The Strengths of Harley Davidson Inc - Term Paper Example

TABLE OF CONTENTS Page 1 Company Background 2 2 Brand Analysis 3 3 Positioning 5 4 Celebrity Endorsements 7 5 Special Interests 9 6 Conclusions 12 7 Bibliography 14 This report has been prepared on Harley Davidson and is presented wit the aim of highlighting the strengths of the company and to recommend fresh strategies for continuation of its competitive position in the market. 1 Company Background Harley Davidson Inc is a famous motorcycle company that ranks 45th in Interbrand’s 100 top brands and 56th by Milward Brown in its list of the top 100 brands. It is frequently listed in the 100 Fortune Big Best companies of the world. In USA it is the predominant player but others like BMW and Honda are fast catching up using newer technologies to produce competing bikes. Other brands too are making a foray in the market. (Interbrand 2006; Milward Brown 2006). While Harley Davidson (HD) has been seeing growth and profits for 19 consecutive years, it is not complacent in view of the growing competition. It has therefore set its eyes on the emerging markets with their predictably booming consumer market. If this takes off, the huge customer base of millions could open new doors for HD. However a carefully crafted marketing plan needs to be drawn for the purpose. HD has had a dream run for several years. The HD Brand carries weight and enjoys a special place. It has banked largely on its Macho Image which was aided by fun loving and beer guzzling characters in the classic film Easy Rider. Lately it has toned down this bad boy image but it retains the adventurous image it has built up. HD has made bikes for several segments and is most popular in the 18-21 and 36-55 age groups. Whoever has had a taste of HD power and performance in his teens has returned in later years to revive the feeling of machismo that invariably goes along with the brand. It is indeed irresistible as a person ages and is able to afford the premium brand that he could only admire at a younger age. The Harley Owners Group (HOG) was created in 1983 in response to a growing demanded by HD owners to share their beliefs, passion and pride and it has gained worldwide popularity since then, has over one million members and is still growing. HOG benefits include organized group rides, exclusive products and product discounts, insurance premium discounts, and the Hog Tales newsletter and the HOG is the largest factory sponsored group in the world. The HD shares on NYSE have HOG as their ticker symbol since 2006. (HOG) HD has unique engineering of its products. Made entirely in-house, the engines are entirely vestigial from an engineering standpoint, but have been sustained because of the strong connection between the distinctive sound and the Harley-Davidson brand. The exhaust note is basically a throaty growling sound with some popping. These “Harley Sounds” have become an industry standard and are unashamedly copied by competition. 2 Brand Analysis Building a brand whether of products or the organisation itself has become an important feature in the effort to attract customers. Brand equity is big on the agenda and companies are known to spend millions to build their image. The beauty of the brand is immediate recall and high calibre and high performance companies often enjoy a larger valuation of their brand than the value of their entire stockholding. Brand awareness is considered an important milestone in Brand building exercises. As a result Brand managers are now actively attempting to appeal to the emotional side of the consumer. Who can possibly forget the role played by the Harley Davidson bikes when they were portrayed in the classic film “Easy Rider”; Harley bikes carried beer drinking, freedom-seeking, rebellious characters across the West’s open roads. While its bad boy image has been diluted slightly the brand’s personality still resonates with connotations of freedom, adventure, non-conformity and passion which appeal to “pleasure” riders who are happy to pay premium prices to connect with this seductive brand. HD brand value as per Interbrand (2006) is $ 7.339 billion which is an increase of 5% over the previous year. In the same year Milward Brown (2006) assessed its brand value at $ 9.996 billion. During the last two decade it is established that the core of marketing is the brand. The customers are more aware and conscious of the brand and brand recall is so much easier that this has become the focus of marketing. In accounting terms the value of brand equity is based on the incremental discounted cash flow that accrues out of the sale of products or services; the cause of which is that the brand is directly associated with the product or service (Keller 1998). The remarkable values that have been put on brands, of both consumer products as well as the companies, have resulted in realization that this concept is worthy of paying attention and it implication spread far and wide. Brand management has become a core activity pursued by managers who now understand how brand equity affects buyer behaviour and its influence on corporate valuation (Aaker 1991; Keller 1998, 2002). Tobin (1969) had developed formulae called Tobin’s q that represents the ratio of the market value with the replacement cost of the firm’s tangible assets including property, equipment, inventory cash and investments. In this case the q-value greater than one indicates that the firm possesses intangibles beyond those described above. Similarly the shareholder value is represented as an intangible in stock market quotes where the value of capital sometimes exceeds several times its book value. Rappaport (1986) describes the shareholders value as measure related to economic profit. This is the perceived profit expected on liquidation of this asset and is a measure of the locked value of the assets that is not reflected on the balance sheet. These days, profitable and successful companies perceive their share value in advance of making the offer to the market and market their shares according to this perception at high premiums. This is the brand equity in practice that offers the company greater value than it is committed to return. The shareholders too respond as they know the potential to earning ratio is very high. This is the way to leverage, enhance and accelerate current cash flows and this in turn is likely to enhance the sustainability of the firm (Srivastava, Shervani and Fahey 1997, 1998, 1999). 