Harley Davidson has long been an American Icon

Harley-Davidson was founded in 1903 by Arthur and Walter Harley and William Davidson. During its first years of existence the company experienced an enormous amount of growth. Harley-Davidson gained its popularity two ways. The reputation of the firm was linked to Davidson riding Harley’s motorcycle to victory in a 1908 race. The second reason, even more important, was by providing innovations to marketed products such as the V-twin engine, clutch, internal expanding rear brake, and the three-speed transmission. By 1918 Harley-Davidson became the world’s largest motorcycle company by producing 28,000 motorcycles annually.

In the early 1940s (during WWII) Harley-Davidson had another chance to increase production. The company’s motorcycles were used by the military as dispatch and scout bikes. In 1943 the firm noticed growth of production to 29,000 units. This promising trend was one of the reasons behind the firm’s decision to open a plant in Wauwatosa, Wisconsin. After War World II, for the first time in their history, Harley-Davidson faced competition pressures from Europe. American GIs stationed in the United Kingdom had developed a taste for smaller and more efficient British motorcycles such as the Norton and the Triumph. Despite weak demand and European competition Harley-Davidson stayed the undisputed leader in the American market with over 60% of the market share and $20 million in sales.

Harley-Davidson – Charm

From the beginning, since the company first came into existence up until 1950s, Harley-Davidson had created an image of “raw power”. There was a lot of aspects which set Harley-Davidson apart and created the mystique of the bikes. Let’s just recognize a couple of them such as: the heavy use of chrome, the low- profile appearance, the style tail fenders and the extension of fork beyond plumb.

Someone who loves motorcycles is able to understand what it means when a Harley-Davidson engine sounds like “bassoprofundo thumb”, while at the same time other motorcycles sound like “sewing machines” – the Harley’s engine was and still is a masterpiece, a company’s reason to be proud.

The U.S. military, highway patrol officers, the Hell’s Angels, and Hollywood rebels all using the bikes helped to cultivate an image of Harley motorcycles as “tough”. As a continuation of what was just said, the motorcycle was often associated with a kind of person living to break traditional mold or living on the edge. After all these years on the market Harley-Davidson deserved to become a part of American iconography (associated now with the American flag). An association with the American symbols has resulted with amazing brand loyalty.

The last but not the least reason why Harley’s motorcycles became so popular and unique was that bikes were mostly handcrafted and this is something that helps to distinguish them from Japanese competitors. Even now some parts of the Harley-Davidson’s bikes have been made in this way and. What is very important for riders, customers are able to buy selected parts in stores – it gives them chance to “work on their own Harley” at home.

Towards the end of the 1960’s and the beginning of the 1970’s Harley-Davidson was facing stiff competition from the Japanese. The company needed to raise capital to compete more effectively and for this reason decided to go public. When this did not produce the desired result. The company allowed themselves to be purchased in a friendly takeover by AMF. Although the case does not mention how much effort went into making the decision whether or not to be acquired by another firm. It seems that with the undesirable consequences that followed, Harley-Davidson should have tried other means of raising their much needed capital. The company could have tried to cut cost in their production, marketing and other operational areas first. Following a cost cutting strategy could have been a sure way to help to bring the company back in line financially. New markets should have been looked into first before going public. During the post World War Era, Harley-Davidson faced pressure from European companies in the motorcycle market. This was a clear indication that there were other markets in other countries that needed to be explored more fully.

The company was mistakenly being reactive rather than proactive. Harley-Davidson needed to look more at its Internal strengths and weaknesses as well as external opportunities and threats. This would have helped the company to prepare a plan to fend off the Japanese onslaught. The company didn’t realize that some of the changes that it’s parent company made were harmful to the companies strengths and hindered opportunities. A weakness that could have been turned into a strength was in the area of quality. Instead of increasing production four-fold the company should have concentrated on the process used to make a quality product that more clients could look forward to owning.

During the AMF reign the Harley mystique was overlooked. The AMF company stopped marketing to the rough biker crowd that made Harley-Davidson famous. One thing a business doesn’t want to do is lose it’s current customer base and that’s what AMF effectively did. The types of bikers who read ‘Easy Rider’ and other such magazines felt alienated from this new Harley-Davidson image that was being pushed. Harley-Davidson should plan marketing strategies in the future that would capitalize on one of there major strengths – the Harley mystique.

In order for Harley-Davidson to continue their current success must pay attention to the various past mistakes in order to avoid them in the future. On such past mistake was that of not entering the European market or even considering overseas market opportunities. Harley-Davidson would have not only increased their sales by entering into the European market, but they would also have expanded their customer base, as well as entered a new market. In addition, another huge mistake made by Harley-Davidson in the past was the decision to pay large dividends (10%+) while ignoring R&D as well as increasing the company’s capital. By giving out dividends of only five percent, Harley-Davidson would have been able to not only make their shareholders happy, but also would allow for money to be placed back into the company, and bettering the Harley-Davidson product.

