before have become important in the course of months as a result of our information intensive life today.
Any business history book will teach us that in the early days of a new industry a very large number of players will enter. The industry will then go through a period of contraction as some players merge, others fail. A stable number of brands is probably less than a dozen in each market. Perhaps less than 6 over time.
This author sees a great opportunity for new electric bike brands to come into creation. This is a rare event, for most products in the world market are offered by well established brands that have secured a position in the mind of their consumers, and a solid distribution channel. More often, there is an expensive fight for market share in a well established market.
Where are the opportunities?
Until today, the mind set of most electric bike brands has been dominated by supply issues. What the author thinks of as “Engineer Thinking”. The basic “engineer idea” is that the only important thing about the brand is that the product be so wonderful that everyone will want to buy it. Sometimes the ‘Engineers” will recognize that design is important. But rarely do they pay much attention to the distribution channel, marketing, salesmanship, promotion, and the consumers.
This is backwards from a successful approach.
The first consideration should be “how will we sell this product?”
And that leads to: “who will we sell it to?” and “how will they hear about us?”
Finally: What should it be…?
And underlying all of this: It must be reliable, durable, and easy to use. That simple issue used to be problematic. But today many ebikes meet this requirement.
It is rare for a product development team to be so brilliant that they can dictate to their end users what the product must be. Those few occasions when it has happened have led the “engineers” to strive for this. It is better to ask the consumer, and the elements of the distribution network what the product should be, and then find a way to offer exactly what they asked for.
Every time a consumer or dealer asks for “something unreasonable” a door opens to opportunity. Sometimes it is not a practical request. But often, exactly those ideas that are seemingly impossible, or too expensive, or just silly, are the keys to success.
We can look at the big success stories of new types of product and see that a major part of their effort was in marketing, sales, and developing the distribution channel.
Apple gets a lot of attention for the huge success of their well engineered, brilliantly designed products. But the existence of the Apple Stores, iTunes, the App Store, and a very well funded marketing campaign that has used the same style and basic message for decades, are perhaps more important than the product itself.
In companies that are dominated by product development concerns, with engineers, or designers for bosses, it is ordinary to ignore the need for a sales department, and for marketing.
Allowing enough resources for hiring talented sales people, talented marketing people, and supporting them appropriately is essential. The marketing budget of car makers, motorcycle makers, consumer electronics companies, and nearly every other consumer product totally dwarf the marketing budgets of normal bicycle companies.
And then the typical electric bike company approaches the market with even less resources…
As for channel of distribution, here are some that exist, with comments from the author. Most do not work as well as one would hope…
- Mass merchants such as WalMart, Carrefour, IKEA, TESCO, still move more goods of all sorts, than any other channel. (But…we can see that Amazon and other players are becoming powerful enough to challenge them). All of these mass merchants focus on low price, and on shifting costs to their suppliers. Access to the market through these exists for companies thatch live with low margins and have product that satisfies the consumer enough to stay sold. Returns are often the only after sales service offered by a mass merchant, and returns are usually catastrophically expensive for the supplier of the goods. Sales staff in these stores usually know little about the product, and test rides are usually not possible.
- Category killers in the sporting goods industry, such as Dicks Sporting Goods, Sports Authority, or Decathlon share many of the characteristics of the major mass merchants. Price is very important, the staff and test ride issues are similar.
- Toy stores, such as Toys R Us, sell a large number of normal bicycles. But so far, very few electric bikes. Focused on children, they are, again, dominated by the same advantages and challenges as the major Mass Merchants.
- Internet through Amazon, eBay, etc. is another very powerful distribution channel, and one that is open to nearly any player. Margins may be challenged by the fees charged by the channel, and “rules” for selling via these can be complex and require study and adaptation.
- Internet Direct retailers are a rapidly growing category of distribution. Using pay-per-click, retargeting, and intense interest in their customer and the behavior of that customer is creating some new and interesting businesses. Test rides and delivery are challenges for these companies. As is after-sales-service. But the emergence of the “Tesla Model” for electric bikes is an important development. See below.
