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SITUATION ANALYSIS

PREPARED BY:SARA T. JOHNSON

ADPR 145

23 OCTOBER 2008

Table of ContentsHistory of CompanyPAGE 1

Current Market ProfilePAGE 3

Competitive AnalysisPAGE 5

Challenges and Barriers to EntryPAGE 8

SWOT AnalysisPAGE 10

Strategy and Objectives for the FuturePAGE 11

“All five children have worked in the business. It's a rule: If you're a family member you're entitled to a job. My son John graduated from Boston University in 1983. He was offered a marketing job at Procter & Gamble, which I told him he should take. Instead he took over a Trek sales territory. A couple of years later he became customer service manager. He just knew that he wanted to sell bikes.” -Dick Burke, Trek Bicycle Company FounderBIKES

Creating a better place for people and their

“In 1973 two things happened: the oil embargo and the first physical fitness craze. That caused an enormous increase in bicycle sales. As distributors we wondered, should we get into bicycle distribution? But we decided that the boom would end and manufacturers would eventually sell direct to retailers. So we passed.” -Dick Burke, Trek Bicycle Company Founder1976

30 Years of Bicycle Innovation since

Hist

ory

HOW TREK BICYCLE COMPANY CAME TO BE

With a payroll of five employees and a single product, hand built steel touring frames, Trek Bicycle Corporation was established in a rented barn in Waterloo, Wisconsin in 1976.

Since then, Trek has become the largest US manufacturer of bicycles and related aftermarket products and is becoming a major industry player worldwide. In 1989, Trek went global by opening its first overseas subsidiaries in Great Britain and Germany. By 2005 Trek had the world’s largest dealer base with Trek bikes available in over 90 countries around the world via

10 subsidiaries and over 70 distributors. With all this growth, Trek has not forgotten its Midwestern roots nor it’s devotion to its customers. In 2001 Trek debuted the Project One custom build program catering to cyclists’ sense of individualism, something no other bike brand offered. Project One is a new process for purchasing Trek bikes where the customer

can choose from various custom colors, paint scheme designs, and component options making a bike that is truly one of a kind. Eventually over 10,000 different paint and component options were available. Today Trek is known for providing quality bikes to bikers all over the world, from kids and beginners to Lance Armstrong and the Discovery Channel Pro Cycling Team.

Trek Bicycle Company founder Dick Burke, a Marquette Alum, passed away earlier this year

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What to expect

from Trek:

Known for unsurpassed quality and passion, Trek offers customers

Quality bikes tailored to customer’s needs

Support of independent bike shops

Bikes available in various price ranges

Lifetime care for the bike and the rider

Special programs tailored to customer’s desires

PricingTrek is known for producing quality bikes

tailored to customer’s needs. As a company, Trek looks to its customers for product attributes. Loyal Trek bikers expect nothing but the best from the world-renowned brand. Pricing of Trek bicycles differs across the board. Price varies depending upon numerous options a customer can choose from. For example, an inexperienced biker looking for a simple bike to work out on may spend $400 on a bike, whereas an experienced biker looking for a lightweight frame with the latest and greatest components may spend upwards of $3,000-7,000. The Trek 6.2 Madone Pro with a custom paint job, full carbon body and full Sram Red components costs a pretty penny at $15,000. Don’t expect to see coupons or sales for Trek bikes. Trek does not control consumer price, they leave that up to their trusted dealers.

DistributionDistribution of Trek bicycles could be

classified as exclusive. A customer can not walk into Target or Wal-Mart or go online and expect to purchase a Trek bike. As part of IBD (Independent Bicycler Dealer Network) Trek only sells its bikes to certified bike dealers, mostly independently owned bike shops. This is one way Trek shows dedication to the biking industry. Trek bikes can be ordered or bought from certified Trek distributing bike shops. If the shop does not have the specific model a customer is looking for, the shop then places an order with Trek who will then pass the order along to certified

Trek distributing warehouse who will fill the order and ship the bike to the shop where it will be assembled and delivered to the end customer.

PromotionTrek does not rely heavily on mainstream

media to promote its products. With a niche market, Trek utilizes some print media mixed with a healthy does of PR. Print advertisements for Trek can be seen in targeted magazines such as Health Fitness, Sports Illustrated, Outdoor, basic sports, road bike and mountain bike magazines. Lifestyle biking is their current campaign. Trek is targeting the general public to engage them in biking, an activity anyone can participate in, not just those Lance Armstrong peddling maniacs. This past summer Trek launched the Go By Bike Challenge that asked Americans to ride their bike for as many miles as they could. Trek asked participants to pledge miles and keep track of where they road their bikes to, allowing Trek to better understand the state of American bikers.

