Harley Davidson Case Study

1. Introduction

Established in 1903, The Harley-Davidson Motorcycle Company has travelled a somewhat rocky road to success. Saved from the brink of bankruptcy by a management buyout in 1981, Harley has succeeded in building a truly global brand that is the envy of its competitors.

Faced with a declining market, a poor economic climate and fierce competition from Japanese manufacturers, the Harley-Davidson Company was forced to re-look at its competitive strategy. The essence of Harley-Davidson’s success is rooted in its repositioning strategy, which it undertook shortly after the management buyout. Prior to the buyout, the Harley-Davidson motorcycle was perceived as being an inferior quality product to that of its competitor’s. By changing its focus from a product orientation to a marketing orientation, Harley was able to get close to its customers, and by so doing, offer them greater value.

This assignment aims to identify the current and potential issues and problems facing the Harley-Davidson Company, and by so doing, offer some recommendations that can aid in future strategy development.

2. Potential Issues and Problems Facing Harley-Davidson

2.1 Macro-Environmental Analysis

The P.E.S.T.L.E. framework is a useful analytical tool used to gain an understanding of the macro-environmental factors which have impacted Harley-Davidson’s business in the past and which will impact the business in the future. Not all the components of the framework are pertinent to this case, however, I will identify the factors, which pose the greatest opportunities or threats to Harley-Davidson.

2.1.1 Economic Factors

Economic factors such as economic growth, interest rates and exchange rates can have a profound effect on strategy development in any organisation. Interest rate levels and economic growth rates determine consumer-spending patterns, especially for luxury items such as motorcycles. A growing economy bodes well for Harley Davidson, but in times of a sagging economy, sales of luxury items, such as motorcycles, are often adversely affected.

2.1.2 Social Factors

Harley-Davidson has traditionally targeted members of the “baby-boomer” generation. The baby-boomers are that segment of the population born between 1946 and 1964 (Aarp). Harley’s core customer resides within this segment, and tends to be of above average income and education. As a large part of the baby-boomer generation reach retirement age, known as the “greying of the Baby Boom generation”, the fundamentals of Harley’s marketing strategy could be tested. According to Harley-Davidson, two-thirds of its customers are baby-boomers (Hiscock, 2003).

There is a new generation of young, highly educated, professionals who will need to become the Harley-Davidson customers of the future. This issue poses a significant challenge to the success of Harley Davidson. The impact of this threat to Harley, with reference to its current marketing strategies, will be discussed throughout this paper.

2.2 The Harley-Davidson Brand

One of the major competitive advantages in Harley-Davidson’s arsenal is the strength of the Harley-Davidson brand. The Harley motorcycle has become an integral part of American culture, with an entire sub-culture evolving, centred on the Harley motorcycle. Loyalty to the Harley brand is unrivalled, with 45% of purchases being made by existing customers. Many Harley customers even go so far as to tattoo the Harley logo on their bodies. Brand loyalty towards a Harley-Davidson is not based on any particular product feature or technology, but rather on emotive characteristics such as the desire for “individualism, freedom of expression and pride”(Hiscock). A strong brand and intense customer loyalty provides Harley-Davidson with the following advantages:

Firstly, it acts as a significant barrier to entry for potential entrants in the motorcycle market, while, at the same time discouraging existing competitors from competing in the same market segment as Harley-Davidson. Secondly, strong brand loyalty should prevent customers from switching to substitute products, for example, four-wheel drive vehicles or sports cars. Lastly, brand loyalty reduces the threat of rivalry in a market (Porter, 1979).

A key issue for the leadership of Harley-Davidson is whether the strength of the Harley-Davidson brand will continue to grow, especially in global markets. Further, do global customers, view the brand simply as another symbol of American culture, or do they see Harley-Davidson as a truly global brand?

2.3 Harley-Davidson’s Generic Strategy

Faced with increasing competition and an erosion of their market share in the early 1980s, Harley Davidson had to rethink its marketing strategy. Harley-Davidson had always tried to achieve its competitive advantage by positioning itself as, what Michael Porter would call, a focused differentiator in the motorcycle market. A focused differentiation strategy targets a segment or limited number of segments in the market with a unique product, or service features, which persuades customers that it is superior to competitor’s offerings (Porter).

The characteristics of Harley-Davidson’s differentiation strategy are as follows:

The company only chose to compete in the “heavyweight” motorcycle segment. The heavyweight segment consists of motorcycles with engine sizes greater than 650 cc.

Harley-Davidson’s target customers, as mentioned above, are baby boomers, particularly older males, of above average income, and not necessarily motorcycling enthusiasts. Speed and superior performance were not seen as key determinants of purchase behaviour, rather custom styling and the heritage of the brand.

The problem was that in order for a focused differentiation strategy to work the company has to be able to fully meet the needs of its target customer, especially through its product offering. Harley-Davidson’s lack of quality did not enable the company to meet the needs of its target audience. Market share dropped from a high of 99% in the early 1970s to 30 % in 1981.

