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CASE STUDY SEll IllllECT-TO-COHSIIHEII OR THROUGH AMAZON? AN E-BIKE MAKER WEIG HS THE TRADE-OFFS. BY THALES TEIXEIRA Sitting in his ofce, Mark Ellinas frowned at 1118 computer screen. It was lled with row after row of electric bikes, from expensive models to cheap knockoffs that seemed held together by spit and a prayer. Though they varied in style and price, the bikes did have one thing in common: where they were being sold. The website he was looking at, ush with options, was Amazon. As the (MO ofPedalSpark, a small maker of high-end electric bicycles, Mark was considering strategies for selling the company's new ride. The market for electric bikes had exploded in the past few years,l especially in China, and it showed no signs of slowing down. PedalSpark's signature bike, a $4,000 luxury model available only through the company's website, was selling well and had been named to a few \"best e-bike\" lists. Now PedalSpark was about to introduce a cheaper, entry-level model, which it hoped would have broader appeal. The bike was tar- geted at price-sensitive riders, people who were willing to trade higher battery life and motor power for a lower price tag. Two years ago PedalSpark had hired Mark away from his marketing position at a children's bicycle maker. That company had sold exclu- sively on its own site. and Mark's expertise had served PedalSpark well with its rst product. He was excited by the challenge of selling the new bike in an increasingly crowded market, but the question was how to do it. His two direct reports were split. Gideon Bear, the sales manager, tended to favor aggressive approaches. He wanted to sell the new model on Amazon, which had, as he'd put it, \"a few more customers than our site.\" But Tamar Nourse, the product manager who'd recently come on board, was worried about whether the bike would stand out on Amazon. She thought that keeping the new model on PedalSpark's site, where their team could control the entire sales process, would be better over the long term. Bzzr. Mark glanced at his phone and saw a text from the CEO: Where are we on the online channel strategy? Inokr'rrgnrwrd to your presentation. THALES TEIXEIM is the tumor Family Associate Professor at Harvard Business Soool and the author of Unlocking the Customer Value chain: How Decoupling Drives Consumer Disruption (Currency. 2mg). HBR's ctionalized case studies present problems faced by leaders in real companies and offer solutions from experts. This one is based on the HHS Case Study \"Selling on Amazon at Tower Paddle Boards\" (case no. swear-Hcc-ENG). by Thales s. Teineira and David Lopez-Lengowski, which is available at Hiltom. The new model was almost ready, and the CEO wanted a decision soon- With the presentation scheduled in two days, Mark still had some time to thinkbut not much. GIVING INFORMATION TO THE ENEIIY Mark closed his laptop and walked down the hall to Tamar's ofce. He knocked on the open door. \"Hey, got a minute?\" Tamar looked up and adjusted her thick-rimmed glasses. \"Hi, Mark. What's up?\" He sat down across from her. \"So, about the bike. In the meetings with Gideon it feels like you've been holding something back. We have to make a decision, so I need you to tell me what you aren't telling me.\" She took a deep breath. \"Mark, I'm still new here, and I don't want to rock theboat- But I really think selling on Amazon would be a terrible move for us.\" \"Why, though?\" \"The day we put the hike on sale, Amazon will start vacuuming up information about our customers, our margins, and the market's potential. If it ever decides to get into the e-bike business, we'll have hand-delivered all thedataitneedstosquashus.\" \"I larow that worrying is part of your job, but is it possible you're being a little paranoid here?\"2 \"You should ask my Bschool class- mate Marta.\" \"Who is she?\" \"A few years ago she was the founder and CEO of a successil start-up. She'd had an idea for anew kind of tablet stand. She spent ayear developing a prototype and nding a manufacturer in China that would work with her. Then she started selling on Amazon. Now she's the former CEO of a company that doesn't exist anymore.\" \"Wow. What happened?\" \"For about a year the tablet stand got great reviews and sold well at $40 each. Dining the back-to-school season, she was moving a few thousand a month. Then a bunch of copycat products started poppingup. Shehadtoghtthemoas best she could. She complained to Amazon, but it didn't do anything, of course. Then AmazonBasics debuted its new tablet stand.3 It was alot like hers, though dilTerent enough to avoid a lawsuit. It was also halfthe price.\" \"Ebikes are a lot more complex than tablet stands, though. What are the chances Amazon will make one of its own?\" Tamar's lips curled into a small smile. \"I don't know, but if we went head-to-head against Je'Bezos, would you put your money on us? Amazon's private-label products are projected to hit $25 billion in sales by 2022.\" Mark shuddered. \"A dark thought to have before lunch. How do you gure Our chances against the existing competition?\" \"We do have great bikes, but quality isn't enough on Amazon. Whatever your product is, there's always a cheaper version, and usually that's the one people buy. It's a never-ending, anything-goes price war there. I'm guessing that isn't what we want people to associate with our brand.\"4 Nodding slowly, the (MO rubbed his chin. \"Good point, and I don't disagree. Gideon is pretty keen on the Amazon idea, though.\" Tamar adjusted her glasses again- \"I get whymore customers and more visibility. That may help us sell bikes in the short term, but what about the long tenn?S If people buy the new model on Amazon, will they be loyal to the maker or to where they bought it? We built the PedalSpark brand by selling the luxury bike on our website. Why try to x what's already working?\" TRYING SOMETHING NEI'I That afternoon, Mark asked Gideon to meethirn in the cafeteria for coffee. The sales manager poured milk into his steaming cup and swirled it around with a straw. \"Amazon, Mark. You know what I think. What are you thinking?\" "Undecided. There's a lot of risk in selling the bike there, but a lot of upside, too.