Abstract
Schwinn Corporation is a manufacturer of bikes for over a hundred years. The company has faced several challenges in the recent past through a near-death experience through bankruptcy in court. This paper analyzes the strategy of Schwinn Corporation to regain its market share. The strengths, weakness, opportunities, and threats faced by the company will be analyzed. Various factors that affect consumer preference and the decision for Zell/Chillmark to invest in Schwinn will be analyzed.
Strengths and weakness of Schwinn
Strengths
Schwinn has produced its product for more than 100 years, has huge popularity, and is a household name for people looking to purchase a bike. The company was the top seller for bikes and the most popular brand in the United States. The new management knows this and gives Schwinn another chance to grow and start out in a positive direction by allowing them to open to improvements and technology which they had ignored in the past years.
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Weaknesses
The company is run by old management which can hinder the progress of Schwinn in the market. The company has had difficulty to advance its technology by coming up with new products that are competitive in the market. Schwinn products were highly popular in 1980 but went down in demand because they lacked the necessary knowledge to produce products that meet the consumer’s demand. The company also faced bankruptcy at a time when consumer tastes was changing. The bankruptcy almost wiped out the company’s name and they lost its competitive advantage. Schwinn is currently operating on an old and outdated business model. The current bike business is replaced by independent bike shops and Schwinn bikes face a huge competition.
Opportunities and threats faced by the company
Opportunities
The new management can give Schwinn a chance to start over again and utilize the technology to create bikes that meet the desires of the consumers. The company can rebuild its brand, image, and name. The major focus on the market will be trying to produce bikes that are of better quality, highly priced, and can compete with brands that are currently popular. Schwinn has a ready market of people that are ready to purchase the company’s products as long as they are of high quality.
Threats
Schwinn faces huge competition from other companies and has since lost the command it had on the market. Consumer tastes are prone to change and most consumers have a negative view of the company’s product as they regard its products old and outdated. Competing companies have a strong command of the market and have loyal customers that seek their products. Production of products in other regions such as Asia can give the company’s image a bad name. Locational markets in different parts of the United States demand different products and the company should research the requirements from each market segment.
The importance of mountain bikes to be made in America
Producing mountain bikes in America is important to appeal to the perception of consumers in the United States. People have a better perception of products made that are handmade in America. The products become sought after by consumers compared to products that have been produced in other parts of the world. Producing bikes in America will improve the brand of a company and give it a better image in the market (Hugstad and Durr, 2015).
Schwinn’s strategy of selling bikes for prices ranging from $100 to $2500.
Schwinn’s strategy involves appealing to different segments of the market. The different markets that have to be priced accordingly include the mass market for children, dedicated sports bikes, retro, and a seasonal market. Focusing on products priced differently will appeal easily to a large market and Schwinn will satisfy the needs of every biker. A high quality and costly product allow them to compete with other retailers that will have high price ranges. The company would also want to produce bikes for kids at a low cost. Venturing into the mountain bike market would provide an opportunity to reach new product users.
Exclusive dealerships are disappearing and bike shops have several brands. This puts pressure on Schwinn to ensure that their products are price-competitive as each consumer is going to do a basic side-by-side comparison.
Evaluation of Zell/Chilmark’s decision to invest $50 million in Schwinn
The investment was largely obtaining a popular brand. However, it lacked the support or adequate management that would drive product sales up and the company in a positive direction. The company has been in business for many years, is a household name, and have the opportunity to advance its technology and regain the market share it once had.
Breakeven point and payback period calculation given the assumptions: Schwinn has 4% of the retail bike market; Schwinn bikes are made up an average of 20 % retail; Schwinn has a 25% profit margin on its bikes.
Retail Bike Market:
12 million bikes sold annually;
8.5 million = mass market for low-priced bikes
3.5 million = other
For $50 million, Zell/Chillmark got the Schwinn brand and the opportunity to resurrect it. Breakeven point and payback period = 7.5 months @ $6.63 million/month profit.
Schwinn market:
480,000 (4% of 12 million); 70% = low-end (336,000); 30% = high-end (144,000)
$10-$500 markup at retail on bikes priced from $100-$2,500
Profit margin:
$22.50 low-end vs. $500 high-end ($7,560,000 vs. $72,000,000 = $79,560,000 total annual profit - $6.63 million/month profit)
Number of bikes Schwinn sells that are priced $400 if Trek’s sales are 80% in the category
TREK market = 24% of 12 million = 2,880,000 bikes
2,880,000 x .80= 2,304,000
Schwinn thus sells 144,000 in this category
In conclusion, while Schwinn has faced a difficult time in the previous years, the company still has an opportunity to currently enter the market. The company can do this through the manufacture of a wide range of products ranging from kid’s bikes to mountain bikes. The company should capitalize on its popularity and brand name to regain its market. The company should strive to change its products with consumer preferences and become flexible in the adoption of new technology.
References
Hugstad, P. S., & Durr, M. (2015). A study of country of manufacturer impact on consumer perceptions. In Proceedings of the 1986 Academy of Marketing Science (AMS) Annual Conference (pp. 115-119). Springer, Cham.
