Because our products are better.
Well of course, this is not a very strong, or unique statement so let me clarify. Velocite products are better than the competing products in each category where we have our own alternatives. By better we either mean that our products have superior performance outright, or that they present a superior price versus performance alternative.
How can we claim that we can make better products than the well established, large bike brands? Due to my background in marketing and business management, I will explain this from the marketing and financial point of view. Nothing written here is actually a secret, just plain good management – if you are a large company. For technical reasons why Velocite products are superior, please refer to our Technology section.
In essence, and seemingly paradoxically, we are willing to pay more for our products than a medium, or a large company can. In manufacturing, all other things being equal, more money spent on making the product means a better product. Let me explain: as with all mass produced items, bicycle frames need to be made cheaply enough, well enough and sold in sufficient quantities at a sufficient price to make an operating profit. This allows the company to stay in business, and if the sales are good, grow and diversify into making more products, for example.
Large companies that make tens of thousands of frames per year have very high inventory costs pressures. It is also important to note that the value of the inventory falls over time – ie. as soon as it arrives into storage its value starts dropping, it depreciates. Consider the following example of a fictional medium sized bike company using fictional cost of production numbers:
Yearly carbon frame production volume: 20,000 units
Average cost per frame: $500
Total inventory cost: $10,000.000
Say that this medium sized company (large companies can make upward of 50,000 to 100,000 carbon frames) wants to increase the performance of their frames by improving the materials, or the manufacturing method used, but this would cost them an additional $20 per frame. Let’s see what happens to their inventory costs:
Yearly carbon frame production volume: 20,000 units
Average cost per frame: $520
Total inventory cost: $10,400.000
Yes, that is a US$ 400,000 cost of inventory increase, for just $20 worth of increased performance! Switching the entire carbon fiber layup to a higher grade to deliver a truly meaningful performance improvement can effectively double the costs (100% increase), not raise the costs by just 5%.
Therefore, with this $400,000 in mind, the question for a savvy medium sized bike company leader becomes whether the money is better spent on ever depreciating inventory, or on sharing title sponsorship of a UCI Pro continental team for example. Investing into greater cost of inventory for minor product performance gain, versus achieving a major marketing win is not a hard dilemma. Marketing, while also an expense, is seen as something that has almost immediate positive impact on the return on investment and profitability of the company.
One additional barrier to investing money into making better products is that it is very hard to convince the customers that something is actually better for them. The problem is two fold: a) people and customers cannot agree on what “better” actually means and b) why bother making meaningful improvements if the competing products offer the same performance and they sell as well as, or better than the current products in the range.
Thus we have the following basic business rules, simplified of course:
- Any real, or perceptional product performance improvements have to be achieved in a cost neutral manner, or at a truly minor cost premium
- Spending money on effective marketing is more cost effective than improving product performance
- Superior performance is not easily assessed by the customers, thus the increased inventory cost also means increased marketing cost in order to explain the benefits, however see #2
This is just simple business management theory, and does not mean that the bike companies are doing something unethical or bad, it just sets the scene for what their operating constraints are.
We have one crucial and unassailable advantage over all medium and large bike companies. We are small.
Well, what makes Velocite different?
We have one crucial and unassailable advantage over all medium and large bike companies. We are small. Thus, we do not care about the cost of inventory. We choose use the best technology and the best materials for our products, without much heed for production costs. Our products are effectively the best that they can be given the currently available materials and technology. Of course this is not a permanent state of affairs, and one day we will join the ranks of a “medium sized bike company” in the example above, however that time is not now, and I promise that even then we will retain the core products that offer truly extraordinary performance, with, or without marketing.
Our small size and performance focus allow us to pose questions like this to our factory: “Ok we want stiffness of the Helios Aero at the BB to be the same as the Magnus. Please let me know the weight.” Cost was not mentioned, and even when we were given a frankly huge cost estimate we did not baulk since the absolute performance was paramount. Achieving the targeted 150 N/mm figure while using actual aero shapes meant using only the best materials and production methods. Worrying about the cost would have meant a substandard result, or having to resort to using wider, non-aerodynamic profiles.
The other factor that allows us to make extraordinary products is the fact that for all intents and purposes, all bicycle component manufacture is now outsourced to external fabricators. This means that even a small company like ours, albeit with a very strong vision, can access the same know-how and production ability that the largest companies have access to. This is globalization in its most idealistic form – it created a level playing field where a start-up, visionary company like Velocite is able to take on the established companies, and make superior products.
What about marketing, why don’t you invest into marketing instead of the cost of inventory? It is a strategic choice for us, and a realization that we cannot compete on marketing grounds. We just do not have the $400 000, or $ 1 000 000 to spend on a UCI Pro team, or on an integrated marketing campaign. Spending any less than that would be a waste of money because we would be lost in the sheer amount of marketing noise from our competitors. We do have marketing programs, but we have to be very specific and we have to rely on you, our customers…and the best way to gain your support is to provide you with the best bike products that you have ever used.
Victor Major, CEO, Velocite Tech. Co Ltd