please check the attached files, must answer the questions in the screenshot using the article as a basis, I also attached an example of a memo since this needs to be in memo format. thanks
DreamCycles: Sustaining Growth Hans Grande, Phil Guindi, Joe Karp, and Phil Robinson prepared this case study under the supervision of Professor Rashi Glazer as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2007 by The Regents of the University of California. All rights reserved. No part of this publication may be reproduced, stored, or transmitted in any form or by any means without the express written permission of the Berkeley-Haas Case Series. B5702 Date: June 1, 2007 RASH I GL AZER HAN S GR ANDE PH IL GU I N D I JO E K AR P PH IL RO B IN SO N DreamCycles: Sustaining Growth “Customers increasingly want the ability to customize and personalize their products. This is a prevailing retail trend in general. However, with bikes, issues of parts compatibility and the limited inventory of retail stores stand in the way of these customization and personalization trends. At DreamCycles, we found a way to deliver this to consumers.” - T I M SMIT H, DREAMCYCLES FO UNDER Tim Smith, founder and President of DreamCycles, sat at his desk petting the company dog “Lassie” and wondering where the company was headed. DreamCycles had just celebrated its first $100,000 month after nearly 3 years of continually growing sales. However, it was not clear if this sales growth was sustainable. Had the company maximized the potential of their targeted segment of consumers? Should the company now expand its niche or were other growth options available? Perhaps partnerships were the answer? Meanwhile, Tim was concerned that eventually the competition would discover DreamCycles’s successful business model. Could DreamCycles create a sustainable position in the high-end custom bike industry? DreamCycles, an online retail store specializing in high-end road and mountain bikes, was launched in February 2001. Tim Smith founded the company to address the customization void that he saw in the bicycle industry. DreamCycles invested nearly 3 years and several hundred thousand dollars into building an online store that would allow users to instantly configure bikes online, ensuring complete interoperability of all parts. Tim believed this tool would help the company scale its high-performance bike sales volume, and create cost and selection advantages over competitors. As the first mover into this area, DreamCycles also hoped to create a sustainable position that would allow the company to be a long-term player in the market. However, the early success of DreamCycles, coupled with changes in the bicycle retailing industry made Tim a bit uneasy as he looked towards the future. For the exclusive use of M. Harthi, 2022. This document is authorized for use only by Mashor Harthi in BA 590 Marketing Management (Fall 2022) taught by Johnny Chen, Oregon State University from Sep 2022 to Dec 2022. DREAMCYCLES 2 The Evolution of the Bicycle The first bicycles were developed in Europe in the late 18th century. However it wasn’t until the late 19th century that mass production began, costs were reduced, and the popularity of bikes soared. While bikes were initially used for transportation, the growth of the automobile in the United States repositioned bicycles into the realm of toys and recreation. Despite this change in usage, bicycling remained one of the most popular participant sports in the US with over 42 million participants in 2000 (see Exhibit 1 for bicycle participation data). Through the years, bicycle designs evolved to meet the diverging needs of many different types of customers. Models were produced for any use from transportation on roads, to fun for children, to racing around trails in the mountains. Special designs such as recumbent, tandem and suspension models became available as the desires of customers became more complex. However, despite the diversity of uses and designs, the core components that made up a bicycle were relatively standard. They include a frame, a fork, wheels, handlebar, crank and pedal, chain and any number of gearing options (see Exhibit 2 for a graphical anatomy of a bicycle). Typically, manufacturers made a frame and assembled OEM components onto a bike that was then sold through retail outlets. However, for high-performance models, customers could customize a design by specifying a frame and components that would then be individually assembled by their retailer. Notably, the bike manufacturing industry had greatly consolidated during the 1980’s and 1990’s. Production of the two most essential components of a high-performance bike, the frame and group set (or grouppo1), was consolidated during this period into a limited set of manufacturers. The large frame manufacturers included Trek, Giant, Cannondale and Specialized, while Shimano and Campagnolo controlled nearly all of the grouppo manufacturing. Consumer Segments As noted above and confirmed in interviews with bike shop employees, bicycle buyers had diverse needs and interests. Because of those differences, there was no single clear method of segmenting these customers. Instead, they could be segmented using a range of different variables including primary method of use, price sensitivity, retail channel preference, and cycling expertise. As a