Services OfferedTrek offers complete full service care to

their customers and pledges to always look out for the customers’ best interest. Carbon fiber bikes are an industry standard. This unique material is durable, lightweight, functional and is also expensive. When Trek customers purchase a Trek bike, they are making a lifetime investment. If the bike crashes or suffers an accident, it may be hard to tell if the carbon fiber’s strength is compromise. Damage is hard to detect since

carbon fiber does not dent. Therefore, Trek offers customers a complimentary bike check. A certified bike engineer inspects the bike frame to ensure the structure of the bike is not compromised. This complimentary service is extended to all facets of the Trek brand. If a bike is damaged due to wear and tear or structural issues, repairs will be made at no cost to the customer. Helmets are guaranteed for a lifetime protection. If a helmet suffers any trauma that compromises its ability to protect, simply send the helmet in and a new one will takes its place at no extra cost.

Another facet of Trek’s services is Trek Travel, a program dedicated to coordinating cycling vacations of a lifetime. This program is the ultimate way to experience the world’s greatest destinations on the world’s best bikes. Trek travelers are able to explore as much as they like, at their own pace. Trek’s high experienced guides make sure travelers don’t miss a thing.

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“In 1984 we made some bad product. Then in '85 we introduced the first bonded aluminum frame, but we didn't know how to build it in a production environment. We went through a year of building bad frames that came back to haunt us.” -Dick Burke, Trek Bicycle Company FounderYOU

Bikes made with the end rider in mind,

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A LOOK AT TREK’S CURRENT HYBRID BIKE TARGET MARKET

As opposed to Trek’s two other main divisions, road and mountain bikes, the Lifestyle division is designed for the laid back type of biker. While bike enthusiasts make up the majority of consumes for the road and mountain division, everyday people are the target market for the Lifestyle division. Bikes in this division are made for comfort, leisure, kids, urban life, and beginner fitness bikers.

To target Lifestyle Bikers, Trek cannot rely purely on niche trade magazines. People buying a Lifestyle bike would not

necessarily read biker magazines or participate in races, since they are not avid bikers. For this reason, a mass media approach may be utilized. For instance, there are Trek brand awareness commercials or ads for Trek in publications such as Newsweek. This is to target an aging population who may be looking for ways to stay active. It also makes the Trek brand seem less

exclusive, a brand only reserved for avid bikers.

There are a total of 9 separate bike lines within the Lifestyle category; each address specific markets, addressing specific needs. Hybrid bikes are exceptionally quick, responsive and light. These versatile bikes feature the comfort and ease of an upright riding position.

Bikes don’t get any more versatile than this. The Hybrid's upright riding position offers a comfortable ride.

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In a world where heart disease and obesity is rampant, physical fitness is on everyone’s mind; yet finding time to exercise is difficult, and not an exciting activity that anyone wants to make time for. Biking is a relatively easy and relaxing activity that offers exercise and can seem fun.

Demographic Profile of Hybrid Bikers

Males make up the majority of Hybrid users, 61% compared to 39% females. Hybrid consumers are between 35-49 years of age (42%), followed by 50+ age group (27%). Of these consumers, nearly 90% are Caucasian, followed by Hispanics (4%), Asians (3%) and African Americans (2%). The majority have an annual income of $100k+ per year (33%), followed by $60-$100k/year (32%). Nearly half of the Hybrid consumers have a college education, followed by a third who have no college education, and only 19% have a graduate degree.

The population using the Hybrid bike is typically middle aged. People are looking for a way to stay active, yet are reluctant to take up a strenuous activity. Biking is relatively easy and relaxing, furthermore, the Hybrid’s geometry offers a comfortable up-right position that is easy on the body and joints. Hybrid bikers are most active during the warmer months; activity picks up mid April and steadily increases peaking in August and the gradually trailing off due to the change in weather. The bike is used for physical activity, or simply a means to unwind and get outside.

Hybrid Bike PositioningWith the market reaching middle age,

they are looking for ways to stay active in a way that is easy on the body. Perhaps in the past they were avid bikers, but due to work, family and a hectic lifestyle, that hobby had

to take a back seat, along with their physical health. In a world where heart disease and obesity is rampant, physical fitness is on everyone’s mind; yet finding time to exercise is difficult, and not an exciting activity that anyone wants to make time for. Biking is a relatively easy and relaxing activity that offers exercise and can seem fun. Furthermore, with the rising cost of gas and the current state of the economy, more and more people seem to be dusting off their old bikes and putting them back to use. This also goes hand in hand with the green movement and protecting our environment, a situation the consumer is well aware of. The target audience is motivated by the idea of maintaining a healthy lifestyle, saving gas money by biking to work or around town, going green, and the trusted Trek brand name—a company that has a positive reputation in the minds of most.

Furthermore, Trek is not sold at mainstream outlets such as Target or Wal-Mart. This has a positive and negative effect on consumers. It may deter consumers from seeking out bike dealers, who instead prefer an easy way to snatch up a bike next time they need more laundry detergent. Schwinn is a strong competitor, but its quality is inferior to that of Trek’s, and consumers are aware of this. On the other hand, consumers may look to this type of exclusive treatment as a testament to Trek’s integrity to quality.

