Price increases

[Coolcmsc]

I want to add two things here, because there's no better place than an emtb forum to discuss economic policy.

First, the concept of a "Free Economy" or "Free Market" is a misnomer: all markets exist within a legal system, and therefore a government, which defines laws and institutions governing exchange. When the legal system is removed, such as in England in 400AD after the collapse and withdrawal of Rome, markets and money-based exchange disappear. This is because in order to conduct exchange, parties must be able to create enforceable contracts, but without a legal system and government to enforce laws, that's impossible. So next time someone says to you something like "That's the free market for you", you can respond "There is no such thing as a 'Free Market'".

Second, the concept of price being determined by the intersection of supply and demand is false: as we saw with toilet paper and hand sanitizer during the crisis, prices did not increase. Instead, you saw a shortage which incurred a log of orders that was quickly alleviated by increasing output. Generally, there is no law-like relationship between price and supply or demand, contrary to what you likely learned in the economics course you took. So next time someone says to you "Well [demand, supply] has [increased, decreased]" you can respond to them by saying: "Agent based models of true monetary exchanged have demonstrated that prices are not determined by a law-like relationship between supply and demand."

In case you needed ammo to sound nerdy at your next gathering with the in-laws discussing Brexit.

True in the main, agreed, but not for Texans on a variable rate who didn’t get their electricity cut off in the recent freezing storms last month..... some has bills of $16k for two weeks of keeping warm in a normal 3-4 bed house....
But, generally I agree.

 

[Zimmerframe]

As a corollary, toilet paper, that sold out and which was shipped from China, hasn't changed price.

intersection of supply and demand is false: as we saw with toilet paper and hand sanitizer during the crisis, prices did not increase.

Aren't you somewhat over simplifying things and cherry picking examples (incorrectly) to prove your theories (incorrectly).

Toilet paper for instance. Covid came along and toilet paper distributors didn't go "Oh crap, people will probably stop wiping their bottom's - cancel all the orders - moth ball the factories" .. People (idiots) panic bought toilet paper, yet there will be just as many bottom's to wipe with or without covid. Therefore the people who ended up with 6 months of toilet paper, didn't have to buy toilet paper for 6 months - so the quantity of toilet paper purchased to toilet paper manufactured - stayed the same over x months - I don't know what supply times toilet paper suppliers work over - but I also doubt that most of the worlds toilet paper is made in Asia - it's light cheap and bulky - so more economical to make where it's needed - it will therefore be far less affected by global shipping costs.

Your interesting use of hand sanitiser as an exampled is wrong. Hand sanitiser prices went up enormously because all of a sudden there was massive demand and only limited supply as all the dirty people suddenly started washing their hands after using all that toilet paper and then discovered they could wash their hands at other times during the day too. With the correct products, they could even clean them without a sink ! Modern science - wow.

Hand sanitiser prices have settled off now, because lots of companies managed to rapidly increase production and additional companies managed to convert existing processes to create hand sanitisers - not just in Asia.

Al Boneta's use of the term margin here is a bit confusing. Margin = profit, which should already account for costs. Why are you double counting costs?

@Al Boneta's term and explanation isn't at all confusing unless you want to try to spin something to make you sound correct - when you're clearly not .

Al said - very clearly - in a way that even panic buying toilet paper shoppers could understand :

Margins have been on a steady decline for the last 20 years. When I managed my first shop at 18, most shops operated at a 40% margin. Operating costs were between 20-30% depending on the season. That left us with 10-20% profit.
Before the global pandemic, margins shrank to 25-35%. Operating costs have steadily increased to 30-35%. So now the potential profit is 0-10%. Does that seem sustainable?

So VERY clearly. He's saying that if they sold a bike when he was a lad, for $1000. $400 of that was the margin on top of what it cost them to purchase the bike from the supplier.

From that you then deducted operating costs - like running the shop, paying the staff, buying lots of american flags. Which then left - as he said - clearly - like really really clearly as if it was transparent, back lit and in bold. .... 10-20% profit.

 

[Zimmerframe]

Better late than never:

- Shipping a normal bike and an ebike will cost the same.
- Insurance costs are based on the monetary value of the goods insured, given normal & ebikes cost similar amounts, there will be a negligible difference.

