What Your Money Buys

What Your Money Buys

It often is surprising that high-end components cost not just a little more, but several times as much as budget components. For example, the high-end Sugino cranks (above right) cost more than three times as much as the budget model from the same maker (above left). (This already takes into account that the bottom bracket is included with the expensive crank.)
Both are good cranks. Neither is likely to fail prematurely. Both will transmit your pedaling power to the chain. The high-end crank has some advantages: It is lighter, it has a narrower tread (Q factor), it probably is a bit stronger, and the finish is prettier.
In this post, I am not concerned about whether the high-end crank is worth the extra money. Instead, I will examine why it is so expensive. Many cyclists gladly would pay an extra 20% or maybe even 50% more for a nicer product, but isn’t the upcharge for high-end products excessive? Are the makers of high-end products getting rich? If not, where does all the extra money go? Here are some answers:

Better materials: High-strength steel and aluminum alloys are more expensive than more basic versions of the same metal. The same applies to carbon fiber.
Even for the same alloy, reputable suppliers charge more, but they also guarantee the composition and temper of their metals. Discount material suppliers have been known to “substitute” a less expensive aluminum without telling the company who places the order. (That is how they can undercut the prices of the competition.) There is a reason why quality materials are marked with complete product information (above).

Better manufacturing techniques: Forging parts (above) costs more than casting, which in turn costs more than stamping. Even for the same technique, employing skilled labor and the best machinery results in more precision and strength. For example, inexpensive castings can contain air bubbles that reduce the strength. A skilled craftsperson will get better results, but at a higher price.
Closer tolerances: A lightweight, high-performance part has less margin for error, so it must be made to closer tolerances. For example, the casing layers in a high-performance tire must be placed much more accurately into the mold than those of a utility tire, which has much more overlap between layers.

More manufacturing steps: Extra steps in manufacturing can improve performance and appearance, but add cost. For example, drilling out the center of a bottom bracket spindle reduces the weight, but takes an extra step of precision machining. A dedicated crank machining fixture can improve the runout of your chainrings. And polishing components requires extensive manual labor. All these things cost money.
More research and development: The more you optimize a component, the longer it takes to develop it. You need more prototypes, you need better engineers, and they need to spend more time.
More oversight: Getting suppliers do exactly what you want is extremely time-consuming. Our engineer in Taiwan has been working almost full-time on the René Herse crank project for months now. He visits the various factories weekly (or more often) to make sure everything is according to spec.
It is much easier (and cheaper) to send a set of drawings (or even just a photo and sketch) to a supplier and just accept what they come up with.
More testing: High-end parts usually are tested both by the company, as well as independent testing labs, to make sure they are safe. For lower-end parts from small companies, the customer often does the testing. If there is a failure, the company usually recalls the parts, but sometimes people may get hurt.
Smaller production runs: A high-end product tends to sell in smaller numbers because it costs more. This in turn means that the costs of R&D, molds, dies and setup must be amortized over smaller numbers, which increases the price.
For example, a tire mold costs about $18,000. If that cost is amortized over 100,000 tires, it adds 18 cents to the price of each tire. If it is amortized over 1000 tires, then it adds 18 dollars to each tire.
Knowledge costs money: We often think of geometries and other knowledge as “free.” After all, you can buy a copy of Bicycle Quarterly and learn all about optimized geometries for front-loading city bikes. And it doesn’t cost more to rake fork blades to 55 mm offset than it does to rake them to 43 mm. So why do many makers simply strap a rack or basket to their standard hybrid frames?
I have come to realize that knowledge isn’t free. Researching a topic and evaluating the results takes time. Making prototypes and testing them takes even more money and time. Making decisions within a company takes meetings, presentations and more time. Qualified people spending time on a project adds up very quickly to a lot of money. It is much cheaper to say “We’ll just copy the specs from our competitor’s catalogue.”

Prestige: In some cases, companies charge more for a product simply because they can. The Campagnolo Super Record cranks (above left) are virtually identical to the Record model (above right), yet the “top-of-the-line” Super Record model costs $120 more. While this practice is common in the mainstream (just think about cars!), it is rare among the small makers who make products for enthusiasts.
When you add it all up, I hope you are no longer surprised that better parts cost significantly more than the cheaper offerings. The sad truth for small manufacturers of high-end parts is that the profit margins usually are lower on the more expensive parts and bikes than they are on the cheaper ones. In the end, it is up to you to decide whether the improved performance warrants the higher price.

