Case.study.5.Harley Davidson.inc.February.2004

Ray Shan Case Study #5 Dr. Gwen Lee 10-4-05 Harley-Davidson, Inc., February 2004

1. Identify Identify Harley-Dav Harley-Davidson’ idson’s s strategy and explain its rationale. rationale. 

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2.

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Bran Brand d im imag age: e: Har Harley ley-Da -Davids vidson on (Har (Harle ley) y) doe doesn’t sn’t just ust sell sell moto mo torc rcyc ycle les; s; it offe offers rs its its cust custom omer ers s a whol whole e new new lifes lifesty tyle le and and expe experi rien ence ce.. The The bran brand d im imag age e repr repres esen ente ted d the the fund fundam amen enta tall American values: “individuality, freedom, and adventure.” Harley’s produc products ts distin distingui guish sh themse themselve lves s with with the unique unique exhau exhaust st growl, growl, and the company furthers the possibilities with customization, such as afte afterm rmar arke kett chro chrome me,, offe offere red d by deal dealer ersh ship ips. s. Besi Beside des s the the prod produc ucts ts,, Harle Harley y form formed ed the the Harl Harley ey Owner Owners’ s’ Grou Group p (HOG (HOG)) to orga organi nize ze peop people le with with the the sa same me inte intere rest sts s to enjo enjoy y the the Harl Harley ey expe experi rien ence ce.. This This ma mark rket eting ing stra strate tegy gy stab stabili ilize zes s the the co comp mpan any’ y’s s mark ma rket et share share,, and and brin brings gs repe repeat atin ing g buye buyers rs:: as much much as 50% 50% moto mo torc rcyc ycle les s so sold ld betw betwee een n 1999 1999~2 ~200 003 3 are to prev previo ious us Harl Harley ey owners. Concen Concentr trati ation on on specifi specific c marke markett segmen segment: t: Harley Harley’s ’s market marketing ing strategy concentrates on only the super-heavyweight motorcycle segment of the market. This particular segment not only consists of  motorcycles with the most profitable margins, but also corresponds to Harley’s masculine image. Dist Distri ribu buti tion on:: sinc since e the the late late 80’ 80’s, Harl Harley ey has has reor reorga gani niz zed its its dist distri ribu buti tion on netw networ ork. k. Harl Harley ey real realiz izes es that that it has has to have have the the appr approp opri riat ate e envir nviron onm ment to mark arket to “prof profe essio ssiona nals ls who possessed the disposal income to layout $17,000 on a motorcycle for occasional leisure rides”, rides”, and thus retired many poorly managed shops shops,, and and esta establ blish ished ed excl exclus usiv ive e deal dealer ersh ships ips with with offe offeri ring ng to Harley’s full line of motorcycles, parts, service, rental, courses, etc. The com compre prehen hensiv sive e before before and after after sale servic services es offere offered d mo more re exposure and opportunities to Harley’s Harley’s motorcycles. Compare Harley-Davidson’s resources and capabilities to those of  Honda? Honda? What What does does your your analy analysis sis imply imply for Harley Harley’s ’s potent potential ial to establish cost and differentiation advantage over Honda? Economies of scale: Harley ships less than a third of a million

motorcycles per year, while Honda’s world wide sales reached 5.16 million in year 2000. Honda also has a far steeper learning/experience curve, allowing more cost reductions per extra moto mo torc rcyc ycle les s prod produc uced ed.. As note noted d on tabl table e 8.4, 8.4, Honda Honda’’s supe superrheav heavyw ywei eigh ghtt mo moto torc rcyc ycle les’ s’ reta retail il price prices s are far far belo below w thos those e of  Harley’s. If Harley’s international business does not take off, even with the almost-50% market share in North America, it will never be able to reach the economies of scale that Honda possesses. 

