Harley Davidson Case
Harley Davidson (HD) was established in 1903 by Harley, Arthur and Walter Davidson, and till date has proven to be an undisputed leader in the US heavyweight motorbike industry. The case discusses its strategies of sustaining a large market share as the motorbike Enterprise enters the 21st Century. During the first three decades, HD prioritized quality of its product by employing research and development (R&D). The Company was distinctively known for its “V-twin” engine.
It targeted elderly males, characterized by power and toughness, to ride its heavyweight bikes. However, in 1950s, its market share received a threat from Japanese companies who completely transformed the demographics and size of US motorbike industry by offering a “family-oriented” model. This lead to a decline in HD’s market share and depicted its image as a “niche” player. Consequently HD had to consider some important modifications to take over the market, again. In 1960’s the firm went public for the first time.
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It started imitating the Japanese production methods to penetrate the non-traditional market segment. In addition to that, to create a socially responsible image of the company, in 1983, it formed Harley Owners Group (HOG). Later, during the last decade of the 20th Century, it acquired Buell Corporation to introduce a sportster line for young enthusiasts. As the US motorbike giant entered the 21st Century, it launched some enticing projects including ‘Rental programmes’ and ‘Rider’s edge’ to occupy the largest market share.
Despite of the ultimate bankruptcy situation it faced in 1970s, Harley Davidson has been able to outshine the motorbike industry with its consistent efforts and a unique brand positioning. Harley Davidson’s Competitive Advantage: For a company to sustain profits higher than the Industry average, it is very crucial to design a business strategy that provides it with a competitive advantage. Harley-Davidson has attempted to achieve competitive advantage by reducing production cost and differentiating its products from its competitors.
The Company modified its entire manufacturing system by implementing Just-in-Time (JIT) inventories and Total Quality management. These processes were implemented to free up much cash by reducing Work-in-Process (WIP) inventory; which in return lead to a decline in the total cost of production. It also allowed the work force to identify a quality problem and fix it timely. We can track Harley Davidson’s progress against its competitors by analyzing and comparing its annual reports with those of its rival.
According to 2011’s annual report (Appendix), Harley-Davidson’s gross margin was reported as 33. 37%, compared with that of Honda at 27. 3% and Suzuki at 3. 5%. It shows that Harley enjoys a Cost-based competitive advantage over Honda and Suzuki because it retains more on each dollar of sales to finance its expenses. Moreover, the Company had a net profit margin of 12. 85% which is again higher than its rivals (Honda and Suzuki had 6. 31% and 1. 51% respectively).
Thus, it is evident that Harley is a highly cost-efficient enterprise in comparison to its industrial competitors. Appendix A) Harley Davidson is also maintains a “Differentiation advantage” in the Motor-bike industry by offering distinctive product features and performance. As mentioned in the case (Pg#2), features like V-twin engine, styled tail fenders, front fork and thump sound provided attached a unique recognition to HD heavyweight bikes. Moreover, Harley-Davidson offers bikes at prestige pricing and quality which satisfy customers’ psychological and social needs. The Company typically targets “baby boomers”, who can afford high-end and expensive bikes.
Majority of its customer base lives in North America. As mentioned earlier, Harley Davidson differentiated itself from Japanese invaders by forming a Company sponsored, social organization known as, “Harley-Davidson Owners Group (HOG)”. This organization carried more than 900,000 members (by the end of 2004) worldwide (refer to Case, pg#7) including Harley-Davidson’s executives and managers while Honda followed with only 75,000 members. Furthermore, in order to build interest among the women riders, it created another group under the banner of, “The Ladies of Harley”.
Such strategies helped it to maintain a strong and superior relationship with its customers as a socially responsible enterprise. However, despite of possessing these competitive advantages, it is doubtful to say that Harley would sustain a large market share in the long-run. It depends on its ability to maintain the status quo in the North American market while expanding and penetrating into Asian market at the same time. However, it is hard for Harley Davidson to penetrate the Asian market in the presence of HONDA which is one of its potential rivals.
