Harley-Davidson, Inc. (1998): The 95th Anniversary

Harley-Davidson has been a widely admired fixture in the motorcycle industry since the “golden years” of American motorcycle manufacturing (1900-1931), when at times there were as many as 200 different brands of American-made motorcycles. By 1930, the market had consolidation and the “big three” – Harley-Davidson, Indian Motorcycle, and Excelsior Supply – together accounted for 90% of the market (Ballon, 1997, p. 43). The Great Depression nearly destroyed the industry – wiping out all of the smaller manufacturers, forcing Excelsior out of business in 1931, and leaving Indian severely weakened until it too, ceased operations in 1953 (Ballon, 1997).

When leisure and industrial product conglomerate AMF Inc. acquired Harley-Davidson in 1969, Harley was used to having the American market pretty much to itself. Focusing on short-term profits and sales volume rather than R&D or quality, AMF nearly tripled Harley-Davidson’s production from 15,000 in 1969 to 1974 (Wheelen, et al., 2000). During the 1970s, while Harley-Davidson turned out “noisy, oil-leaking, heavily vibrating, poorly finished, and hard-to-handle machines”, a number of less expensive, quality-minded Japanese competitors made inroads into the US market (Wheelen et al., 2000, p. 15-1). By the end of the decade, the Harley image was tarnished by poor quality and strong competition. In 1981, 14 managers (including Vaughn Beals, then head of the Harley division) conducted a leveraged buyout of the company. Over the next decade, Beals led Harley-Davidson on a comprehensive turnaround, focusing on quality control, productivity, manufacturing excellence, and a culture of worker participation (Young & Murrell, 1998).

By the mid-1990s, Harley-Davidson was enjoying record sales and profits. In 1993, Harley expanded into the sport/performance motorcycle market by acquiring a 49% interest in Buell Motorcycle Company. That same year, Harley acquired a 49% interest in Eaglemark Financial Services and by 1996, Harley owned Eaglemark outright. By 1997, Harley had acquired a majority stake in Buell. Meanwhile, in keeping with management’s decision to focus on motorcycles, the company discontinued its Transportation Vehicles operations. 1997 was a banner year for the company financially. Net income reached $174 million on net sales of $1.76 billion, up from $104 million in net income on $1.2 billion of net sales in 1994 (Wheelen et al., 2000, p. 15-32).

Harley-Davidson’s market share had also recovered nicely from the competitive challenges of the 1970s. Harley’s share of the heavyweight motorcycle market in 1997 was 49.1%; the nearest competitor’s (Honda) was just 18.5% (Wheelen et al., 2000, p. 15-18). However, Harley-Davidson was also becoming a victim of its own success. In 1995 and 1995, demand exceeded production capacity, and in 1996 it was reported that some dealers had waiting lists as long as two years for popular models such as the Heritage Springer (Ballon, 1997, p. 50). While Harley was struggling to keep up with demand, new American-based competitors, including Polaris and Excelsior-Henderson, were gearing up to enter the US heavyweight motorcycle market (Miller, 1998; Ballon, 1997). Harley has expanded its production capacity but it is not yet know whether production will keep up with demand.

This paper provides a case analysis and case solution to a strategic management case study on Harley-Davidson, Inc. The time setting for the case study is early 1998, as the company prepared for its 95th anniversary. The case focuses on Harley’s strategic position in the late 1990s and the challenges it faces as it looks towards competing in both the American and the overseas market with its core motorcycle business. Rather than summarizing the case, the following considers the details of the case throughout the analysis. Problem Definition

While Harley-Davidson has regained its footing after slipping in product quality, market share, and finances in the 1970s and early 1980s, it now faces a new set of home-grown competitors determined to challenge Harley in its core domestic heavyweight motorcycle market. Moreover, the emergence of these competitors is ironically at least partially the result of the fact that Harley’s production did not meet market demand. While new production capacity and facilities will certainly go a long way towards meeting short-term demand for touring and custom motorcycles in the domestic market, all indications are that there will be continued strong demand in the home market as well as growing demand in the larger European market. Looking towards the future, Harley-Davidson management must decide how to best match the company’s vision and resources (which now include Eaglemark Financing and Buell performance motorcycles) with the opportunities and threats in the global motorcycle market. Problem Analysis

