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UVA-M-0744 The Cycling Industry
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UVA-M-0744 April 20, 2009
THE CYCLING INDUSTRY
It was late 2005, and the market for bicycles was at a watershed moment in the United States. The American public was more knowledgeable about professional cycling than at any other point since Greg LeMond’s Tour de France victories in the late 1980s and early 1990s. Lance Armstrong had become an international celebrity, having just won his seventh Tour de France in a row, and had even hosted Saturday Night Live on television. In addition, high gasoline prices brought about in part by hurricanes Katrina and Wilma translated into higher bicycle sales. Reuters1 reported that as a result of these trends, there were likely to be 20 million bicycles sold in the United States in 2005—an amount that had not been seen since the oil embargo years of the early 1970s. The boom translated particularly well to an increase in road bicycle sales. At the same time, advances in carbon fiber were making their way into bicycle frames and components such as seat posts and handlebars; the resulting new designs and technology spurred consumer interest in high-end road bikes costing $2,000 and more. Times were looking good for bicycle companies. Several manufacturers competed in the high-end road bike space and each had unique strategies. Trek famously sponsored Lance Armstrong and his teams: the U.S. Postal Service and the Discovery Channel. The Trek sponsorship led to several innovations and new products, while creating one of the most recognized names in the business. In addition, Trek diversified by offering custom painting options, selling bicycle accessories such as helmets, clothing, and handlebars, and in guiding cycling vacations. Seven, a 35-person company located in Watertown, Massachusetts, was singularly focused on custom steel, titanium, and carbon bicycles. Each bike was made to custom specifications designed to perfectly match the size and needs of the individual customer. Sizing was determined via an extensive questionnaire that included, among other things, key body measurements, desired ride characteristics, current bike dimensions, and paint colors.
1
http://www.toolstudios.com/bikesbelong/reuters.pdf (accessed November 17, 2008).
This case was prepared by Daniel Hoeller (MBA ’06), under the supervision of Paul W. Farris, Landmark Communications Professor of Business Administration. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright © 2006 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to
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UVA-M-0744
Founded in 1981, Moots’s original bikes were made with steel. Ten years later, with the advent of 3/2.5 titanium in bicycle tube sizes, the company began experimenting with the difficult-to-work-with material. Eventually titanium was used on all Moots offerings. Like Seven, the company derived a large portion of its business from custom-sized bikes. But Moots also offered stock sizes of its bikes for those customers who did not require a customized bike (and the roughly 15% price premium). Cervélo, a Canadian company, was known for its focus on aerodynamics and engineering expertise. Beginning with a time-trial bike in 1995 for individual races against the clock, Cervélo soon branched out into road bikes. At that time, the company provided bikes for a successful professional cycling team in Europe. No custom-sized frames were produced as the range of sizes for each bike was deemed to fit all riders. Frames were made from either aluminum or carbon.
Bicycle Industry Bicycle types Several different types of bicycles were available to consumers. Road bikes were the descendents of the first bicycles made and were used primarily on paved surfaces. Signified by narrow smooth tires and a curved handlebar, the basic design had changed very little since its inception. One variant within the road bike category was the triathlon, or time-trial, bike. These machines were designed for individual races over a specified distance against the clock: The athlete with the fastest time won. In these races, where a few seconds could determine the difference between winning and 4th place, reducing wind drag was the top priority. Therefore the bikes were designed to be as aerodynamic as possible—even while often sacrificing weight and handling. (To view examples of these bicycles, visit http://www.cervelos.com, http://www.sevendiamas.com, http://www.trekbikes.com, and http://www.moots.com.) Mountain bikes were developed in California during the 1970s and used on dirt trails and rocky terrain. Once the fastest-growing type of bicycles, mountain bikes were declining in popularity by 2005, but still made up the largest percentage of bikes sold. Cyclocross bikes were essentially heavy-duty road bike frames with fatter, knobby tires that were originally developed by European professional cyclists to use during the off-season for training. Hybrid bikes featured an upright riding position, and had the lighter frame of road bikes; these were designed to be ridden on the road or on smooth dirt paths. Comfort bikes were essentially mountain bikes with an upright riding position and comfort amenities, such as a wide, thick seat and simpler gears to control. Children’s bikes were segmented by wheel size: 19" and below, 20", and 24"—all accounting for about 14% of units sold in the United States. BMX (bicycle motocross) and freestyle bikes featured small wheels and knobby tires for use in BMX racing and in performing jumps and stunts in competitions such as the ESPN X Games. Cruiser bikes included bicycles that were typically for rent at the beach—fat tires, big handlebars, and a very relaxed frame geometry for upright riding.