Which has what been's said repeatedly throughout the thread ??!?!

 

[Zimmerframe]

First, the concept of a "Free Economy" or "Free Market" is a misnomer:

Lordy .. you really do like trying to spin anything into some giant pile of spiel .. Only when I read your entire post as being sarcastic does it make any sense ??

Next you'll be telling us that not everything is Free in a Free Economy or Free Market !

 

[Norange]

All these varying factors should be inputs in my opinion. There can't possibly be a consensus - because decisions on pricing are made in a myriad of different ways by individuals.

 

[tomato paste]

Aren't you somewhat over simplifying things and cherry picking examples (incorrectly) to prove your theories (incorrectly).

Toilet paper for instance. Covid came along and toilet paper distributors didn't go "Oh crap, people will probably stop wiping their bottom's - cancel all the orders - moth ball the factories" .. People (idiots) panic bought toilet paper, yet there will be just as many bottom's to wipe with or without covid. Therefore the people who ended up with 6 months of toilet paper, didn't have to buy toilet paper for 6 months - so the quantity of toilet paper purchased to toilet paper manufactured - stayed the same over x months - I don't know what supply times toilet paper suppliers work over - but I also doubt that most of the worlds toilet paper is made in Asia - it's light cheap and bulky - so more economical to make where it's needed - it will therefore be far less affected by global shipping costs.

Your interesting use of hand sanitiser as an exampled is wrong. Hand sanitiser prices went up enormously because all of a sudden there was massive demand and only limited supply as all the dirty people suddenly started washing their hands after using all that toilet paper and then discovered they could wash their hands at other times during the day too. With the correct products, they could even clean them without a sink ! Modern science - wow.

Hand sanitiser prices have settled off now, because lots of companies managed to rapidly increase production and additional companies managed to convert existing processes to create hand sanitisers - not just in Asia.



@Al Boneta's term and explanation isn't at all confusing unless you want to try to spin something to make you sound correct - when you're clearly not .

Al said - very clearly - in a way that even panic buying toilet paper shoppers could understand :



So VERY clearly. He's saying that if they sold a bike when he was a lad, for $1000. $400 of that was the margin on top of what it cost them to purchase the bike from the supplier.

From that you then deducted operating costs - like running the shop, paying the staff, buying lots of american flags. Which then left - as he said - clearly - like really really clearly as if it was transparent, back lit and in bold. .... 10-20% profit.

Interesting defense. Unwarranted, IMO. Here's what I find confusing, in case I wasn't clear: Al said his "Margin" is 40%. He also wrote "Operating Margins". These four usages of the term (Margin, Operating Margin, Sales Margin, and Al's version of 'Margin on Sales') aren't the same.

So, for example, a common definition of sales margin includes the costs which Al does not include, he applies these after his "margin" calculation:

Similarly, Al used the term "Operating margin" but he certainly did not actually mean Operating margin because would be double counting his costs:

It seems like he's calculating on a per unit basis similar to a Unit Contribution Margin calculation, then saying that applies to the whole business, which may be perfectly fine:

Another way of saying all this is that his 'margin' is probably not 40%, from an accounting perspective. Alternatively, the description that does fit his use of the term can be read here:

This is not a common use of the term in accounting or finance, AFAIK. This is something you tend to see in business operators spreadsheets, but this is not (AFAIK) the correct use of term (a very confusing term, let that be said) margin.

 

[Coolcmsc]

@Zimmerframe "Aren't you somewhat over simplifying things and cherry picking examples (incorrectly) to prove your theories (incorrectly)."

And...

@tomato paste “Interesting defense. Unwarranted, IMO. Here's what I find confusing, in case I wasn't clear: Al said his "Margin" is 40%. He also wrote "Operating Margins". These four usages of the term (Margin, Operating Margin, Sales Margin, and Al's version of 'Margin on Sales') aren't the same.”

I know some will say all this has no place here, but I’d not agree. “If not here, where?”, I’d ask.

I said a lot earlier and I feel this more recent info has educated me.

So, thank you both. I feel I understand all this much more. Thanks ???????

 

[Norange]

Gross Margin and Net Margin?

 

[tomato paste]

Aren't you somewhat over simplifying things and cherry picking examples (incorrectly) to prove your theories (incorrectly).