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Comments (22)

  • marmotte27

    I like companies like Campagnolo, where the effort made in year X is handed down, at least in part a few years later to less costly product lines (if it isn’t watered down too much in between by the marketing people, Campy is suffering from that increasingly). Unfortunately not many companies have several product lines like that, only the bigger ones do.

    January 12, 2012 at 8:11 am
    • Jan Heine, Editor, Bicycle Quarterly

      Yes, Campagnolo used to first amortize the cost of tooling, R&D, etc., by introducing a product as a high-end product. Once they had recovered their investment, they moved some components to a lower line, to get some more returns out of the tooling. It’s sort of like a paperback book. The hardcover version pays for the writing of the book, and once that money is recovered, the paperback provides additional income.

      January 12, 2012 at 8:37 am
  • Mike Jenkins

    Product cost for a individual unit from a company that makes many units and has multiple products is largely unknowable, despite the best efforts of cost accountants all over the globe. Material content usually has a firm basis, until we inventory or hedge giving us time-based errors. Direct labor hours are tracked in many organizations, but are not usually directly attributable to a specific widget. Indirect costs are aggregated and allocated based on direct costs from the previous years’ data. If this year’s product mix is different all bets are off.
    Product costing is most useful in assigning a value to inventories for the purposes of taxation. It is exceedingly rare for the sum of the standard costs to equal the actual costs. Many folks believe that manufacturers should price on the basis of cost plus some nominal profit. That’s very difficult to do because there’s rarely a single price for anything. Most markets are naturally segmented by location and use. I can buy aluminum contacts on the London Metals Exchange to meet my raw material needs, but I have to pay a premium to take delivery here in Chicago.
    For non-craft or mass produced items, pricing above raw material cost is mostly set by what people are willing to pay. Many companies are perfectly willing to accept lower margins on their prestige products for marketing purposes. The vast bulk of what they sell is budget commodity stuff, but their reputation is marketed by the high end segment.
    I will grant that the high end stuff stuff is more costly to produce, but it is not quantifiable in a way that will allow you to make sense of the price.

    January 12, 2012 at 8:36 am
    • Jan Heine, Editor, Bicycle Quarterly

      Mike, thank you for adding the perspective of large companies. You are right, a Cadillac does not cost twice as much to make as a Chevrolet… but people are willing to pay twice as much.
      In the bike world, many small companies still use the old “cost + profit” model of pricing. For a company like Compass, it’s pretty simple to keep track of what things cost. The only thing that is hard to keep track of is how much employee time is spent on each project, but much of that is mine, and if I started counting that…

      January 12, 2012 at 9:03 am
  • msrw

    Thank you for this outline–it’s the most informed and succinct overview on this topic that I’ve seen.

    January 12, 2012 at 10:24 am
  • Conrad Kornmann

    Interesting post. I agree with what you are saying. For your example with the Sugino cranks though- the crank on the left is forged and has a great finish quality. Why is it so much less expensive? Because of the bottom bracket? ( I think you would agree a square taper bottom bracket is a better design than the outboard bearings). Better alloy? Better chainrings? A narrower tread and slightly better finish are all the crank on the right have going for it.
    Just for fun: what do you think Campagnolo would charge for the equivalent of a Schmidt dynohub if they were able to make something that nice?

    January 12, 2012 at 11:44 am
    • Jan Heine, Editor, Bicycle Quarterly

      You’ll have to ask Sugino what the difference is. I suspect much of the difference comes from the R&D and the smaller numbers over which the cost of the dies and tooling have to be amortized. Perhaps a better alloy for the chainrings? (Inexpensive Sugino rings used to wear like butter.) More precision in the machining and thus less run-out for the chainrings? A more expensive supplier for the forgings who offers better precision for the lighter cranks?

      January 12, 2012 at 2:42 pm
    • Fred Blasdel

      The crank on the right has a feature that’s wholly unique — there are two bolt circles in the same plane, so you can use either 74 or 110mm chainrings for the inner, which is only possible by having the spider offset all the way to the outside: http://www.suginoltd.co.jp/english/ox801d_main_english.htm
      The only other ways to accomplish that kind of wide range double with a road q-factor involve tall flexy chainrings on a single obsolete or proprietary bcd. Jan’s new crank will at least have reasonably stiff rings, but even more proprietary with just a single source and no deadstock of NOS rings.
      With the OX801D you have a huge range of very nice pinned and ramped options available cheaply and in perpetuity. Yes it’s expensive, but it’s only about twice as much as mass production cranks of similar construction and quality. By making something obscure and unique I think Sugino’s more than earned the ability to charge as much as Dura-Ace or Record. If they made them longer than 175mm I’d have bought a set immediately.

