Oasis Bicycle the Theoretical Company

Oasis Bicycle The theoretical company "Oasis Bicycles" is one of the biggest manufacturers of bicycles in the world, so it can reasonably be assumed that they are a firm operating on a mass market strategy, likely cost leadership. When Oasis seeks to move into the U.S. market, it will need to analyze the market from the perspective of entering the market in this segment.

This analysis will take the form of a Porter's Five Forces analysis, which seeks to identify the attractiveness of a given market by analyzing a set of competitive variables -- buyer power, supplier power, threat of new entrants, threat of substitutes and intensity of rivalry (Porter, 1980). Buyer Power There are a variety of buyers in the industry. For a new market entrant with no brand equity, the key buyers are the retailers who will get the bikes to the public.

Mass market retailers make up the largest component of the channel, accounting for 74% of bicycles sold (approximately 13.6 million bikes based on 2008 statistics). The low average selling price of $80 results this channel representing just 35% of dollar sales, and correspondingly tight margins (National Bicycle Dealers Association (NBDA, 2008). Sales were split across a wide range of bicycle types, the largest being mountain bikes with a 28.5% share. Other channels include specialty bike shops (17%), chain sporting goods stores (6%) and other (3%) (NBDA, 2008). Oasis is likely to target the mass market retailers for its bicycles.

These retailers have strong buying power for several reasons. Their buying volume is vital to Oasis' ability to penetrate the market. These buyers, including Wal-Mart and Target, have strong information about the products they purchase and this combined with their high volume allows them to drive prices from their suppliers to very low levels (Fishman, 2007). The Oasis brand has no identity, which reduces its buying power. Also, there is high buyer concentration relative to the number of bicycle producers. Supplier power is relatively low for Oasis.

As one of the world's largest bicycle manufacturers, Oasis does high volumes, giving them some power of their suppliers. Moreover, the inputs are not sufficiently differentiated at the low end to lend suppliers power, and there is an ample supply of inputs available from producers around the world. Oasis may need to move production out of the EU, however, where local bike part suppliers are protected. Access to Chinese parts, for example, will require a facility outside of the EU (Bike Europe, 2007).

The threat of new entrants is high, as barriers to entry are relatively low. While there are absolute cost advantages, it is not difficult to build market size in the bicycle industry, since there are many strong markets around the world in which to operate. There is a low proprietary learning curve, very little adverse government policy, relatively low capital requirements, little threat of retaliation and ample access to distribution. Moreover, the U.S.

market has become much more open since a series of decisions by market leader Schwinn decreased its market share, allowing other firms to enter the market (Upham, 2006) The threat of substitutes is high. As the bicycle industry benefits from higher gas prices, it also suffers from low gas prices (NBDA, 2008), indicating a high inclination to substitute. There are low switching costs, as other means of transportation or exercise are all relatively affordable. The price-performance tradeoff is even throughout, and does not yield bicycles any particular competitive advantage.

The degree of rivalry in the industry is low. There is low industry concentration and few exit barriers. There are approximately 2000 firms and 100 brands in the U.S. (NBDA, 2008) and five firms in the mass market sector (NDBA, 2008). Industry growth is relatively slow, however, but high diversity among rivals allows for a relatively low degree of rivalry between them. There are, however, few product differences at the low end, and 99.53% of all bicycles in the U.S. are made in China or Taiwan (NDBA, 2008).

Overall, the industry is moderately favorable for Oasis' entry. The company's main concern is the high degree of buyer power in its segment. While these buyers can help Oasis drive very high volumes, the cost will be very low margins. Oasis will need to leverage the strength it has with its suppliers in order to retain profitability when dealing with these powerful mass market retailers.

The company benefits from an industry with low barriers to entry, as it will be able to gain access to distribution channels and will not face significant retaliation. The intensity of rivalry is in general low. However, Oasis lacks an established brand name and will therefore need to build that among consumers if they wish to outmuscle the industry rivals. The U.S. market is not a difficult one to enter. The diversity of retailers means that Oasis can find the channel that best fits its needs.

Given their size, they are able to compete in the.