Prior to the management buyout in 1981, Harley was plagued by quality issues, which tarnished the image of the brand and resulted in the company losing its position as market leader in the heavyweight motorcycle market. Post buyout, the management of Harley implemented a continuous improvement process, which increased quality dramatically, while at the same time reducing costs.

At the heart of this improvement drive was a newfound orientation towards fulfilling the needs of the Harley customer. Harley achieved this through a relationship marketing campaign known as H.O.G. (The Harley Owner’s Group). HOG enables Harley to get direct feedback from customers as well as keep customers informed as to upcoming events, new products and accessories. The Harley Owners Group served to reinforce customer loyalty towards Harley Davidson, as members felt as if they were part of one big family. An extremely strong network of 900 dealers worldwide, also supplements Harley’s customer feedback mechanism.

Harley’s new marketing orientation enabled it to fully reap the benefits of its focused differentiation strategy. Market share climbed consistently both in the US market and in international markets.

There are potentially a few problems with a focused differentiation strategy, which the management of Harley-Davidson should take cognisance of. Firstly, this strategy potentially leaves Harley-Davidson open to imitation by competitors; secondly, other companies with focussed strategies may be able to carve niches out for themselves that they can serve better than Harley-Davidson is currently. Lastly, consumer tastes can change or the market segment in which a company chooses to compete can fundamentally alter.

2.4 Competitive Environment

The motorcycle industry constitutes relatively few players, but is an extremely competitive industry. Harley’s main competition stems from the major Japanese motorcycle manufacturers, namely, Honda, Suzuki, Kawasaki, and Yamaha. Other European competitors include, Italy’s Ducati and Triumph from the United Kingdom. Competitive reaction to Harley’s success has been twofold; firstly, Japanese competitors have tried to emulate Harley by introducing “copycat” products with similar styling and performance to the Harley products, at cheaper prices. Secondly, other focused differentiators entered the market with products aimed at different segments of the market. For example, Ducati, launched the Monster, which was aimed at a younger, more performance oriented market.

I believe that companies like Ducati pose the greatest threat to Harley-Davidson’s continued success. As alluded to in the “pestle” framework, Harley-Davidson’s core customer is the baby-boomer, a large part of which are approaching retirement age. In 1990 the average age of the Harley customer was 35, while in 1997 the average age of the Harley customer was closer to 45 (Harley-Davidson). All Harley-Davidson’s product development and marketing activities are presently aimed at this market. As new, younger customers enter the market, Harley-Davidson’s “retro” styling and relative lack of speed and performance may not attract these customers.

2.5 Harley-Davidson’s Product Policy

Anshoff’s product-market growth strategy model provides some useful insights into the various growth strategies employed by Harley-Davidson over time. Initially, Harley-Davidson adopted a market penetration strategy that was centred on its core, and somewhat narrow, range of heavyweight motorcycles. The market for this range of Harley’s product had reached maturity and sales were declining.

Harley-Davidson’s leadership had the foresight to realise that the continued success of the company hinged on product development, based on the changing needs of Harley’s customer. Harley-Davidson’s product development strategy was based on the fact that the company had to provide customers with choice. Harley brought to market a wide range of heavyweight motorcycles aimed at satisfying all the requirements of its target customer.

Harley’s customer orientation yielded significant benefits for the company. Through the feedback obtained from customers, Harley realised that customers were customising their machines. This provided Harley with a significant opportunity, and a new related diversification strategy was born. Customers could now order parts to customise their Harleys. This diversification strategy proved to be very successful for Harley-Davidson and contributed significantly towards their growth.

Another diversification strategy that proved to be very successful for Harley-Davidson was the licensing of the Harley-Davidson brand name for use on a clothing range to be sold exclusively through the Harley dealerships. This strategy has also worked very well for Harley. It has enabled Harley-Davidson to leverage their hugely successful brand and reach consumers who previously would never be thought of as consumers.

The potential problem with this strategy is that it can very easily run out of control and destroy the image of the brand. For example, a range of branded Harley-Davidson toiletry products, in my opinion, will damage the brand equity that Harley-Davidson has worked so hard at building.

The problem is, however, that Harley-Davidson has taken this diversification strategy too far. The purchase of Holiday Rambler Corporation in 1986 was an unrelated diversification strategy that in my opinion added no value to the Harley-Davidson Corporation, whatsoever. Such unrelated diversification tends to divert the focus of the company away from its core business. Harley-Davidson’s motivation for purchasing Holiday Rambler is unclear, but I am assuming that it was intended as an insurance policy against an aging target market. Perhaps Harley-Davidson felt that an aging target market would move from motorcycles to motor homes.

