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How bad sponsorships hurt good business

Published November 16, 2012

Editor’s note: The following piece was written by Tom Demerly, writer and photographer for Felt Bicycles, for his blog. It has been edited for length.

Poorly administered sponsorships are like showing too much cleavage at a dinner party. They attract plenty of attention, but not the right kind of attention.

Earning a net profit in the bicycle industry is extremely hard. Poorly managed sponsorships, mostly at the dealer level, makes it even harder. They create a damaging subculture of sponsored consumers who expect to pay less than retail, are trained to resist MSRPs, set an example for others to expect discounts and return almost nothing measureable—except red ink. Worse yet, through unprofessional use of social media some amateur sponsored athletes have created the impression that if you are paying full price, you are somebody’s fool and you’re not one of the cool kids.  

It’s a tough thesis, but one the specialty bike retailer needs to own. Low-level sponsorship discounting isn't all that is wrong with bicycle retail, but it is one of the many small wounds that has bled the dealer network dry in a sort of death by a thousand cuts.

The National Bicycle Dealers Association says some 4,100 independent bicycle retailers were open for business in 2011, a loss of nearly 50 percent since the 1980s. This is contrasted by significant growth in the number of USA Triathlon licenses sold, the number of triathlon events and the growth in popularity of cycling during the Armstrong era prior to the loss of his titles. It doesn't make sense that there are less bicycle retailers today than there were before the triathlon boom and the Armstrong era. If we had seen similar expansion in any other specialty consumer population we would have seen growth in the number of retailers servicing them. We haven't. 

Business owners driven by personal involvement in the sport have created a subculture of amateur sponsored athletes who don't generate additional net profits. These sponsored athletes have full-time jobs outside of endurance sports, earn middle class or greater incomes in their full-time careers and don't devote a significant amount of hours returning anything to their so-called sponsors. They are hobbyists. Worse yet, if they weren't sponsored most of them would still be buying at full retail.

Retailers have, in many cases, sponsored away their best customers. Many of these customers are very good athletes but they aren't in the business of sports marketing to return a profit to their sponsors. They are consumers turned bad, ruined by a bike retail industry not focused on the bottom line and looking for quick popularity from customers looking for a quick deal. It's like buying votes rather than earning them.

Athletes aren't the ones to blame for the sponsorship dilemma. Undisciplined retailers are. I should know, I've been one, and the last four years have been a cathartic process of trying to learn something from my own mistakes.

One of the issues is that once local bike dealers launch their sponsored athletes and teams they do almost nothing to broadcast the message about it. There are proven axioms in professional sponsorship that, for every dollar a sponsor spends on sponsorship they need to spend $8 to $10 talking about it. Big brands can afford this. Bike dealers can't. As a result, once the discounts and swag are given out, the dealer sees little in return except more sponsorship requests as savvy consumers learn to never pay retail when they can easily negotiate a sponsorship discount instead. It begins a death spiral of increasing expectation for discounts that the retailer has a difficult time reversing.

But there are some elegant solution to this dilemma. For example, they could work with brand-level suppliers to leverage their sponsorship efforts. Big brands can afford to sponsor big names and pay for the media to talk about it. Or, they can support local events instead of athletes.

One common argument the local bike retailer has made for their consumer discount sponsorship program is that it supports their local market. If dealers want to support the sport locally, build relationships and create additional demand, they should sponsor local events. The difference between sponsoring events and sponsoring athletes is significant. Price and margin are not eroded and demand is increased. Supporting local events creates more full-price consumers on a broader level. Event promoters shoulder the burden of continuing the message on Monday morning with their own website when they report results. The branding message reaches everybody in the event. It reaches them before the event date through promotions to enter the event, during the event and then after the event with results. It also gives local retailers an easy out when the inevitable neighborhood hotshots come calling for sponsorship discounts. The retailer simply says, "We support the sport locally through our sponsorship of local triathlons, bike tours, mountain bike series and cyclocross races. If it weren't for our support, those events couldn't continue to grow and provide cyclists with events to enjoy." Everybody wins.

Like all arguments there are a few exceptions, but only a few. One good example is Fraser Bicycle and Fitness in Fraser, Michigan. Their Club Fraser initiative to involve athletes in the sport has created community rather that eroded it. It has benefitted charities and encouraged athletes to participate. It is built on involvement and development rather than discounting and swag deals. It creates good customers rather than converting them to discount customers. It's also hard work for Fraser to administer.

The program has raised the visibility of Fraser at regional and national events and been recognized in national publications like the USA Triathlon newsletter. Best of all, the program hasn't eroded the strong business model of Fraser Bicycle. But Fraser Bicycle and Fitness is the exception rather than the rule.

Poorly conceived and administered sponsorships at the dealer level aren't the only obstacle to earning a net profit in bicycle retail. There is no single factor to the contraction in specialty bicycle retail over the last two decades. It is an awful conspiracy of recession, changes in how consumers access products and information, among other factors. But the first step to improving profitability is owning the problems. Starting with one problem at a time, like poorly administered shop sponsorships.

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