Motorcycle Business Strategy - Case Study Example

Business Strategy – Harley-Davidson, Inc., May Short Introduction Belonging to motorcycle industry, Harley-Davidson is a company that specializes in the manufacturing of heavyweight motorcycles (Grant 523). Founded back in 1903, Harley-Davidson serves mainly the U.S. market before the top management implemented its international expansion. Harley-Davidson’s major competitors include: (1) BMW; (2) Honda; (3) Suzuki; (4) Kawasaki; (5) Yamaha; and (6) Polaris (Grant 532, 534). Among the product substitutes include the imitation of Harley-Davidson’s heavyweight motorcycles such as the retro-styled V-twin cruisers, Excelsior, resuscitated Indian, and Polaris’ Victory on top of the existing smaller motorcycles in the market (532). In relation market competition, Harley-Davidson’s current business performance has shown significant improvement in terms of its increasing revenues from 2009 to 2011 (Grant 536). However, improvement in the efficiency of its manufacturing plant contributed more to the increase of its profits (532-533). Considering the tight competition within the motorcycle industry, Harley-Davidson’s future business performance is at risks of losing a lot of money. Even though Harley-Davidson’s decision to improve its existing distribution (527), launch new models (526), expand its business internationally (529), and improve the efficiency of its manufacturing department (530-531) had positive effects in the company’s business performance, targeting the baby boomers as Harley-Davidson’s target market (533-534) could adversely affect its future business performance. Key Issues or Problems Due to constantly changing market demand, the motorcycle industry has become very much competitive over the past few years. As a consequence, Harley-Davidson’s ‘commitment to traditional design features’ increases the company’s risks of becoming vulnerable to market competition. Application of Concepts Porter’s Five (5) Forces Porter’s five (5) forces is often used to analyze the market competition within a given industry. In line with this, the rivalry within the motorcycle industry is very high. On the other hand, threat of new entrants is medium because of the high capital requirements and special skills needed with regards to the use of technology. Even though threat of new entrants is technically not so high, it is given that Harley-Davidson is literally competing with other well-established brands such as BMW, Honda, Suzuki, Kawasaki, Yamaha, and Polaris (Grant 532, 534). The threat of product substitute is very high. As of 2009, end-consumers have varieties of motorcycles to choose from. These include Honda’s Shadow Spirit 750, VTX 1300C, and VTX 1800N, Suzuki’s Boulevard S50, Boulevard C90, and Boulevard M109R, Kawasaki’s Vulcan 900 Classic and Vulcan 1600 Mean Streak, Yamaha’s V-Star Custom Road Star, and Polaris’ Victory Kingpin (Grant 532). Even though threat of product substitute is really high, the bargaining power of buyers remains low. This is because of Harley-Davidson’s decision to preserve the prestige of its brand as “the ultimate biker status symbol” (524). If Harley-Davidson would enter into price-war with its close competitors, the company would definitely lose the prestige of its brand. The bargaining power of its suppliers is medium. Unlike its competitors, Harley-Davidson’s total number of production unit remains low. Since Harley-Davidson cannot order raw materials used in manufacturing its motor parts and accessories by bulk (530), this company cannot benefit much from economies-of-scale. For this reason, Harley-Davidson cannot bargain with its accredited suppliers. PESTLE Analysis Under political aspect, Harley-Davidson seems to have been receiving strong support from the previous presidents of the United States (i.e. ex-President Ronal Regan, Bill Clinton, and George W. Bush) because of their positive remarks about this particular motorcycle company (Grant 520). This is good sign for Harley-Davidson’s business. With regards to economic aspect, it was mentioned in the case that Harley-Davidson was being challenged by the 2008 to 2009 financial crisis (532). For this reason, Harley-Davidson should think of a business strategy that will help the business overcome the financial challenges. Under social aspect, the case mentioned that Harley-Davidson’s target buyers are those with median age younger than 50 years old (Grant 533). Unfortunately, a lot of baby boomers are soon to reach more than 50 years of age (533). In fact, the number of adults between 40 to 49 years old are expected to decrease up to 2.5% between 2010 