Business Environment and Strategy Employed by Raleigh Cycle Limited - Case Study Example

Assessment of Raleigh i Strategic Assessment of Raleigh Cycle Ltd. Business Studies 30th December 2009 Assessment of Raleigh ii Contents Abstract iii Raleigh Cycle Ltd. 1 Business Environment 1 Past and Current Strategies of Raleigh Cycle Ltd. 2 Strengths 3 Weaknesses 4 Opportunities 4 Threats 5 Key Factors for Success within the Sector 6 Sustainability of Current Strategy 7 Current Challenges 8 References 10 Assessment of Raleigh iii Abstract This paper assessed the strategy employed by Raleigh Cycle Limited. Not only that the business environment of the company were also analyzed. This paper thoroughly dissected the company and mentioned the strengths, weaknesses, opportunities, and threats of the company. Several key factors that affect the growth and profit of the company were outlined. This paper ended with comments upon the sustainability of the current strategy and obstacles and hindrances faced by the company. Assessment of Raleigh 1 Raleigh Cycle Limited Raleigh Cycle Limited was formed in 1887 at a town called Nottingham which is located in England (Bonthrone Bikes 2005). With a span of 122 years, Raleigh is still going strong. Raleigh started with the production of bicycles and ventured into motorcycles and three-wheel cars production (Wales 2009a). In 1893 Raleigh became the biggest bicycle manufacturer in the world (Wales 2009a). And in the 70’s it produces the Chopper which was very popular among cycling enthusiasts. Currently Raleigh sponsors several cycling teams with the aim of promoting the sport. Business Environment The cycling industry in the United States of America (USA) had generated revenue of 6 billion dollars in 2005 (Wales 2009b). There are countless bicycle manufacturers around the world that compete for sales. A recent report dated 28th October 2009 listed 172 primary bicycle manufacturers (Wikipedia 2009). However the market is huge as stated by a 2009 report by Business Exchange which indicates a growth in the industry with 3.8 million people in the USA riding bicycle daily to work (Rickman 2009). This statistic is also supported by another statistic that indicates there are currently 450 million bicycles in China (Johnson 2007) and 16 million bicycles in Netherlands (Cycling in the Netherlands 2009). Hence capturing a customer would plausibly not be difficult. This notion is also supported by the fact that fuel prices constantly fluctuate (Shanghai Daily 2009) thus cycling offers an alternative mean of transportation. But some manufacturers reported losses. Shimano’s net income felt 58% in 2009 (Le 2009) and Dorel’s revenue drop 8% in that same year (Reed Business 2006). These 2 contrasting statistics indicate that the business environment of the cycling industry is mixed. Assessment of Raleigh 2 Past and Current Strategies of Raleigh Cycle Ltd. In 2001 Raleigh’s parent company went bankrupt (Teather 2007). But by the year 2004 the company’s sales were increasing due to the reintroduction of the ‘Chopper’ (Teather 2007) but their market shares were decreasing and it was predicted to decrease until the year 2010 (Teather 2007). Different strategies were employed during the 122 years life span of Raleigh. From the period 1887 till 1943, the company employed the strategy of expansion and diversity. This is evidently shown as it became the biggest bicycle manufacturing company in the world in 1893 (Wales 2009a). And in the 30’s Raleigh acquired several companies and rights which entitled them to produce motorcycles and vehicles (Wales 2009a). However in the 50’s and 60’s Raleigh changed strategy and concentrated more upon cycling rather than automobiles and motorcycles. This “Concentrated and Expansion Strategy” sees Raleigh acquiring several cycling companies such as BSA Cycles Ltd., Carlton Cycles, Sturmey-Archer, and others (Wales 2009a). In the 70’s Raleigh opted to use the “Innovative Strategy”. This strategy produces significant result where its product, the “Chopper”, sold millions worldwide (Wales 2009a). The “Chopper” had also become a cult culture among cycling devotees. From 1980 till 2008, there was a decline in the sales of Raleigh’s product. This is mainly due to the failure to adapt to the current market and failure to recognize globalization. Raleigh’s current aim is to increase sales and regain the share of the market. Mark Gouldthorp, the Managing Director of Raleigh, in his statement stated that focusing too much upon competitors would make Raleigh’s products similar to the competitor’s products (Teather 2007). Thus Raleigh is currently employing a strategy of improving the quality of their Assessment of Raleigh 3 products while not concentrating too much upon their competitors. Raleigh also tackled retailers which to Raleigh had not done a great job in promoting sales of their bicycles. To substitute retailers, Raleigh had introduced the franchise concept where shop owners have an option to be Raleigh’s franchisee. Strengths Raleigh’s brand is synonym with the word “credible”. With over a century of existence, the image and stature of Raleigh grew significantly. This stature is kept intact as products of Raleigh are reliable and trustworthy. All these aid its branding process and give strength to Raleigh. Sponsorships also strengthen the position of Raleigh. Raleigh had sponsored a British cycling team called Team Raleigh and several small teams like Raleigh Banana were also sponsored (Wales 2009a). These sponsorships promote the name of Raleigh and the company is seen as an organization that advances and encourages the cycling industry. Great products that do not sell would see the fall of a company. Knowing that Raleigh had introduced the franchise concept where marketing of the products is dictated by Raleigh