ENTRY BARRIERS
Barriers to new bike sellers are reasonably low as capital costs are not very
high, to generate significant sales, a network of global outlets would be
required.
Brand identity and awareness would make it more difficult for new entrants to
the market. However an established brand name in another arena with a
significant marketing budget could extend their brand to bikes. It could be
argued however that unless they were to produce their own bike from scratch
themselves, existing players in the market might benefit.
SUPPLIERS
Bargaining power of suppliers
Bicycle
Industry Forces
NEW ENTRANTS
Threat of
new entrants
COMPETITIVE
RIVALRY
RIVALRY DETERMINANTS
There are quite a few competitors in an industry that is not growing very
quickly. This means that competition could become more intense with frame
manufacturers possible bringing everything in house. The high fixed costs
involved in producing bikes and their parts will also add to rivalry intensity.
The industry is not totally commoditised and so differentiation depending on
the parts used. Branding could be utilised more in influencing customer
decisions.
The high cost of exiting the market adds to the rivalry – most of the brands in
this industry are global therefore exiting the industry would be expensive.
Bargaining power of buyers
BUYERS
DETERMINANTS OF SUPPLIER POWER
DETERMINANTS OF BUYER POWER
+ High-end bike manufacturers are reliant on a number of suppliers e.g.
mechanical components, other industry parts, non-moving industry parts.
Component manufacturers can control manufacturing times/outputs.
+ The bike industry is very , very consumer demand driven and consumers
therefore have a lot of power even though each individual does not buy a
significant number of bikes.
Threat of
Substitutes
+ The retailer has become more powerful . Orders to manufacturers are
beginning to be based on more favourable margins.
+ Brand names such as Shimano are important as consumers ask for them by
name and this gives them a level of leverage. Shimano also produces the best
quality component which also adds to their power.
- It would not cost the buyer much to switch from one supplier to another.
As there is standardisation of parts, buyers can to some degree pick & choose
suppliers of parts. In addition, frame manufacturers already produce their own
components.
SUBSTITUTES
DETERMINANTS OF SUBSTITUTION THREAT
The threat of alternatives is high. There are a number of different modes of transport or recreational activities that customers can choose. Many of which are cheap or even
free. However with specialist high-end racing bikes, there are no real threats of substitution – these are the bikes that required for the role of professional racing.
Porter 1980
- Denotes reduces power + Denotes adds to power
Appendix 1
ENTRY BARRIERS
Barriers to new high-end components makers are reasonably high
as capital costs would be significant. In addition to bike component
manufacturers, frame manufacturers are also able to produce bike
components albeit not as good as the specialists.
Brand identity and recognition makes it more difficult for new
entries.
The cost of entering the components market would not be
significant for a company already producing similar products.
SUPPLIERS
Bargaining power of suppliers
Component
Industry Forces
NEW ENTRANTS
Threat of
new entrants
COMPETITIVE
RIVALRY
RIVALRY DETERMINANTS
The industry as a whole is not growing rapidly. This means that
competition between components makers could become more
intense. As retailers push for lower prices from manufacturers,
manufacturers in turn are likely to pressure their suppliers
(component makers) for lower prices – perhaps forcing component
makers to compete more heavily on price.
Components-to-manufacturer is an issue. Competing on speed will
become a major supply factor and in turn an area of increased
competition. In addition, the high cost of exiting the market and
high fixed costs of a component maker will add to rivalry.
Bargaining power of buyers
BUYERS
DETERMINANTS OF SUPPLIER POWER
DETERMINANTS OF BUYER POWER
Unknown.
- Buyers of Shimano products could be considered to be in a fairly
weak position as Shimano is requested by name and they are
unable to match Shimano quality when they produce their own
components.
Threat of
Substitutes
- Component manufacturers provide a critical part of the bicycle.
+ More manufacturers could integrate backwards.
SUBSTITUTES
- The entire bike industry is very consumer demand driven, the end
user therefore has a lot of indirect power over the components
industry.
DETERMINANTS OF SUBSTITUTION THREAT
The threat of alternatives is fairly high. Frame manufacturers could invest in their own components. Cannondale now owned by a private equity firm could decide to
produce its own components. There is also no reason why other big name players in the market such as Other Industries’ Parts and Non-moving Components manufacturers
could not diversify and begin to produce high-end components.