to 2015 (533). If Harley-Davidson would continue to target the baby boomers, this company could suffer from a sudden decrease in their future potential customers. In terms of technological aspect, it was mentioned in the case that Harley-Davidson’s commitment to tradition and its limited investment on R&D are among the few factors behind its technological lag (526). Since most of its competitors are investing more on technological advancement (536), Harley-Davidson could suffer the consequences of technological lag. Applying for US patents is the only legal aspect mentioned in the case. In line with this, some of its competitors were reported having more US patents as compared to Harley-Davidson (Grant 526-527). Nothing is said about environmental aspect. See Figures below: US Patents between January 2000 to April 2012 Harley-Davidson Honda Suzuki Kawasaki No. of US Patents 188 10,982 625 2,002 Harley-Davidson’s Resource Base Upon analyzing the case of Harley-Davidson, it is pretty obvious that one of the company’s strong points is its strong brand followed by its ability to offer product differentiation. Aside from being able to produce above-average heavy-weight motorcycles, offering its loyal customers with customization opportunities increases the ability of this particular company to satisfy the specific needs and wants of its valued customers (Grant 527). In fact, the customization options appeal motor to big bike fanatics. By forming Harley-Davidson’s ‘Harley Owner’s Group’ (HOG) (525), it was easy for this company to encourage each and every Harley bike owners to reunite from time to time. This somehow explains why Harley-Davidson experience repeat orders from its existing customers (525). Improvements in Harley-Davidson’s manufacturing efficiency such as implementing JIT scheduling and observing TQM was important in terms of improving the company’s profitability (Grant 530, 533). Basically, improvements in Harley-Davidson’s manufacturing efficiency has something to do with its people and management. By creating a team-based organization and a culture of employee participation, self-management, and the practice of open communication (531), Harley-Davidson was able to avoid internal conflicts. Likewise, improvements in Harley-Davidson’s distribution network also positively affect overall customers’ product experience the willingness of big bike fanatics to patronize the brand (527-528). Despite the resource advantages of Harley-Davidson, this particular company is experiencing disadvantages with regards to its marketing approach and existing technology. As mentioned earlier, Harley-Davidson was targeting the middle aged people in upper-class society as their potential buyers (Grant 525). Unfortunately, a lot of baby boomers will reach more than 50 years of age whereas the number of adults between 40 to 49 years old will decrease by 2.5% between 2010 to 2015 (533). This figure could mean a shrinking market for Harley-Davidson in the near future. With regards to technology, the fact that Harley-Davidson is strongly committed to its ‘traditional design features’ made the company unable to further improve or innovate their existing technology (526). This increases the risks wherein some of its close competitors could win the support of its potential customers. Evolution of Industry Structure over Life Cycle In relation to Harley-Davidson’s heavy-weight motorcycles, it seems that its demand has already reached the maturity stage because of the fact that the company is experiencing repeat orders from its existing customers (Grant 525) and that the future potential buyers are already becoming price-sensitive (532, 536). The same is true with its technology. The fact that Harley-Davidson is highly dependent on its incremental refinements of its gearboxes, engines, and frames (526) strongly suggest that its technology has already reached the maturity stage. For these reasons, it is seriously crucial for Wandell to do something about its demand and technology to avoid reaching the decline stage. Harley-Davidson’s products and manufacturing are still in the growth stage. Basically, Harley-Davidson’s products seems to be in the growth stage due to the fact that this particular company is still actively improving the quality and design of its heavyweight motorcycles (Grant 526). On the other hand, Harley-Davidson’s manufacturing seems to be in the growth stage because of its plan for capacity expansion (530). It means that this particular company has not yet reached over-capacity. It seems that competition for Harley-Davidson has already reached the decline stage because of the existing