Group F: Schwinn: Reviving a Classic American Brand

For decades American children yearned for Schwinn bicycles, and kids who rode Schwinn Excelsiors,
Phantoms and Sting- Rays were the envy of the neighborhoods. Today however, if you ask people under
30 to name a popular brand of bicycle, they will probably mention Trek or Cannonade, but not Schwinn.
When customer tastes changed from sturdy, low cost bikes to trendy high priced ones, Schwinn’s sales
plummeted. Unwilling to let Schwinns disappear along with Underwood typewriters, the venerable
bicycles makes launched an all out effort to bring back the best known brand names on two wheels.
With American spending approximately $2 billion a year to buy bicycles, the market for bikes clearly had
room to grow.

More than 100 years ago, Iganz Schwinn founded his bicycle company and built it into the most
prestigious in the industry. For year Schwinn rules as the number one U.S. bicycle brand, and in the
1970’s the Schwinn brand name ranked number three in the United States, behind only Coke and United
Airlines. In the late 1970s and early 1980s, however, cyclists got serious. To pedal off sidewalks and
roads and into mountains and woods they wanted upright handlebars, fat tires, and additional climbing
gears. They also wanted the state of the art technology provided by Cannondale, Giant, Waterloo and
market leading Trek. Schwinn, however, wasn’t paying attention and continued to focus on the shrinking
market for ten speed bikes through most of the 1980s. By 1993 two thirds of all bikes sold were
mountain bikes, and the once mighty Schwinn filed for bankruptcy. Believing in Schwinn’s name and
reputation, Sam Zell bought the company, moved its headquarters to Boulder, Colorado, and formulated
a strategy to take Schwinn back to the top of a crowded bicycle market.

Zell’s goal was to get the Schwinn name on everything from $100 children bicycles to $2,500 mountain
bikes. The first step toward achieving that goal was to upgrade Schwinn’s entire product line. To make
its bicycles stronger and lighter, for example, Schwinn turned to EMF industries, a company whose new
electromagnetic process turns out aluminum that makes bicycle frame much stronger. Schwinn also
restyled all of its models to make them attractive to today’s customer.

Zell’s strategy worked. Between 1993 and 1997, Schwinn rose from ninth to second in the market,
selling more than 350,000 bicycles and fitness products a year. Stated the owner of a bicycle shop in
Boulder, “Two years ago we said, “ There is no way we would ever sell a Schwinn mountain bike.” Now
they are responsible for about one-third of our annual sales.” By 2001, Schwinn dominated the
independent bike dealer for both mountain and BMX bikes, according to the Sports Marketing Survey.
Schwinn continued to build on its momentum by introducing new products. Ome of its hottest new
products is a retro style model: the Cruiser deluxe, a one speed model with a wide seat, chrome fenders,
authentic 1950’s pedals, and balloon tires, which sells for about $ 480. For those nostalgic cyclists who
don’t mind spending a bit more, there is the Black Phantom. Built from the 1949 blueprints, this model
has faux wood grain trim and exact replicas of the original fenders, horn tires, and chrome- and, of
course coaster breaks. In fact, the original difference between the original and the reproduction is the
price. In the old days, the bike cost about $80; today the price is about $3000.

It wasn’t easy for Schwinn to transform its image from stodgy to stylish. The company launched a $10
million advertising campaign and several creative promotional efforts. Print ads featured Enthusiasts
Mountain biking and racking on Schwinn bicycles and Schwinn’s professional mountain bike team raced
every weekend between April and September. To generate positive word of mouth about its products,
Schwinn developed Project Underground, through which the company began selling its elite models at
lower than cost prices to employees of Schwinn dealers before the model’s general release. Thanks to
this program, bike store employees could rave about Schwinn bikes based on personal experience.

By 1997, Schwinn’s new products and intense promotions had revived the company. The bicycle maker
had not, however, achieved its goal of becoming the number one bicycle company in the world. To
continue to work toward that goal, Zell sold Schwinn to Questor’s Partners L.P., an organization with the
finances and vision to complete the rebirth in 1993. A year later, Questor acquired rival bike maker GT
and consolidated the operations of the two firms. Schwinn/GT focused on building international sales,
increasing sales of parts and accessories, and capitalizing on the growing popularity of its retro style
1950s models. Despite the turnaround achieved by Zell, Schwinn/GT again filed for Chapter 11
bankruptcy in 2001, and the cycling division was sold to Pacific Cycle LLC for $86 million. Pacific Cycle,
which markets the Mongoose, Pacific and Roadmaster brand bicycles, plans to continue maintaining
Schwinn’s strong dealer network as well as the brand’s essence and positioning. According to Chris
Hornung, Pacific Cycle’s chief executive officer, “The Schwinn name is an American icon. It is the brand
that many Americans grew up with and aspired to own. We feel that we offer the best opportunity in a
generation to restore vitality to the Schwinn brand.”

Questions

How would Schwinn mountain bikes be classified as a product?

Evaluate Schwinn management’s decision to launch the Black Phantom