The typical brand image of HD features heavyweight and expensive bikes which involves a huge risk in targeting the youth segment that prefers to ride lightweight, quieter and relatively economical bikes. Thus, Harley Davidson needs to launch and advertise its products effectively in the Asian markets while maintaining its traditional customer base in North America. It is very challenging, however, since the government regulation and trade policies hinder the entrance and growth of foreign manufacturers. Harley-Davidson – Entering 21st Century:
In the ever-changing, vibrant period of the 21st century, Harley-Davidson is facing an unprecedented challenge from the shifting market preference and intense competition in the motorbikes’ industry. Its heavyweight motorbikes are in the mature stage of the product life cycle which causes difficulty to attract new customers. An addition to this is the fact that the “baby boomers”, who form the main customer base for Harley Davidson, are aging. According to the Case, their median age is said to have grown from 35 to 47 since 1980s (pg#8).
Thus, it would be quite optimistic for one to assume that the baby boomers will still ride a heavyweight motorbike in their 60’s and 70’s. Therefore, the need to attract other market segments like young people and women becomes more pressing. It will be challenging for HD though, given the rigid image illustrated by the brand itself, which generally represents the lifestyle of a baby boomer. At the same time, Harley-Davison also encounters difficulties arising from the fierce competition in the motor bike industry. The Japanese motorcycle companies have continued to challenge its profits since late 1960s.
The reason for their success lies in their offer of light-weighed, family-oriented models that satisfy the demand of customers who are in their mid-20s and 30s. This segment prefers to ride light sports bike which is eco-friendly, safe and economical. Moreover, the advanced technology and innovations have allowed them to lay a set of stable foundations in the target market. Thus, in order to cop with the prevailing internal and external challenges, Harley Davidson took some steps to modify its product and bring innovation and fresh perspective into its product line.
It acquired the Buell Corporation to create a sports model that comprised of a smaller engine. It offered this model to the younger crowd at a lower price. However, in contrast with the expectations, the sales did not grow impressively. Secondly, a V-rod model was designed to target young Americans and Europeans. The specialty of this model included fuel injection, overhead cams, and liquid cooling system. However, the drawback of this design was that it contradicted with the traditional Harley model and its brand image, which resulted in a loss of current customers.
Besides attracting the younger segment, Harley also drew attention to the niche of women motorcyclist. As mentioned earlier, the extensive use of social media and event sponsorship has helped Harley to gain awareness in this group. Providing support to the local events and promoting the passion for motorcycle race through HOG has gained the loyalty of motorcyclists’ overtime. Beyond that, Harley introduced the rental programs to the market in order to tempt the customers to purchase Harley bikes. The revenues generated through this program were enough to break-even.
Another innovation of Harley is Rider’s edge where beginners are taught to ride in a course of 4 days. According to a historical report ~70% of participants purchase its bike within 18 months (Pg#11). Harley Davidson also needs to evaluate its short-term and long-term marketing strategies in order to be an undisputed leader in the motorbike industry. As for the short-term strategies, they can introduce prestige pricing for the traditional heavyweight motorcycle model while offering the lightweight bikes at a lower price to younger and female customers.
It can also combine promotional incentives such as giving away a free I-pad with the purchase of Harley Davidson’s bike. Moreover, product advertising must stress on its ‘emotional value’ representing extraordinary lifestyle, a signature for the decades and an image that is linked with the dreams of thousands. Also, for the lighter sports model, it should emphasize on its updated and advanced technological functions, which complements the unique, traditional appearance and brand image. Furthermore, Ad campaign can be organized in a way that will motivate the customers to express their most favorite “Harley moment” by creating a short clip.
Moreover, Celebrity branding can be an effective way to raise the awareness for the product. The traditional Harley motorcycle can be shown in the recent action movies to be used by younger, hip customer base. Once the desirable image for acquiring Harley is planted into the customers’ mind, it’s easier for Harley to appeal to the younger crowd by saying “we are traditional but we are hip! ” Besides continuing with these short-term objectives, Harley should also focus on the long-run strategies. It should enhance its quality control system by educating each employee to engage in this. n this aim in order to maintain the brand image.