The following analysis looks first at Harley-Davidson’s external environment (including competition) and secondly at the company’s internal resources, strengths and weaknesses in an effort to identify Harley’s strategic options for addressing the current problem. External Environmental Analysis

It is beyond the scope of this case analysis to provide separate environmental and industry analyses for vehicle financing services (related to Harley’s Eaglemark division), motorcycle parts and accessories and licensing-related products (e.g., Harley-Davidson apparel and accessories, café, etc.). The following analysis focuses on the environment for the heavy motorcycle industry – Harley-Davidson’s core business segment. In addition to the discussion of the competitive environment, two analytical tools – a PESTEL analysis and a Five Forces Analysis – are used to provide systematic environmental scanning. P.E.S.T.E.L. Analysis

Political. The motorcycle industry is affected by a variety of regulatory regimes which are discussed in the “legal” section below. However, it should be noted that all regulatory regimes are strongly influenced by politics and often shift with changes in administrations. Trade regulations are especially political. The influx of Japanese competitors into the US automobile and motorcycle markets in the 1970s, was by 1980, a source of considerable political friction between Japan and the US, for example, and there is always the possibility that similar trade frictions could arise again. Most countries, including the US, have historically sought to protect their domestic vehicle industries. Trade within designated trading blocs (e.g., NAFTA, the EU) is typically carried out with minimal tariffs and restrictions. Regulations over entry mode are also heavily influenced by politics.

In deciding whether or not (or how) to enter a foreign market, competitors will consider the stability of the government, tax policies, and entry mode regulations as well as level of patent protection (e.g., American or European competitors in the industry may have reservations about entering the Chinese market because of politically-related concerns). In terms of establishing and maintaining operations in any given locale, competitors are affected by social policies (e.g., social welfare policies like healthcare). There are also political aspects related to employment and labor unions within the industry. Finally, there is arguably a political aspect to motorcycle riding and ownership as well as to local, state and federal decisions regarding industry regulations (e.g., helmet laws, noise laws, etc.).

Economic. With rare exceptions, heavyweight motorcycle buyers do not purchase motorcycles as primary vehicles, but rather as auxiliary vehicles for touring, sport or recreation. Thus, to a greater extent than the auto passenger industry, the heavyweight motorcycle industry is subject to economic fluctuations. In times of recession, demand drops and consumers’ disposal income and ability to purchase motorcycles declines. Inflation is also a concern, driving up prices and depressing sales. Economic factors, including interest rates and credit policies, also have an indirect effect on motorcycle sales through their effect on vehicle financing (e.g., Eaglemark). Severe economic downturn typically leads to industry consolidation and the failure of smaller and financially less secure competitors (e.g., the industry was decimated during the Great Depression of the 1930s). On the other hand, a boom economy will encourage discretionary vehicle purchases.

Social. Social factors, including demographics, have a significant impact on the industry. For example, “the typical US Harley-Davidson motorcycle owner was a male in his mid-forties, with a household income of approximately $68,000” and two-thirds of buyers had at least one year of higher education (Wheelen, et al., 2000, p. 15-13). Thus, gender, age, income, and education are all important factors in motorcycle buyer profiles. Heavyweight motorcycles, have also traditionally been marketed as a “lifestyle choice” and supported with owner groups (e.g., H.O.G.), rallies, and related merchandise (Miller, 1998; Ballon, 1997; Wheelen et al., 2000).

Another social aspect of the industry concerns consumer perceptions of bikers and motorcycles. These perceptions can be either positive (as among the owner groups) or exceedingly negative (e.g., the association between bikers and criminality, violence, rebellion). Yet another social aspect (or a social-political aspect) of the industry, especially evident in the case of Harley-Davidson and the domestic industry, is the association between the brands and a notion of open-road Americana.

Technological. In the 1970s and early 1980s, Harley Davidson under the ownership of AMF ran into trouble because it, unlike its new Japanese competitors, failed to upgrade and incorporate new technologies into both the products (motorcycles) and the manufacturing process. With the advancement of computerization and the Internet, technological factors have also become important in marketing, sales, and administration.