2.6 Harley-Davidson’s International Markets

Harley-Davidson’s success in the United States has been mirrored by its penetration of international markets. By the end of 1993 Harley-Davidson had achieved a market share of 10% in Western Europe and 21% in Australia and Japan. Its success in Japan is highly commendable, considering the extent of the Japanese competition. However, I have concerns as to the sustainability of the success of Harley-Davidson in international markets. Harley’s market share in Europe remained at 10% from 1991 through 1993, while its share of the Japanese and Australian market has hovered around the 20% level for the same period. These stagnating market shares have been in spite of a growing market in both regions. It is interesting to note that by 1998, Harley-Davidson’s market share in Europe had fallen to 6.4%, while its share of the Australian and Japanese market had fallen to 15.6% (Appendix 1).

It is my opinion that Harley-Davidson’s problems in its international market are as follows: Firstly, the associations made with the Harley-Davidson brand differ between the American consumer and the international consumer. To the American consumer, the Harley motorcycle epitomises American culture and the passion and freedom that the Americans enjoy. To the international customer, a Harley might be nothing more than a fashion accessory. Loyalty to the Harley brand could possibly be weaker in international markets than in the American market. A second potential issue could be that international consumers want a motorcycle that offers speed and performance as well as styling. Harley-Davidson’s motorcycles do not compete on performance, so their relative lack thereof could result in less brand loyal customers switching to competitors’ products.

2.7 Capacity Constraints

Another area of concern is Harley-Davidson’s inability to satisfy the demand for its product. Customers have to wait up to a year in advance to receive their motorcycles. This lack of ability to supply must provide competitors with significant opportunities to encroach on potential Harley customers, who simply will not be prepared to wait for a year.

3. Recommendations

3.1 Target Market

Harley-Davidson’s aging customer base poses a considerable threat to their continued success. Harley-Davidson has to change its segmentation strategy in order to target the younger generation. The manner in which Harley accomplishes this repositioning can best be explained through the use of the “4 P’s” model. The “Place” component of the model is not pertinent to this analysis so it will be excluded.

3.2 Product Policy

I am of the opinion that Harley will not penetrate the younger market with its current product mix. The success of the Ducati Monster, indicates that speed and performance are becoming important criteria for the youth market. Harley’s retro styling and relatively inadequate performance will tend to marginalize it within this market. Harley needs to develop a performance motorcycle that has a distinctively Harley-Davidson look but with a modern feel. A performance product will help Harley penetrate international markets, where performance is a primary purchase criterion.

Harley’s intention was to penetrate the performance motorcycle market through its acquisition of Buell. The problem is that Buell is a relatively unknown brand, especially in the international market, and consumers will not associate Buell with the Harley brand. Harley can leverage the expertise gained from Buell in the development of a Harley-Davidson branded performance motorcycle.

In terms of Harley-Davidson’s existing licensing strategy, the only recommendation that I can make is to exercise control over the extent to which it grants licensing contracts. As previously mentioned, excessive use of licensing can cause harm to the brand. I would recommend limiting licensed products to a select range of clothing and accessories available exclusively from Harley outlets.

I would also make the recommendation that Harley-Davidson divests itself of the Holiday Rambler Corporation. This business does not add value to Harley as a company, and if anything, places a strain on their resources.

3.3 Promotion

Harley-Davidson’s primary promotional tool for its product is the Harley Owner’s Group (HOG). Harley uses HOG to showcase new products and to keep in contact with customers. The problem is that if Harley is going to penetrate the youth market, it is going to have to develop a marketing campaign to target these customers. HOG members are existing customers, while potential customers fall outside of the realm of HOG. Harley needs to develop a mainstream promotional campaign to target the younger consumer. This could be in the form of advertisements placed in popular magazines or product endorsements from celebrities.

3.4 Price

Harley has never competed on the basis of price, and has enjoyed the benefits of value pricing. Customers are prepared to pay a premium for the value they are receiving in a Harley-Davidson. The only problem with this pricing strategy is that if customers are kept waiting, especially for a year, they will be tempted towards competitors who have adopted a penetration pricing strategy. My only recommendation to Harley Davidson is to invest in production capacity in order to prevent customers switching to competitor’s products. This is especially relevant for the younger customer, whose loyalty to the Harley brand might not be as steadfast as existing customers’.

3.5 The Harley-Davidson Brand

Harley-Davidson’s brand equity is one of its competitive advantages. The challenge is to elicit the same degree of brand loyalty from international customers as Harley-Davidson receives from its American customers. My recommendation to Harley would be to customise its promotional activities for its various international markets. Harley’s positioning strategy needs to avoid references to American culture and focus on the psychographic and behavioural elements that the brand represents.

4. Conclusion

Every company is faced with challenges, which can threaten its future existence. What differentiates success from failure, most often, is the quality of leadership within an organisation. It is my belief that Harley-Davidson’s competitive advantage lies in the strength of its leadership and the loyalty of its customers, which will enable it to confidently tackle the future and continue to grow the Harley-Davidson brand into a truly global one.