KTM One of the Leaders of Motorcycle Industry - Term Paper Example

KTM – One of the Leaders of Motorcycle Industry Background KTM is one of the big names in the motorcycle industry. It manufactures motocross, rally and cross-country racing for people of all ages’ adults and children. KTM was founded by Hans Trunkenpolz in Mattighofen, Austria in 1934. It all started with his motorcycle repair shop. After several years of experimentation with how to produce motorcycles he teamed up with Kronreif to start “Kornreif Trunkenpolz, Mattighofen” or now known as KTM. It is more popular in the off-road motorcycle segment as it sponsors many events such as cross country racing and also sponsors riders. Its competency and high quality is due to its expertise in the manufacturing of core parts (e.g. engines, radiators and exhausts). In 1991, KTM went bankrupt and was purchased by Dr Rudolf Knünz, who is now the chief financial officer of KTM and Stefan Pierer, along with a couple of European Importers and a venture fund, later on the two partners bought out the whole company from the importers. KTM went public in the year 1996 so that it could gain more market share, grow and be able to buy out its venture fund. In the late 1990’s there were talks of mergers and acquisition but the owners of KTM wanted internal growth. It again went private in the year 1999 so that KTM remained stable and under good leadership. This move was aided by equity financing from BC European. KTM’s Products Most of the revenues that KTM generated came from its off-road motorcycle sales. Mainly form Motocross and Enduro bikes which were basically termed as ready to race bikes. These bikes were the most popular and growing products because of their short life span and as they introduced new models and upgraded them regularly. Other products that come under off- road bikes that KTM offers are sportminicycles, rally bikes and supermoto bikes. All of these generally relate to sporty and adventurous people and cater to all ages. For example, sportminicycles are entry level bikes especially designed for children. What’s different about KTM products is that they have a distinctive engine configuration and very unique design elements. They are reliable, compact and extremely efficient and effective at performance. Their styling is unique and is much more diverse than other Japanese bikes. They combine the Italian style with German engineering giving it a competitive advantage. These are all the features that are necessary for the off-road category. KTM generally uses its off-road racing as a major advertising strategy and marketing activities. Its main purpose is to promote its brand as a very adventurous and sporty brand and they do it by sponsoring such racing events. It has positioned its product as “focused, uncompromising and extreme”. The motorcycle industry generally consists of two segments the off-road segment and the on-road segment. Two third of the motorcycle market belongs to the on-road motorcycles. Although the o-road cycles, which are used for recreation and transportation, have the larger share, these two segments are growing rapidly. What Mr. Knunz and his Executive Leadership Team Should Do As a consultant to Mr. Knunz, there are many different areas where I think he and his team should bring some changes or shed some light to. No company can exist if they concentrate on one point or try to focus on one problem. for a company like KMT in an industry where there are four to five market leaders it is essential to look at ways to win more customers and try to increase their market share wherever and however possible. The areas where they should work on are: Research and Development Many strong manufacturers like the Japanese motorcycle companies have strong research and development it is one of their differentiating factor. It is their research and development that allows them to bring constant changes and upgrades in their products. for example off-road motorbikes either have two stroke engine or four stroke engine, eve though two stroke engines are lighter and much less complicated, many Japanese companies shifted to the four stroke engine as they were able to get he technical know how and also learn about the consumer demand of producing engines that are more environmental friendly. Although it is cheaper and easier to repair two stroke engines, with the right kind of research and development, KMT could come up with solutions to produce four stroke engines that are simple, affordable and environmental friendly, so as to appeal to its market. Technology In an industry such as the motorcycle industry, technology plays the most essential and important role. It is only technology that enables the companies to be able to capture more markets, produce better and efficient products, become market leaders and gives the ability to compete with your competitors. As KMT has gained more popularity with the off-road segment due to their active participation in sponsoring riders and cross-country racing events, their focus should be on enhancing this segment. I would suggest Mr. Knunz and his team to focus on technologies and invest in the new trends of technology that enable them to strengthen this segment. Technology is an extremely important element for the off-road segment. Many small competitors fail to capture or enter this market because they lack in suitable technology. Many of KTM’s bikes have a two stroke engine in order to decide on whether they should shift toward four stroke engine or to decide how they can make this segment better depends on the kind of technology they adopt. One of the most important key to become a leader in the off-road segment is to have flexibility in the product mix. Off-road riders quickly adopt to new trends and latest equipment and in order to be able to deliver that KTM has to invest in technology that is both feasible and beneficial. If you look at the competitors product mix you will be able to see that the market leaders are those that have a very diverse and flexible product mix. In order to stay competitive Mr. Knunz will have to analyze financially and according to the productive output, the latest trends in the technology. The focus of KTM to build the brands image as technological leadership and a legacy of championship titles will help them gain the appropriate market share. Developing and Maintaining Global Markets KTM is a company that needs to develop new markets as well as sustain the ones it has due to the strong competition It faces fro Suzuki, Kawasaki, Honda and Yamaha. As this sector has developed, so have the trends of globalization. Globalization has brought the people and places closer to each other like never before. Companies can expand into markets that they never could have imagined even going to. The motorcycle industry has been growing in several areas of the world while not doing so well in others. In the U.S market the industry has been steadily growing for ten years and its off-road is specifically booming with the sales expected to increase by 12 to 13% over the next three years. This is a market where KMT is doing extremely well to establish a well doing business here it is very important to maintain