Case: VLOFIX - Save Time. Ride More

Davide Xausa, Boris Martin and Chris Guillemet stood in front of the bright red Mercedes Sprinter van (see Appendix 1for photos of the van and related marketing materials), painted with the Vlofix logo.

The vehicle is a complete mobile bike shop that takes bicycle repair and service right to the customer. Customers can go on-line, see when a Vlofix van will be servicing their neighbourhoods, and book an appointment. Vans also carry a range of products that are sold to customers. All of the repair equipment runs on rechargeable marine batteries, so there are no noisy, smelly diesel generators. Tools are secured by hooks and magnetic strips and can be moved around to fit the needs of the mechanics. The Sprinter vans have wireless internet, flat screen TV, LED lighting and an espresso machine. Customers usually stay for the service and use this unique experience to become educated on their bikes.

Vlofix is a franchise, and its success will be determined by the number of franchise units it can sell and the number of franchise units that remain profitable and operational. It has ambitious plans, and from the beginning, it was built for growth. It invested heavily in systems that would enable it to scale. In addition to its North American operations, Vlofix has had inquiries from the UAE, the U.K. and Norway. "We expect that we can operate 30-plus vans across Canada and 400-plus in the U.S. market, and because our back-end systems are cloud-based, we can take the business international," says Chris Guillemet. To attract potential franchisees, Vlofix created several videos, has a library of earned and paid media, as well as a group of professional videos that can be found on YouTube that demonstrate the operation to prospects interested in obtaining a franchise.

Davide, Boris and Chris founded Vlofix in 2013 in Vancouver, a city known for its active cycling community. Chris brought his 20 years of successful business experience to the venture along with his passion for endurance sports. Davide also has considerable business experience gained after his Olympic and World Cup level soccer days. Boris is a certified bike mechanic and has almost 10 years of experience as well as some management background. The team made a successful pitch on Dragon's Den, and Jim Treliving (also known as the Franchise Baron who owns Boston Pizza and Mr. Lube) invested $300,000 in the company and helped its owners learn a lot more about franchising.

This morning the founders have their heads together brainstorming about how to best move the company forward. Their burning question is always, "How do we generate more leads to acquire new franchisees?" While their traditional model has been to market directly to bike mechanics or investors (who then hire mechanics to run the business), their thinking has begun to change during the last few weeks. Rather than just marketing directly to franchisees, the owners have begun to explore a more indirect route, and their question this morning has evolved to: "How do we build heightened awareness of the brand and help franchisees acquire the "right" customers?" Having brand pull should, in turn, increase the value of a franchise.

Since the launch of the firm in January 2013, Vlofix has been successful and its revenues have been higher than those projected. Revenues tripled from 2013 to 2014, and again from 2014 to 2015. Sales of franchises to date have proven the strength of the mobile bike shop concept. Vlofix has also had lots of free media coverage including an episode on the Dragons' Den's Celebration of Successepisode aired in April 2015. Nonetheless, the partners think it could be even more successful if they keep adding value for current and future franchisees by building brand awareness and attracting more customers to the brand. As with any start-up, growth funds are not unlimited, and it is crucial Vlofix makes the best use of their resources and takes on an initiative that will have maximum impact for their franchisee acquisition strategy.

History of Vlofix

The Vlofix Group of Companies is the largest fleet of Mobile Bike shops in North America. Currently, it has 18 franchisees in Canada (including locations in Victoria, Vancouver x 4, Calgary, Toronto x 6, Gatineau and Ottawa). It has also sold its first 15 franchise units in the USA (Seattle, Portland, Santa Monica, Kona, Boulder, etc.). Vlofix was founded at a good time since the annual growth in cycling has been approximately 10% throughout North America while the total number of bike shops is decreasing 10% year-on-year (e.g., the number of specialty bicycle retail locations in the U.S. fell from 6,195 in 2000 to 3,790 in 2015). Add to this, that online retail is growing at an exponential rate, and you have a perfect recipe for Velofix to continue its growth.

In 2014, there were just under 20 million bicycles sold in North America (equaling approximately $7.1 billion). The market is divided up into the following product groups (National Bicycle Dealers Association, 2014):

• Mountain Bike 25%
• Hybrid/cross 24%
• Road/700c 20%
• Comfort 13%
• Youth 12%
• Cruiser 5%
• Other 3% (*all figures rounded up)

Vlofix has a proprietary Enterprise Resource Planning (ERP) system which allows its customers to book on-line and then a mobile shop comes to them to fix the bike whether the customer is at home or at the office. In addition to managing booking and scheduling, the system also manages inventory, customer data, quotes, leads and much more. The company was founded with a passion for cycling, and the founders believe that bicycles can help change the world. From the start, their goal has been to offer a convenient "Premium" Service direct to customers so that they can do what they love...SAVE TIME AND RIDE MORE! The vans are equipped to service all types of bikes, and Vlofix franchisees offer a 100% service guarantee.