Toilet paper for instance. Covid came along and toilet paper distributors didn't go "Oh crap, people will probably stop wiping their bottom's - cancel all the orders - moth ball the factories" .. People (idiots) panic bought toilet paper, yet there will be just as many bottom's to wipe with or without covid. Therefore the people who ended up with 6 months of toilet paper, didn't have to buy toilet paper for 6 months - so the quantity of toilet paper purchased to toilet paper manufactured - stayed the same over x months - I don't know what supply times toilet paper suppliers work over - but I also doubt that most of the worlds toilet paper is made in Asia - it's light cheap and bulky - so more economical to make where it's needed - it will therefore be far less affected by global shipping costs.

Your interesting use of hand sanitiser as an exampled is wrong. Hand sanitiser prices went up enormously because all of a sudden there was massive demand and only limited supply as all the dirty people suddenly started washing their hands after using all that toilet paper and then discovered they could wash their hands at other times during the day too. With the correct products, they could even clean them without a sink ! Modern science - wow.

Hand sanitiser prices have settled off now, because lots of companies managed to rapidly increase production and additional companies managed to convert existing processes to create hand sanitisers - not just in Asia.

The price of toilet paper at stores worldwide did not change during the crisis. There were shortages (at the store) and hoarding observed, but no one went without toilet paper, FYI. The same holds for hand sanitizer and other goods. Generally the phenomenon you describe is called "price gouging", and a handful of stores did engage in such behaviour and were reprimanded--but this was unrelated to supply.

Generally, supply chains have remained largely intact.

 

[Rob Rides EMTB]

The price of toilet paper at stores worldwide did not change during the crisis. There were shortages (at the store) and hoarding observed, but no one went without toilet paper, FYI. The same holds for hand sanitizer and other goods. Generally the phenomenon you describe is called "price gouging", and a handful of stores did engage in such behaviour and were reprimanded--but this was unrelated to supply.

View attachment 55379

Generally, supply chains have remained largely intact.

View attachment 55377
View attachment 55378

I’m guessing that manufacturing, sourcing the raw materials, assembling and shipping a roll of toilet paper is significantly easier than sourcing the raw materials, assembling and shipping bikes...

And probably requires far less R&D, engineering and resource than say a bike?

 

[Jimbo Vills]

Gross Margin and Net Margin?

In 5 words summarised. ??

Without the google download ?

 

[Zimmerframe]

Interesting defense.

?? Defense ?? There is no defense. I just pointed out that you were talking crap - that's not a defence. That would suggest we were discussing something.

Unwarranted, IMO.

Well it would be wouldn't it. You just want to write total bollox and smile like a crazy person.

Here's what I find confusing, in case I wasn't clear:

You weren't - Al very simply explained the situation. You're grasping at straws trying to sound clever by trying to find fault in the wording someone has used when it's perfectly clear what they meant.

The price of toilet paper at stores worldwide did not change during the crisis.

Again. You completely make up some response which has no bearing on what has been said to propose another downloaded argument which is irrelevant as you're the only one who seems to not understand what's being written. I DIDN'T say the price of toilet paper had changed - I said the supply and demand stayed the same so it DIDN'T change.

I'm out. You're obviously just trying to grandstand in some quirky weird twisted way and throwing completely unconnected examples around which show you clearly haven't got a clue what you're talking about.

Have a lovely evening and enjoy.

 

[Doomanic]

You just want to write total bollox and smile like a crazy person.

You're just pissed because that's usually your job.

 

[tomato paste]

Gross Margin and Net Margin?

Both apply costs, but Al isn't until after the calculation, which implies he's subtracting costs twice, right? It is late here.

 

[Norange]

I think the point you're missing is that Al is a bike shop manager, not an accountant. Regardless of how he expresses it, I think the message he gave was a clear one.

 

[Doomanic]

Al is a bike shop manager

He is? I thought he was a roadie for The Grateful Dead!

 

[tomato paste]

I’m guessing that manufacturing, sourcing the raw materials, assembling and shipping a roll of toilet paper is significantly easier than sourcing the raw materials, assembling and shipping bikes...

And probably requires far less R&D, engineering and resource than say a bike?

Maybe we can go in the other direction: have jet engines produced in the west increased in price, by say, 20-30%, just like bikes? No.