Environmental. A number of environmental regulations and issue affect the industry, including those related to emissions and air pollution; soil and water pollution associated with the manufacturing process; and noise pollution. Some of the negative environmental aspects of motorcycles may be seen to be mitigated by the vehicles’ fuel economy when compared to passenger automobiles (e.g., gas mileage ranging from 35-60 mpg).

Legal. As noted previously, the heavyweight motorcycle industry is subject to a broad range of federal, state and even local regulations. In the US, industry participants must adhere to a variety of environmental control requirements concerning both manufacturing operations and products. Motorcycles in the US are subject to certification from the EPA for compliance with noise and emissions standards. The NHTSA (National Highway Traffic Safety Administration) imposes a variety of health and safety requirements. State and local authorities may also impose additional controls related to noise, safety, emissions or other issues. The European Union has a similar range of regulations, and in some cases (e.g., noise) stricter standards than in the U.S. (Wheelen et al., 2000, pp. 15-23). Industry competitors are also subject to various employment regulations.

Other important legal considerations in the industry concern licensing (of name for use on apparel, etc.) and patent/trademark protection. In addition to these legal factors, industry competitors are sometimes affected by product liability lawsuits. For example, in the largest motorcycle-related product liability award to date, a New Jersey jury awarded the plaintiff in a motorcycle accident case $9.9 million (Wall Street Journal 1997a). Companies such as Harley-Davidson typically carry extensive product liability insurance to cover prospective losses. Competitive Analysis

Harley-Davidson dominates its home (US) market, with a 48.3% share in 1997 (Wheelen, 2000, p. 15-12). Currently, its primary competitors are the Japanese manufacturers, who collectively hold a 45.3% market share (Honda is at the lead with an 18.8% share). The Japanese competitors compete against Harley based on price (lower) and technology/performance. One European competitor – BMW – as a small but noticeable (2.4%) share in the US market. All of these major competitors can surpass Harley in terms of financial, manufacturing, and marketing muscle, as they are all divisions of much larger corporations. Both the Japanese and the European competitors also have their own financing divisions, thus competing directly against Eaglemark. Of concern to Harley-Davidson in the future will be the emergence and development of new American-based competitors, including Big Dog, Polaris and Excelsior-Henderson.

As the division of a much larger recreational vehicle company, Polaris has significant financial, marketing and financial resources behind it and is expected to underprice Harley on most models (Wheelen et al., 2000, p. 15-19; Miller, 1998; Tait, 1998). Excelsior-Henderson is trading off the legacy of Excelsior motorcycles and the founders’ knowledge and will be marketing “premium” higher-priced motorcycles (Ballon 1997; Wheelen et al., 2000). Big Dog, which lacks the legacy connections of Excelsior is likewise focusing on the premium end of the market and stressing the quality of its product. Neither Big Dog nor Excelsior can match Harley for financial, manufacturing, marketing, or name-brand resources.

While Harley only has a 6.1% share of the European market, it offers attractive potential based on its large size (about 25% larger than the US
market) and solid growth prospects. Not surprisingly, BMW has a more substantial presence here (12.6%) but the Japanese competitors (dominate) and Honda (with a 25% share) leads the European market. Honda also leads the smaller (about one-quarter the size of the US market) Japanese market, where it holds a 30.1% share, and BMW holds a respectable 4% share. Harley-Davidson, with a 16.5% share, is third in the Japanese market behind Kawasaki (20.2%) and Honda (30.1%). Recently, the Japanese market has shown fast growth, making it an attractive market (Wheelen, 2000, p. 15-12). Five Forces Analysis

Porter’s Five Forces Analysis provides a good overview of an industry’s competitive dynamics, and when considered in conjunction with other environmental factors and a competitor’s strengths and weaknesses, provides a basis for pinpointing appropriate strategic options. The following five forces analysis considers the competitive forces in the heavyweight motorcycle industry with particular reference to Harley-Davidson.

