Abstract
Pricing is one of the most fundamental issues that entrepreneurs have to consider while marketing their products. This case study examines the issues that relate to the price that Schwinn bicycles charges their customers. The study will answer questions that relate to the strengths, weaknesses, opportunities and threats of the enterprise in relation to the pricing strategy that has been adopted by the firm.
Strengths and weaknesses of Schwinn
Strengths and weaknesses are internal factors that determine the success of a business enterprise1 (p. 122). The strengths of the enterprise are evident from the durability nature of the company’s brands. As a result, the enterprise used to be a leading distributor of bikes.
Owing to the quality of the brand, the enterprise was the best seller of bicycles and it edged out all its competitors in the market. Some of the weaknesses of the enterprise are bankruptcywhich the firm witnessed in 1992. As a result, the company was unable to pay the suppliers and lenders.
Unfortunately, the company was sold to Chilmark investment fund for an amount of forty three million dollars. The reorganization of the firm led to the reduction in workforce from three hundred employees to one hundred and eighty employees.
Opportunities and threats
Opportunities and threats are factors outside the business enterprise that determine the success of the business1 (p. 123). One of the opportunities that Schwinn has is relocating to the west. This is a move which will attract a young workforce which is very preferable in the bike industry.
Focus on product design is yet another opportunity that the firm has. The firm has developed a new brand of mountain bikes that sells at considerably high prices than the previous brands. Although the prices are higher than they were before the company was sold, a lot of people are purchasing the bikes.
Threats being faced by the company emanate from the fact that cyclistsprefer trendier mountain bikes with upright handlebars, additional gears for climbing, padded seats and fat tires. As a result, the company faces challenges of image making cyclists to go for brands from other manufacturers. Bikes manufactured by the company are considered to be old fashioned.
Importance of making mountain bikes in America
Mountain biking is a sport in the United States of America. Thus it is important to manufacture the bikes in America so as the specifications are in accordance to the requirements of the cyclists. There is a huge market for mountain bikes made in the United States than for those which are made from other countries.
Schwinn’s Strategy of selling bikes from $100 to $2,500
The bicycles whose prices range from $100 to $2,500 are of exclusively high quality and they have been designed to meet the market needs.Therefore, many cyclists will prefer to buy the bikes. Thus, deciding to sell the bicycles at such prices will increase the sales of the company.Target markets for those bikes include kids, college students and retirees.
The decision by Chilmark to invest $50 million in Schwinn is a move which allows the company to expand its operations. Since the new company has a large capital base, they are able to invest in sustainable projects that improve their sales.
Break-even point in units = Fixed expenses / Unit contribution margin,
Retail market=4% of $2.5 billion= $100million
Mark up =20%*$100million=$20million
Unit contribution margin=25%*$20million= $5million
Thus B.E.P = $50M/$5M= $10 million
Pay-back period= Initial investment/ Returns per year
50M/10M= 5 years
Cost of bikes sold in a year= $100 million.
Price of each bike=$400
Therefore number of bikes=$100M/$400= 250000 bikes.
References List
1. Ferrell, OC, Hartline M, 2010 Marketing Strategy. Mason: South Western Cengage Learning, 2010.