and not by retailers. This control has its advantage as Raleigh could set its selling price and middleman costs are cut down. The product placement programme initiated by Raleigh had increased the popularity of Raleigh. Raleigh gave its products to celebrities which to the public eyes are seen as endorsements to Raleigh’s products. The primary strength of Raleigh is in the quality of its products. A report in the Guardian indicates that the increase in quality of the bicycles had revamped Raleigh (Teather 2007) and had minimal complains from customers. Assessment of Raleigh 4 Weaknesses An article in the Guardian pointed out that Raleigh was in a declined because it did not swiftly adapt to the market (Teather 2007). Management was to be blamed here since they were not observant of the changes induced by globalization. Raleigh is still not completely free from retailers. The current number of Raleigh’s franchisee is 85 which are not sufficient to capture the market. Thus retailers are still required. But retailers imposed price conditions which were not favorable to Raleigh and deterred potential customers. Raleigh had not produced in more than 30 years an iconic product such as the “Choppper”. This signifies a shift from industry shaper to industry follower. This is a weak point for the company as cycling enthusiasts regard Raleigh as a trendsetter and a drop from this stature had hurt the image of Raleigh. The branding of Raleigh is one sided which did not cover comprehensively the many types of bicycles. Most consumers viewed Raleigh as a company that produces bicycles for family usage (Hadland 2000). The bulk of the market is on the other hand not in family bicycles but in mountain bikes which Raleigh lacks behind (Hadland 2000). Opportunities The cycling industry offers Raleigh a unique opportunity to increase sales. As more and more people are aware of the environmental effects of pollution, they began to shift their mode of transportation from fuel burning vehicles to “green” vehicles. As indicated earlier, revenues from bicycle sales in the USA are huge, thus ensuring Raleigh a chance to grab the share of the market. Assessment of Raleigh 5 Bicycles are much cheaper than other vehicles. In developing countries this mean of transportation is the primary choice of the population as their incomes are low. In China alone even E-Bikes are sold at a high number (16 till 18 million in 2006) (Johnson 2007). Maintenance of bicycles is not costly and this proves as an attraction to users which do not want to spend highly in transportation. This is supported by a report by Hadland which indicated huge sales of bicycles in Africa (Hadland 2000). Health conscious consumers see cycling as a way of life. This is a huge market that could be captured. In Netherlands 85% of the population own a bike (Cycling in the Netherlands 2009). A part from this, this group of consumer could well spend much of their capital upon accessories which thus also add to the income of the manufacturers. Hence, it is not surprising that a number of manufactures do not produce bicycles but solely produce bicycle parts, components, and accessories. Price of fuel often fluctuates (Shanghai Daily 2009). Drivers often feel the impact of these fluctuations and a majority realized this situation is at their loss. A trend had set where drivers shifted to bicycles to save cost. This offer bicycle manufacturers the opportunity to cave in into these demands. Threats The market is full of competitors that fight for their shares. Even popular manufacturers like Shimano suffered losses as indicated by the statistic in the previous section. With so many options to choose from, the consumers have the prerogative to choose what is best for them. This is considered a volatile situation for Raleigh as loyalty is a thing of the past. Assessment of Raleigh 6 Customers are constantly looking for products that would attract them. Revolutionary products such as “Chopper” sold well because it has the attractive factor. It’s been a while since Raleigh had produced such a product. Management of Raleigh were concerned that lack of innovation would render Raleigh obsolete (Teather 2007). Most cities do not offer dedicated lanes for cyclists to commute to and from work. Roads are hazardous for cyclists. An article in the Guardian reasoned that most commuters are deterred from cycling to and from work because of the dangerous condition of the road and also because cycling to work would consume more traveling time (Teather 2007). Because of cheap costs of manufacturing bicycles overseas, such as in India and Africa, Raleigh had transferred most of their manufacturing plants outside of United Kingdom. But this somehow also proved a hassle as some countries have regulations and red tapes which are not favorable to Raleigh. And the political situation in certain countries also creates difficulties that hinder production lines. Key Factors for Success within the Sector The cycling industry primary revenues come from the consumers. It is imperative if a company is to succeed the wants and demands of the consumers have to be taken into account. If lightweight mountain bikes are the fad, then this is what should be manufactured. An analysis by Hadland showed consumer’s interests changed constantly and this is in evidence by the fading of Chopper and BMX after periods of popularity (Hadland 2000). Spectator sports are events that attract interests from the population. Tour de France and other cycling events had garnered tremendous support and attention throughout the years. Assessment of Raleigh 7 Getting involved in these events would increase the awareness of the public towards the cycling company, hence ensuring direct identification of the company in the cycling world. It is not surprising that companies such