Threat of New Entrants (Low to Medium). Notwithstanding the recent entry of Polaris, Big Dog and Excelsior-Henderson into the US heavyweight market, the ongoing threat of new entrants is actually fairly low because of significant barriers to entry including supply-side economies of scale, demand-side benefits of scale, unequal access to distribution channels, capital requirements, and other incumbency advantages (Porter, 2008, p. 4). The three new American competitors took advantage of rapidly rising demand for motorcycles and Harley-Davidson’s production shortfalls to mount enough support (financing) for market entry.

Power of Suppliers (Medium/Low). Industry-wide, the average power of suppliers is probably medium. Industry participants have three main categories of suppliers: 1) suppliers of raw materials (e.g., steel, aluminum, plastic, chrome); 2) suppliers of purchase components, and 3) suppliers of labor. The raw materials suppliers’ power comes from the fact that they are more concentrated than the industry which they serve and that they do not depend heavily on the motorcycle industry for revenues (they serve multiple industries, including the much larger automobile and truck industry). Suppliers of purchased components derive power from the fact that their products are often differentiated and in some cases, there is no substitute for the product.

Labor suppliers can leverage their power based on the fact that there is no substitute for what they provide. Moreover, given Harley-Davidson’s history of experiencing a management-spearheaded LBO, a well organized labor group could conceivably threaten to integrate forward into the industry (Porter, 2008, p. 7). Harley has worked “aggressively to establish long-term mutually beneficial relationships with its suppliers” (Wheelen, 2000, p. 15-21). Most of the company’s 5,700 employees are unionized, and the company has also worked hard to develop successful long-term relationships with their employees. Based on these factors, while the power of suppliers industry-wide would be ranked as medium, the power of suppliers from the perspective of Harley-Davidson would be ranked as low.

Power of Buyers (Medium/Low). The industry has two main categories of buyers: 1) dealerships (who distribute the motorcycles to customers) and 2) end users, the actual motorcycle buyers and owners. While the dealers’ power is reduced by the fact that they depend on the industry and its purchases are the main portion of its procurement budget (at least in the case of exclusive dealers; dealers carrying multiple brands have more power), their power is increased by the fact that they are able to influence the purchase decision of the end user-buyers (Porter, 2008, p. 8). Overall, the power of the dealers is medium. The power of end-user buyers is low to medium low. They cannot credibly threaten to integrate backward and produce their own motorcycles, they face switching costs, and the industry’s products are differentiated. While the power of individual end user buyers is low to medium, their collective power is somewhat higher based on network effects. Buyers’ power also increases if they become price-sensitive (as in times of economic downturn). Harley-Davidson cultivates strong relationships with both categories of buyers. It prefers to maintain exclusive dealerships and the recent provision of its Eaglemark financing provides additional leverage over the dealership. In terms of end-use buyers, Harley-Davidson increases its leverage over buyers through its H.O.G. entity, its licensing tie-ins, its promotional rallies, and its provision of financing.

Threat of substitutes (Low). Porter (2008) states that “a substitute performs the same or a similar function as an industry’s product by different means” (p. 8). At first glance, there would appear to be no direct substitute for the heavyweight motorcycle. However, as Porter (2008) cautions, “substitutes are always present” and may include doing without, purchasing a used product, making the product themselves. It is certainly possible that buyers might turn to the used market, especially in times of economic downturn, and/or if production failed to keep up with demand. “Doing without” would also be an option for buyers during an economic downturn. Wealthy buyers might substitute a small sports car. Additional less-than-perfect substitutes could include other recreational power vehicles (e.g., snowmobiles, power watercraft).

Intensity of Rivalry (Medium). Porter (2008) notes that the intensity of rivalry in an industry is greatest if “competitors are numerous or roughly equal in size and power,” “industry grow is slow”, “exit barriers are high”, “rivals are highly committed to the business”, “firms cannot read each other’s signals well” and if rivalry focuses around price (p. 9). While rivals are in general highly committed to the business, and exit barriers are high for dedicated motorcycle manufacturers such as Harley, most of these other factors do not obtain in the motorcycle industry (e.g., the industry is currently experiencing fast grow, there are clear market leaders, and competitors compete on many factors besides price). In the domestic heavyweight industry, the intensity of rivalry is about to heat up a bit because of the entry of three new players (Big Dog, Polaris and Excelsior-Henderson). However, it is not nearly as intense as it could be. Internal Analysis