AttitudesThe general market’s attitude regarding

Trek bikes is one of respect and trust. As previously mentioned, Trek is known for its

The simple pleasure of riding a bike now offers much more

quality, performance and technology. Regarding the general product category, Hybrid bike users tend to not have a real preference for bikes or much knowledge about the subject. This is where Trek has an advantage over its competitors. Trek is the biggest bike distributor in the country, and people ages 35-50 years of age want to spend their money wisely. Furthermore, Trek has burned it’s brand into the mind of consumers everywhere when a well-known biker, Lance Armstrong who road a Trek bike to victory seven times in the Tour de France.

Market Size EstimateThe current Hybrid bike market is

growing, especially with high gas prices and a blossoming health crisis, consumers are realizing the importance of staying active and finding alternate modes of transportation. It is estimated that the American Hybrid bike market is 50 million plus. This number is suspected to double in the next 3-4 years as the population ages.

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AN ANALYSIS OF TREK’S TOP COMPETITORS

Despite the success of being the largest U.S. bike manufacturer, Trek has four major competitors: Giant Manufacturing, Specialized Bicycle Components, Electra Bicycle Company, and Schwinn Bicycle Company.

There’s other bikes in the sea

Giant Manufacturing

Specialized Bicycle

ComponentsElectra Bicycle Schwinn Bicycle

CompanyTrek Bicycle Company

$300-$8,000 $350-$10,000 $350-$800 $100-$500 $300-$15,000

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Giant has products marketed in all areas and is a big name with brand recgonition.  However, none of their frames are produced in the US, rather they are made in Japan which is known for having low quality standards.

Specialized was initially known for its mountain bikes, and continues to have great success in this market. Consumers focus on the "S-works line" which is Specialized’s top of the line bicycles.  More recently, Specialized has become a big competitor in road bikes as well, continuing its S-works line to its road bike line up.

Electra produces more of a retro-trendy bike than a functional commuter bike. Bikes are guaranteed to be creative and unique.

Schwinn has remained successful as a cheap entry-level bike because the brand name has been around longer than any of the other. The Schwinn brand name used to be associated with quality bikes, now they struggle to maintain this position since they no longer make quality bikes.  However, Schwinn does still have an upper - level lineup, but it is not recognized in the mind of avid bikers.

*Bike manufacturers produce multiple lines of bikes aimed at different needs, with varying prices. Typically, brands that sell Kids’ Bikes (such as Giant and Schwinn) price products around $120. The above are prices for adult sized bikes covering low-end to high-end frames.

Trek is America’s largest bike distributor and a well known, trusted brand name. Known for superior quality and a constant quest for innovation, Trek has positioned itself in the mind of even non-bikers.

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Giant Manufacturing Background

Giant Manufacturing peddled its way to the top of the bicycle industry in recent years. In 1980 it became the largest bicycle maker in Taiwan. Today Giant Manufacturing is the largest bicycle maker in the world. It manufactures bikes for competition, exercise, recreation, and transportation; as well as biking apparel and accessories. The company's products are sold in cycle shops on seven continents, in some 60 countries, as well as about 20 company-owned stores. Giant Manufacturing also makes bikes for other popular brands through its four manufacturing facilities in Taiwan, China, and Europe. The company once made bikes for defunct Schwinn/GT -- now a part of Pacific Cycle.

Target Markets Served: Giant currently categorizes in seven bike groups: Road Training aimed at professional road bikers, Mountain Bikes for various riding styles, Comfort bikes for causal city riders, Mode Bikes for teens, Indoor Cycling for indoor fitness, Family Cycling Bikes for children and Specialty Bikes.

Distribution: Similar to Schwinn’s distribution, Giant sells its products not only to bike dealers, but also local retailers.

Specialized Bicycle Components Background

Specialized Bicycle Components never intentionally set out to make a museum piece, but the company's original Stumpjumper—the

first mass-produced mountain bike—is now permanently parked inside the Smithsonian Institution. The 1981 revolutionary introduction of the Stumpjumper established the company as a top-seller in bicycle shops, where it ranks up with other big manufacturers such as Trek, for high-end cycles. Founded in 1974 by Mike Sinyard, the company also makes road bikes, commuter/city bikes, children's bikes, and BMX bikes. Today, Specialized is the forth-largest maker of high-end bicycles. Known as a leading innovator in the bicycle industry, Specialized is known for consistently striving to create new and better bicycle technologies, living up to its motto, “Innovate of Die.” Specialized continues to create and introduce cutting-edge bicycle products such as lightweight helmets, physician-designed bicycle seats, a three spoke wheel designed to cut bike racers’ times, and bike frames made of high-tech materials.

