Cervélo’s new concept

Sunday, 10 October 2010

Canadian bike company Cervélo likes to think of itself as an innovative company, and it can make strong claims given some of its frames. But it’s now trying a new idea that’s not related to carbon fibre or aerodynamics: centralised ordering and distribution via recognised dealers.

In a press release, Cervélo outline a new distribution model. Here’s the juicy bit:

Starting with the 2011 model year, Cervélo will take this commitment to customer satisfaction to a whole new level…
…the Cervélo website, which will allow our customers to choose and order their Cervélo of choice right there. This bike will then be delivered through one of the Cervélo retailers near them.

What this means is that customers can’t buy a frame over the internet from any outlet in the world for delivery to home. Instead they’ll pay online to Cervélo and then head to the nearest recognised Cervélo dealer to collect. When a company issues a press release promising better service, expect higher prices.

800 grams of terms and conditions

The idea says the company is to offer new service, to ensure the bike fits. This is fine for many customers who might want their local bike shop to give advice. It’s also handy for the approved retailers who will gain in footfall, a customer coming in to pick up a new frame is likely to buy some bar tape, if not a whole groupset.

But many cyclists are able to understand geometry charts and might find it better having the frame sent direct. Above all, this means Cervélo is going to have rigid control over the distribution and pricing of frames. Given the centralised ordering, this presumably means centralised pricing. Indeed if you wanted to buy a frame in another country because it’s cheaper then mail order is out of the question. It’s also potentially advantageous for Cervélo on accounting terms given they should sit on the cash when the internet order is placed.

All in all it means the company gets a tight grip on distribution. There’s the potential to offer better service but if someone orders a 54cm frame from cervelo.com, who’s there to tell them they actually need a 56cm?

I for one find the idea interesting but it’s a step away from frame manufacture and into brand management. No longer is the company just making frames and letting anyone sell them, now the distribution and retail is being controlled. It’s like buying a new car where the brand can be reflected in the showroom rather than just sold alongside many others. All that is fine but it’s designed to protect the manufacturer and its brand, potentially at the expense of the customer. It suggests Cervélo are hanging out with management consultants, not engineers.

EDIT: UPDATE: 12 October – Cervélo have issued a new release which states the scheme is now only going to work in North America for the time being.

Photo: cyclingnews.com

Anonymous October 10, 2010 at 11:35 am

I like the comparison with a car company. Will they soon do finance? Because customers will need it if they control prices.

Jane October 10, 2010 at 11:52 am

Was this to solve some problem? It seems this is an additional dist channel, not the only dist channel? And if you were inclined to by a bike frame on line who wouldn't trust the manufacturer the most? Have there been fraud issues? I agree it's a bit odd. I'll buy my frame in a bike shop thanks (we have two cervelo's already)

Anonymous October 10, 2010 at 4:08 pm

I feel like the dealer loses on this. It is possible like you mentioned that the customer "might" buy additional parts. But if he's comfortable enough to buy a frame online, he can, and will, probably buy all the other parts online too. LBS loses again. Now the LBS is little more than a P.O. Box for the customer. As a Cervelo dealer are they getting anything on each sale for this service?

TheInnerRing October 10, 2010 at 6:29 pm

Jane, I think this is going to be a centralised system, the only way to buy a Cervélo frame is going to be via an approved LBS or Cervélo.com. It's a big step because in the past they'd just build – or more accurately get the frame built – and then leave the sales channels to everyone else, whether it was a discount website or a local shop.

The difference here anonymous II is that the buyer will always visit the shop. I'd imagine the dealership is awarded a share of the sale value but that's just a guess. Either way they get contact with a customer and that is valuable.

Anonymous October 10, 2010 at 10:48 pm

It's not just about distribution – it's to control prices, stopping discounting (if you have to pay full retail to Cervelo) and to ensure dealers don't get too big or powerful – i.e. it reduces their incentive to sell loads of Cervelos. The only "upside" is to Cervelo themselves – but I predict it will drive customers away including dealers. If they are listening to management consultants, I'm not sure they're good ones. There are better models for them to consider. It maybe a stepping stone to direct only for Cervelo? Time will tell. I'm a Cervelo fan and as such I think these are worrying times.

Anonymous October 11, 2010 at 12:39 pm

I don't understand this. Why would they want to spend so much effort on controlling the supply. Me, I want some guys that make great frames, I don't need restrictive distribution.

Anonymous October 11, 2010 at 2:44 pm

Don't understand this part of your post: you said "But many cyclists are able to understand geometry charts and might find it better having the frame sent direct" and then shortly afterward said this "if someone orders a 54cm frame from cervelo.com, who's there to tell them they actually need a 56cm?"

