Case Study—Baldwin Bicycles
From the article it seemed that Baldwin Bicycle Company competed someplace between a cost leader and a discriminator. Baldwin had been a bike maker for about 40 old ages. The article illustrated that Baldwin Bicycle had the image of being above norm in quality in monetary value. intending to state that it was non low cost rival. Besides. Baldwin had ne’er earlier distributed its merchandises through section shop ironss of K-Mart. which is well-known for its low monetary value. However. no obvious grounds showed that Baldwin had targeted a peculiar market section as a discriminator.
To get down with. the company seemed seeking to pull all scope of customers—its merchandise line involved 10 theoretical accounts which targeted from little beginners’ theoretical account with preparation wheels to a gilded 12 velocity adult’s theoretical account. Furthermore. over a long term operation. Baldwin Bicycle seemed non created any superior competitory advantage that could be identified by clients to be apart from its rivals. such as trade name trueness. client service. merchandise plumes or engineering. Above all. Baldwin Bicycle had non clarified its strategic orientation presently.
B If Baldwin took up Hi-Valu’s offer. how might this alter the manner Baldwin competes? In peculiar. believe about the consequence on Baldwin’s costs and distribution channels ( i. e. the retail merchants ) . ( 45 % )
If accepting the offer. Baldwin’s scheme may be restructured more like a cost-leader. Before pulling a bill of exchange cost analysis. several premises should be considered. a ) Selling monetary value should stay consistent.
B ) Variable and fixed costs should stay changeless. Direct stuff and labour costs remained the same in the current scope. and no idle clip allowed. degree Celsius ) Appraisal of that Hi-Value would buy 25. 000 units and Baldwin would lose 3000 units should be accurate. Incremental cost and gross if accept Hi-Value’s offer
Baldwin got capacity to accept the offer since 75 % capacity had been used. Entire capacity would be 131. 721 units so Baldwin was able to bring forth excess 25. 000 units. While gross revenues volume was estimated to be 100. 000 units less 3. 000 units tax write-off plus 25. 000 units=122. 000 units. which rather near to its entire capacity. fixed and variable costs degree would alter. Contribution border was calculated as $ 12. 47 after revenue enhancement. Subtracting one clip added costs per unit of $ 0. 2. increased working capital $ 4. 33 per unit and border on lost border ( 3. 000units loss ) . entire incremental consequence would be $ 2. 72. Consequence on net income was entire $ 68. 000.
Although Challenger’s offer could vouch extra gross. incremental costs would set load on Baldwin’s current fiscal place provided histories receivables from Hi-Value increased. doing Baldwin had no excess money to develop its ain merchandise. such as new engineering and plumes. As a consequence. to take the offer made Baldwin’s ain merchandises harder traveling up to the top.
Presently Baldwin merely distributed its merchandises in forte bike stores. After the offer being accepted. more distribution channels in Hi-Value shops at lower monetary value than well-known bike trade name such as Trek. Lower monetary value with no important new plumes or trade name image. Challenger seemed more like low cost merchandise.
Customer and rival reactions
Accepting the offer would to some extent harm Baldwin’s trade name image. Lower monetary value and more price reduction distribution channel would draw Baldwin down from “above norm in quality and price” forte bike maker to take down monetary value maker. doing a possible loss of clients and gross revenues. Some rivals would follow Baldwin’s measure. seeking for new investing or cooperation with section shops like Hi-Values. In the long tally. this may portion Baldwin’s current estimated gross revenues or even. Hi-Value would discontinue the contract after 3 old ages and bend to person else who offered lower monetary value than Baldwin. By contrast. similar makers may travel to the opposite side- develop new engineering. add up fresh plumes and advertise as top merchandises to a be discriminators. In this term Baldwin may endure from such an embarrassing trade name image from long tally position.
In add-on. in footings of break-even point and safety border. Baldwin was on the border of losing gross revenues due to the hapless economic. ensuing in a closer distance of the break-even point. To avoid the hazard of doing a loss instead than a net income. Baldwin should take the offer. However. before that Baldwin should besides believe about its hard currency flow. From the income statement it seemed that Baldwin could non convey out adequate hard currency to the undertaking. Besides. since production would increase. more warehouse infinite would be required which would incur farther costs.
Besides. above premise didn’t include hazard of losing more gross revenues. Furthermore. based on the current debt equity ratio. high purchase degree would go on if Baldwin financed by loan since bulk of its loan were short- term instead than long- term. To sum up. before taking the offer. it was indispensable for Baldwin to clearly specify its scheme and see the consequence on it about accepting the offer.
degree Celsiuss Using Miles and Snow typology. theorize on Baldwin Bicycle Company’s strategic placement. ( 45 % )
From Miles and Snow typology. Baldwin was projected to be a reactor. Since prospector should be extremely advanced and analyzer’s sphere is a mixture of stable and altering merchandise or market. seemingly Baldwin would non be one of those by keeping in the current market and merchandise line. Problems arose whether Baldwin was a guardian or reactor. From strategy’ point of position. Baldwin behaved more like a reactor. Mile and Snow typology defines three grounds for an organisation to be a reactor. 1. Top direction of Baldwin had non clearly articulated the organization’s scheme. As talked in Question a. over 40 old ages Baldwin chose to move someplace in between.No clear scheme made Baldwin respond merely when it was forced to by macro environmental force per unit areas. in this instance the hapless economic system.
2. Management does non to the full determine the organization’s construction and processes to suit a chosen scheme. Compared to defender scheme which intends to procure and stable current market by offering a limited scope of merchandises. or offer better quality merchandises or client service. though merchandising and esteem disbursal was relevant high. Baldwin merely sit there offering all scope ofmerchandises without improve merchandise quality. No internal reshape had been carried out. but response to external Hi-Value’s offer as it occurred.
3. Inclination for Management to keep the organization’s current strategy-structure relationship despite overpowering alterations in environmental conditions. Al though hazard of losing gross revenues in the current economic state of affairs and consideration of Hi-Value’s offer arose. top direction seemed did non mean to reconstitute their strategy—to a definite cost leader or absolute top merchandise. Above all. Baldwin was speculated to be reactor.