Distribution: In 1995 when many of its competitors begun selling low-end mountain bikes in sporting goods chain stores, Specialized saw the potential to boost sales. Straying away from selling exclusively to bike stores, Specialized announced they too would being selling bikes to sporting good stores and discount retailers, but under a Full Force brand. This decision was met with mixed reviews. Bike shop owners saw this move as a serious mistake; customer-dealers saw it was a breach of their trust and loyalty. Specialized viewed this as a way to reach new customers who would otherwise never had interaction with the specialty bike shops.

Petro Zilla Electra Bike Electra Bicycle Company Background

Electra is a Carlsbad, California-based bicycle company, founded in 1993 by Benno Baenziger and Jeano Erforth. The company offers a wide range of modern cruiser bicycles and helped bring the cruiser bike back into more popular use. Cruiser bicycles are America’s standard bikes from the early 1930s-1950s. These bikes are balloon-tired with heavy duty frames, wide tires, and simple mechanicals—usually cruisers are single speed with coaster brake—which make them ideally suited to riding on flat sandy beaches. This ability made cruisers popular though the 60s and 70s, adapting to the name of “Beach Cruisers.” Cruisers’ comfort, style, and affordability, compared to mountain and racing bikes, have lead to renewed popularity in recent years. Founder Benno Baenziger decided there was a market niche for a stylish, affordable cruiser bicycle for twenty-somethings and began working on designs that combined old school looks with contemporary technology. The original Electra cruisers were manufactured by a Taiwanese contractor and sold to bike shops. After a rocky start, and help with word-of-mouth promotion from customers, Electras began flying off the shelf. Today, Electras are available in bike shops throughout Europe, the USA, and Japan.

Current success: The company continues to reach out to non-cyclists. Over the past few years, Electra has partnered with fashion design firm, Petro Zilla to produce a high-end fashion bike with eye-popping colors. Not only has the bike been featured widely in the fashion press, but Petro Zillia’s chief designer, rode an Electra up the runway at a major fashion show, garnering even more widespread coverage.

Financial Standing and Growth: Electra sales have experienced tremendous growth. Although the firm is privately held and does not release sales figures, Erforth, a founder of Electra, has told reporters that sales have doubled over the past two years. Other cruiser firms report similar jumps in demand. According to Michael Gamstetter, editor-in-chief of Bicycle Retailer & Industry News, cruisers still represent a small part of the bike industry, but are the only important segment currently enjoying growth. As a pioneer in the market, Electra is poised for continued success.

Schwinn Bicycle Company Background

The Schwinn Bicycle Company was founded by Ignaz Schwinn in Chicago in

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Trek needs to be away of competitors’ success. The biking industry is cutting edge and constantly changing. New materials allow for stronger, lighter bikes, at reduce costs. Specialized is known for innovation, and Trek needs to keep a close eye on them.

1895, and grew to become the dominant manufacturer of American Bicycles through most of the 20th century. The story of its rise illustrates many principles of sound business operations, and its fall, which occurred in the face of the burgeoning of cycling in the United States in the 1970s and 1980s, demonstrates the opposite.

Distribution: Schwinn aimed to be tops in marketing and distribution, and in service. A former racer, head engineer Frank Brilando made sure every bike component functioned properly before being marketed. For years, bicycle distribution had been haphazard. Most companies sold bikes in bulk to department stores, which in turn sold them with the label of a store brand. Schwinn steered away with this practice in 1950 and insisted on the Schwinn brand and guarantee appearing on all their products. Their distributors however retained the right to send Schwinn bikes to whichever hardware store, toy store, or bicycle shops they desired to market the bikes. In the 1950s and 1960s, Schwinn cultivated a loyal cadre of bicycle retailers dedicated to selling mostly, if not all, Schwinn bicycles. Schwinn pulled their bikes from local bike shops, and essential created Schwinn dealer shops, which housed uniformed salespeople, and long, tidy rows of only Schwinn products. This decision paid off when Schwinn dealers topped that number in annual bike sales. Service experts from Schwinn’s headquarters made the rounds to be sure that shops knew how to properly fix the rare Schwinn that needed repairs. Today, Schwinn has switched gears again, combining both channels of distribution. Consumers can purchase Schwinn bikes from bike dealers or local retail stores.

Target Markets: Schwinn offers eight lines of bikes: road, commuter, comfort, cruisers, electric, mountain, BMX, and kids. Its wide range of products serves the needs of several markets in the general population.

Avid bikers looking for high quality view Schwinn as a sell out of lower end products.

Services OfferedAll the brands have similar services

offered including lifetime warranties, complimentary bike tune-up in the case of an accident, and so forth. Higher end brands such as Specialized and Electra, tend to offer a more comprehensive package, similar to the way a BMW owner is treated compared to a GM owner.

