With Schwinn’s recent expansion into many large-scale retail stores (i. e. Wal-Mart, Toys-R-Us, Target, etc. ), they began to shift into a dual channel marketing strategy. Often times, if not handled properly, this type of approach can result in significant problems for some or all of the distribution channel partners. Fortunately for Schwinn however, they were able to make many critical decisions which ensured that each of the partners’ distinct interests was narrowly aligned with their own.
This proactive plan not only motivated many of their smaller independent bicycle dealers to continue carrying their products but it also allowed Schwinn to effectively reach a much larger segment of their target market.
By closely analyzing this case, we can learn many valuable lessons regarding the overall importance of strong channel management. Product differentiation was one of the primary ways that Schwinn managed to avoid channel conflict. Schwinn segmented the market and delivered to the different segments of the market through different channels.
The product line delivered through the mass market channel consisted of completely different bicycles than those found at the independent bicycle dealers. This segmentation reduced the likelihood of conflict between the two channels, since the two product lines were targeted at segments with little to no crossover. Additionally, Schwinn introduced products like the Sting Ray which had nostalgic appeal and stretched beyond the traditional customer base of the independent bicycle dealers.
These types of bicycles provided them with a unique product and furthermore a healthy margin to bolster profits. By maintaining distinct product lines for their two channels, Schwinn was able to minimize multi-channel conflict.
The key to motivating channel members is to provide value and benefits to each partner in order to align interests and thus achieve the ultimate goal: satisfy the customer’s needs. Schwinn used both push and pull strategies effectively.
By offering a relatively higher margin level than other high-end manufacturers catering to independent bicycle dealers, they were able to restore the confidence and interest of their long term retailers in spite of going for a dual channel strategy. Moreover, as mentioned in the article, unlike most companies in the industry, there was no complicated loyalty formula required to get the best prices from Schwinn. In addition, Schwinn did not require specific pre-order sales in order to carry their products.
Instead, suppliers were granted flexible purchasing options so they did not have to unnecessarily stock inventories during their off-seasons (i. e. winter months in cold climates). This push strategy not only reduced the administrative cost of the retailers, but also improved the inventory turnover and ultimately the retailers’ bottom line. Conversely, Schwinn was also able to simultaneously create a pull strategy after they utilized the extensive media exposure of products, such as the Sting Ray, to increase the brand recognition among customers thus drawing them to the independent bicycle dealers.
In addition to this, the specialty storeowners found significant profits lying in the repairing of these bikes and selling of parts/accessories. This proved to be a great factor for specialty bike owners to remain in business while selling Schwinn. They had a clear edge over other big retailers like Wal-Mart who did not provide any after sales service to its customers. Because they were making money by servicing the bikes sold at the mass market stores, the independent bicycle dealers were more tolerant of losing some sales on the edge of their segment to Wal-Mart, Target, Toys-R-Us, etc.
Schwinn has done a good job of heading off any channel conflict by keeping the incentives aligned for its two main distribution channels. By expanding its product line into major retailers, the company has been able to target a new segment of casual bike riders. With Schwinn’s new line of entry-level bikes, big-box stores can satisfy the needs of casual bike riders by offering a large selection of affordable bikes at convenient locations.
Meanwhile, Schwinn still provides a number of incentives to local bike shops, which form the company’s other main distribution channel. These shops still profit from service and repair, which large retailers do not offer. Additionally, some of Schwinn’s higher-end models are exclusively available in bike shops. Finally, Schwinn is flexible with its inventory requirements and offers good margins. By offering different incentives to each of its distribution channels, Schwinn has been able to target more customers while also keeping its retailers happy.