Vlofix is an example of a growing trend - mobile franchising. Rather than having fixed, brick and mortar locations, mobile franchisee operations work out of some type of large vehicle, and they offer everything from pet care to high quality street food to car windshield repair. Such franchises have grown in popularity because, as Entrepreneurmagazine notes, "They have a shorter ramp-up time, so franchisees can start bringing in revenue almost immediately, rather than negotiating a lease and waiting for a build-out." Mobile franchises also have relatively low start-up costs compared to traditional retailers. A mechanic can invest in a Vlofix franchise for a total cost of approximately $75,000 compared to a cost of $750,000 to start a traditional, independent retail bike shop.

In addition, Vlofix's sophisticated booking and routing system gives franchisees the ability to better serve time- strapped and overworked consumers by conveniently bringing needed services directly to their homes or businesses. As Vlofix co-founder Chris Guillemet notes, Vlofix can provide customers with faster, timelier service: "In good weather, people will bring their bikes into shops in waves and backlog. People sometimes have to wait one or two weeks for their bikes to get serviced."

The price Vlofix's franchisers charge end customers for their services are comparable to what is charged in standard retail repair shops. Rates run from $69 per hour plus tax depending on the service package or the amount of repair work required. There are no additional call-out fees, fuel surcharges or hidden extras.

Chris Guillemet notes that Vlofix did not invent the concept of mobile bike repair, but it was the first company to provide a totally integrated service. Vlofix invested in a proprietary appointment booking system, an inventory management system, automatic order generation and customer relationship management systems. These systems make it easy for franchisees to operate. Franchisees can concentrate on customer service and fixing bikes without having to worry about back-end issues like ordering parts or taking calls from customers wanting to book a service. The operator just has to get up in the morning, turn on the van's GPS system and begin servicing customers.

Franchises are sold to bike mechanics who enjoy working with customers, but often find themselves trapped in the back rooms of traditional bicycle retailers where they rarely get to talk to the bike owner. One of the founders, Boris Martin, knows biking and the mentality of bike enthusiasts well. He notes, "...their bikes are their babies. They don't want to drop them off at a store and see them disappear into some black hole." (Zacharias, 2014)

Customers have been very positive about the service provided by Vlofix's franchisees as one Calgary journalist recently found out as he observed a Vlofix appointment firsthand. The interaction began with a discussion of the customer's mountain bike. Since it was in good shape and didn't need any repair, there was no charge. The customer's second bike was his spare ride for the 24 Hours of Adrenalin, and it needed a general tune-up. The mechanic got to work, explaining everything he was doing and answering all questions. The journalist found the Vlofix experience to be very different from what is experienced when a customer takes a bike to a repair shop in a retail store. "Most shops completely separate the customer from the work of repair, even in the "repair-while-u-wait" scenario. "Yeah, I'll take care of this now... Go wander around the store for 20 minutes..." is common. Having the tech explain what's happening to your bike is a bit out of the ordinary, at least in my experience." (PinkRobe 2015) Vlofix's customers really like the personalized service, and as this example shows, they often bring more than one bike.

The Business Model

For Vlofix to grow and continue its trajectory of success, it has to increase the number of leads generated in order to continue adding franchises in key markets. A mechanic who wants to buy a franchise pays $25,000 for the franchise plus approximately $50,000 to furnish the van with the needed parts inventory, tools and workstations. The lease for the van is $1800/month. Vans are wrapped in a professionally designed bright red and black exterior and bear the Vlofix logo and contact information. In addition, franchisees pay 10% of their monthly gross revenue (8% royalty and 2% branding fee) back to Vlofix to cover advertising, marketing and royalty payments. One of the early, single mechanic, Vancouver franchisees racked in $240,000 in sales his first year.

While the people who buy the franchises are good mechanics, they do not always have business training, so Vlofix provides this for them. It provides a week of initial training on everything from what Vlofix customers value, to strategic discounting to promote trial of the service. They also ensure that franchise buyers know how to use the company's software and develop and execute on a strategic business plan. Vlofix also provides franchisees with ideas of where to prospect for new customers. Some go to trade shows, others go to cycling events like triathlon competitions. Some franchisees have sought out corporate clients (e.g., hotels who own fleets of bikes, or companies like Lululemon that encourage an active lifestyle for their employees). Gyms are another target since they have lots of stationary bikes that need regular service. Others have approached teams or bicycle clubs. People who have bought a franchise from Vlofix find that having a diverse client base is important, since the bike repair business has a dimension of seasonality. Winter is peak season for indoor cycling, for example.