Competitive TrendsFor Trek, future competitive threats

include a large aging market. Trek will have to decide weather to serve the majority aging market, entice young youthful market, or both. The decision depends on the cost of manufacturing for different bikes to fit specific user needs. Furthermore, Trek needs to be away of competitors’ success. The biking industry is cutting edge and constantly changing. New materials allow for stronger, lighter bikes, at reduce costs. Specialized is known for innovation, and Trek needs to keep a close eye on them.

A loyal Trek Biker’s view on the Competition

Question: As an avid biker, what's your general overall impression of Giant, Specialized, Electra and Schwinn compared to Trek's?  For example, you may trust Trek because they’re known for quality, but you may think Electra is better at customizing bikes.

Response: “The only other brand I would consider buying from out of the four is Specialized.  This is because they have a huge R and D department and manufacture some of the most advanced frames in the industry.  Specialized is really devoted to

their brand name as a quality and advanced bike company.  Their S-works line is beautiful. 

Electra is unique and knows exactly who it's market is:  the urban, retro, young-adult to middle age-er who is looking for a bike less for exercise and more for enjoyment.

Giant is a sell-out brand. Even their carbon bikes aren't made in the US.  I find them to be cheaper in comparison to Trek and Specialized.  They put less R and D and copy off of Trek's technologies.

Schwinn is the quintessential American ride.  They started us off with their Schwinn Typhoon's and then made us all think we were fast on their 40lb ten-speeds.  They couldn't hold their own when Trek and Specialized, among others, brought up too much advanced competition, and that's why Pacific bought them out - right before they disappeared completely.  Now they are the new, cheaper, Target brand bikes, manufactured and designed NOT in the US, but in Taiwan.  My hope is that one day they become again a quality brand produced in America.”

-Henry Kuhnen, a 15-year Trek customer and former employee (pictured left)

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Henry Kuhnen crossing the Chequamegon Fat Tire Bike Race finish line--a Trek sponsored event

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“I had to make a management change. On a Friday night I took out the general manager. On Monday morning I was running a bicycle company, and I didn't know a goddamn thing about manufacturing. We did a turnaround: fixed the frame and got rid of that bad '84 product. We also executed a major growth program. From 1986 to 1996 we took sales from about $30 million to more than $300 million..” -Dick Burke, Trek Bicycle Company FounderBETTER

Doing whatever it takes to make bikes

Chal

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esEXAMINING THE CHALLENGES AND BARRIERS TO PURCHASE OF THE BIKE INDUSTRY

The bicycle industry currently finds itself in the upper hand amid America’s economic crisis. It seems as though the bike industry has been waiting for a moment like this to truly thrive.

Now, more than ever, bikes are the alternative to turn to. Over the past decade or so, American culture has been obsessed with the Green Movement. More and more companies are rethinking product design to better the environment; often times

pressured by consumers to do so. Luckily for Trek, being environmental friendly was an aspect in the blueprint from day one. As Trek Brand Manager Eric Bjorling said “Bikes are becoming more fashion driven and are no longer seen as ‘dorky’”. Trek

understands this ideal and capitalizes on it, taking trend to the next level with Project One. Project One allows customers to custom design their Trek bike with custom paint jobs, unique fixtures, and different componentry.

It’s a tough world out there

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Demographic Barriers Currently, the bicycle industry’s market

can be divided into two major groups: the older, Baby-Boomer generation and the younger, trendy Generation X and Y population. The older population poses an opportunity for Trek. With obesity and heart disease plaguing American’s, everyone is looking for ways to comfortably stay active. Bikes offer a great way to stay active that is not dexterous. Furthermore taking a stroll on a bike around the neighborhood or on a bike path does not always seem like exercise. Also, members of the retired population are often times on a fixed income and with the rising price of gas and food, a bike seems like the perfect alternative. According to Bjorling “Trek owes much of it’s financial growth to [the Baby-Boomer] population”.

Generation X and Y consumers pose an opportunity as well, but also a threat. Young consumers are more likely to be concerned with the environment and the Green Movement. It only seems fitting for these consumers to naturally fall into Trek’s market, however, targeting these consumers proves difficult at times. Bjorling discussed how Trek needs to target these consumers differently. “These kids want you to be honest when you talk to them. They’re used to being fed thousands of messages a day, and we need to ensure Trek stands out from the clutter. Finding a medium to reach them on is a whole different issue”.

Economic Barriers It is no secret that America’s economy

has seen better days. When gas costs nearly $5/gallon people turn to alternative modes of

transportation. With a nearly 4% increase in public transportation people are flocking to bike retailers.

Local bicycle shop owners reported record numbers this past spring. People are dusting off their 20-year-old Schwinns and Raleighs, generating increased tune-up work for bike mechanics. Sales of new bikes are inching up, with many buyers choosing hybrid bike models. These models combine elements of mountain and road bikes for a comfortable rides.

