Harley Davidson Case Analysis

I. Executive Summary

This senior paper report examines the Harley-Davidson (H-D) phenomenon. From near bankruptcy to double-digit growth every year, H-D has something working for them. That something is called”strategic planning and development.” With the growing global economy, companies are looking for ways to improve their market share. Many excellent firms have learned how to beat their competitors through then implementation of new management, marketing, and/or manufacturing techniques (Hitt, Ireland Hoskisson). H-D is one of those excellent companies whom have challenged traditional ideas. This report will identify those strategies that have worked and brought the company and its shareholders success each year.

Today, Harley-Davidson Inc., an employer of 8,100 workers, consists of H-D Motor Company based in Milwaukee and Eaglemark Financial Services Inc. based in Chicago, Illinois. These are strategic business units are they are managed separately based on the fundamental differences in their operations, products and services. In addition, there are nearly 1,500 dealerships worldwide. Harley’s commitment toward continuous improvement is exemplified in their financial statements.

II. Vision, Mission of Harley Davidson

H-D has realized since the 80’s an impressive marketing strategy was giving H-D a brand name that more recognized than any other company. Indeed, the strategy was not to focus on reducing the costs, or on the distribution improvement, but the main element was to create customer value. In other words, H-D’s will was to give more credibility, trust, safety, desires, quality of product and service, and thus fidelity to its brand. In order to reach that goal, H-D centralized its marketing on these topics, for example creating a Harley Owners’ Group who rallies more than 900,000 members worldwide (www.harley-davidson.com).

The main interest of this group is to ensure members to know each other, and become a second family who share the same interests, wills, and thoughts. This strategy also ensures H-D to maintain a strong relationship with its customers, and thus a strong brand name all over the world. According to customers, the owners of H-D say that this brand understands them and their needs, and also that they are always there if a problem appears. These remarks can be linked with H-D’s values. According to H-D “Our values are the heart of how we run our business. They guide our actions and serve as the framework for the decisions and contributions our employees make at every level of the Company.” These values are: Be Fair, Tell the Truth, Keep Your Promises, Respect the Individual, and Encourage Intellectual Curiosity (www.harleydavidson.com).

This strategy can also be linked with the mission statement of H-D:

“We fulfill dreams through the experience of motorcycling by providing to motorcyclists and to the general public an expanding line of motorcycles and branded products and services in selected market segments (www.harleydavidson.com).”

In order to be successful, organizations must determine clear financial and strategic objectives. (Hitt, Ireland, Hoskisson) H-D focused on gaining a greater market share, achieving higher product quality than rivals, maintaining a stronger reputation and a better branding strategy than its competitors, increasing levels of customer satisfaction and finally attaining stronger customer loyalty.

In the 60’s and 70’s Harley’s strategic intent was based on “going shoulder-to-shoulder against the predominantly Japanese companies”. Harley could not compete on the price level, and the Japanese products were of superior quality, Harley decided to compete in other areas. Their new strategy was to connect with people on an emotional level. They are not selling a product but a way of life, a way of thinking. Harley changed its strategy from selling products to selling community (Mitchell). And the fact that H-D has developed a Brand stretching strategy can also be an element of Harley’s success in developing relationships with customers. Indeed, owners can buy other Harley’s products than bikes; it means that they can be more than a biker, they can join Harley’s group buying leather accessories or clothes, and even cosmetics.

III. Industry/External Analysis

Porter’s Five Forces Analysis

Threat of New Entry: Low

* Requiring high capital investment to enter the business because of the scale economies in production, research, marketing and service of this industry is high.

* Brand Identification of Harley Davidson has been strongly established for years. The entrants will face a big barrier to overcome customer loyalty of Harley.

* Harley has developed its limited distribution channels via licensed private dealer and distributor. The new entrant of this industry most probably has to create its own distribution channel and make another investment which causes a barrier to entry this industry become high.

Powerful Buyers: Low

* The product is targeted to individual buyer rather than large-volume buyer therefore buyers will have only small power to force the price down.

* The product is differentiated or targeted for niche market therefore the buyer will not easily find the alternative product.

* Harley also produces parts and accessories as proprietary components for their bikes which are not produced by other company.

* There is quite a small number of this industry in the same market.

* Since the product is differentiated, the customer tends not to price sensitive.

Substitute Products: High

* Customers’ taste is shifted into Japanese motorbike.

* Products with the sophisticated features, high quality and new design have been available in the market to adopt the trend-shifting.

* Other means of transportation which are less season restrictive.

Powerful Suppliers: Low

* The supplier’s customer are not fragmented so they have a high bargaining power

* Switching cost of changing suppliers is not too high since it doesn’t require to invest heavily to be a supplier.

Competitive Rivalry: High

* Lack of products differentiation or narrow product line.

* Industry growth is slow, precipitating fights for market share that involve expansion minded members

* Exit barriers are high. Harley has a high loyalty to keep the business survive.

* The rivals, for example Honda, are diverse in strategies, origins and ‘personalities’ to compete and continually run head-on into each other.