The Cycling Market

While industry sales for bicycles fell in 2009, Statistics Canada reports that there has been a slow recovery and that sales had reached $123.6 million by 2011. This may well be a part of a trend that shows active leisure pursuits have increase by 12% across Canada.

There are regional differences with regard to the types of competition and the reasons why people cycle. For example, Quebec has the highest number of cycling stores (244; 35.1% of the Canadian total). British Columbia and Ontario are almost tied. BC has 174 stores while Ontario has 173; each representing approximately 25% of the Canadian total (Industry Canada, 2015). Sales in the BC marketplace increased by 6.4% between May 2013 and 2014. Profit margins for cycling stores in BC is 39.4%, slightly higher than the Canadian average of 38.7% (Small Business Accelerator, 2015). A Vlofix franchisee can realize a 60% gross margin.

People cycle for different reasons. While some groups are growing, others remain stagnant. Some view cycling as a sport. In Quebec, European-type cycling in the form of road and track racing is common. In western Canada, where ski hills and resorts can be converted into mountain biking venues, this form of cycling dominates.

In addition to sport cyclists, many Canadians regard themselves as recreational cyclists, and they bike on trails, many of which are converted 'rails to trails.' Calgary ranks first with 960 km of trails, followed by Ottawa and Montreal with approximately 550 km each.

Bicycles are also used as vehicles to commute to work. For example, the 2011 Statistics Canada National Household Survey showed that Victoria, BC had the greatest portion of bicycle commuters at 5.9%. Kelowna (British Columbia) ranks second highest at 2.6%, with Ottawa (Ontario) at 2.4% andKingston (Ontario) at 2.2%. Victoria states 11% of commuters went to work by bike in 2014 and may rank highest because of its mild climate.

Despite the significant climate differences, cycling to work is also increasing in Toronto where 1.7% of the population rode a bike to work in 2006. The biggest group of bike commuters in Toronto falls in the 25-44 age bracket. People who use a bicycle to commute tend to live closer to downtown. In Toronto, 65% of the people who ride to work are male and 35% are female. Although a smaller portion of commuting cyclists, thegreatest increases in the percentage of people riding a bicycle to work were among females aged 45 to 54 (+136.8%) and males aged 55 to 64 (+147.2%)This study's findings also suggest that if women's cycling needs were addressed (for example, more bike lanes to increase biking safety), the modal share of bicycle commuting could be increased (see City of Toronto, undated).

Cycling to work is more popular in Vancouver where people cycling to work increased by more than 26%, much faster than the growth rate of cycling in other major Canadian cities.

Other people seek cycling-based vacations. Tourism British Columbia provides some other interesting data that may be indicative of the demographic profile of people who have a passion for biking. People who want to cycle as part of their travel, for example, have relatively high household incomes of over $60,000 per year, and 36.5% of the Canadian sample had household income of $100,000 or more. This type of traveler is also highly educated with almost 70% having post-secondary education. For those who want to cycle as part of their vacation, there were more Canadian males (54.5%) than females 45.5%. This trend is magnified when one looks at mountain biking where 75% of the sample were male. This is in contrast to many European countries where the majority of bike trips are made by women. A Calgary-based study alsoshowed that women are more likely than men to be possible or occasional cyclists, while men are more likely than women to be regular cyclists.Despite these overall differences, Vlofix has a solid following among female clients since women often find traditional biking stores intimidating.

People from Canada who want to cycle as part of their holiday travel, are broken into the following age groups:

• 18-34 40.1%
• 35-44 22.4%
• 45-54 22.1%
• 55-64 12.2%
• 65+ 3.1%

Your Challenge

As noted in the business model section, franchisees pay $5000 for initial marketing, and then pay 10% of their gross revenue per month (8% royalty and a 2% marketing fee) so that Vlofix can continue to expand its marketing efforts to draw new customers and repeat business. After its morning discussions, the Vlofix Management team has decided it needs to do more to help franchisees draw new customers. If its existing franchise owners show ever increasing sales and profitability, Vlofix will find it easier to attract new people to buy franchises.

To date, Vlofix has generated a lot of publicity that has been seen by end consumers. This publicity includes the Dragons' Den episode and the numerous magazine articles. Having Jim Treliving of Dragon's Den and four-time Olympic Medalist Simon Whitfield invest in the firm has given Vlofix some fame and credibility. While publicity and un-earned media coverage has helped build the Vlofix brand to some degree, the founders believe that more is needed. To date, its marketing to end consumers has been somewhat unfocused.