Moreover, while Harley-Davidson may have faced difficulties and were struggling to maintain a profit, merely joining into a partnership with anyone was not the solution. Harley-Davidson should have made sure to research whomever it was joining up with and make sure that the partnership was truly a partnership, and not merely one side trying to dominate the other. Moreover, Harley-Davidson should have made sure that whomever they were partnering up with would look after the needs of the company and not veer away from what Harley-Davidson both stood for, or was good at. Finally, in order for Harley-Davidson to continue to be successful as well as learn from a past mistakes, they need to make sure that they do not stray from their core competency. Ever company has their own unique ‘charm’ or various core competencies, which is not only unique to that company, but also gives that company a competitive advantage. Thus, in order for Harley-Davidson to maintain it’s competitive advantage it needs to both be aware of its core competency, and not strain from it.

Analysis – Open European Factory or Export from the United States

The international heavyweight market has been growing, and appears to be a market to invest heavily in. The current idea is to build a factory in Europe or export more motorcycles to the international market. The company should run an estimated break-even analysis for opening a factory in Europe, and compare it to exporting to the international market. The second step is to evaluate a assessed values chart, and then make a decision.

The analysis that we will show on our slide presentation is an example of the possible outcome of that analysis. The chart for exporting the motorcycles shows a low fixed cost and a high variable cost, with the break-even mark for a motorcycle which costs $15,000, to be 5,000 motorcycles. The chart for opening a factory in Europe shows a high fixed cost, and low variable cost, with a break-even mark for a motorcycle which costs the same ($15,000), to be 4,500 motorcycles. Although this analysis supports the decision to open a factory, Harley-Davidson must take other considerations into its decision.

Through our analysis of the past, Harley-Davidson cares most about the quality, image, and the trademark of “made in the USA”. Although the cost savings are greater by opening the factory, and producing motorcycles overseas, the values of quality, image, and the trademark are more significant than cost savings. By evaluating Harley-Davidson’s assessed values we decided that it is best to export the motorcycles rather than to open a factory.

Recommendations

Harley-Davidson’s present business state is a tribute to the hard work and vision of their executives, they must continue this work in order to guarantee their future success. There are several avenues in which they can go in order to ensure this. Most importantly, they should consider vertical and horizontal integration.

While Harley-Davidson has been involved in the manufacture of the parts for their motorcycles, they still have certain items fabricated by other organizations and delivered to their plants for assembly. One of the possible alternatives to ensuring future success is to consider horizontal integration. Harley-Davidson should consider expanding its place in the market of parts production. By producing items such as tires, etc under their own roof, they have the potential to save costs and guarantee the quality of the workmanship in producing these items.

Harley-Davidson can achieve vertical integration by acquiring other US motorcycle companies such as Indian Motorcycle Company, et al in order to capture a greater percentage of the market. While they are the largest US producer of motorcycles, by acquiring those other companies, they will ensure their future success.

Harley-Davidson should also conduct extensive Market Research to find new markets and opportunities, as well as to gain information on customer likes/dislikes. One of the mistakes in the past was to allow the Japanese (Honda, Suzuki) to capture untapped markets and to exploit them. There is a good likelihood there additional markets that Harley-Davidson has not discovered. This could be a source of additional customers and revenue for the company.

At present, the Harley-Davidson customer is divided as follows: Men under the age of 30 account for 44% of all sales. Therefore, a great opportunity exists here because of the group’s needs and desires and should be tapped. Men between the ages of 30 and 50 represent about 50% of present sales. The motorcycles most frequently purchased are the heavyweight bikes and the cruisers. Market research can tell us if there are other types of bikes this group would consider purchasing. Men over the age of 50 account for about 11% of motorcycle sales. The heavyweight touring class and the middleweight road bike categories account for most of the sales here. Women- this group is a segment that is growing at a fast rate, thereby representing an opportunity area. Although some attempt to market to women has been performed in the past, market research can tell if there is different styles or types of bikes this group would prefer.

An additional mistake of the past is what appears to be a lack of assessment of Harley-Davidson’s external and internal environments including a SWOT Analysis. They allowed the Japanese manufacturers to tour their plants without even realizing the deficiencies that were present. This allowed the foreign competitors to recognize Harley-Davidson’s weaknesses and to correct them in their own production environment. If Harley-Davidson’s had been more aware of their own weaknesses they might have been able to compensate and not lose their competitive advantage.

An assessment of Harley-Davidson’s external environment would also ensure their future success by assessing those areas where opportunities are present and threats exists. In addition to the opportunity in the European market as well as continuing threats by the Japanese manufacturers, Harley-Davidson needs to be aware of the other American motorcycle companies such as Indian. While Harley-Davidson is the largest manufacturer in the United States, not considering others in the US could lead them down the same road they had traveled in the past, i.e. not being aware of who their competition and threats are. Additionally, the company should consider the expanded markets (i.e. performing market research) as a way of assessing their environment and to keep ahead of what is transpiring around them in their industry.