Ducati Case Study
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Ducati is an Italian racing-motorcycle manufacturer whose products are characterized by unique engine features, innovative design, advanced engineering and overall technical excellence. In its 80 years of history, the company has won eleven of the last thirteen World Superbike Championship titles and many more individual victories. Ducati produces motorcycles in four market segments that vary in their technical and design features and intended customers: Superbike, Super-sport, Monster and Sport Touring. Despite its success in racing and products, the company went almost bankrupt in 1996 when it was taken over by Texas Pacific Group. The company experienced a very successful turnaround between 1996 and 2001 with the help of the new CEO Federico Minoli. Under his leadership, the company strengthened the brand (including the establishment of the Ducati Museum), boosted research and development, introduced new models and outsourced heavily. Today, Ducati is faced with another challenge that may bring fortune to the company if successfully managed. Ducati is considering attacking Harley Davidson by entering the cruiser market, which is Harley Davidson’s niche product and also a very profitable market segment in the industry. To do this, Ducati must invest 17 million Euro and cost of 26 million Euros. Based on this huge capital requirement, should Ducati enter the new market segment or should Ducati just concentrate on its current segment? Industry Analysis
Ducati has a good financial performance from 1997 to 2001. It has a rapidly revenue growth from 196 million in 1997 to 422 million in 2001 (Exhibit 1) and it also kept EBITDA margin around 20% from 1997 to 2001 (Exhibit 1), which meets the goals that sustain the explosive double-digit profit growth in the next decade and eventually reach Harley Davison’s profit level. Three factors contributed to the increased Ducati’s total revenue: firstly, Ducati entered the Sport-Touring segment, which targeted the new customer base, and introduced new models into each category. Secondly Ducati started the business in accessories and what’s more the brand reputation and the brand loyalty of Ducati’s customers increased due to the advertising and events. On the other hand, Ducati implemented an aggressive outsourcing policy to minimizing fixed asset investments and cost of goods sold. Ducati kept increasing the outsourcing rate since 1996. It even planned to push to 90%, which was much higher than the average outsourcing rate within the industry in 2001. Hence it was able to maintain EBITDA margin around 20%. Market performance
Although the Ducati relevant market was dominated by the Japanese companies, Ducati performed reasonably well Ducati’s market share was generally increasing from 3.9% in 1996 to 6.7% in 2000 worldwide and from 4.3% in 1996 to 7.0% in 2000 in Europe. What’s more, Ducati has established a unique position in the reference market due to the sporting vocation of the brand, against a background of clear product specialization by other manufactures. Strategies Analysis
Ducati uses differentiation strategy as many other companies within the motorcycle industry. Therefore, all companies compete with each other by producing the best quality motorcycle. Ducati’s unique business model and core activities helped to produce Ducati’s way of quality motorcycles mainly focusing sport sector. One of Ducati’s core strategies is that Ducati heavily outsources its production compared to its competitors. By doing this, Ducati is able to reduce fixed asset investment, and mainly focus on product design, development and quality control. To ensure its product quality, Ducati collaborated with a number of the well-known firms such as Ferrari, Lombardini, Motori, etc, and formed the “Engine Technology District”. Also Ducati is very strict on selecting suppliers. Since suppliers play key roles in providing quality motorcycle components to the company, Ducati selected different suppliers for each component. Another core strategy that Ducati has is the distribution system. This strategy mainly helps Ducati to create a standard and unified Ducati designed business model for all dealers and subsidiaries to keep the scent and the culture of Ducati alive and therefore increase the value of the brand name. The third Ducati’s core strategy is the unique production development and R&D process. Ducati created two research centers, the Cagiva Research Center and the Ducati Design center. Through market research andncustomer feedback, Ducati managed to improve their technology and design. What’s more, The World of Ducati is a strategy that helps the development and improvement of the value of the brand through a set of activities. Operation Strategy
Ducati only keep the important activities of the production lines, which is the core competency of the company such as the R&D, design, quality control and building their own crank cases and cylinder head. Ducati keeps a web of small and medium specialized manufacturer for their motorcycles that reduces the cost of inventory and enable the use of the Just-in-Time inventory system. Porter Generic Strategies
Target market coverage
Low cost strategy
Cost leadership strategy
Low cost focus strategy
Differentiation Focus Strategy
Based on the porter’s generic strategy, Ducati and Harley Davidson are using differentiation strategy where the price of the product is not much of the concern to the marketer. Ducati is emphasis on the technology advancement on their product and selling their brand name rather than selling their product at a lower price for competitive advantage. The same goes for Harley Davidson which emphasis on the product quality and the culture of riding Harley Davidson Bike In the segment both Ducati and Harley choose and attributes that many buyers perceive as important, and uniquely positions it to meet those needs Recommendation
Ducati must either choose to penetrate the cruiser market or just focus on current segment. There are advantages and disadvantages to both options. The disadvantages for Ducati to enter the cruiser segments are that Ducati must make heavy capital investment for a new product design and R&D; Harley-Davison already dominates the segment; Harley-Davison’s customers are considerably loyal; affect company’s brand loyalty; time consuming; unpredictable economic condition. The advantages for Ducati to enter the cruiser segments are segment expansion and market share increase. The disadvantage of focusing on existing segment is losing the change of possible expansion. The advantage of focusing on existing segment are that risk reduction; better customer service and support to existing loyal customers; sustain current brand name and strategic strength; continue increasing brand’s loyalty. Based on the above analysis, Ducati should not enter the cruiser market. Although, entering the cruiser market is a possible option, there is no need for Ducati to enter the market based on current performance level. For the past five years, Ducati experienced growth without a doubt. This was possible because of its strong brand name and culture that increased the number of Ducati’s fan loyal customers.
Ducati should just focus and invest more on the existing segment. Ducati also has its own style of strategy that makes it dominant in sport bike segment just like Harley- Davidson has in the cruiser segment. Ducati should sustain its strategy and strengthen even more so no one can ever penetrate into the sport segment. This is the optimum option because it reduces the risk and helps Ducati to support the existing customers and therefore increase their loyalty even more. For Minoli, I recommend that Minoli leave Ducati and find a successor for two reasons. The first is that it is better to leave the company when the CEO tries all his best and finishes his task because people cannot adapt to every new situation. It is better to Ducati to change a new CEO. Secondly, based on the situation of Ducati, Minoli’s aggressive strategies are not suitable and Ducati should focus on its core segment right now.