 

[Doomanic]

Are you sure, it's been a while since I last bought a jet engine...

 

[Jimbo Vills]

Maybe we can go in the other direction: have jet engines produced in the west increased in price, by say, 20-30%, just like bikes? No.

That’s because demand is at an all time low.

Go have a look at rolls Royce share price and come back with a better example ?

I could probably walk into RR HQ and negotiate 2 engines for a packet of crisps right now ???

 

[Norange]

I think the forum needs to see a jet powered bike right now

 

[Jimbo Vills]

I think the forum needs to see a jet powered bike right now

Now we are talking. ?

 

[Coolcmsc]

No we are talking. ?

We areVery civilised too ?

 

[smtkelly]

I think the forum needs to see a jet powered bike right now

Already have enough hot air blowers on the forum ?

 

[Zimmerframe]

I'm aware of RR recent recap, this is the best example right now imo, its worth bringing up as a comparison. Did the price of an engine produced by RR change? No. Note that a financial asset, such as an equity share, is not an engine. Using standard S,D analysis, the price of RR engines should have fallen, which has not occured.

But your previous argument was using Rolls Royce as an example that their prices hadn't gone up where as bikes had gone up - which was proof that you were right (in whatever you were copying from google).

Now, by extension, taking your own suggestion that Rolls Royce is the best example of your argument.

In the real world (because you live in a virtual one) Rolls Royce prices should have actually gone down - so therefore bike prices should have gone down ???

Sorry - I just started writing more stuff in reply to your nonsensical babble and realised all I'm doing is feeding the troll.

Let's make it simple for you. Al was kind enough to explain the situation from a shop's point of view with a historical break down. I'm pretty sure he didn't do this so he could read your pedantic responses. Al's a very knowledgeable and helpful guy. Al gives a lot to the forum. I like what Al says and respect that even though I don't think he looks attractive in a bikini. I'd rather Al continues to give to the forum, rather than walks away because he has no time for engaging in these rediculous situations - hence why I replied - I'm being selfish - I want AL !

Bike Shops are Businesses. Bike companies are Businesses. They are not charities. They price things based on their costs and their need to make a profit.

If they price things higher than the market will support - they won't survive. If they price things too low to not cover their costs - they won't survive.

If they have a crap year, they'll struggle to develop new bikes and technology - crap for us. If they have a bumper year, they're more likely to make shiny new things and put more money back into cycling (Sponsorship etc) - better for us.

If you think the bikes are too expensive that you want to buy - buy a cheaper one. This is how it works for most things in life.

I WANT THE MERINO WOOL TOP ! ... but it's 4 times the price of the Nylon one. Do I go on "GTSF.COM (Good Time Sheep Forums)" and complain , or do I buy the Nylon one ?

You can disagree all you like by using toilet paper as an example of why you think Bikes shouldn't be more expensive. It's a simple fact - bikes are more expensive. Walk into as many bike shops as you like with your shopping trolley full of bog roll - it won't make any difference.

 

[tomato paste]

That’s because demand is at an all time low.

Go have a look at rolls Royce share price and come back with a better example ?

I could probably walk into RR HQ and negotiate 2 engines for a packet of crisps right now ???

So background here is that due to a loss of revenue from COVID impact on flights, RR has had to issue a fresh round of debt ($2B) and an equity raise ($2B, existing shareholders almost fully subscribed), you can have a look on their website for more info (nearly 6%, may even be implicitly backstopped by the state given Rolls strategic importance):

So your statement "Rolls engines have experienced a significant price reduction due to a decrease in demand" is incorrect. The price of Rolls engines hasn't changed significantly. Why? Because prices are not determined by a law-like relationship between Supply and Demand.

I think this is an example worth comparison (bigger, more complex components and assembly, decreased rather than increased demand). What we see is what we would expect to see within a monetary economy where the capital assets are still relevant to society (or where the assets are held by parties with sufficient political power)--money is created to cover shortfalls in the near-term, which preserves the associated means of production and associated labour critical to air travel. Meanwhile, the prices of the goods being sold don't change much.

A turbo fan jet engine, all it's components and associated assembly, has a relatively fixed price despite all the same changes to the world experienced by, say, EMTB production. Rob's point about product complexity being a determinant of price changes within a COVID crisis world doesn't hold for the largest most complex products we can think of, AFAIK.