Furthermore, Oregon Congressman Earl Blumenauer's long-sought $20 per month tax credit for bike commuters, intended to extend a benefit to cyclists that motorists have received for decades finally came into the limelight this past week. Section 211 of the "Emergency Economic Stabilization Act of 2008" allows for a "qualified bicycle commuting reimbursement" for "reasonable expenses incurred by the employee during such calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee’s residence and place of employment."

Technological BarriersIn the bicycle industry it is crucial to have

a groundbreaking Research and Design Department. Consumers are always looking for the latest and greatest components, lighter material and the next best thing.

The Japanese bicycle industry poses a threat to the American bicycle industry. Japan is renown for their innovative cutting edge discoveries. In 2004, a small bike factory in Osaka, Japan developed the world’s first device that uses the pedaling of

the rider to automatically replenish the air in a bicycle’s tires. The Air Hub is a device that was developed by Nakano Iron Works Co., a bicycle parts maker based in Mihara-sho, Osaka.

The Magical Light is another development created by Aki Denki, a small maker of electronic equipment in Chofu, Tokyo. This light is mounted on the front of the bicycle and operates by bringing a generator into direct contact with the rotating tire and turning a magnet inside the generator to create electric power. In laymen’s terms, the biker’s kinetic energy from peddling powers the light.

Trek is ready however, to take the Japanese on. The Advanced Component Group of Trek’s Research and Design division is “the area 51 of the bike industry” as Bjorling puts it. This advanced group of researchers and designers, composed of structural, composite, and mechanical engineers, work to develop new findings that will not be introduced to the public for 1-2 years. Trek’s patented OCLV Carbon and Alpha Aluminum bike material is a result of this top-notch development team.

Legal, Regulatory, and Ethical Barriers

Trek is a leader in the bicycle industry’s legal and regulatory standards, as well as a model for sound ethical operations. This past week in Las Vegas, Bob Burns, Trek’s legal counsel and head of the BPSA’s (Bicycle Product Suppliers’ Association) legislative committee led a presentation outlining the immediate impacts of a new law that passes in August. The Consumer Product Safety Improvement Act enforces a standard that requires manufactures to supply all bikes and helmets with a general assessment certification that shows conformity with CPSC’s (Consumer Product Safety Commission) standards by November 12, 2008. The bicycle industry will face stiffer penalties for non-compliance with new regulations. “Civil penalties are now $100,000 per violation with a $15 million maximum and criminal penalties, which may include issuing a false certificate, can be punishable by up to five years in prison.”

Furthermore Trek is partnered with Bikes Belong and Bikes Around the Community, organizations dedicated to the building and improvement of bike infrastructure in cities across America. These organizations also work with city planners, educating them on how to build a bike friendly city. More and more money is being subsidized to assist with these efforts.

Trek seems to effortlessly overcome several barriers to entry

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Strengths Weaknesses Opportunities Threats

As a company, Trek does not have many weaknesses. Trek is a successful, driven, well aware company that truly listens to its consumers. One area were Trek could improve upon is customer demographics. When talking with Eric Bjorling, a brand manager for Trek, it was surprising to discover how unaware Treak is of their core consumer. To gain some insight on this area, Trek included a journal component with their Go By Bike challenge. For the first time, Trek collected evidence of who their riders are and where they ride their bikes too. Trek may listen to consumers and fulfill their needs, but does not have any structured consumer basis. Other weaknesses Trek has are purely subjective. Some dealers think Trek is too aggressive with their management, but it may be argued this is because Trek knows who they are and have built great brand equity they’re not willing to compromise.

Trek is in a great position for both financial and brand growth. With the cost of gas rising, the economy falling, and the Green Movement, bicycles are becoming the alternative mode of transportation to turn to. The newly passed Emergency Economic Stabilization Act of 2008 provides a tax credit for bike commuters. Trek was ahead of the curve with this notion; when they launched the Go By Bike challenge this past summer. This challenge encouraged people to ride their bike short distances instead of driving. What was meant to be a summer promotional stunt turned into a cultural phenomenon with lasting effects. Furthermore, the aging population of America is looking for ways to stay physically active to ward off poor health. Trek’s Hybrid models offer the perfect solution to these individuals, providing them with an easy, fun way to exercise. Even bike owners who have stashed away their 1970 Trek are digging them out and putting them to use.

Japan is constantly introducing innovative, cutting edge technological advances and products for the bike industry. While Japan is a competitor, it also offers drive and motivation to Trek’s Advanced Components Group. Staying on top of competition is key to be successful in any technological driven industry. Another treat is the rise of commodity prices. Almost all bikes went up 15-20% at retail this year due to the economy and the cost of materials. While this may prevent some new purchasers from buying their first bike, investing in a bike is a solid alternative to paying rising gas prices.