price-war within the motorcycle industry worldwide. For example, Harley-Davidson is selling its Heritage Softail Classic with V-twin, air-cooled, 1450cc engine for $17,999 whereas Honda is selling its VTX1800N with V-twin, liquid-cooled, OHC, 1800cc for only $13,699 (Grant 532). Since Honda is able to sell motorcycles with higher cc engines at a much cheaper price, Honda managed to gain a revenue of $107,479 million in 2011 as compared to Harley-Davidson’s $5,311 million during the same year (536). Lastly, Harley-Davidson’s KSFs seems to be on the growth stage because this particular motorcycle manufacturing company has been innovating the design of its manufacturing process (530). Introduction Growth Maturity Decline Demand Technology Products Manufacturing Trade Production shift from advanced to developing countries Competition KSFs Three (3) Alternative Courses Considering that case of Harley-Davidson, the best three (3) alternative actions would be the following: (1) take advantage of using brand extension; (2) change the target market to younger generation; and (3) invest more on research and development (R&D) to promote product and technology innovation. Basically, the Harley-Davidson has been well-established as the world’s leading heavyweight motorcycle brand. Therefore, this particular company cannot use Harley-Davidson when selling smaller size motorcycles. Since Harley-Davidson is already well-known within the motorcycle industry worldwide, it is best for this company to make use of brand extension when selling smaller or medium size motorcycles (i.e. Harley-Davidson Junior, etc.). Shifting its target market from Baby Boomers generation to Generation X and Y is necessary in terms of preventing the product demand from reaching the decline stage within the business life cycle. In the process of targeting younger people to purchase Harley-Davidson motorcycles, the potential market size for this company would increase. Assuming that Harley-Davidson would adjust its target market, this particular company is required manufacture smaller and medium size motorcycles that will suit the budget, specific needs and preferences of its target consumers. As we all know, investing more money on research and development (R&D) is necessary in terms of improving Harley-Davidson’s product and technology. It has been reported that Honda makes it a point to create at least two (2) new motor engines each year (Grant 526). Through product and technology innovation, Harley-Davidson will have a better chance of competing with Honda. Course of Action To determine the best course of action, it is best to test the three (3) alternative actions based on criteria such as: (1) higher future revenue; (2) higher future sales; (3) capturing a bigger market share; (4) lower cost requirement; and (5) improvement in product and technology. Based on the pre-assigned weighted factor, the computation are as follows: Relative Criteria Weighted Factor Alternative Actions (1) Brand Extension (2) Target Younger Generation (3) Investment on R&D Higher future revenue 30% 9 2.7 8 2.4 7 2.1 Higher future sales 20% 10 2 10 2 6 1.2 Capturing a bigger market share 20% 10 2 10 2 7 1.4 Lower cost requirement 5% 8 0.4 8 0.4 1 0.05 Improvement in product and technology 25% 1 0.25 1 0.25 10 2.5 Total 100% 7.35 7.05 7.25 With a total score of 7.35, Harley-Davidson should consider taking the first alternative action which is to make full use of brand extension. Through the use of brand extension strategies, Harley-Davidson can effective increase the company’s future sales and revenue, and capture a bigger market share at a relatively lower cost. Action Plan To be able to effectively implement the use of brand extension strategy, it is necessary to consider the following time table: Tasks Week 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th Meet-up with production, purchasing, and marketing manager about the use of brand extension. Discuss with product designer and engineers on how the company can design motorcycles that will capture the interests of price-conscious buyers. Discuss with the marketing staff about the best brand extension name to use for smaller and medium size Harley-Davidson motorcycles. Conduct a market research study on how the market would perceive the use of brand extension and pricing for Harley-Davidson’s smaller and medium size motorcycles. Apply trademark for the chosen brand extension name(s) References Grant, Robert M. Case 7 - Harley-Davidson, Inc., May 2012. In Grant, Robert M. (ed) "Contemporary Strategy Analysis: Text and Cases, 8th Edition". West Sussex: John Wiley & Sons, 2012. Print. Read More