      January 12, 2012 at 3:21 pm
      • Jan Heine, Editor, Bicycle Quarterly

        That feature is nice, but as long as we assume that knowledge is free, it should not affect the price. Regarding the “flexy” chainrings on TA and Stronglight cranks, I have ridden them for many years, including on tandems, without problems. (You are right, our rings will be a full mm thicker and have better support, but I don’t think the competition is lacking in this respect.)

        January 12, 2012 at 3:40 pm
      • Bubba

        Fred said: “With the OX801D you have a huge range of very nice pinned and ramped options available cheaply and in perpetuity. ”
        Not really. It’s true ONLY if you use both a 110mm bcd big and small ring. If you do a 48×32, or a 46×30, or anything that puts the small ring down on the 74mm bcd, then your big ring has to have the chainring bolt recesses machined into the inside, on the ramped side. All your nice rings are machined with the recess on the outside. Most likely, you end up paying >$100 for replacement big rings from Sugino, and fret about whether this odd configuration will also become obsoleted.

        January 13, 2012 at 1:53 pm
        • Jan Heine, Editor, Bicycle Quarterly

          You make a good point: When a big maker introduces an “new” standard, it usually is only a matter of time until it is superseded by a “newer” standard and becomes obsolete. (Try finding 6- or 7-speed Shimano cassette cogs!)
          When a small maker introduces something they consider optimized, it usually stays around for a long time. René Herse introduced his cranks in 1938, and his shop continued to supply chainrings for 48 years. When he changed the chainring design to accommodate Campagnolo-style chainring bolts (which had become standard in the intervening years), he remachined customers cranks to take the new rings and bolts.
          And once we get our first shipment in a few weeks, people with René Herse bikes will be able to buy chainrings for their cranks again. And we hope to supply these chainrings for a long time to come. I can assure you that we have no plans to introduce a “complete redesign” any time soon, if ever.

          January 14, 2012 at 7:49 am
  • Mark

    This is an excellent topic for a blog post, but lack of details leave it ambiguous. For example, what different materials were used between the cranks, and why is one better? What tolerances were used in the lesser crank that would constitute it as less reliable or more problematic? What were the manufacturing techniques used in the manufacture of the high-end crank that makes it of a higher quality.? Advertisers often use the “better, faster, lighter” slant, but rarely provide convincing evidence.

    January 12, 2012 at 12:13 pm
    • Jan Heine, Editor, Bicycle Quarterly

      The cranks are only used as an illustration for similar components from the same maker having very different prices. As mentioned elsewhere, I don’t know the details of how Sugino makes their cranks. For the René Herse cranks, I know where the money went, and I’ve pointed to some of those things in this blog.

      January 12, 2012 at 2:45 pm
  • NatMc

    Almost weekly I thank the universe for giving birth to me in this era of monumentally inexpensive bike parts that work just as well as expensive ones. It’s nice to know what makes those parts so expensive so I can forget about it entirely as I cruise on down the road on my sub-$1000 bicycle.

    January 12, 2012 at 2:18 pm
    • DJ

      I have been thinking that way myself. I wonder if there might be a placebo effect that could be at work. If people believe they are riding with a more expensive component then will that really improve their experience and performance? The average rider and even some experienced ones might have trouble noticing some differences between the expensive and less expensive parts. (By less expensive, I do not mean cheap and broken.)

      January 14, 2012 at 3:36 pm
      • Jan Heine, Editor, Bicycle Quarterly

        One thing everybody notices when things break down. In 2007, I bought a set of Shimano PD-A520 pedals with low-grade bearings. After a few months, I developed pains in the ball of my left foot after long rides. I noticed that the left pedal bearings weren’t turning smoothly. I replaced the bearings, put new grease inside, and adjusted them perfectly, but the pain continued. So I bought another set, replaced the left pedal, and the pain was gone. Three years later, the bearings in the other pedals were worn out. For comparison, my old Look pedals lasted for a decade and still are spinning smoothly. Per mile, the low-grade Shimano pedals have been the most expensive pedals I have owned in a long time. I am looking forward to trying their better-grade touring model that finally has become available.
        I do like the foot support these pedals offer together with the walkable feature, but I wish they had made a model with quality bearings from the start. That would have saved me considerable money and aggravation. Hopefully, I still would be on my first set, rather than having bought three sets of pedals by now.