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Technol echnology ogy:: Harley Harley is just just a mo motor torcy cycle cle manufa manufactu cture, re, with with the rebirth of its successful business only since the early 80’s. Honda, altho althoug ugh h have have not not oper operat ated ed in the the U. U.S. S. as long long as Harl Harley ey,, has has almost a century of experience in the automobile industry. It is one of the world leader when comes to small engines, with superior tech techno nolo logy gy,, such such as mult multii-v valv alve, liqu liquid id co cool oled ed engi engine nes, s, and and innovation innovations s implemente implemented d in its products products before before other competitors. competitors. Hond Honda’ a’s s deca decade des s of expe experi rien ence ce not not only only brin brings gs firs firstt-mov -mover er adv advanta antage ge,, but but also also redu reduce ces s the co cost sts s of rese resear arch chin ing g new new technology, technology, something that Harley will not soon be able to surpass. The The Harl Harley ey expe experi rien ence ce:: while while Harl Harley ey is unabl unable e to obta obtain in co cost st advantages over Honda, it does successfully differentiate itself from all the competitors. As discussed above, Harley’s products offer the unique styling and exhaust growl unlike others. Owning a Harley and becoming a HOG has already become a part of the American culture. The company is able to sustain differentiation by utilizing its its geog geogra raph phic ical al adva advant ntag age e over over over overse sea a co comp mpet etit itor ors, s, havi having ng almost almost 50% 50% marke markett share share in the super super-he -heavy avywei weight ght motorc motorcycl ycle e market segment.

3. What threats threats to continued continued success success does Harley-Da Harley-Davidson vidson face? face? 

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Agin Aging g popu popula lati tion on:: Harl Harley ey has has been been mi milk lkin ing g the the ca cash sh co cow w of  American baby-boomers for the past two decades, and they will no longer be available as audience soon. As the company’s Buell line of mo moto torc rcyc ycle les s not not perf perfor ormi ming ng as well well as expec expecte ted, d, espe especia cially lly against the long-established Japanese and European performance motorcycle manufactures, Harley’s future does not look bright if it is unable to attract the younger customer base. Compet Competitio ition: n: the further further Harley Harley broade broadens ns its marke market, t, the more more intens intensive ive the com compet petiti ition on will will be. The com compan pany y has establi establishe shed d itse itself lf in the the heav heavyw ywei eigh ghtt segm segmen ent, t, and and alre alread ady y ente entere red d the the performance motorcycles with its Buell line, but it still lacks the

economy of scale to compete with manufactures such as Honda. With With superi superior or techno technolog logy y, well-r well-roun ounded ded brand brand name name and lower lower costs/prices, Honda can easily implement an aggressive marketing plan, such as introducing pricing wars, to regain the market shares obtained by Harley. 

As stated in the case, Harley is “more [of] a statement of style than a desire to ride [the motorcycle]”. The masculine image of  Harley motorcycle eventually will experience the end of its product life cycle. It’s just a matter of whether Harley can develop new products and technology before the trends shift to more futuristic motorcycles.

4. How How ca can n Harl Harley ey-D -Dav avid idso son n sust sustain ain and and enha enhanc nce e its its co comp mpet etit itiv ive e position? 

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Inte Intern rnat atio iona nall dev develop elopme ment nt:: Harl Harley ey need needs s to pene penetr trat ate e the the international market, especially the fast growing Asian market, by reinvesting its profits from North America into marketing overseas. As fear feared ed by Bleust Bleustei ein, n, it is uncl unclea earr of whet whethe herr the the Am Amer erica ican n marke markett will will absorb absorb additi additiona onall shipme shipments nts of Harley Harley mo motor torcy cycle cles, s, although the demand is still currently high. Harley’s only way of  gain gainin ing g econ econom omie ies s of scal scale e is to brin bring g mo more re audi audien ence ce for for its its products. New New rese resear arch ch and and deve develop lopme ment nt:: in orde orderr to gain gain co comp mpet etit itiv ive e adv advanta antage ge,, Harl Harley ey need needs s to equi equip p itse itself lf with with stat state e of the the art art tech techno nolo logy gy lik like Honda onda and and BMW. MW. This his ca can n be achie chiev ved by partnering with other auto manufactures such as GM or Ford, while keep keepin ing g the the all all Am Amer eric ican an im imag age. e. New New deve develo lopm pmen entt is need needed ed especially for Harley’s Buell line, as the current models are not favo favore red d exce except ptio iona nally lly by the the inte intern rnat atio iona nall ma mark rket et,, base based d on markets shared gained overseas. Restructuring and downsizing: it never hurts to have less overhead and being a more nimble organization. Harley has been doing great when comes to the financial bottom line, but the company has already shown slow reaction time when comes to new technology development, for example, having liquid cooled engines a decade after Japanese manufactures introduced their multi-valve, liquidcool co oled ed,, over overhe head ad camsha camshaft ft engin engines es.. Harl Harley ey ca can n rest restru ruct ctur ure e to become a flatter organization, with less levels of command, having more units reporting directly to the top management simultaneously. The company can also abandon its no-layoff policy,

outsourcing parts of the organization to reduce the overhead.