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Pacific Cycle gets Solid Business Review Capital Region Business Journal - Pacific Cycle rides many 'channels' to success Madison, Wis. -- June 01, 2007 -- Madison's Pacific Cycle sells more bicycles today than any other U.S. company. It's because of a savvy strategic decision made by company execs to compete in multiple bicycle industry market segments. The decision paid off big time. Jeff Frehner is president and was recently appointed chief executive officer of the company. He's a lawyer by education and a cyclist by avocation. Frehner and his colleagues' savvy strategic decision to compete in multiple bicycle industry market segments paid off big time -- today, Pacific Cycle sells more bicycles than any other company in North America. In 2001, Pacific Cycle acquired and then transformed Schwinn, a strong but twice-bankrupt brand, into one of many revenue growth drivers. At the time of the acquisition, Schwinn was one of 189 bicycle brands sold in the independent dealer channel consisting of locally owned retailers that serve the serious biking enthusiasts' market. "Yet the brand was really well known -- an American icon not unlike Harley," said Frehner. To gain share, Pacific Cycle exploited a market trend that saw bicycle sales growing far faster in the mass-merchandising channel, consisting of big box national chains like Wal-Mart and Target. "With a weakened position with the independents, and no presence in the mass market, it made strategic sense to take Schwinn into the mass market as a premium brand," Frehner said. In fact, Schwinn sold more units in its first six months in the mass market than its entire last 15 years with independents. The company also uses this multichannel strategy with Mongoose, a mainly off-road bicycle brand. Pacific Cycle's other seven brands are uniquely designed for independent, mass market, or sports specialty store channels. Pacific Cycle gains numerous advantages from using multiple channels. First, because of its volume of sales in the mass channel, Pacific Cycle secures great component and manufacturing pricing. Indeed, the company's differentiation strategy in the independent dealer channel is to be the high-value brand, thereby allowing retailers to profitably serve more customers. Second, a multichannel position gives Pacific Cycle an unprecedented view into the industry. "We put bikes wherever people want to buy them around the world," Frehner said. Third, the multichannel position affords Pacific Cycle opportunities to diversify its product offerings to mass channel retailers, where recreation product retail buyers are streamlining the number of suppliers they buy from. Pacific Cycle is now the United States' leading metal swing set supplier, and also sells electric ride-on toys. With these additions, the company is broadening its business definition and potential market. A multichannel strategy carries risks, however. First off, independent retailers may be less willing to add Pacific Cycle products to their stores if they fear similar products will show up in big boxes at lower prices. As a second risk, brand equity might fall if Pacific Cycle's product quality or brand promise varies vastly across channels. Pacific Cycle's use of multiple brand names, on the other hand, for different price-point offerings is a smart marketing tactic to subvert the potential risk. A third risk is reduced sales force effectiveness, as each channel has different selling processes, cultures and requirements. Pacific Cycle eliminates this risk using sales forces dedicated to specific channels. The additional cost is worth enhanced sales force effectiveness. Finally, multichannel companies must guard against losing an end-user focus. Selling to large, national, big-box chains is like waltzing with a whale. You know who will lead. Meeting mass merchants and independents' challenging service requirements, Pacific Cycle could easily lose sight of shifting end-user desires. Where do you compete in your industry? Understanding the pros and cons of your chosen position may unearth new insights into your business' risks and opportunities. Kay Plantes is a Madison economist, strategy consultant and executive educator. << Back to List Back to Top |