So what is going on? Most likely (which is only my opinion) is that bike brands recognized COVID is a gift from heaven. However, in order to fully extract the most revenue by increasing prices (due to a massive relative increase in market power of a small sector unaccustomed to such power) they have to carefully manage customer relationships. This means they have to try to shape a narrative justifying an increase in prices: "It's not our fault, it's the virus".

 

[EME]

@Zimmerframe Yes, dead simple in reality, although I've made careers out of confusing people how complex it is.

Bit worried about your new-found sheep addiction though. Are you a closet kiwi or just trying to seduce BamBam ?

Oh .. and jet engines aren't that complex, just big.

 

[Zimmerframe]

new-found sheep addiction though

New Found !! How dare you

I do like New Zealand - do you think there's some basic subconscious connection ? It would be nice to finally work out just why they seem so attractive ....

Oh .. and jet engines aren't that complex, just big.

Now you've done it ...

Jet engine - simple .
Jet engine - big (as opposed to a micro turbine)
Jet engine - expensive .

Bike - bigger and heavier than last year.
bigger = more expensive
Bike - complex !

Proof of bike = complex : Jet engine doesn't have dropper post. Jet engine doesn't have derailleur. Jet engine doesn't have telescopic forks.

In conclusion - Bike more complex than jet engine. Bike bigger/heavier than last year . Bike should cost more than Jet engine ?

He agrees :

 

[tomato paste]

@Zimmerframe Yes, dead simple in reality, although I've made careers out of confusing people how complex it is.

Bit worried about your new-found sheep addiction though. Are you a closet kiwi or just trying to seduce BamBam ?

Oh .. and jet engines aren't that complex, just big.

Totally agree. My Trent 700 home build should be finished next week, but unfortunately for the byer COVID shipping delays will push up my sale price by 30%.

 

[Jimbo Vills]

So background here is that due to a loss of revenue from COVID impact on flights, RR has had to issue a fresh round of debt ($2B) and an equity raise ($2B, existing shareholders almost fully subscribed), you can have a look on their website for more info (nearly 6%, may even be implicitly backstopped by the state given Rolls strategic importance):

View attachment 55400

So your statement "Rolls engines have experienced a significant price reduction due to a decrease in demand" is incorrect. The price of Rolls engines hasn't changed significantly. Why? Because prices are not determined by a law-like relationship between Supply and Demand.

I think this is an example worth comparison (bigger, more complex components and assembly, decreased rather than increased demand). What we see is what we would expect to see within a monetary economy where the capital assets are still relevant to society (or where the assets are held by parties with sufficient political power)--money is created to cover shortfalls in the near-term, which preserves the associated means of production and associated labour critical to air travel. Meanwhile, the prices of the goods being sold don't change much.

A turbo fan jet engine, all it's components and associated assembly, has a relatively fixed price despite all the same changes to the world experienced by, say, EMTB production. Rob's point about product complexity being a determinant of price changes within a COVID crisis world doesn't hold for the largest most complex products we can think of, AFAIK.

So what is going on? Most likely (which is only my opinion) is that bike brands recognized COVID is a gift from heaven. However, in order to fully extract the most revenue by increasing prices (due to a massive relative increase in market power of a small sector unaccustomed to such power) they have to carefully manage customer relationships. This means they have to try to shape a narrative justifying an increase in prices: "It's not our fault, it's the virus".

How much time did you spend on the internet wasting your life with that pointless response. Which is comically contradicting....

You say :

Because prices are not determined by a law-like relationship between Supply and Demand.

Then conclude :

Most likely (which is only my opinion) is that bike brands recognized COVID is a gift from heaven. However, in order to fully extract the most revenue by increasing prices (due to a massive relative increase in market power of a small sector unaccustomed to such power)

I’ll leave it there.

I’m off to spend some time in the real world and get my shit sorted for a ride later.

Wiki is bad for you mate ? go get some fresh air ???

 

[EME]

@tomato paste So how long have you spent in large Aero Engine engineering? I'll claim 11 years.
Air sucked in at front. add a compressor or 2 , mixed with fuel, gasses compressed spat out back at twice the speed. Vehicle it is attached to goes forward.