SWO

TA SUMMARY OF TREK’S CURRENT SITUATION

Trek Bikes is a company comprised of people committed to changing lives through cycling who strive to enhance the riding experience worldwide through innovative products, dynamic partnerships, bicycle friendly development, and exceptional dealer and customer care. Trek’s Advanced Components Group (ACG) is dedicated to the single pursuit of advancing bicycle design and technology. From the single-track trails outside the Trek factory to the wind tunnel in San Diego, ACG is out there testing and developing new products. This team created and perfected OCLV carbon that makes for stronger, lighter frames that maintain the high performance and confident handling. Alpha Aluminum, the classic frame material, has been hydroformed into sophisticated tube shapes with optimized butting profiles for maximum strength and minimum weight. Evidence of Trek’s superior design concepts is materialized with the Madone Trek Road Bike – a truly refined blend of maximum structural efficiency, optimum comfort, and complete ride experience. Compared to it, everything else is history. Furthermore, Trek is dedicated to the greater good, as evidenced by their partnerships with organizations such as Bikes Belong and Bikes Around the Community. Their passion for the bicycle industry is unmet, as Trek actively promotes new regulation such as the CPSC law. 10

“We've never been a great strategic planning company. I put down a mission statement that's still in place today. It says we're going to provide our customers with quality products at competitive value and deliver them on time. We are going to create a positive environment for our customers and employees. And we are going to make money. That's what we did.” -Dick Burke, Trek Bicycle Company Founder

Tomorrow

30 Years of experience to plan for

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HOW TREK CAN PLAN FOR THE FUTURE

Trek maintains impeccable market stability, especially in light of the current state of the economy. With the rising cost of gas, bikes are the alternative mode of transportation to turn too.

Trek has done a thorough job of seeping into untapped markets by developing new products for potential new customers. Already known for catering to elite athletes and the high-end segment of the market—a market with roughly 30 million potential consumers in North America—Trek realized continuing to cater exclusively to this market would not allow the company to expand at a pace consistent with the company’s growth goals. To ensure it’s future growth, Trek has branched out to mountain bikes, urban bikes,

bike path bikes, cruisers, women specific designs, and kids. Just a few years ago, Trek introduced the Lime. The Lime is for everyone, even people who don’t ride bikes. According to Trek’s website, “It’s a fun, easy three-speed bike that shifts automatically, so all you have to do is enjoy the ride.” Trek knew it needed to develop a bike that make people who has abandoned cycling want to ride again. The potential North American market for this “everybike” is estimated to be more than 160 million people. With

several brand lines satisfying the needs of almost any consumer type, Trek has a solid 25-25% market share. This market penetration is possible, even with Trek’s loyalty to the International Bike Dealers Network (IBD) distribution channel. This means Trek bikes can only be purchased from certified Trek dealers that are usually small, independently owned bike shops, as opposed to mass merchants such as Wal-Mart.

Trek maintains a steady pace as they head into the future

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How they stay strongBRAND ALLIANCEESOLES LLC

ESoles makes custom insoles for cycling, running, walking, skiing, hiking, golf and dress shoes, which are available through dealers throughout the country and at eSoles' corporate offices in Scottsdale, AZ. In August 2008, Trek's Bontrager brand introduced cycling shoes with eSoles customizable footbeds. ESoles' eFit footbed will be used in all Bontrager shoes and can be customized through a kiosk scanner designed to identify the need for specific inserts that will be available for an additional charge.

BOYS AND GIRLS CLUB OF SILICON VALLEY

The Boys and Girls Club programs and services promote and enhance the development of boys and girls by instilling a sense of competence, usefulness, belonging and influence. Boys & Girls Clubs are a safe place to learn and grow – all while having fun. They are truly The Positive Place For Kids. Trek encourages people to trade in their old Trek bikes and receive a $20 toward a new bike. Bike mechanics then tune up the trade ins and find a new home for it with a Boys and Girls club member

LEMOND In 1992, racing legend Greg LeMond

struck a deal with Trek in which Trek would license LeMond’s name for bicycles it would build, distribute and help design, but which would be sold under LeMond's name. The LeMond line was among of Trek’s most popular, but was dropped in April, 2008 due to difficulties with Mr. LeMond.

ENDORSEMENTSLANCE ARMSTRONG

Seven time Tour de France winner, Lance Armstrong, has been a life long Trek brand endorser. In return, Trek has been a loyal supporter of Armstrong, sticking by his side after his diagnose with cancer, a setback that cost Armstrong the majority of his endorsers. On September 24, 2008, Armstrong announced his return to professional cycling. Armstrong will race for the Trek-sponsored Astana Pro Cycling Team, and the Global Cancer Imitative.

EVENTSTREK 100

For the past 19 years, this annual event with the MACC Fund has contributed more than $7.2 million to childhood cancer research. This event is an annual bike ride through southeastern Wisconsin. Riders can choose from the 100, 62, 42, or 20-mile route options. The event is similar to Al’s Run.

General Marketing Strategies

Taking into consideration Trek’s current standing, it seems there is not much room for improvement. Trek seems to be doing all the right things, and it shows in the numbers. After personally consulting with Trek brand managers, members of Trek’s legal team and Trek distributors, the only recommendations for Trek are to continue doing what they are doing, with maybe a few new areas of out reach:

#1: [DON’T] GO PUBLIC!