So if someone is smart enough to understand geometry and order a frame to be sent directly to themselves don't you think it follows that they are smart enough to order the right frame size too?
I also don't understand how this is "restrictive" distribution unless LBS dealers will not have floor models for customers to check out. Did the announcement say that the only Cervelos in the world will be warehoused with the company and no dealer anywhere will have floor models or test bikes for people to ride? I don't really see how someone who is going to plunk down $$$$ for a Cervelo will simply go to their website, take a guess at geometry, etc…, order one up to be delivered to their LBS, and pick it up without testing. In the auto industry most people typically take the cars they are thinking of buying out for test drives.

TheInnerRing October 11, 2010 at 2:51 pm

Anonymous, sorry if I didn't get my words right. What I meant is that if some can get the frame they want, it's the others who can't who might still order the wrong size via the Cervélo website.

As for restrictive, well imagine if you wanted to buy a Cervélo and looked around the world for the best deal. Now you can't get that, it looks like you might have to go to your nearest dealer. That's a restriction.

Finally, maybe some take bikes for a test ride but it's never easy because the bike is a product of all its parts. Many buy based on reviews, recommendations, past experience, not to mention other reasons.

Andreas October 11, 2010 at 4:45 pm

It's change for sure. It means big change for dealerships and distributors. Imagine if you live a long way from a shop with Cervelo, will you have to drive all the way to the shop now?

The auto sector comparison is interesting. I agree with you that it is about branding but there are set-up costs too, the dealer needs trained mechanics, engine diagnostic kits and other compulsory things. The dealer needs a reward for selling a car, often they make more money on the finance, after-sales and service than on the sale of the vehicle. Investing in a dealership is a concept that could work for auto sector but we cannot see this with Cervelo.

My belief is that this is a really strange move. It risk reducing customers, compromising dealers and much admin for Cervelo.

TheInnerRing October 11, 2010 at 6:01 pm

Thanks Andreas and that's a good point on the "sunk cost" element of a car dealership.

I'm never very good at forecasting so I'll wait and see how this works out but yes, it does seem to add more complication and as you say, those living far from an approved shop might pick a different frame. Cervélo frames are nice but at that price range there are plenty of alternatives.

Anonymous October 11, 2010 at 6:45 pm

With the new change I cannot get the Cervelo without many hours of a journey.

No thank you Cervelo! I go to other frame!

Euan October 11, 2010 at 7:26 pm

I would consider a Cervelo, but only if I could order the frame online and get it delivered to me. The nearest dealer is over 60 miles away and would require me using a subway, train and bus just to get to the shop as I do not own a car.

Its a brilliant model to alienate me from the brand.

Matt October 11, 2010 at 7:40 pm

Cervelo certainly thinks of itself as a premium brand. It manages to maintain (much) higher margins than other brands and strictly prevents discounting to protect that image & price expectation. If you look at local racers, you'll notice that virtually no one races a cervelo b/c other brands or LBSs are willing to discount for coveted customers. Cervelo's new LBS-only move seems an effort to maintain that premium pricing and not let internet vendors or LBSs (the people who actually talk to the customer) control the price — and that is just as the brand is starting to lose its scarcity and position on top of the average riders wish list.

TheInnerRing October 11, 2010 at 7:43 pm

I tend to agree with you there Matt, this looks like a branding/price control exercise.

Although as I say above, we'll have to see how it works out. So far there's only a press release to go on. That said, the text reveals a pretty radical shake up.

TheInnerRing October 12, 2010 at 8:48 am

More on this, from a retailer's perspective at:
http://www.competitivecyclist.com/za/CCY?PAGE=WHATS_NEW&PRSET_VERSION=&WHATS_NEW.ID=385

Note the speculation in the article that this is a halfway point before the company moves to a model of full online sales: in the future you will buy at cervelo.com and nowhere else.

Anonymous October 12, 2010 at 10:38 am

Actually if Cervelo truly moved to a direct model – then I would be ok with it. This is because the basic premise of the direct model is cutting out the retail/channel margin. So if you can order direct from Cervelo for 30-40% less than now – I'm up for that. I suspect that's not where Cervelo think they are going – but that's the reality of selling direct.
As for stopping the grey market – this is there because of inefficiencies in the distributor market – arbitrage if you like. My friends in Australia bought their Cervelo's online from the UK and saved a lot of money as prices in Australia are very high. These people (in many territories) will simply not buy Cervelo's now as the local distributors and dealers prices are way too high. The more I think about this move the less it makes sense.
I won't pay full retail for a bike unless it is already a clear winner from a value point of view and I don't happen to like my local Cervelo dealer who has rude and unhelpful staff – so this is driving me away from the brand and I do believe that it will reduce sales. Time will tell of course.

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