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Factory Built Wheels - Retail vs. OEM Pricing(15 posts)

Factory Built Wheels - Retail vs. OEM PricingFez
May 5, 2003 1:22 PM
Boutique wheels like Bontrager Race Lite, Ksyrium Elite, Cosmos, Shimano R540 arguably offer no weight or aero advantage to a DuraAce or Ultegra built Open Pro wheel.

However, the retail prices of those boutique wheels are much greater than the retail prices of either of the Open Pro combinations listed above.

Yet these boutique wheels are standard on a lot of entry and mid-level complete roadbikes. The entry and midlevel roadbike market is very competitive and price sensitive, so the inclusion of boutique wheels would jack complete prices higher, unless manufacturers were getting them as cheap or cheaper than they could get the Open Pros.

So is the OEM price of these boutique wheelsets much closer to the OEM price of Open Pros?

And is it only on the aftermarket where we consumers are faced with the sky-high prices of boutique wheelsets as compared to built Open Pros?
Not entirely,TJeanloz
May 5, 2003 1:39 PM
"Boutique" wheels do tend to have a higher markup on them than wheels built from parts. OEM pricing is generally ~10-15% below standard wholesale, more for bigger accounts. Something like a Mavic Cosmos falls between an Ultegra and Dura-Ace at OEM pricing, and is certainly more exotic, if not 'better'. What it comes down to on the sales floor, is that most people at the mid-level price points are enthusiasts who are not particularly knowledgable, and are easily biased by gimmicks. What they've heard is that good wheels are really important, so they strive to buy the bike with the best wheels. They have a hard time differentiating 'best' from 'different'. Among the general bike-buying population, there is a perception that wheels that differ from the standard 32 spoke Open Pro must be better, or else the manufacturer would have used 'normal' wheels. And keep in mind, a lot of people are reading reviews in VeloNews or Bicycling, and a 'generic' wheel never gets reviewed - so the perception is that a normal wheel just isn't as good.

Bottom line, it's a sales differentiator, like putting a Dura-Ace derailluer on an otherwise Ultegra bike, and it works especially well at the mid price point.
TJ's analysis is pretty much spot on (nm)Kerry
May 5, 2003 4:13 PM
Bottom line, part 2Fez
May 5, 2003 7:17 PM
I pretty much share your opinion of how a boutique wheel is a good sales feature and that buyers in that segment may be swayed by a bike that has a slick looking wheelset.

So I agree with you on the importance new bikes featuring them. However, without favorable pricing, then the bike manufacturers would be forced to cut corners elsewhere in order to maintain the same price point if the bike has pricier boutiques.

So back to the orig question:

Boutiques versus built Open Pros - is there more favorable OEM wholesale pricing for the boutiques as compared to the retail wholesale pricing?
Bottom line, part 2raptorUW
May 6, 2003 5:39 AM
>Boutiques versus built Open Pros - is there more favorable >OEM wholesale pricing for the boutiques as compared to the >retail wholesale pricing?

TJ sorta answered that -- typically, OEM prices are lower (by 10-15%) than wholesale. beyond that, yes or no...depending on how you look at it.

If the boutique wheels are a house brand - think Bontrager wheels on trek/lemond/klein, then the wheels are really cheap for trek. Suppose Trek "buys" their OEM wheels from bontrager. Besides "buying" the wheel at an OEM price lower than dealer wholesale, they are in fact buying the wheels from themselves which means they are paying a markup to themselves(or getting an even bigger discount - depends on how you want to look at it).

When the boutique wheels are from another manufacturer ie, mavic, only the OEMdiscount applies. same goes for standard wheels.

this type of treatment applies to all parts of the bicycle - hence the presence of house-brand handlebar/stem, etc. why pay someone else for parts when you can pay yourself for the same thing?

while this is scary from a monopoly point of view, you have to remember that the cycling industry is incredibly competitive -- that keeps quality high. house brand components, especially in the trek family, are of the highest quality.

btw -- someone mentioned how the bontrager hubs "feel" like crap compared to D/A...they don't feel like crap -- they feel like cartridge bearings should, which is different than cup & cone...different, not worse. The rolf/bontrager hubs originally were dt/hugi branded, and are still "swiss made"...the feel from old to new has never changed, and i can only think of 1 swiss hub maker....
Part 3 - new tangentFez
May 6, 2003 6:58 AM
OK, so just an overall OEM discount and not one specifically for boutiques. Got it.

*****

Which brings a new issue. What stops a big retailer like Supergo or Excel or Colorado Cyclist from getting in on the OEM pricing?

All those retailers sell complete bikes, so do the component manufacturers have a "one component group per bike" stipulation, or could Supergo order 100 component groups, seatposts, stems, forks, pedals and boutique wheels for every 1 bike they expect to sell and sell the other 99 kits piece by piece and have a pricing advantage over other retailers who pay a higher wholesale?

Or, on a smaller scale, they could strip the components off the bike and sell them and sell the Scattante frame separately and it may be more profitable while offereing low prices the competition would be hard pressed to match.