Secondly, aftersales customer support should be encouraged in order to build profitable customer relationship. Moreover, while maintaining the traditional product line, it should also employ advanced technology to explore more dimensions. It should use market strategies to emphasize on the sentimental value to boost the sales for the products that reach the mature stage of their life-cycle. Furthermore, it should make an effort to expand HOG perpetually e. g. by introducing philanthropic programs that enhance its ethical appearance in the society.
Indeed, such progressions can help Harley to achieve its long term objectives. Traits common between Harley Davidson and Nokia: We have learnt that Harley-Davidson’s competitive fortunes declined significantly in the 1960s and 1970s. A similar scenario has been witnessed by one of the world’s leading cellular companies, Nokia, whose sales volumes dropped dramatically in the last 5 years. This downfall can mainly be attributed to its intense competition with Samsung and Apple; and partially to the poor management of CEO, Stephen Elop, in 2011.
Figure 1. 1: Figure 1. 1 illustrates that Nokia’s market share fell significantly from 23. 8% in 2011 to 8. 2% in 2012. This is confirmed by the ‘year-over-year change’ ratio which shows a remarkable reduction of 50. 8%. In contrast, Samsung has experienced a tremendous success (267%) with its advanced Android system; followed by Apple (~89%). Thus it is evident that Nokia is suffered a sharp decline in its competitive fortunes. This resulted in huge employee turnover number in its European, Mexican and Asian markets.
Thus, both Nokia and Harley had suffered from the threat of bankruptcy. The market share of the latter decreased by 80%, between 1970 and 1980, mainly because the Company adopted a mass production strategy, after being acquired by AMF. It shifted its focus from quality to the quantity aspect of its products. The case tells us that almost half of Harley’s motorcycles failed in the final quality test during the decline period. It threatened the reputation of the company and directed its customers to Japanese contenders who offered a superior quality.
Similarly, Nokia failed during 2011 and 2012, because its new products lacked attraction and novelty for customers. Thus, both these companies committed a major marketing mistake known as “marketing myopia” according to which a company concentrates exclusively on the product alone instead of the values that it captures for the customers. Marketing myopia is the reason why both of these companies fell behind their competitors as they failed to upgrade their offerings with advanced technology. In comparison their rivals realized and incorporated innovation in their products to lead the market.
In addition to that, their competitors employed a productive and effective management and operation team for example Honda’s employees adopted JIT system which reduced WIP inventories and at Apple, employees worked on enhancing the innovative designing. The positive aspect of this story is that both, Harley-Davidson and Nokia, imitated their competitors for resurrection. Harley-Davidson did some research on Japanese motorbike companies and applied unique transformations to their management and operation system like change in inventory system.
Nokia also introduced features and style like Apple and Samsung to launch its new product. Moreover, Harley-Davidson and Nokia collaborated with other companies to ease the healing process. Harley-Davidson acquired AMF and worked with Bento & Bowles while Nokia co-operated with Microsoft by introducing Windows system in their smartphones. Even though they do not belong to the same industries, Nokia can follow the foot-steps of Harley to survive. It can consider adapting the productivity triad created by Harley-Davidson which consists of employment involvement, JIT inventory practices and statistical operator control.
The productivity triad can be applied to any manufacturing company since it involves effective control of management and production system. In addition, Nokia can inspire from HOG to create a social group which has a closed interaction with the company. This group could be expanded and managed consistently to spread the word around the globe. It can help intensify Nokia’s brand loyalty and its image as a socially responsible Organization.
Furthermore, rental programs like those introduced by Harley-Davidson can boost the sales of Nokia. Such programs ffer more opportunities to customers to test new products in an economical way. Customers are more likely to purchase a product which exceeds their expectations after the trial period. For Nokia, this program could help customers determine which smartphone is compatible with their lifestyle and social needs. However, the effectiveness of these strategies is limited in the face of highly tough competition. Thus, Nokia needs to realize its strengths and weaknesses for its current products along with the opportunities to expand; and threats generated by its competitors to successfully sustain its market share and profit.