Porter 1980
- Denotes reduces power + Denotes adds to power
Appendix 2
Shimano SLEPT Analysis
Societal
•The bike industry is subject to changes in consumer shifts and trends e.g. the interest in the Tour de France and triathlons. Both initiating and spotting trends early is
key to Shimano.
•Green issues are on the increase within society. This covers a vast number of areas including recycling, regeneration, reducing the carbon footprint and using
renewable energy sources. This may naturally lead to an increase in those wishing to purchase bikes. There may also be a trend that sees consumers call for ‘greener’
produced bikes possibly made from recycled or renewable sources and bikes that can also be recycled. Shimano produces bike components that are made from
aluminium and titanium, both of which are far easier to recycle and more durable than carbon-fibre. Promoting these recyclable features should be a key part of the
Shimano’s communications plan. This eco-trend may also drive an increase in bike sales.
•With fewer people having children compared to the earlier decades of the last century, there is an ageing population. As subsequent generations get older they may
also like a more comfortable bike and this is perhaps a market that Shimano should develop products for.
•A growing number of consumers appear to prefer hybrid bikes (road and mountain bike characteristics), probably for both work and recreational use. However the
“material of choice” is carbon-fibre whereas Shimano produces components that are aluminium or titanium. Creating lighter components with aluminium and titanium
with better shock absorbing abilities could make these consumers bikes more durable and better for the environment.
•Obesity is a serious problem and a growing concern. Cycling is seen as a good form of aerobic exercise – less harsh on the body than running and more convenient
than swimming. With obesity growing, Shimano could continue to capitalise on and push the health aspect of cycling. In addition, creating components that can
withstand heavier riders is something else to consider.
•Growing levels of traffic are an issue. In London, commuters are often encouraged to cycle. This again could result in an increase in the bike market particularly in
Europe, Shimano’s biggest customers.
Legal & Regulatory
•There have been and there is likely to be a number of legislative changes regarding the effects of carbon emissions on the environment. This will affect the use of cars
which may in turn increase greener methods of travel such as cycling. Naturally this would be of significant benefit to Shimano as this implication has the potential to
grow the market.
•Group pricing policies have ceased. It is uncertain whether this is for legal or regulatory reasons. Whichever it is, Shimano will not be able to use an exclusive pricing
policy as a method to increase sales of their grouped components. Offering bulk sales discounts is an option for Shimano to offer instead.
Appendix 3a
Shimano SLEPT Analysis Contd.
Economic
•The industry is subject to price fluctuations of raw materials and metals such as carbon, alloy, aluminium, rubber, titanium and steel. Obtaining these metals
from recycled sources would be good for the environment, may help with forward planning as recycled metal prices are more reliable that raw metals this would
also be good for Shimano’s corporate social responsibility agenda and in line with their mission.
•The bike industry is heavily affected by changes in other commodities such as oil/gasoline prices. Gasoline price increases pushed bike sales as demonstrated in
the 1980s. Following gas prices will help Shimano with their financial forward planning and should be considered when producing their communications plans i.e.
advertising or promotional campaigns when gas prices are about to go up. This will grow the market as a whole which as Porter notes: protecting the market is a
typical act of the market leader.
•Recessions and downturns could also have an impact on sales. When times are hard people cut down on the use of their cars. Shimano needs to observe
financial trends in order to spot times when manufacturers are likely to need components more readily or the opposite: when cash flow is tight and they may
need volume discounts.
•Factories in China are a major threat to Shimano. The quality of Chinese products is increasing. China is also a BRIC, an emerging, fast developing economy.
Chinese factories could become a serious threat to Shimano eroding its market share.
•The volatility of the US dollar in Asian markets where Shimano has factories is something to watch as well.
Political
•Lots of quality production is taking place in China. China is an emerging economy and will be one of the most populated and powerful countries in the world.
Competing with China will be fierce. Shimano will need to maintain high levels of quality and increase production levels to reduce lead times.
•Meetings such as the G8 Summit on climate change may result in worldwide agreements and laws on reducing harmful emissions. Again, this may also increase
greener modes of transport such as cycling.