I understand large retailers may have increased buying power based on the quantity they do, but can they also get an additional advantage by utilizing OEM pricing?
Where have you been?TJeanloz
May 6, 2003 7:33 AM
The largest retailers have such large market power that they get at least OEM pricing, and oftentimes below OEM pricing. Excel is such a large account that they negotiate directly with Shimano Japan, and get below OEM prices. Most consumers don't believe the bike shops when we tell you that Excel is sometimes cheaper than our wholesale suppliers (frequently with Shimano) - but it's the truth.

Bottom line, they don't need to go through the shenanigan of stripping bikes - they buy enough that they get the stuff cheaper. On the other hand, some smaller shops have arranged to have a 'house brand' frame which allows them to buy parts at OEM pricing, but the hassle tends to be more than its worth.
Umm...Fez
May 6, 2003 7:51 AM
I already acknowledged retailers like Supergo and Excel had huge buying power.

But without any specifics, I am not sure they get better pricing on components than what Giant or Cannondale or Trek pays OEM for brand name (not house) components that they will outfit their bikes with. I would think those manufacturers go thru more volume than an Excel or a Supergo will. Just hypothesizing here - don't have numbers to back it up.

And even if Excel or CC did get better OEM prices than the manufacturer did, you wouldn't know it from the prices they charge on the build kits. The build kit route is rarely cheaper than buying a complete bike... Its the flexibility they allow in choosing component sizes and substitutions of selective parts that makes it worthwhile.
This would be similar to Gray Market partsMel Erickson
May 6, 2003 9:10 AM
Wasn't there something awhile back where Shimano was trying to clamp down on gray market parts? They seem to be taking a dim view on this type of behavior.
Bottom line, part 2harry hall
May 6, 2003 8:18 AM
Look at hubs on geekfraud, er, boutique wheels. All of Mavic's hubs are of at least Ultegra-equivalent quality.
Trek and Cannondale also use excellent parts on house-brand wheels--I have even worked on Coda (C-dale) hubs that were made by Hugi! Specialized, however, will put their name on the cheapest stuff possible and some of the least expensive Ritchey products ain't too great. I would also look askance at a Campagnolo wheel with less than a Centaur-equivalent hub.
Addenda,TJeanloz
May 6, 2003 7:01 AM
I thought up one more point that I think is a real issue. How would a 'regular' wheel work in the production of a bike? A 'standard' Open Pro wheelset uses parts from at least 3 manufacturers in production - Shimano [Campy] makes the hub, DT [Wheelsmith] make the spokes, Mavic makes the rim. Somebody has to put the three together. So if you're Trek, and you need a wheelbuilding department anyway, why not establish a brand, like Rolf or Bontrager, to differentiate your wheels from everybody elses?

The current situation is such that the big manufacturers have their own wheelbuilding shops, and it makes sense for them to build something that nobody else can, to differentiate their products. Those who don't have an in-house wheelbuilding shop need to then spec. boutique wheels from a specialty shop (like Mavic) to compete with the Rolf's of the world. It's also a lot easier, and faster, from a supply chain perspective to slap in a QR than it is to build a wheel from parts.
I thought most of the built wheels come from Wheelsmith...Fez
May 6, 2003 7:20 AM
I thought most bike companies just bought the built wheel (to their specs) from Wheelsmith.

Now maybe a huge company like Cannondale or Specialized may have their own in-house wheelbuilding operations, especially because they use Coda or Specialized hubs, but I would wager that most are ordering a complete built wheel from a wheelbuilding shop like Wheelsmith so it probably isn't as involved as you make it sound.
I was going to make that point,TJeanloz
May 6, 2003 7:27 AM
There is another issue with Wheelsmith, Dave, et. al.: can a boutique wheel be built from stock parts? I would argue that Wheelsmith wheels are branded, somewhat boutique wheels. They do build a lot of wheels for a lot of companies, but if you're going to buy a complete wheel, why would you buy a Wheelsmith when you could buy a Mavic Cosmos for the same price (if I recall, the Cosmos at wholesale is cheaper than a Wheelsmith Ultegra/OpenPro)?

So there are two decisions: buy whole or build? And boutique/standard? If you're going to build, it doesn't make any sense to build regular wheels, and if you're going to buy whole, the boutiques are just as cheap.
My takeelviento
May 5, 2003 2:06 PM
1. "...offer no weight or aero advantage to a DuraAce or Ultegra built Open Pro wheel." Actually they do offer advantage. Rolf Pro v. DA Open Pro 32sp feels very different. Whether it's worth the extra $450 is another question.

2. Lots of these boutique wheels are cheap to make. Some have very rough workmanship. Ever compared a Bontrager Race Lite hub against a Dura Ace one? I am sure it's cheaper for Trek to make that wheel than ordering rim from Mavic and hub from SHimano and build up DA/Open Pros.

3. Many manufacturers use the wheel as a marketing tool or selling point and they will surely get that money back, because shoppers for budget bikes often buy into fancy wheel image.
re: My takecyclopathic
May 6, 2003 5:17 AM
Trek still order hubs and spokes from DT and rims rolled by some off-shore OEM, what's your point?