this market. I think it is advisable for KTM to expand its market in the U.S because its market share has grown from one per cent to 5.4 per cent in the last ten years and there is a major growth prospects for KTM in the off-road segment, where the company holds its advantage. In order to remove the problems that it is facing in the U.S market it is advisable for Mr. Knunz to invest in this market and set up manufacturing units here. This will remove the element of import duties that effected KTM drastically during the beef war in 1999. It had increased its duty by a 100% making other competitors’ product cheaper. This will also remove the foreign exchange problem. The strengthening of Euro made KMT bikes more expensive, however if it starts to locally produce it that problem could be curtailed. Although the major problem faced by KTM is of the local suppliers, the American suppliers are not used providing high technology needs; they are accustomed to producing large bulks of simple parts. This can be curtailed by backward integration. By buying or owning some of the suppliers, KTM can train them and teach them how to produce low quantity but high technical goods. the growth in this area is slow especially with China also becoming an emerging market, but backward integration is better than bringing in suppliers from Europe because that would definitely increase costs. In Europe the industry generally is not doing so well. The overall sales are expected to decrease over the next three years. These markets have declining shares due to the next generation of baby boomer’s preference of other modes of transportation. This is a major problem for KMT because many other countries are joining the European Union making more markets a risk to invest in. Although it gives them more opportunity to invest in there are now more countries that are joining other baby boomers and their shifting trend towards other modes of transportation. The company is also skeptical due to its own decline in sales in these countries. Although there are no problems with currency fluctuations here since KTM has also adopted euros they could however engage in promotional activities in these countries. In order to bring attention towards the product first and then the brand, massive campaigning advertisements and promotional activities need to be carried out. This is one way the company can gain some of the market share here. their current strategy of a European subsidiary dedicated to running adventure motorcycle tours is a good promotional strategy as it will not only help them increase the demand to increase the general demand for the product it will also create a brand image and tell people all about KTM’s commitment and what their most important aspect of the KTM experience is. In areas like Asia and Latin America there is a huge scope for KTM to increase its market share. Tapping these markets would be a great opportunity for them as the developed countries are now saturated and there is a need for new markets. Investment in these countries is a good idea because the general standard of living allows people to afford bikes only. They can basically promote their on-road segment in these markets. But care must be taken in terms of price. People in those countries are extremely price competitive. The income elasticity of such countries is high meaning that when the disposable income increases people will spend more but if it doesn’t, they might curtail their purchase of white goods. Organizational Structure The organizational structure of KTM is decentralized and democratized. It allows individual growth and creativity and allows the employee to affiliate and build a relationship with the brand and the company. A brand is a set o promises made by the organization to the customers, therefore it is very important for the employees to believe in the brand so that they are able to deliver the promises. The flat structure, a shared vision and a lean managerial structure is a good way to reduce overheads. I would however suggest to Mr. Knunz, to keep a regular check on the employee as these kinds of corporate culture can have certain problems such as over estimation of power, leniency in work and a laid back attitude, they should invest in equipments and training sessions that could keep a check on all the employees like a central monitoring system, regular official visits etc. Competitors KTM’s competitors are the BIG FOUR of the motorcycle industry. These competitors each have their own competitive advantage. They not only have a diverse set of product mix but have given facilities to their consumers that strengthen their trust in the brand and also create new markets for them. They provide financing for their market and have well defined target markets. KTM should also invest in research and development like its competitors and provide facilities that would enable them to gain market share. For example Suzuki, has introduced the Suzuki Advanced cooling system which completely revolutionized how the “Naked” touring models were built. These kinds of innovation are what give KTM’s competitors such as Suzuki, Kawasaki, Honda and Yamaha and edge over others. For example Kawasaki was the first one to introduce a hardcore sports bike for extreme enthusiasts. As flexibility in product mix is essential KTM needs to invest more in terms of innovation and technology to be able to competitive in the market. Product Line Extension The decision to extend their product line extension is in line with the on-road segment of the motor bikes .as the on-road segment is a growing segment a lot of emphasis should be put on it. By creating specialized and stylish bikes so that KTM can capture a market like Harley has done. The three main segments within the on-road segment are performer bikes, the market for these kinds of bikes are the motor grand prix race and super bike race circuit. Touring bikes are sold on the basis of how they are performed and their technical quality, in order to sell these it is vital that accurate technology is used and bikes are made to be able to last longer and have a long life span also to have a level of comfort so that people can travel longer distances with ease and comfort.. The third kind are the cruisers these are generally noisy low riding bikes generally targeted towards macho people, these could be targeted toward rough macho men who like their ride loud and noisy. In order to achieve line extension are joining with another firm or develop the bikes in house. In my opinion it is better even though the cost of research and development but the end result would be individual development rather than joining a firm like Ducati because it would be equal partnership that may or may not result in the expected outcome. Another option that is mentioned is to expand the product line with al-terrain vehicles which have great potential and can be sold to the existing target market. These ATV’s are used for utility purposes such as fishing, or hunting and a small niche market has grown for sports ATV which if expanded could be a great opportunity. Reference Ivery Management Sciences (2005). KTM – Ready To Race. Case Study. Richard Ivery School of Business Read More