- Internet plus Dealers is a model that the conventional bicycle industry of the USA is now exploring. At the risk of alienating the thousands of independent bicycle dealers, major bicycle brands are selling to the dealers in a conventional way, but also offering the product direct to the consumer over the internet – to be delivered at and by the dealer. Dealers are compensated for their assembly time, and lost opportunity for revenue, to greater or lesser degrees. Perhaps the most important feature of this idea is that the sales of the brand are no longer limited by the inventory carrying ability of the dealer. Dealers, however, have not yet decided how they feel about this.
- Internet “plus showrooms” describes part of the Tesla distribution model. Test drives or rides at a location that offers only that service. Orders are placed on line, and delivery is to the buyers home via a delivery vehicle / team. Service is at the consumers home, or via a pick up and return service. Independent Bicycle Dealers are the most obvious distribution channel. They have the parts, the tools, the staff, and in most cases the consumer will assume that they are a logical place to shop for an electric bike. The challenges for these dealers are these: Staff training, inventory capital, their own culture (often shaped by athletic prowess in bicycle competitions), and a lack of marketing that will attract the different-from their-current-traffic consumers that are looking for electric bikes. Reaching the IBD is often challenging, for they are well serviced by existing suppliers (major bike brands and jobbers). They often see no need to consider additional suppliers or brands. Access to these dealers has been the key to success in the EU market in the past. However it is likely that other channels will become more important over time, especially in the USA.
- Electric Bike Specialty Retailers (EBSRs) are an ever increasing category. Sometimes they are the same businesses as bicycle shops, with a corner or a separate show room, but owned and operated by the IBD. More often, they are new retailers with a specific focus on electric powered vehicles. It is notable that these stores sell significantly larger volumes of ebikes than their conventional IBD counterparts. But they lack the reliable turn over of the conventional bicycle retailers, and thus are challenged, at present, by limited cash flow. And often limited capital.
- To reach the IBD or the EBSR stores, there are three paths. 1. Conventional bicycle brands that have a relationship with the stores now, and can add a product or a line. 2. Parts and accessory suppliers (Jobbers) that have access to the dealers, and an existing relationship. 3. Creating new relationships direct with the dealers – usually through visits by sales reps. And maybe #4. Have product so compelling that the dealers will reach out to the “new” brand.
- Motor Sports Dealers would seem a logical channel. And there are many that have flirted with an electric bike offering. But the culture of the motorcycle dealer staff and consumer base is not much interested in the low speeds, modest acceleration, and energy efficiency of the electric bike. With exceptions, these have not been successful venues.
- Automobile dealers are nearly the same story as the motorcycle dealers. Except that a well run car dealer makes so much money selling cars and servicing them that there is no room for any distraction from the core business. And for both car and motorcycle dealers, their current marketing does not bring electric bike customers into the store.
- Flea Market / Night Market / Truckload-sale—on-the-corner retailers have done well with the lowest priced electric bike products for years. However, test rides, after sales service, and happy consumers are mostly lacking from this channel. The ordinary model is a container of cheap bikes bought from an Asian trading company and sold at a low price with no expectation by either the seller or the consumer that the product will have a long life or be serviced by the seller.
- RV / Yacht Accessories / General Aviation Retailers are seemingly attractive. Experience is that these are very small volume channels. Price and features can be high end, but only a few consumers.
- Government / Police / Military is another seemingly attractive channel. But the amount of labor needed to develop and serve the sale compared to the volume of sales makes it challenging to earn a profit.
One logical approach is to try to find distribution for a new product line farther up the supply system than the dealer or direct to the consumer.
In the bicycle industry, the supply chain often looks like this:
Bicycle brands are often quite old. At some point in their history, they probably built their own bicycles in their own factory. And in many cases they still have that old factory and use it for some products, or for final assembly of some products.
Today, however, almost all bicycle components are made by Asian factories. And most bicycles are assembled in Asian factories that then sell those bikes to the brands. These bikes are often designed by the brands, or at least colors / graphics / features are selected by the brands and the bikes carry the head badge of the bicycle brand. The Asian factory may be invisible to the consumer and the dealer.