Technological
•The bike industry technologically driven. An emerging submarket is electric bikes. This may require changes to assembly and production lines of players in the
bike industry.
• Retailer IT issues.
Appendix 3b
Sales
Bicycle Life Cycles
Electric bike market
which Shimano
currently has no
involvement with.
Introduction
Mature road bike industry and
the majority of Shimano’s
revenue streams.
Hybrid bike market which prefers
carbon fibre components which
Shimano does not currently
manufacture. A small percentage of
Shimano’s income is from the midmarket where hybrid bikes are found.
Growth
Maturity
Decline
Time
Appendix 4
Growth Rate
Low
Shimano Boston Consulting Group Matrix Analysis
?
Stars
Question Marks
Unknown.
Shimano fishing tackle components accounts for 25%
of their sales and is rising.
Cash Cows
Dogs
Unknown.
High
Shimano bike components accounts for over
70% of their income.
High
Low
Relative Position
Appendix 5
Shimano Value Chain Analysis
RESEARCH AND
DEVELOPMENT
DESIGN
SUPPLY
PRODUCTION
E.g. the development
of new products and
innovations, consumer
insight and research
Questions/
Suggestions
E.g. the designing of
components and
tackle.
Questions/
Suggestions
E.g. of raw materials such
as plastics, aluminium,
titanium, nuts, bolts,
screws
Questions/
Suggestions
E.g. the production of the
various components.
Questions/
Suggestions
Shimano is well-known for its innovation however it has been more than 10 years
since its last major development. How can their R&D be more efficient and
effective – a quarter of their staff are focused on this. Collaborating more with
frame makers could give Shimano insight resulting in more innovations. How can
Shimano make better use of info gathered by their staff from retailers and
cyclists in order to produce better components before their competitors? How
can they involve customers more in NPD? What are customer trends looking
like? How can Shimano influence consumer trends rather than follow them?
A core part of Shimano is the design of its products and how they work with other
parts of the bike and fishing equipment. The Shimano product range is extensive.
In order to increase efficiencies, it may be beneficial for the design team to
simplify the design of the components so that there are fewer products in the
Shimano range. In addition, adapting the designs of current components for
other different markets.
Could the materials purchase function be done externally by a larger metal
purchasing company? Are there cheaper suppliers? Can other materials be used
such as carbon-based for lighter components. Where are these materials being
stored? Is a just in time ordering system being implemented with suppliers? This
may reduce costs related to process refinement assuming the process
refinement department is linked to the supply of raw materials such as titanium.
Shimano’s cold forging of metal appears to be an essential part of their
manufacturing process and a key strength. Expanded overseas production was a
good move as this should help with delivery speeds. Can carbon components be
produced? What other small precision components in line with Shimano’s culture
can cost effectively be made?
Appendix 6a
Shimano Value Chain Analysis Contd
SALES &
MARKETING
E.g. the selling and
marketing of Shimano’s
products and gathering
of market research
DISTRIBUTION
E.g. the distribution of
components to various
markets
AFTER SALES CARE
E.g. the making of the
various components.
Questions/
Suggestions
Questions/
Suggestions
Questions/
Suggestions
Shimano appears to lack any real relationship with its customers with no loyalty
scheme in place with manufacturers or communication to the end-user. Can
Shimano offer its customers volume discounts to increase loyalty? Can Shimano
invest more in brand building marketing, making use of celebrities to engage the
end user? Negotiate merchandising deals with retailers for better presence in
stores? There appears to be no overall global strategy. Sales of Shimano products
could be outsourced or given to sales houses for a commission on units sold.
Sales are not core to Shimano’s offering and does not add value and so can be
outsourced or deemphasized. Linking the marketing team more with the after
sales care and the design teams could provide customers with a more rounded
service.
The biggest issue for manufacturers dealing with components suppliers is the
speed of delivery. Shimano should create a just in time ordering system with its
customers. In addition, components distribution could be outsourced to a
company that is able to store components cost effectively and distribute quickly.
Efficient distribution could potentially grow Shimano’s customer base and add
value to the customer offering.