Up to this point, Vlofix has used a number of marketing communication tactics aimed at end customers. It has websites tailored to each of the cities in which it is located. It has a Facebook page, but the pages have only generated a limited number of visits and likes. Vlofix has used print ads (both colour and black and white) in magazines read by avid cyclists. These ads have always used the Vlofixlogo, but they have varied in terms of content and message from showing passionate (largely male) cyclists riding their bikes to photos of the Vlofix van. Vlofix has also used point-of-sale, bright red sandwich boards that are designed to encourage clients to "Drop in .... Meet your mechanic." It has used price-based advertising (e.g., with a tag line that states "Need a Fix? 10% off your next service"). As you can see from the above list, there is no standard theme or brand message underlying these communication efforts.

While Vlofix has used a standard tag line, "Save Time, Ride More," it wonders if this is a strong enough set of associations to fully build brand value in the minds of consumers. It also believes it needs more standardized, integrated consumer-focused communication that will build its brand, intrigue and engage key customers. It wonders if it should be using more social or mobile media or whether it should stick to more traditional methods. While it has used social media (mainly YouTube) to inform mechanics of the franchise opportunity, it has not used social media to reach end consumers. It has developed a few guidelines for Twitter should mechanics want to use Twitter to engage customers, but Vlofix has not done any standardized communication for this communication channel.

To limit its risk, Vlofix will undertake a pilot direct response marketing campaign and run it in a single test market. While the partners know they need to do much more, Vlofix has a limited budget for this project over the short-term ($20,000 maximum). Thus, social or mobile media (perhaps supplemented by some traditional media) seems like a good bet.

It knows, of course, that social or mobile communications may spread beyond the local market and perhaps even go viral if people are intrigued by the communication. If this pilot project is successful, Vlofix will roll out similar campaigns across the country over a longer-period of time.

Your communications firm, XYZ Consultants, has decided to bid for the Vlofix work. Your company believes that Vlofix could be a lucrative, long-term client if your firm provides it with a high impact idea that would drive more clients to the Vlofix franchises.

Instructions Read the attached case for Velofix "Save Time. Ride More" and answer the questions below.

Ensure that your reports are "professional" and that you have proofread, and spell checked your work and documented all your sources. (see notes re: work expectations)

REPORT Please complete the following components for your FINAL report ...

Component 1 (5/20 marks)

• An Introduction

Explain to the reader, what you want to accomplish with this report.

• Background Research and Analysis - Velofix

Who is Velofix? Why do they exist? What is the business opportunity for Velofix?

Go beyond the information provided in the case and add your own insights about problems, opportunities and analysis of the Cycling, Exercise and/or Physical Recreation industry in Canada. Summarize any additional learning about the sector, audience and trends/shifts, which contribute to this industry's growth.

• Competitive Overview

Outline the competitive landscape and list the advantages or weaknesses that Velofix needs to address and may leverage to gain greater consideration and market share. Look at both direct and indirect competitors of this business. This can be summarized as a SWOT analysis.

Component II (10/20 marks)

Premised on your research of the company and this category, Vlofix has some key questions that you must answer before you begin your design of the pilot campaign:

OBJECTIVES

• What marketing objectives should be set for the pilot project (i.e., what are you trying to accomplish with this communication tactic)? Make sure your objectives are SMART and that they reinforce at least one of the following key words:
• Awareness
• Acquisition
• Trial
• Retention
• Attrition

STRATEGIES

• Who would you recommend as the key primary target audience for your marketing campaign?
  • What segment of the market should Velofix focus on as their primary target?
  • What customer target audience do you believe will be the most strongly associated with the brand and be the focus on the campaign?
  • What geographic market or location would you select and why?
  • What is their demographic and psychographic profile?
    • Make sure to select a profile segment from the Prizm Environics database
    • Select only one market as highlighted in the case

TACTICS

• How should Vlofix communicate to and engage with their key customers?
  • Come up with a measurable direct response marketing campaign
    • No mass media unless media are measurable
  • What type of direct and digital media should Velofix consider (and ultimately use) to build their brand?
  • What direct and digital media would you use to carry the message and have the maximum impact on the customer segment you've decided to target?
  • Why did you select the media for your campaign? (Show the research that supports your selection)
    • Budget is limited, so your marketing strategy should have the greatest impact on your target audience for a limited amount of dollars
    • Think Social, Mail, Email, third party database purchase

• What key message will you convey (i.e., what will the theme or message of the communication be)?
  • How will you inform and engage key customers in the media you have selected?
• Is the promise of convenience strong enough or should other aspects of brand value be featured?

Component III (5/20 marks)

• Execution & Tactics - When will you execute your campaign and why?
  • Provide a detailed implementation chart
  • Why did you select these dates for your campaign?
  • How will you measure the success of your campaign?
    • What are your metrics?

Other Notes & Considerations:

• Budget: $20K
• Teams must providean electronic copy of their reports and presentations
• MS Word for report and PowerPoint for presentation slides