In some cases the bicycles are shipped as CKD kits (Completely Knocked Down) to legacy factories for final assembly.
The brand usually has a dealer network, often one that is composed of independent dealers in their second, third, or more generation. Those dealers often have a strong relationship with their community and their consumers.
To preserve this relationship between the dealer and the consumer, and between the brand and the dealer, good communications, good product quality, and good service is essential. Dealers see their customers every day, in the store, at the grocery, their children’s teachers, etc. Those customers must be kept happy. The suppliers must make that possible.
In some markets, the brand sells direct to the dealers. (USA, much of Europe). In other markets, the brand sells to a local distributor (Much of Asia, Europe) that will then resell to the dealers. That extra layer of distribution adds a layer of margin that makes a brand vulnerable to price competition. Major brands can demand a lower price from their suppliers, or demand protection from their politicians, but this lack of efficiency is a vulnerability.
There are examples of retailers that are owned by, or have contractual agreements to be supplied only by a particular brand. But this is rare, with most retailers being able to and quick to, sell whatever brand and products will work best for them.
This allows smaller brands some chance. Keeping in mind that the major brands can have better marketing, better terms, and maybe better prices, the small brand or new brand can gain some floor space and market share by being better at understanding the consumer. An example would be Pure Fix Bicycles in the USA.
Another way to reach the retailers – all of them, including the mass merchants – is through the parts and accessories suppliers. Some of these offer their own brands of bicycles, but this is usually not their main business. The sale of parts, tools, suppliers, accessories to the retailers is their main business. In this role, they do business with nearly every part of the bicycle distribution network in their markets. But…they are often limited in their ability to promote new categories of product, to provide information or service of any sort to the dealers. Marketing direct to the consumer or in support of the dealer to the consumer is not necessarily part of their activity.
Mass Merchants (and a few sporting goods or retail chains) may buy their bikes directly from the Bicycle OEM / ODM. Most of them have buying offices and staff, sometimes staff that is dedicated to bicycles. In these cases, low price and satisfactory product is needed, and the Mass Merchant often, but not always, takes the risk of product returns and the cost of carrying the inventory.
In many cases, the Mass Merchant will require the supplier to have a presence in the home market of the Mass Merchant, thus being subject to the laws of that market. Contracts that require the supplier to support the Mass Merchant, usually with severe costs tied to product returns and very long payment terms are ordinary. And anyone who is serving a Mass Merchant should be very concerned about the term “Guaranteed Sale”. Local or regional support of warranties is a normal requirement of the supplier. This causes the role of a brand to become an intermediary and support function between the Mass Merchant and the Bicycle OEM or ODM factory. This can be a good business if handled well, but is not usually what the brand manager is dreaming of.
The author expects this article to be of interest to some brand managers, some OEM factory sales people, some ODM factory sales people, and maybe others. Most of them are going to be thinking, about now: “So how can I use this information?”
Bicycle OEM factories: Find the brand managers that buy complete bikes in a box, and look for ways to serve them better than their existing suppliers. While price is an obvious issue, there are more important issues such as: Timely delivery, consistent quality, good communications, honesty, continuos improvement, unique capabilities. Show them that you can do a better job and why.
Bicycle ODM factories: Your task is the same as for the OEM, except that you are especially attractive to the brand that is new to the electric bike business or too small to support their own engineering and design team. So you should be fishing among both the major brands and the new / smaller brands.
Existing Bicycle Brands: Increase the capability of your dealers with training and marketing. Provide product that suits their needs at appropriate prices. You have a powerful position today, and are at risk of losing it. Learn how to work with the electric bicycle specialty retailers, and with internet retail in it’s various iterations.
New Electric Bicycle Brands: Working with internet retailers, developing your own relationships with IBDs, and EBSRs is essential. In some cases, a jobber may be a viable venue for you. Becoming well enough established that a major brand will buy you may be the quickest way to make money, but some of you are going to be the biggest players in the future of the bicycle industry.
In our industry, we have opportunities that have not excited in other industries for generations. We face a bright future.
by Ed Benjamin, The Founder and Chairman of the Light Electric Vehicle Association (LEVA)by