Ford in comparison to Harley Davidson: Ford, one of the greatest multinational automobile companies founded by Henry Ford (1863-1947) was officially incorporated in 1903, the same year that the industrial leader in Motorbike – Harley Davison came into being. Throughout it’s almost 110 years history, Ford has successfully produced and sold various ranges of automobiles and commercial vehicles. Being able to survive the Great Depression, Ford accelerated its production expenditure by setting up the world’s largest credit enterprise – Ford Finance and the world’s largest car rental company – Hertz.
It also stretched its product line by building buses and trucks in 1940s. It acquired Jaguar and Aston Martin and penetrated Asian and European markets, which elevated its foreign sales for over decades. In 21st Century, Ford suffered a great loss along with another two automobile companies – GM and Chrysler during the 2008 global economy recession crisis. As to the year of 2011, with the assistance of the US government, Ford Motor has slowly but dynamically recovered from that depression.
While continuing to produce its classic model cars like Thunderbird and Mustang, Ford is also looking forward to enter another dimension of automobile industry i. e. motorbike. Before entering this new dimension, it is very important for my company to conduct a SWOT analysis about the current market and existing competitors as well as my company’s strength and weakness for initializing this new product line. I must realize that my biggest rival, “Harley Davidson” has earned a unique recognition in this industry since the advent of motor bike.
Therefore, in the presence of such a tough competition, I will advise my company to avoid a head-on collision with Harley Davidson i. e. refrain from producing the similar heavyweight motorcycles as we lack experience. Thus, in order to minimize the risk of failure, I will choose to initiate with light weight and relatively economical motorbikes. However some foreign companies like Honda, Suzuki and Yamaha have already saturated the youth market segment by offering lighter, less fuel-driven and economical sports bike.
The only way I can pursue a competitive advantage is by targeting a new segment with a more for less value proposition. For example, Ford can offer highly economical motorbikes for students, fast and excellent patrol performance vehicle for police officers and eco-friendly light-weighed motorbikes for public transportation. Even though motorcycle industry has been in business for over 100 years, there is still a huge potential market for our new product and it’s still growing.
My company just need to make sure it does not comes in a direct competition with Harley at the beginning as we all know that Harley’s riders have a very long and unbreakable record of brand loyalty. In order to deliver superior value to our customer, I will encourage my sales department to follow-up with the customer after every purchase in order to establish profitable customer relationship. We can also inspire by Harley’s HOG to establish our own “Ford motorcycle club”. Despite of the strong competition, as a world leading automobile company, my company also enjoys some advantages.
These include strong manufacturing background, ample experience in large-scale manufacturing of cars using vast engineered manufacturing sequence, large scale management and global workforce administration for corporate operations and well-established brand equity. When it comes to the brand name, I believe in offering the new product line (motorbikes) under the banner of the original Ford brand. This can be attributed to three major reasons: Firstly, customers tend to prefer brands they already know or have an experience of using them.
As for the motorcycle brands, no matter what age group the riders belong to, they will choose the brand that they are familiar with. The unique brand name of Ford will drive the consumers to try its new product line. Secondly, the risks involved in launching a new brand are high. There is a lot of uncertainty regarding its success especially in the absence of real world test marketing. Furthermore, without attaching the recognition of ‘Ford’, it will be challenging to attract customers to our new product line.
Finally, I choose to use the existing Ford brand because if my new product succeeds in he market, I can look forward to corporate with the other major motorcycle Companies such as Yamaha and Honda. These companies would probably seek chances to get connected with prestigious brands like Ford to develop the market rather than risking their market share by picking up new brands and incurring enormous costs for new brands. Finally, to gain a competitive advantage, I will begin by offering ‘more for less’ value approach in order to attract as many customers as possible to keep the new production line operational.