Following a brief financial analysis, the following will utilize a VRIO framework to assess the likely future success and competitive advantage of Harley-Davidson’s current resources and capabilities and then present a brief S.W.O.T. analysis to bring together an analysis of Harley’s internal strengths and weaknesses and the major opportunities and threats in the external environment. Financial Analysis

Harley-Davidson has experienced increases in both net sales and net income every year since 1993. From 1993-1994, sales increased 24.17%, while net income soared 977% (in 1993 the company experienced a net loss due to one-time expenditures). Between 1994 and 1996, net sales climbed 16.5% while net income increased 7.9%. From 1995 to 1996, net sales rose 13.4% while net income jumped 47.6% (attributable to increased income from discontinued operations and increased income from financial services). From 1996 to 1997, Harley’s net sales were up 15.1% and net income increased a more modest 4.8% (Wheelen, et al., 2000, from financial statements). In terms of income by segment, growth in financial services (which didn’t get off the ground until 1995) has been impressive. From 1995 to 1996, income from motorcycles and related limbed 16.4%, while income from financial services was up 58.4% for the year. From 1995 to 1996, income from motorcycles and related climbed 23.6% while income from financial services soared 115.5%. The last year that Harley-Davidson posted a loss was 1993. For the past four years, the company has shown net profit: 9% in 1994, 8.3% in 1995, 10.8% in 1996 and 9.9% in 1997.

Calculation of key ratios for 1997 and 1996 demonstrates that overall, Harley-Davidson outperforms the industry average (based on industry average ratios provided by bizstats.com). The chart below depicts key financial ratios for 1997 and 1996, calculated from financial statements provided in Wheelen et al.’s (2000) case study. Harley Davidson, Key Financial Ratios, 1996-1997

VRIO Framework Analysis
The table on the following page provides a VRIO Framework analysis to some of Harley-Davidson’s current key resources and capabilities. The analysis helps to point to resources and capabilities likely to be critical to the company’s future competitive success. The framework is also useful for pointing to areas needing attention or change. Harley-Davidson VRIO Framework

S.W.O.T Analysis
Strengths
1. Strong brand
2. Strong committed management
3. Good employee & union relations
4. Loyal customer base
5. Good relations with customers
6. Good relations with suppliers
7. Solid financial condition, relatively low debt
8. Good production efficiency & quality
9. Highly respected products
10. Buell division – good portfolio of performance motorcycles 11. Financial Services division
12. H.O.G.
13. Licensing division
14. Lead market position in home market
15. Good history of CSR activities

Weaknesses
1. Production capacity has failed to keep up with demand
2. Dealer network weaker and smaller than major Japanese & European competitors 3. Lack of adequate dealer financing in Europe (e.g., “floor plans”) 4. Weak, almost non-existent position in female market (only 9% of sales) 5. Poor product image among some consumers (related to previous quality problems) 6. Weak market position internationally

7. Main Harley product line out of sync with European market preferences 8. Narrow product portfolio – little cushion if motorcycle market collapses

Opportunities
1. Strong growth/demand for heavyweight motorcycles in US
2. New target market areas – e.g., females, wealthier youth
3. International expansion – Europe
4. International expansion – Asia
5. International expansion – Middle East
6. International expansion – Australia/New Zealand
7. Expand product line

Threats
1. Competition from new American competitors
2. Japanese competitors
3. European competitors
4. Lawsuits
5. Perception of motorcycle riding/ownership as unsafe
6. Lingering consumer perception of quality problems
7. Economic downturn
8. Aging main demographic buyer group (may outgrow motorcycles)
9. Labor strikes

Alternatives
Based on the SWOT above, it is possible to utilize a modified TOWS Matrix to identify a number of alternative strategies. Strength-Opportunities Strategies (Strategies which leverage strengths to maximize opportunities) – Capitalize on Harley brand, product, and production strengths and increase market share and sales in the domestic market (S1,S6,S8,S9,S14, O1) – Move aggressively into European market, entering the performance market with Buell products, draw on core product strengths to expand share in European touring and custom market (S1,S9,S10,O3) – Expand product line (S1,S4,S6,S7S13,O7)