Competitor Analysis/Strategic Issues

There are four strategic issues that H-D has to face with. The most important is the European market where H-D has to increase its sales, then, linked with the first issue, there is a fierce competition with the Japanese firms such as Honda and Yamaha. The other issues are the women’s market and the accessories which are in decline.

Harley-Davidson is not very famous in Europe where Harley’s market share of 650 cc plus motorcycle is less than 7% (6.6%), while in North America Harley-Davidson has a huge market share (46.4%), 21.3% for the Asian market. The main industry competitors are Honda, Suzuki, Yamaha, Kawasaki and BMW. Harley-Davidson is the market leader in the U.S. market with 46.4% market share (Woodyard). Their domestic position is quite secure however the rival companies are all aiming to increase their impact on the North American market.

Honda remains the main competitor with a 20.2% market share in North America. Even though they trail behind Harley in the high profit market for heavy bikes, Honda sells more bikes worldwide than H-D. Honda provides a wider selection of products ranging from super sport bikes, cruisers, scooters and motor cross bikes. The popularity of cruiser bikes is increasing and last year the registrations for heavy weight motorcycles rose by 22%, but Harley’s share fell from 50.2% in 1997 to 46.4% in 2002 (Woodyard). This means that companies like Honda are quite successful in taking customers away from Harley.

Rival manufacturers such as Kawasaki or BMW have all made a serious attempt to establish them at the heart of Harley’s market. The Japanese bikes were often considered to be ‘sissy’ cycles by Harley lovers (Mitchell). This image is slowly changing and the Japanese companies are trying to ‘out Harley’ the Harley models. Yamaha motor USA is starting to improve its position in its various markets. The U.S. sales have increased for 47% since 1998.

Despite these successes, companies have had a tough time in creating an image for themselves particularly in the cruiser markets. Harley continues to dominate the U.S, market and is also the leader in the Asian/Pacific markets with 21.3% market share.

So, compared with Honda, its main competitor, H-D is better in North America and in Asia-Pacific, but certainly not in Europe. There is not too much gap between all the competitors, especially between H-D and Honda (21.3% against 19.1%). But, this is totally different in Europe for Harley-Davidson who has only 6.6% of market share; this market is the most promising. That’s why Harley-Davidson has to focus especially its marketing in the European market in order to win market shares, and reduce the gap between its competitors. Moreover, Harley net revenue in Europe is the second behind the U.S. So, if Harley succeeds in increasing its market share in Europe, its net revenue could be in high growth.

Then, in order to fully understand its market, and in order to compete in a more serious way its competitors, H-D must identify the distinct segments that their competitors focus on and what distinctive product service benefits they offer.

Honda’s activities are forcing H-D into a niche market. The company is known for its flexibility and is progressively introducing bigger and better bikes. The Japanese manufacturer is starting to increase its competitive pressure by applying some of the strategies implemented by Harley. Honda is beginning to improve its relations with its customers and is also trying to build a sense of community among its customers. The Honda Rider Club of America is Honda’s attempt to achieve the same sense of belonging Harley bikers have with their beloved brand (www.honda.com). The club allows customers to gain 24-hour emergency roadside services.

The club also organizes a number of events and rallies for the Honda fans. Honda is also trying to create the next generation of loyal Honda bikers. Honda organizes a number of “Motor-Cross Camps” for young riders. Some of the main activities include riding courses races and riding trips and family activities, the main way to gain the loyalty of young bikers who will hopefully stay loyal to the brand, as they get older. These community-building strategies are proving to be extremely beneficial for the Japanese firm.

The Honda new models such as the Shadow 750, the VTX 1300S are Honda’s attempts to steal some of Harley’s market share by recreating the Harley feel. Superior technology is the main strategy to achieve this goal. Yamaha is also trying to outperform Harley and is improving its mass customization skills. The Yamaha website offers a section that allows customers to design their own bike and choose the look and functionality they desire. The interface ensures customers to choose from 75 Yamaha accessory items and makes it easy for the customer to purchase the bike online. The Yamaha V Max model, the Drag Star, and the Road Star models attract customers with their slick design and technological tweaks (www.yamaha.com). The Yamaha sports models are also very successful and the company is still maintaining a strong position in world markets.

European rivals are also trying to make an impact on this lucrative market. Italy’s Moto Guzzi recently introduced the V11 EV custom cruiser. BMW introduced 3 models of its R1200C cruiser and thanks to clever advertising is beginning to improve its position in the U.S. and Asian markets (www.bmw.com).

According to the website, only 10% of the Harley’s customers are females. But female bikers are more and more interested by bikes (www.moto-station.com). Yamaha and Kawasaki are trying to take advantage of this growing interest of female bikers and many of their ads feature women on motorcycles. Harley has already understood this new opportunity.

Another key issue for the future is the problem of the accessories. Indeed, those products such as perfumes or cosmetics are decreasing a lot. So, Harley-Davidson should take a decision about this unsuccessful strategy of brand stretching. But, this strategy has a lot of success regards to the leatherwear and fashion area. According to me, Harley-Davidson should continue to improve this brand stretching and not leave the market of cosmetics and perfumes.