result, most industry personnel classify consumers into customer types, as shown below: Family The focus for “family” buyers was typically on children’s bikes. As such, the emphasis was on price and the “look” of the bike, rather than on performance. In addition, family buyers purchased bikes for parents to accompany their kids, similarly focusing their attention on price. Family buyers did not usually have high expectations for sales service and thus were equally likely to purchase from a mass merchant shop or a local independent bike dealer. Recreational “Recreational” buyers generally used a bike for transportation (such as college commuters) or for fun and exercise. They typically were not sophisticated about the nature of bike components or brands. Instead, they focused on product comfort and ease of use. Usually recreational buyers had fixed spending limits and therefore tended to shop at mass merchants or local bike dealers. Performance–prestige The “performance-prestige” buyer sought a high level of customer service and guidance in the bike purchase process. While these riders range from occasional riders to high mileage riders, they typically were not highly educated on bike equipment or the newest product offerings. Instead, they shopped for a cycling solution based on their style of riding, body size, and the “image” of the bike. Performance-prestige riders would not generally outspend the performance-enthusiast buyer. However, they still wanted the prestige associated with owning a nice bike. If they chose a customized bike rather than a pre-built model, they were likely to be able For the exclusive use of M. Harthi, 2022. This document is authorized for use only by Mashor Harthi in BA 590 Marketing Management (Fall 2022) taught by Johnny Chen, Oregon State University from Sep 2022 to Dec 2022. DREAMCYCLES 3 to specify only a few of the major components and then would rely on the shop staff to recommend the remaining parts. Performance–enthusiast “Performance-enthusiast” buyers were high mileage riders and extremely knowledgeable cyclists. This group sought to maximize performance and typically used cycling media such as Bike, VeloNews or Bicycling magazine or perhaps web portals such as Road Bike Review to educate themselves about equipment and brands. The “willingness to pay” of a performance-enthusiast varied with incomes levels, but was generally quite high. Many performance-enthusiasts were high-salaried professionals such as doctors or lawyers who valued time more than money. The performance-enthusiasts’ purchase options included both high-end pre- built bikes along with custom-ordered equipment. Generally, members of this group were willing to pay for the best equipment and service. Elite The “elite” buyer was a high-mileage rider or racer. These riders were typically connected within the industry, either through manufacturer sponsorships or riding club discounts and so they rarely purchased bike components at full retail price. These riders were generally price-sensitive buyers and often invested significant amounts of time to comparison shop and find the best price. Bicycle Retailing Historically, the American consumer purchased a bicycle at a local bike shop. These independent bike dealers would offer a wide range of bike models, along with friendly advice and repair service. The low demand for high-performance models limited these dealers to offering very few high-performance bikes for sale. Over time, more low-priced bike sales moved to mass merchants such as Walmart and the independent bike dealers began to evolve into specialty bike dealers. These specialty dealers still offered a selection of low- price models for families, but they also sold a larger selection of mid-priced mountain and road cycles, as well as accessories and parts. The fortunes of these shops became more reliant on the marketing muscle of the large bike manufacturers to draw customers into stores, and thus they focused their sales efforts on established brands like Trek, Giant and Schwinn rather than on custom-built bikes. A small number of specialty shops decided to focus extensively on the performance bike niche and became elite bike dealers or pro-shops. These cycling pro-shops represented a cross between local retailing and cycling Mecca as they offered a more sophisticated staff and sold both pre-built and custom-order bikes. These shops morphed into the place where serious riders went to identify themselves as cyclists and enjoy conversations with other riders Currently, US bicycle retailers are grouped into four categories – mass, specialty, elite and mail-order/Internet. Exhibit 3 shows the approximate price ranges for bikes sold through these different categories. In terms of the type of bikes sold, mass retailers typically sold only fully assembled models, while specialty, elite and some Internet dealers sold customized bikes as well as fully assembled bikes (see Exhibit 4 for further details on the retailer segments). As with manufacturing in the industry, the retailing of bikes went through a rapid and dramatic consolidation in the 1990’s. Exhibit 5 shows the smallest bike shops ($250k or less in sales) declining from 46% of the market in 1995 to only 18% by 1997, with a corresponding increase in the largest bike shop ($1m and up in sales). The US retail bicycle market recorded nearly