– Target new customer markets (S1,S2,S7,O2)

Strength-Threat Strategies (Strategies which leverage strengths to minimize threats): – Target women, younger buyers with models and marketing keyed to their needs (S1,S7,S8,S10,T8) – Launch new “economy” priced line aimed at frugal buyers (S1,S7,T7) – Expand CSR activities to include motorcycle safety classes & education (S1,S15,T5)

Weakness Opportunities Strategies (Strategies which counter weaknesses by exploiting opportunities) – Expand product line (O7,W8)
– Focus on international expansion (O3,O4,O5,O6,W6)

Weakness Threats Strategies (Strategies that counter weaknesses and threats – defense strategy) – Expand production capacity and domestic dealer network (W1,W2,S1) – Aggressively expand into Europe with Buell in performance division, expand European dealer support, use Eaglemark to provide floor plans for European dealers (W3,W6,W7,T3,T8)

Based on these various strategic possibilities, the following general strategic alternatives are identified: 1. Reposition Harley-Davidson as ultra-premium, raise prices; keep strong focus on quality, lower expectations for expanded production.

Over the past decade and a half, Harley-Davidson has rebuilt its reputation and dramatically improved the quality of its products, as well as dramatically increasing the efficiency of its production. Harley-Davidson’s products are already priced well above those of its Japanese competitors. The new American competitors plan to price their models higher than comparable Harley-Davidson models. Given the company’s long history and loyal customer base, as well as the strong demand it is now experiencing for its products, it would not be difficult for Harley-Davidson to justify raising prices and positioning itself as the ultra-premium brand in the heavyweight touring and custom class. Doing so would take some of the pressure off production.

Moreover, it would enable Harley-Davidson to earn more income for each unit sold. Despite these advantages, there are a number of disadvantages to this strategy. First, it is likely that the strategy would lead to an erosion of Harley’s domestic market share. Second, raising prices just at the time when new, higher-priced competitors are entering the market appears exploitative. Third, even if Harley doesn’t encounter price resistance immediately, the higher price strategy makes the company more vulnerable in the event of an economic downturn. Fourth, this strategy does little to help the company expand internationally or into new target customer markets.

2. Focus on international expansion.
Harley-Davidson is already in a very strong position in the domestic market, and if the company maintains quality and continues to cultivate excellent relations with employees, suppliers, and customers, it seems unlikely that it will lose its market leadership position, new competition notwithstanding. There are numerous opportunities for international expansion – especially in the large and growing European market; moreover Harley has proven that it can beat the Japanese competitors in its home market and now it is time to take them on in the Asian market.

The Buell division will be very useful in European expansion, given that market’s greater focus on performance motorcycles. Moreover, Harley can leverage existing supplier and dealer relations to expand its European network. The company can also use its Eaglemark financing division to facilitate the expansion. On the other hand, an aggressive, multi-pronged international expansion is likely to drain most of the company’s financial resources. It will be necessary to establish foreign production facilities and/or increase US-based facilities that will serve the international market. Harley will also face many more competitive threats internationally than it does domestically, and there are increased regulatory and legal threats to consider as well. Finally, there is the concern that an aggressive focus on international expansion will cause Harley to neglect its home base.

3. Strive for US market dominance: expand production capacity, dealer network, expand customer base into new target groups (e.g., women, performance motorcycle buyers); move gradually to expand international presence from this base.

Rather than concentrate on international expansion, Harley-Davidson can leverage its existing strengths and leadership in its home market and strive for absolute dominance throughout the heavyweight motorcycle category (touring, custom and performance). This will obviously require further expansion of production capacity, as well as a supporting dealer network. This strategy would also call for expanding Harley’s loyal customer base to include new target groups – notably women (who are underserved) and performance buyers. Another potential target would be younger, affluent buyers of touring and custom motorcycles (these are probably some of the Big Dog and Excelsior Henderson customers). Once Harley has built additional strengths and taken advantage of opportunities in the home market, it can gradually expand into the international market. Potential downsides of this strategy include missing opportunities for expansion internationally, expenses associated with gearing up production capacity, expanding the dealer network, etc. There are also risks and expenses associated with targeting new and unfamiliar buyer groups (e.g., women). For example, if Harley targets female buyers, there is the risk that it will dilute its very masculine image and/or turn off male buyers.

