The US Motorcycle Industry
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The US motorcycle industry is characterized by a considerable level of competitive rivalry and Harley-Davidson met this threat through maintaining a continuous improvement program. The company started its operations in a garage in 1903. At the time the company’s competitive advantage was based on innovations such as the V-twin engine, clutch, internal expanding rear brake and the three-speed transmission. Over the years the company managed to maintain a competitive advantage against European imports through the continuous process of product differentiation. However the company faced its biggest competitive threat when Japanese brands uncovered a new market segment.
At the time, because of Harley’s inability to tap into the new market segment of older males and younger females, the company was turned into a niche player. Things got worse when the company was acquired by AMF which focused more on quantity and less on quality. This was a particularly damaging weakness for Harley because the Japanese products were specially focused on maintaining quality. In order to address this weakness, a small group of Harley-Davidson managers implemented a highly leveraged buyout. Under the new management, the company benchmarked against Honda and reengineered its internal processes for operational improvements.
Identify the problems
In the mid-1950s, the company held the market leadership position in the US industry. However things started to go wrong for the company with the advent of Japanese competition. This was particularly so when Honda uncovered a new market segment in the form of older males and younger women. Harley was unable to tap into this market effectively because the Japanese products were more efficient. The Japanese production system had a competitive advantage in terms of mass-producing its products. The system was also conducted under the framework of the just-in-time methodology so that inventory turnover was maximized. However the production system at Harley did not have a specific managerial framework. As a result the company maintained a high level of inventory which tended to drive up fixed costs.
Shifting demographics also meant that the company had to change the nature of its market campaigns. As a result, sales were slowing in important segments of the market such as the touring and the cruising markets. Even in the heavyweight industry, core growth of the company was slowing. As a result, the company was stuck with a maturing product. The situation was worsened by the fact that the company had continued to target the segment of baby boomers the median age in which was now moving past the prime age for motorcycle customers.
Identify alternative solutions
The company’s target of selling 400,000 motorcycles in 2007 was threatened by the slowdown in the cruiser segment. Therefore, the company would have to increase its promotional expenditures in creating market share in that segment. In this respect, the company would have to develop a unique selling proposition as competition was already intense in the market. This would be part of the positioning strategy which would emphasize on the brand reputation of the company.
As mentioned before, the company would have to change the nature of its marketing programs in order to attract the younger segments of the market. In this respect, earnings growth could be achieved through the cost minimization strategy. Reducing costs would enhance the profitability of the company. In order to reduce costs, the management might consider automating some of the tasks that are structured. Automation along these lines would enable the company to downsize on manpower requirements.
The strategy of product differentiation would have to be maintained in order to attract the younger segment. This was a critical consideration for the company since its traditional customers were aging and therefore would stop to purchase their products. In this respect, the company would be competing with Japanese products. Therefore, it would have to adopt some of the Japanese techniques in the production system. This would enable the company to maximize the level of inventory.
Evaluate alternative solutions
Harley-Davidson had a long history of operating in the industry. Therefore the company had a considerable level of brand equity in the market. According to the first strategy, this brand equity would have to be emphasized in the promotional campaigns. In addition to this, the company should also invest in upgrading its manufacturing system in order to create more flexibility so that the just-in-time philosophy could be maintained. This was a critical consideration for the company since in attracting the younger segment of the market the company would be competing directly with the Japanese competitors who had superior capabilities in terms of mass producing their products.
The strategy of cost minimization could be achieved through bench-marking against the Japanese operations (cited in Kotler & Armstrong, 2005). This would enable the management of the company to develop a knowledge management system on the best practices in the industry. These practices would have to be incorporated into the Harley-Davidson production system in attracting the younger segment of the market. The process of cost minimization would also enable the company to set lower prices so that the younger segment of the market would be in a position to afford their products. The combination of high inventory turnover and lower prices would enhance the profitability of the company.
Select and justify best solution
The best strategy is to maintain the process of product differentiation in order to attract the younger segment. This was a critical consideration for the company since the age median in its traditional market segment was rising. As a result, demand in this segment would start to go down soon. In entering this segment, Harley Davidson would be competing directly against the Japanese producers. In this respect, the competitive advantage that the Japanese had was that their manufacturing system could mass produce the products, thus facilitating the strategy of cost minimization. Therefore Harley Davidson would have to develop similar strategies in order to attract the younger segment of the market. This was the best strategy because the only way that the company could maintain its profitability was to diversify its product offerings. This diversification strategy would best be facilitated through expanding production and marketing to attract the younger segment. This strategy was also justified by the shifting demographics.
Solution implementation plan
The strategy of attracting the younger segment of the market would be best implemented through expanding the current production system and also the marketing program. In terms of expanding the production system, the company should benchmark against the Japanese producers so that the strategy of cost minimization could be implemented. The marketing program would also have to be modified. In this respect the management should reevaluate the current positioning strategy in order to emphasize the availability of low prices. This was a critical consideration for the younger segment of the market and therefore the company would have to minimize the cost of production in order to facilitate lower prices. In this respect, the JIT production system would reduce costs since that would enable the company to maintain its inventory in accordance with the existing demand patterns. This would introduce some flexibility into the manufacturing system so that the company would be in a position to adapt to changing market considerations in terms both the competitive landscape and the shifting demographics.
Kotler, Philip., and Gary Armstrong. (2005). Principles of Marketing. Prentice Hall.