        January 14, 2012 at 5:51 pm
  • paul priest

    High quality parts are often expensive, but can still be had in a modestly priced bike. It all depends on how one allocates resources. For instance, a high quality rear wheel is essential for reliability, but even an inexpensive front wheel is usually unproblematic; drivetrains don’t work well with flexible and/or out-of-plane chainrings, but an inexpensive rear derailleur will get the job done;and one need not spend extravagantly on high quality stems, bars, and seatposts. Even Jan’s bike illustrates the point: expensive frameset, crankset, and rack; inexpensive brakeset, shifters and sprocket cluster (freewheel).

    January 12, 2012 at 9:19 pm
  • jon_norstog

    I have two road race bike models: The Rapide and the Black Shadow. Both are fancy lugged frames with heat treated crome-moly tubing. The only difference is the equipment and the price. The Rapise has Campy CF Chorus equipt and the Black Shadow has Record. And the Black Shadow costs way more. But if you rode both of them you could not tell the difference.

    January 12, 2012 at 9:44 pm
    • Jan Heine, Editor, Bicycle Quarterly

      On the road, the difference in weight probably is not noticeable, but some of the Record components do have some features that decrease the weight and increase durability/repairability.

      January 13, 2012 at 4:57 am
  • ascpgh

    That Sugino crankset, as the example, set the hook for me. I appreciate the costs, provided the product is as competent as the outline you lay out.
    I recall some CNC cranks from TNT in the ’90s that were the objectified component of the day for all of the reasons Jan laid (out except the research part). Most reviews of them include something about them snapping followed by rationalizations about how their service life was just fine. Not when my mainstream Shimano DX crankset existed in service when my colleague received his TNTs for his pet project and after those same gems were in pieces.
    It all has to be included. That said, those Sugino OX801D cranks are my most-lusted after pieces. I trust Sugino not to “beta” them on consumers as TNT did my colleague.
    The automobile comparison is applicable in this case. For your hard-earned money do you satisfy your requirements then accept a few more features for some more money in the same brand line or do you jump marques and consider product from a company with a reputation you recognize?

    January 17, 2012 at 4:10 pm
  • Chris Freeman

    It is pretty vulgar and crude to discuss the costs of production and not mention the worker outside of their role as an instrument -“craftsperson”-. What are your workers paid, what are the conditions they are woriing in, what quality of life do their families share? Certainly you are engaging in the technical side of prodution, but to imagine that production exists in a mechanical vacuum is pure fantasy. It is important to realize that all quality parts are not made in the same conditions. I wonder, how fares the worker in your Taiwanese factory?

    January 19, 2012 at 5:48 am
    • Jan Heine, Editor, Bicycle Quarterly

      You make good points. In many cases, production of less expensive goods is farmed out to countries with lower wages. While this is a complex issue – often, the manufacturing jobs pay better than other jobs in those countries – few companies move production for altruistic reasons. And the jobs that are displaced usually do offer higher pay – it’s a race to the bottom.
      At Compass Bicycles, we do consider those issues. We don’t have our products made by the lowest bidder. The working conditions of those who make our components are important. Most Grand Bois products are made in Japan, some are made in Taiwan. Japan’s days as a low-wage country are long past.
      The reason to manufacture in Taiwan is not the lower cost, but the expertise, tooling and willingness to work with relatively small orders that characterizes the Taiwanese industry.
      Wages in Taiwan generally are high by international standards. In fact, they don’t lag far behind the U.S., see http://www.worldsalaries.org/taiwan.shtml. While I haven’t seen the pay slips of the people working in the manufacturing shops who make our cranks and other parts, they are highly skilled people who would not work there if they were not compensated well. And those shops are in fact located in Taiwan, unlike many factories that have an office in Taiwan, but manufacture elsewhere, yet write “Made in Taiwan” on the package.
      Similarly, our books were printed by the most competent printers, not the cheapest. The first edition of The Golden Age of Handbuilt Bicycles was printed in France. The Competition Bicycle was printed in Singapore. Bicycle Quarterly is printed locally, here in Seattle. (The second edition of The Golden Age of Handbuilt Bicycles was edited by Rizzoli, and they printed in China. I had no control over that.)
      For now, we don’t manufacture in China, Malaysia and in other low-cost countries. I don’t see those countries having any benefits except lower cost. And cost is not the only factor for us. Lower wages usually go hand in hand with a less skilled workforce, because there is less of a tradition of industrial production. For us, the trade-off of lower wages in return for lower quality is not worth it, not to speak of the issues you mentioned in your comment.

      January 19, 2012 at 6:24 am

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