4. Expand product line both organically and through acquisition.
Harley-Davidson has done well thus far with the Buell acquisition. The company has the financial resources to make additional acquisitions. Perhaps Harley can even acquire Excelsior-Henderson and/or Big Dog (a Polaris acquisition is unlikely, given the size of that company) and thus consolidate its position as the premium American motorcycle manufacturer. While shopping for acquisitions that would fit well with the Harley-Davidson culture and strategic vision, the company can continue to expand its production and its product line organically. On the other hand, the Buell “acquisition” was a gradual buy-in which occurred over a number of years. Harley has a very strong corporate culture and extremely good relations with employees, suppliers, and other stakeholders. Any acquisition – no matter how carefully selected and regardless of how well it may seem to fit with the company’s objectives – comes with the risk of culture clash. In some cases, an acquisition or merger has been a company’s undoing. At minimum, reliance on acquisitions would inevitably erode the strength of the Harley-Davidson brand name and image.

Recommendations & Implementation
It is recommended that Harley-Davidson adopt the third strategic alternative identified here: focus on achieving marketing dominance in the US and use this as a basis for gradually expanding internationally. As the preceding analysis has shown, Harley-Davidson’s single greatest strength and the most likely source of a sustainable competitive advantage is its strong brand. This strong brand is supported by a foundation of strong relationships with stakeholders (customers, suppliers, dealers, investors) and a commitment to quality. At the core of this is a strong “Americana” culture for lack of a better term. The Harley-Davidson “lifestyle” is very much an American lifestyle – one based on the open road and a strong spirit of independence combined with community. None of the other three alternatives discussed really draw on this key strength as much as alternative #3. Alternative #1 must be rejected both for failing to take advantage of multiple opportunities and for its inadequate protection from numerous threats. Alternative #2 is appealing because it focuses on the multiple opportunities in the European market, but it too must be rejected as too costly and risky and as neglecting the core American market. Alternative #4, as discussed, must be rejected because of the multiple risks posed by acquisition.

It is important to note that alternative #3, while focusing initially on the American market, does not reject the many opportunities posed by international expansion. Rather, it calls on Harley to build its strengths and its overall position in the US market and then leverage these additional strengths to carry out a measured international expansion strategy. Ultimately, it is anticipated that Harley-Davidson will be able to leverage its strong brand into a global marketing strategy. As previously noted, the Harley-Davidson brand is a quintessentially American brand and it is therefore critical that Harley has a dominant, not just leadership, position in the US market.

To implement this strategy, it is recommended that Harley set the long-term objective of building Harley-Davidson into a unified, global brand across all of its divisions, product lines, and target markets. This means phasing out the Buell name and utilizing the Harley-Davidson name even on the Buell-based performance motorcycle products. Likewise, should the company acquire any other companies, it should as quickly as possible, absorb the company and put the Harley Davidson name on the products. As such, the “Eaglemark” financing division must be renamed Harley Davidson Financing.

In addition to committing to this principle of a unified global brand, it is recommended that Harley-Davidson make a long-term strategic commitment to continuous improvement and quality control in both its product line and in its relationship with stakeholders (customers, suppliers, dealers, employees, investors).

Beyond these underlying principles, it is recommended that Harley-Davidson take the following steps to implement the recommended strategy: 1. Expand production capacity by 20% annually for the next five years. 2. Expand the domestic dealer network by 20% annually for the next five years. 3. Expand the international dealer network by 10% annually for the next five years. 4. Conduct market research (including focus groups with existing Harley owners) on the preferences and needs of female buyers, younger buyers, and performance motorcycle buyers. 5. Develop models geared specifically to the new target customer groups (e.g., women, younger buyers, etc.) 6. Start new H.O.G. branches specifically focused on the new target groups. 7. Conduct community outreach and CSR activities that appeal to the new target groups. 8. Pursue expansion into the European performance cycle market first with Buell motorcycles (marketed under the Harley-Davidson name) 9. Pursue expansion with premium models in upscale Middle Eastern markets 10. Research opportunities and competition in Asian and European markets.

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