Comment by trentnix | Hacker News Reader

Comment by trentnix | Hacker News Reader

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It's a number of different things that contribute:

- It's common for global manufacturers to sell products at different prices depending on regional market conditions. So EU distributers may get better pricing than US distributers.

- Some retailers may be able to purchase products cheaper because of volume or preferential relationship.

- Most commonly, the products beings old are actually OEM products originally sold at a significant discount to a bike brand (who have massive minimums, arbitrary product mix requirements - think a mountain bike brand buying road parts because that's the "package" Shimano sells to get favorable pricing, and big incentives to prevent them from purchasing from SRAM or some other parts manufacturer). The bike brand takes its excess parts and sells them "under the table" to a retail outlet (that they may have actually discretely partnered with at the outset).

My opinion is that yes, Shimano, specifically, doesn't care about brick and mortar retailers. Shimano considers it a relic of the past and are partially unaware (or apathetic) of the reality that their actions and distribution model is accelerating the death of the brick and mortar shops. That said, Shimano USA might care about US brick-and-mortar retailers, but they don't have enough influence to prevent Shimano Global (Japan) to affect any real change.

Shimano has seen steady growth, so they have no incentive to change. But that growth has been at the expense of the very partners that played a significant role in helping them gain market dominance.

I'm generally of the opinion that, at least in the bike industry, the shops and online outlets selling massive volume at discount aren't really in any better financial shape than their mom and pop competitors. When I first got into the industry I was regaled with stories of success of competitors like The Clymb and how they were 'killing it'. Turns out, the only thing they were killing was themselves. The Clymb, despite assurances of their brilliance, sold back in 2015 for $100,000 despite millions and millions in sales (the buyer assumed 18.5MM in debt) - https://www.oregonlive.com/silicon-forest/2016/01/the_clymb_...

Reading this, I do wonder how long any middlemen will last in the age of the internet.

Manufacturers don’t sell direct for a variety of reasons that steadily become less compelling as the costs and complexity of shipping, advertising, and retail management fall.

How long before non tech firms follow the path of tech firms and sell direct?

In the bike business (and many others), there are middlemen in between the middlemen! Between me and a bike brand would often be a distributor and in between me and the distributor was a sales rep! I found my sales reps (who took 1-4 points off the margin) to be generally likeable and altogether useless. But there they were, a relic of bike retail of old, still hanging on.

And that's the view of more than a few consumers in terms of how they view their bike shop. Anything that can be sold direct, will be.

I think the variety of SAAS platforms (spotify, stripe, shippo, no doubt countless others) becoming available that make it easy for a manufacturer to essentially buy all the business logic they need to sell D2C is the nail in the coffin.

Why does Shimano have arbitrary product mix requirements for OEMs? Why should they set different prices for different markets in excess of the costs to ship between those markets?

It sounds like they're being overly aggressive with their price segmentation. When setting up your first lemonade stand, you learn that you should set prices at the sum of costs for goods, labor, and overhead, plus a profit margin, hoping that the output of your manufacture delivers more value to your customers than that sum. Shimano doesn't want to be paid a flat rate for the value they add, they would prefer that everyone to pay exactly as much as they could possibly be willing to pay.

This is the same in the guitar industry re: arbitrary product mix.

If I'm a shop and I want to deal Fender guitars, I have to sign a dealer agreement which says that I agree to buy $x worth of apparel, parts, guitars I don't want because I don't think I can sell them etc on top of the sometimes unreasonable numbers of guitars/amps they also make you buy.

The companies have all the control and they know it. A lot of brands are also making you pay a separate fee to be able to sell online and most absolutely prohibit you as a US dealer from shipping overseas.

All of these things + operating costs make the margins at your average local music shop very very slim. I ran one of the best shops in the world and we still struggled with this kinda stuff.

On the face of it, it seems like a market ripe for disruption. Is it that hard to make a decent guitar, or is branding so import to customers that a new brand with a decent product at a cheaper price has basically no chance?

There are a lot of brands and manufacturers. One brand might use multiple manufacturers. Or one manufacturer might make for multiple brands and might even sell some directly with their own brand. Some forms are trademarked (Charvel uses the Fender headstock shape in some of their models). Pickups make a big portion of the sound, again connect different ones together. Some makers insist on putting really crappy pickups in their otherwise excellent guitars. Some might have ok woodwork but all the hardware is bad.

The traditional evolution for a guitar maker is like this: A guitar technician tours with famous guitarists and starts customizing instruments for them. They start their own brand for making new guitars. They have a small team in a small shop and they hand make good but expensive guitars. Then they move manufacturing to Japan. Still pretty good stuff, moderate price, available for the people who really want to get it. Third phase is to move manufacturing somewhere else and sell barely adequate quality guitars with just your brand. Make flashy paint jobs, sell to the masses as "first guitar" etc. Original owners might be out at this point.

Some decades later introduce some old models revived at high quality again.

But then how come some of them have so much power over retailers?

On the bicycle side, the disruption is happening. It's just leaving local retailers out of the mix. Instead, we have 100% online brands appearing (Canyon, etc).

Locally, the bike shops that are doing well all have a side-business - several have brewpubs or cafes, other have training facilities.

> When setting up your first lemonade stand, you learn that you should set prices at the sum of costs for goods, labor, and overhead, plus a profit margin, hoping that the output of your manufacture delivers more value to your customers than that sum.

That's kinda opposite of a lot of (good) HN advice about pricing.

Here, we (mostly) agree that you set your prices to capture as much of the value you're providing to the customer as you can, not some simple markup on your costs. If the customer gets 10k/month value from your startup, of course you don't price it at $1k - even if it only costs you $500 to provide it.

If I had been running a lemonade stand on the island where Fyre Festival was failing to eventual, you can be sure my pricing would have been regarded as predatory and obscene to all the "cost plus a profit margin" folks.

I reckon the big error here - is tradition wholesale and retail chain ignoring the fact that geographic market segmentation is rapidly disappearing for many things. Shimano think they can gatekeep their markets, and sort-of can at retailer level using distributor contracts. But they totally can't stop consumers buying online from wherever it's cheapest, and that includes dark shift and/or knockoffs from AliExpress et al. Shimano will slowly kill their distributor network, who'll go broke or give up stocking Shimano as more and more consumers use them as a showroom and then go buy parts/bikes online. That'll happen more or less slowly depending on Shimano's brand strength, but the smaller and less discounted distributors will go (or skirt the wholesalers) first, and sooner or later the only place to see a Shimano bike will be a few major specialist bicycle retailers or on late night TV watching the Tour De France.

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