as Shimano and Raleigh sponsored events and cycling teams (Wales 2009a) which in hand would ensure success for the companies. One of the key that drives consumers toward a product is the interest that the product generates. Good marketing creates this interest and reaches consumers in far reaches of the land. Good marketing also create hypes which drive consumers toward a product. It also conveys knowledge about the product and the benefits of the product that could influence the procurement of the product, perhaps increasing the procurement of it (Kotler 1999). It is imperative for products to be easily available to the consumers. If a product is difficult to obtain, customers may be deterred to purchase it. A study conducted by Kotler indicated that a product with high availability has a better chance to be sold. This is a crucial factor for success and Raleigh had taken the correct step of reducing retailers and expanding the franchise network (Teather 2007). Products that fail before their warranty period ends or fail after several usages are considered by users as money wasted. If this trend continues, user’s trusts would fade and words of low quality products would spread and thus dissuading future customers. In a nutshell, the quality of the bicycles, components, parts, and accessories needs to be high and constantly checked to maintain the standard. Sustainability of Current Strategy As iterated earlier, Raleigh’s current strategy is to improve quality and sales. The improvement of quality is sustainable as Raleigh is constantly concerned about their products. Assessment of Raleigh 8 History had shown that Raleigh’s commitments toward quality are true. In “Moulton”, consumers find reliability. In “Chopper”, consumers find rigidity and in Grifter, consumers find solidity (Hadland 2000). This is also evidence of sustainability of quality since the products mentioned were from different periods of time. Even Mark Gouldthorp, the Managing Director of Raleigh, is compulsive about Raleigh’s brand which he thinks should signify continuous quality. He had imposed a doctrine which emphasizes upon company’s internal talents and gearing these talents toward quality. Improvement of sales is done via franchising and the outlook for this programme is bright as the number of franchisee is growing (Teather 2007). Store owners had gave positive responds to this programme and are willing to convert their stores into Raleigh’s franchisee. Consumers have taken this optimistically and are eager to reap the benefits of this programme. Benefits such as lower price and higher availability of products are welcomed. Hence it is opinionated that such strategy is sustainable. Current Challenges In the heydays of Raleigh dominance, not many competitors exist. But in the current market, competitors are in abundance and they pose a serious threat in taking away existing customers from Raleigh. It is a challenge to try and keep existing customers let alone capturing potential ones. It is difficult for a company to continuously create innovative products that are sellable. It is possible that if a company does not introduce any innovation for a certain period of time, demise is inevitable. Philip which is a manufacturer of television approached demise as they lack the Assessment of Raleigh 9 continuous innovativeness in their products. Raleigh might reach this stage if continuous innovativeness is not practice. The behaviors of consumers are unpredictable (Kotler 1999). And in different countries with different cultures, their buying decisions are not similar. Hypothetically, product “A” which sells well in England probably would not sell that well in India. Globalization of a product is thus difficult. Product “A” may be a best seller 2 years ago but may not be a best seller today. Faced with this Raleigh has an uphill task to retain current customers and attract new ones. Previous section had stated that in certain cities there are few or no dedicate lanes for cyclists to commute. This can be denoted as a governmental issue since the government has the authority and initiative to appoint or construct such lanes. This situation exists throughout the world and companies have to be prepared to face these consequences. Even encouragements from companies like Raleigh are insufficient if higher authorities have contrasting policies. According to Kotler this is a typical company-government relationship that one should take into account before venturing into business (Kotler 1999). Assessment of Raleigh 10 References Bonthrone Bikes, 2005. About UK Raleigh Bicycles Company UK, London, England. Cycling in the Netherlands, 2009. What is "Cycling in the Netherlands", Amsterdam, Netherlands. Hadland, T. 2000. Raleigh in the Last Quarter of the 20th Century, 11th International Cycle History Conference, Osaka, Japan. Kotler, P. 1999. Principles of Marketing : Second European Edition, Prentice Hall Inc, New Jersey, United States of America. Le, A. 2009. Shimano Shares Fall Most This Year on Profit Drop, 28th October 2009, Bloomberg, Osaka, Japan. Johnson, T. 2007. China Rises, McClatchy Newspaper, Beijing, China. Reed Business, 2006. Dorel Profit Drops 35% on Weak Bicycle Sales, 3rd March 2006, Bike Europe, Toronto, Canada. Rickman, J. 2009. Bicycle Industry : Jobs, Business Exchange, New York, United States of America. Shanghai Daily 2009. Fuel Price Fluctuation Affects Cathay Pacific, 8th January 2009, Shanghai, China. Teather, D. 2007. Digg it, 23rd November 2007, Guardian, Eastwood, England. Wales, J. 2009a. Raleigh Bicycle Company, St. Petersburg, United States of America. Wales, J. 2009b. Bicycle Industry, St. Petersburg, United States of America. Wikipedia 2009. List of Bicycle Manufacturing Companies, Wikimedia Foundation, San Francisco, United States of America. Read More