What efforts are being made to ensure that customers are happy with Shimano’s
products? Shimano needs to create points of difference. Having after sales care
could elevate Shimano. Core customers such as frame manufacturers should
have dedicated account managers looking after them so that Shimano can build a
stronger relationship . This function could be kept with the sales and marketing
team.
Value Chain Summary: Shimano currently adds value in its design of products and engineering. Ancillary tasks not crucial to the Shimano offering such as process
refinement and distribution can be outsourced. The sales and after sales care function needs to be increased so that a better relationship can be gained with customers. A
tailored approach to customer care could add to Shimano’s bottom line.
Appendix 6b
Shimano SWOT Analysis
STRENGTHS
•Financially well-resourced, market leader with 80% of high end market
•Exceptional cold forging abilities suitable for mass production of small parts
•Strong design team helping Shimano to be given the tag "Intel of the bike
business” ; technical lock-in and seen as the industry’s components standardiser
and brand leader
WEAKNESSES
• A significant percentage of Shimano’s revenue is from one area: the high-end
bicycle market
•Long lead times to Europe and the US
•Resentment from some industry players due to Shimano’s technical lock-in and
pricing policy (lack of sales discounts)
•Innovator and first mover mentality, seen as having “product quality and
technological superiority” and breakthrough products
•Too many products (more than double its competitors) possibly hampering
production lead times and no recent innovations.
•‘Independent’ in that – no single manufacturer accounted for more than 10% of
Shimano’s sales
•There is no customer/end-user focus and commitment, no real marketing
strategy in place.
•Staff resources: strong internal communications particularly between the
production and marketing teams
•Not a new brand and therefore could lose out to a fresher, younger brand, no
new products planned.
•A company focus on R&D with one quarter of its workforce in research and
development.
•Significant overheads including its 5,400 staff
OPPORTUNITIES
THREATS
• Making carbon-based components for mid-class and hybrid bikes
• Competitors delivering the same quality product faster than Shimano
•Working with manufacturers to produce electric bikes
• Vulnerable to competitor action from market challenger SRAM
•Producing recycled components or recycled concept bike
•Retailers chasing savings and lower costs of goods could impact on Shimano’s
pricing strategy
• Creating special bike components that help the overweight to exercise more
easily
• Easier bike component gears for aging cyclists
• Lance Armstrong switching to another drivetrain is a threat.
• Manufacturers could produce own-label bikes with good components suitable
for mid-class bike consumers eroding Shimano’s income from the market
• Bike market going into decline
Appendix 7
Shimano Product-Market Growth Analysis
EXISTING MARKETS
EXISTING PRODUCTS
MARKET PENETRATION
- Shimano cannot gain much more of the high-end bike market however
they can grow their mid-market component market by selling more
components to existing customers. This is the safest method of growth.
Their focus should be on increasing sales in their weaker markets such
as Asia through extensive marketing, volume discounts, and/or loyalty
schemes.
- In addition, penetrating the fishing tackle market further is another
strategic option.
NEW MARKETS
MARKET DEVELOPMENT
- Shimano could supply its existing components (where suitable) for
the electric bike market. For new components for the electric bike see
Product Development.
- As bike components are quite specific, it is unknown whether there
are other uses for it. However usage could be increased if the
components were able to be adapted easily.
NEW PRODUCTS
PRODUCT DEVELOPMENT
- Produce new components for electric bikes. This market may take
off.
-Produce carbon fibre components for existing markets . These could be
produced for all bike markets e.g. high-end, mid-class and hybrid bikes.
- Produce non-moving components and merchandise. Shimano is a wellknown brand name. Applying the brand name to non-moving
components could provide an additional revenue stream.
RELATED DIVERSIFICATION
- As Shimano has excellent cold forging capabilities , creating different
components for different markets is a high risk but worthy strategy. It
is similar to their move into the fishing tackle market. A specific focus
on popular consumer sports that have a ‘man against the elements’
theme where trust in equipment is essential could be taken. Sample
sports equipment include rock climbing ratchets, skis and yachting
reels. This would also fit with their mission statement.
UNRELATED DIVERSIFICATION
- A range of high performance cycling clothes: Shimano Gear - a
strategic option similar to that taken by Caterpillar, makers of quality
construction equipment and boots could add to Shimano’s revenues.
Appendix 8