\" \"Yes! I'm glad you see that. Amazon Prime has over 100 million members,6 andit's growing Imagine the salesif a fraction of them ordered the new bikeand imagine how many of them will iftwo-day delivery is available. Someone gets excited about e-bikes on a Wednesday, and by Friday she has one of her own to ride. The possibilities are endless.\" \"It's fun to daydream about, Gideon, but are we set up to handle higher volume and a shorter fulllment window? Orders that come through our site have a shipping time of two weeks. I'm nervous about promising something we can't deliverand to abunch of new customers, no less.\" 1. Ebike sales are projected to reach 40 million units by m m 2023: more than 34 million of m those will be sold in China. NOTES Harvard Business Review MarchApril 2019 2. Amazon has a huge advantage over the merchants on its site. What else should Mark and PedalSpark's leaders think about to improve their chances of succeeding? 3. Amazon has about 130 private labels so far, in areas ranging Jfrom simple electronics to clothing to pet food to furniture. 4. lfPedalSpark has to compete on price, what might be the consequences for its brand image? "But that's the beauty of Amazon," right? How would we look if we were one of Gideon laughed. "In my moments Gideon said, his voice rising in excite- dozens of e-bikes in Amazon's listings?"7 of doubt, I think of Instant Pot. It's a ment. "We have options. I know I'm "Sure, but we already have the quality appliance-not quite luxury, but telling you your job right now, but we can luxury bike selling well on our site. I good-that has a cult following and that sell product to Amazon for it to resell, or agree, we shouldn't change anything made its name on Amazon. At one point, sell the bikes ourselves and let Amazon there. But the new bike is for everyone. 90% of its sales were from there. Do you handle the warehousing and shipping, And everyone is on Amazon." know how many Instant Pots were sold or list them on Amazon and ship them Mark took a sip of coffee, thinking. on Prime Day this year?" on our own. You're always talking about 'Look, I get it, you have some "No, but I'm a little surprised you do." the value of running small, controlled concerns," Gideon continued, "so let's "I cook a lot. The number, Mark, is experiments, so let's try one and see talk numbers. Based on what our 300,000. In just 36 hours. I think we what happens. If it doesn't work, we'll competition is doing, I figure if we could be the Instant Pot of e-bikes." switch tactics and adapt as we learn." put the new bike on Amazon, we can The CMO stirred his coffee. "You may He grinned. "Everyone in this company reasonably expect to sell 10,000 units be excitable, but I'll admit it's kind of agrees we have a great new product a year." contagious. I just can't shake the feeling All I want is to get it to as many people "At what price point?" that once we open the door to Amazon, as possible." '$899. That's a little higher than we've there will be no closing it." "There are three options, yes, but they been talking about, but it gives us some Gideon held up his coffee for a toast. don't give us a lot of wiggle room if things room to go lower if we need to." "To opening the door-just a crack-and go badly. We may be able to play with the "And what are the latest numbers for seeing what's behind it." bike's price a bit, but we can't lower it that luxury bike sales on our site?" much or we won't make any money-and 'Last year we sold 2,000 units at SEARCHING FOR ANSWERS it could make us look cheap, too. I do $4,000 apiece. Remember, the new bike Back in his office at the end of the day, think a higher price point is fair for the won't be only on Amazon. We'll sell it on Mark was staring at his computer again. bike we're selling. Even luxury brands our site, too." Tamar and Gideon seemed so sure of that sell on Amazon today hesitated Mark scratched his head. "What we what to do, but the CMO was struggling about it for a long time, and it would be a really need is a way to quantify the risk to make up his mind. good idea for us to think about why that that Amazon will enter the e-bike market. The screen of his laptop still showed is. The jury is still out on whether they It would make this so much easier." the Amazon site, with its rows of e-bikes. benefit by being on Amazon.' "That's the big mystery. Amazon will Sighing, Mark opened Google and typed "You know who sells on Amazon? have all the consumer data, and we'll "What are the dangers of selling on Apple. Versace. Rolex. Jimmy Choo, have very little of it. But look at it this Amazon?" into the search bar. The query Mark-Jimmy Choo. And more will way-there are already a lot of e-bikes returned almost 250 million results. follow. Whichever companies don't will on Amazon, so they're already watching "Hard to tell whether there are more be on the wrong side of retail history." the market. Even if they do make their horror stories or more success stories," "We aren't Versace, Gideon. Besides, a own bike, that could be years away. We he muttered. "Well, this bike isn't going lot of those brands sell a very small subset might as well find new customers while to sell itself. I have to decide something, of their products on Amazon-and usually we can. People can't buy our bikes if one way or another." 6 not their flagship ones. They save those for they don't know about them." Reprint Case only R1902X their own sites or stores, where they can Mark stared at Gideon for a long control the buying experience. We're trying moment. "Let me ask you something. SHOULD PEDALSPARK SELL ITS NEW, to raise our profile as a high-end brand, How are you so sure about all this?" LOWER-COST BIKE THROUGH AMAZON? 5. As the e-bike market 6. Of the U.S. consumers who 7. How might selling on Amazon 8. When looking for a continues to grow and mature, make $150,000 or more, 70% help-or hurt-PedalSpark's product online, more than what factors will determine are Amazon Prime members. image as a high-end brand? half of consumers (54%) which companies succeed start with Amazon. and which don't? Harvard Business Review March-April 2019 4Harvard Business Review REPRINT R1902X PUBLISHED IN HBR MARCH-APRIL 2019 ARTICLE HBR CASE STUDY Sell Direct-to- Consumer or Through Amazon? An e-bike maker weighs the trade-offs. by Thales Teixeira