In college I used to joke that if you fell asleep during Economics class and the professor called on you that you could answer every question with the same answer:
Thanks CA, that really cleared things up! I’m so happy you wrote a blog post about this.
But I’m serious. Stick with me here, I promise some good advice.
First, understand that demand is more than just a function of price
Yes, price is a huge driver of overall demand. And just to prove it let’s consider two extreme examples. A free bicycle and a million dollar bicycle.
If bikes are for free then I want all the bikes.
If bikes cost a million dollars then I want zero bikes.
Well, maybe I’d steal one.
But the demand function is generally not a single-variable equation and many other items may affect one’s own demand.
- Income level: More moneys means you’re more willing to spend it on stuff.
- Quality: Crappy bikes suck.
- Consumer tastes: Chris Froome wins Le Tour on a Pinarello? Must. Buy. A. Dogma.
- Substitutes: This leg-powered thingy is the same as this gas-powered thingy? Screw that and gimme some AC!
- Expectations: I’ll be so much faster once I buy an Italian-made bike. That’s totally why I suck!
It’s all ’bout the sweet spot
There are a million bikes out there and a million more reasons for owning one. Everyone’s need is different and the budget will vary significantly depending on each situation.
Again, let’s consider two very different examples:
- A 5 block commute in NYC: You should spend no more than 50 bucks since it’s probably gonna get stolen at some point. And if not stolen then run over by a taxi. But really, a few blocks is a few blocks and Craigslist is your best friend here.
- Qualify for Ironman Kona: Good chance you’re looking at a $2,000+ triathlon bike as saving watts over those 112 grueling miles in order to “run” a marathon is key here. And saving watts ain’t cheap! The majority of the other elites vying for those coveted Kona spots will be riding one as well so unless you’re a diesel marathoner you’re probably gonna want to drop a few bucks here. Sorry.
Now back to Economics class.
A typical Economics graph will list Price on the Y axis and Quantityon the X axis in attempt to illustrate where opposing curves (e.g. supply and demand) can reach an equilibrium.
But since we’re looking at a single purchase I’m going to switch out the standard Quantity for Fanciness. In this case price and fanciness are positively correlated in that the more fancy the bike is then the more expensive it is. On the other hand as bikes get more expensive the demand (i.e. want) for higher-end features such as carbon frames or electronic shifting decreases.
The goal in most situations is to achieve an equilibrium between the marginal cost and marginal benefit.
Sorry, lemme try and explain.
- Marginal cost: The cost associated with buying an additional unit of “fanciness.” So if the bike with Tiagra components is $750 and the bike with 105 components is $1,000 then your marginal cost is $250.
- Marginal benefit: The value gained from purchasing that additional unit fanciness.
Consider the below graph. The blue line represents the marginal benefit associated with buying additional units of fanciness and the red line represents the cost. In sillier terms, the red line illustrates that more fancy = more moneys and the blue line illustrates the notion of more moneys = eff that.
Now to the left of the intersection is where the benefits outweigh the cost. For example, buying a bicycle from a reputable brand rather than some skeptical-at-best road bike from Walmart is fanciness worth spending for.
The right section represents dude-bro buying a $13,000 Dimond triathlon bike to participate in his first-ever triathlon hosted in the local gym parking lot.
The intersection of the two lines is where we often should aim to be. This is where we spend the exact-right amount so that there’s no perceived benefit or utility from spending any more.
But what’s the problem with perception? Well it is hard to quantify and therefore depends on each situation.
I took Economics 101 as well. But can I get some actual advice here?
OK, a lot us have heard the tired phrase: “Buy cheap, buy twice.” And that’s fairly good advice.
However, I prefer the phrase “Buy crap, buy twice.“
You see, just like demand, price is also a function of many things. A company may set a high price for a variety of reasons such as:
- Superior quality: We like quality here.
- Demand for product: If everyone wants the Pinarello then they will cost more moneys despite being almost the same as other brands.
- Price of competitors: Some people want to undercut their competitors whereas others want to be perceived as a premium brand. Ignore perceptions and look for real data.
- Cost of production: How efficient are they at producing stuff?
Let’s look at quality for a moment because that’s important. While I recommend Target’s workout shirts I DO NOT RECOMMEND their bikes. I have, and always will, recommended a “bike store” brand bicycle.
But quality doesn’t necessarily mean a $10,000 bike. A good rule of thumb is to make sure that the bike’s comments are listed in the Shimano/SRAM/Campagnolo hierarchy. A road bike with any of these, even at the basic Claris level, will be a good-quality bike. Walmart may list its bike as having Shimano components but they probably are not listed here. (Hybrid and mountain bikes have different hierarchies)
Now onto the other items.
- Demand for product: If everyone is rushing to buy fat-tire bikes right now then you know what that means? Soon there’s gonna be a whole buncha used fat-tire bikes available on Craigslist. Don’t get caught up with hysteria.
- Price of competitors: Some brands (cough, cough, Rapha) just make stuff expensive because they’re elite jerks.
- Cost of production: You know why Felt can offer a triathlon bike with Ultegra components for $2,000 while Cervelo offers a similar one for $3,500? No, the Cervelo is not 75% more awesome. Felt is just able to produce bikes more efficiently. Don’t think that more money always means more amazingness.
For the love of all that’s holy, just give me a flipping price range!
Well, last year I found a Diamondback Century with Ultegra components on sale at REI for $1,000. And if you followed my advice and became a member you could have scored that beauty for $800.
Wait, $800 for an Ultegra-level bike? What. The. Fuzz!
Right now that bike is listed at REI for $1,300 (for size 56cm). Be patient and you’ll continue to find deals like this, probably better.
Like, I don’t know, around winter time?
Yes, they have come along way since those BMX bikes you rode as a kid. They’re a legit brand making high-end bikes and even sponsor a professional cycling team.
Everyone one of them will probably destroy you.
So, one last time, how much should I spend on a road bike?
If I found an Ultegra-level bike, which is considered a higher-end component level, for $1,000 then the long-awaited answer to your question is?
Well, for sure no more than $1,000. And, with the right amount of patience and know-how, $600 can get you a good Sora to Tiagra level bicycle that will provide hours of funness and solid riding.
So aim to spend $600 – $1000 for a decent new road bike.
Even if I paid more for mine. Whoopsie.