Friday, February 4, 2011

Will Trek Really Lose Money on B-Cycle?

Madison's Mayor claims that it's OK to give Trek a no-bid contract with money out of the city's contingency reserve for a bike-sharing program because their subsidiary B-Cycle will make no profit on the deal.

In 1997, Elton John remade his hit song "Candle in the Wind" to honor the late Diana, Princess of Wales.  He donated all of his royalties from "Candle in the Wind 1997" to the Princess Diana Memorial Fund.  However, sales of the song also boosted sales of Elton John's back catalog, which made quite a bit of money for the singer, as well as introducing him to a whole new audience.

The McDonald's Corporation sponsors the very worthy Ronald McDonald House charity.  However, it spends more money on ads promoting its link to the charity than it does on the charity itself.

My point is that charitable endeavors by corporations often have a hidden marketing motive.  I have no doubt that the B-Cycle balance sheet will show the program losing money for Trek.  However, that balance sheet will not show increased sales of Trek bicycles resulting from increased bicycle ridership in general and exposure to Trek bikes in particular.

Trek is not eager to do this because they want to give back to the community. Corporations have a fiduciary responsibility to their shareholders to make a profit.  If Trek could not justify the program to its shareholders, it would not exist.  Nor are they the only bike company capable or interested in such programs.

I agree with Paul Soglin on this one.

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