Trek continues its loyalty to the IBD network, and refuses to go public. This is a smart decision and the right thing to do to ensure continual growth. Companies who go public are seen as traders, who defy their customers’ loyalty, example: Schwinn. While making products available at mass retailers may seem like a way to reach a larger market and earn more market share, the truth is it all evens out in the end. So why not attempt both private and public channels of distribution? I has the opportunity to talk with Bob Burns, head of Trek’s legal council who says such a feat cannot be done, at least not in this industry with these customers; evidence: Pacific Bikes (the company that recently bought out Schwinn.) For years Pacific Bikes have attempted to bridge the gap between public and private and have failed time after time. Bike customers are loyal to brands with integrity and stay true to their mission. Going public is often times viewed as “selling out” and attempting to return to privatized distribution is views as too little, too late, too much damage has already been done. #2: CONTINUE WITH INNOVATIVE PRODUCT DEVELOPMENT

Trek is known for being on top of its game, producing high quality products for it’s loyal customers. The Advanced Component Group of Trek’s Research and Design division is the area 51 of the bike industry. This advanced group of researchers and designers, composed of structural, composite, and mechanical engineers, work to develop new findings that will not be introduced to the public for 1-2 years. Trek’s patented OCLV Carbon and Alpha Aluminum bike material is a result of this top-notch development team. Continuing this trend will ensure future growth and loyalty from customers.

#3: CONTINUE TO SELECT HIGH END ENDORSERS

Trek only endorses athletes with an authentic image in the cycling sport. Having genuine, hardworking, honest athletes endorse Trek adds even more integrity to the

brand and instills trust in the mind of the customer.

#4: GREAT DOMESTIC SUCCESS, NOW FOCUS ON INTERNATIONAL GROWTH

With 25-35% market share in the U.S., Trek manages a meekly estimated 2% market share in Europe. Known for having a larger, more diverse market, establishing a larger market share in Europe would provide immense growth for Trek. Trek already has a budding business in Japan, having just recently obtained a license to do business in China. Currently, Trek has 64 concept stores in China. Their plan is to remain at the high-end segment of the market since perception and prestige are culturally very important to the Chinese. Furthermore, China loves anything American, evidence: China’s fascination with Basketball.

1. STAY TRUE TO THE IDB NETWORK.While distributing product through a seemingly exclusive channel may seem risky, this move have earned Trek credibility and priceless brand equity. Furthermore, numbers have grown steadily the past two years.

2. CONTINUE TO INTRODUCE INNOVATIVE PRODUCT.In order to keep up with competition, Trek needs to continually introduce new product such as the Lime and Madone. Trek should debut new products annually.

3. CONTINUE TO RECRUIT ATHLETES WITH A POSITIVE IMAGE IN THE CYCLING SPORT.Fresh new faces are important, but also having an established presence such as Lance Armstrong is a solid investment.

4. INCREASE MARKET SHARE IN EUROPE AND ASIA FROM 2% TO 10% IN THE NEXT 5 YEARS. Opening stores and establishing a presence over seas is an essential way to ensure future growth and grow the brand internationally.

Marketing

Objectives to Ensure

Future Growth

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http://web-japan.org/trends/science/sci040322.html(CPSC Law) http://www.bicycleretailer.com/news/newsDetail/1867.html(economic) http://www.popularmechanics.com/technology/transportation/4271520.html?page=2(1world 2 wheels) http://www.trekbikes.com/us/en/trek_life/news/article/1153/2008/09/17/is_your_state_bicycle_friendly/ AND http://www.trekbikes.com/us/en/trek_life/news/article/1149/2008/09/15/trek_and_trek_retailers_committed_to_advocacy/(OCLV Carbon) http://www.trekbikes.com/us/en/company/technology/oclv/(Alpha Aluminum) http://www.trekbikes.com/us/en/company/technology/alpha_aluminum/http://enterprise.amd.com/Downloads/Industry/Manufacturing/AMD-055_Trek_CS_single.pdfhttp://www.designnews.com/article/2192-Trek_Lime_Development_No_Automatic_Coast.phphttp://www.velonews.com/article/74387http://cyclingnews.com/tech/2001/interbike01trek.shtmlhttp://www.vintage-trek.com/TREK_History1.pdfhttp://www.bike-eu.com/facts-figures/market-reports/2922/%3Cb%3Eusa-2007-%3C-b%3E-nbda-stagnant-bike-sales.htmlhttp://phoenix.bizjournals.com/phoenix/stories/2008/08/04/daily24.htmlhttp://www.snewsnet.com/cgi-bin/snews/12585.htmlhttp://www.allbusiness.com/retail-trade/miscellaneous-retail-miscellaneous/4135694-1.htm

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