3 Positioning In marketing positioning has come to mean the process by which attempt is made to create an image or identity in the minds of their target market for its brand and range of products, or the organization itself. The aim is to develop a perception in the mind of the target market about the brand and image. It has been stated by Hamel and Prahalad (1996) that companies that desist from competing for future market opportunities are doomed and forgo corporate value creation that they had achieved in the past. Growth is dependant on momentum and it is an integral part of business strategy. Growth is a also a very difficult decision as it involves investments; and an investment may become wasteful or a burden if there is no adequate return in a reasonable period of time. Corporate strategies have been divided into Five Ps by Mintzberg (1992) and they are Plan, Ploy, Position, Pattern and Perspective. While each is a separate type of strategy with its attendant qualifications, yet they are usually present in all strategies to some degree. The real difference lies in the fact that one of them will be dominant and others will play a supportive role. Among the strategies, Positioning is a long term objective of corporate operations and requires more attention to detail and a firm commitment to accept the consequences and to overcome roadblocks. It is an assertive policy that will require substantial investments and total cooperation of all stakeholders otherwise it might fail. The stakes are huge and results are very rewarding. The one big risk is that in case the objective is changed due to influence of external factors, the whole strategy will have to be abandoned at great cost. Therefore it has to be planned and well thought out over a period of time. It is preferable to first test this strategy for a short period on a smaller scale to confirm its feasibility and acceptance before making full fledged commitment. When a company embarks on a positioning strategy, it is beset with several roadblocks en-route. It is able to surmount them but within these attempts it sometimes prolongs the effort and at times is able to quickly realize its goals. The sum total of efforts is quite dynamic and results in highs and lows. Its endeavour is to achieve the maximum in the quickest possible time to prove to its customers that its success rate is high. This is how Micheal Porter (1996) explains these efforts as “jockeying for position”. In this scenario too outwardly the company struggles to come to terms with the various changes that it has undertaken to go through to achieve its noble objectives, but the underlying cold calculation is again aimed towards catching customer attention and to gain more footfalls resulting in higher sales and returns. The customer is attracted more by the efforts and contributes by aligning himself with a company that is visibly trying to overcome difficulties to improve the customer’s future life. The more the company tries to fit the landscape the more customer appreciation they earn; it is incidental that they earn a higher profit in the process. 4 Celebrity Endorsements People are naturally attracted to celebrities and for this reason companies use them as brand ambassadors. It has been estimated by Millward Brown Survey (2006) almost 25% of advertisements use celebrities in all kinds of media particularly print and TV. They are dynamic and likeable persons with qualities appreciated by people and have a certain reputation to which people are attracted and that increases their endorsement value (Atkin and Block 1995). Their public recognition is used for recognition of consumer products when they appear with it in advertisements (McCracken 1989). The advertisement becomes more enjoyable and worthwhile when endorsed by a celebrity and people tend to relate the product and the person and recall one with the other. The higher the popularity of the celebrity, the better is the brand recall. Celebrity endorsements increase the awareness of the products they appear for and create a positive feeling for it (Solomon 2002). As it is the lifestyle of the celebrity is glamorous and attractive to the consumer, so his association with a product glamorises it and makes it desirable. Although any celebrity could represent the brand, the selection of a celebrity for a brand must be chosen made with care as the person, his lifestyle and mannerisms should match the product or the value will be lost. In case of Harley Davidson macho personalities like Hugh Jackman of the X-Men fame or David Beckham the famous English footballer would be highly suitable. They would exude the aura of daring persons, an image that will fit in well with the rugged look and adventurous performance of the HD motorbikes. Belch and Belch (2001) are of the opinion that celebrities can enhance the perception of the product and through them the targeted audience target audience see the relevance of the image and performance. The ultimate test is that such a combination of celebrity and the product should create confidence in the consumer and induce him to buy the product. Such an association also raises the credibility of the product, although sometimes the product is so well known that it can enhance the credibility of the celebrity too. This is the reason that companies often choose brand ambassadors for a long term. Trust in the celebrity is another cause for the consumer to accept the product as genuine, useful and correctly priced. Kelman (1961) says once the consumer is able to adopt an attitude or form an opinion about the product after associating it with the image of the celebrity, he is likely to integrate with the product to the extent that he will recall it and make use of it long after the celebrity is gone or ceases to endorse the product. Therefore the celebrity acts as a trigger for the initial introduction to the product and then the product itself becomes the focus because of its utility value to the customer. However it is important for the celebrities to maintain his image for a positive effect on the consumer. If for any reason, the celebrity falls into disrepute it will harm the image of the product. Therefore companies are very careful to select those persons who have an impeccable reputation and are likely to remain so while their campaign is on. Such is the power and influence exercised on the minds of the consumers, especially the younger set, that they become almost slave like in their following. This is what HD should take note of in their selection. 5 Special Interests The traditional mediums used to communicate these to the target consumer are Newspapers, Magazines, Television, Radio, Books, Physical paper mail, Catalogs and Yellow Pages. With the introduction of Internet a new media was introduced through which e-mails, banners and the websites are used for communication. The one common feature in this medium is that the intent is communication with the target audience but previously this communication was one way only. When this communication become a two way affair, It become interactive and turned into Social Media.. This termed was coined by Philip Kotler and Roberto L.Eduardo (1971) and later redefined by Philip Kotler, Ned Roberto and Nancy Lee (2002). It is described as “A social change campaign is an organized effort conducted by one group (the change agent) which attempts to persuade others (the target adopters) to accept, modify, or abandon certain ideas, attitudes, practices or behaviour”. The planning and implementation of programs designed to bring about social change using concepts from commercial marketing is what social marketing is all about. The latest entrants into this sphere are interactive blogs and media can be mixed. A post could contain text, audio, video, or photographs. Here the target audience gets the opportunity to communicate and even collaborate in the expansion of the idea. It is part of the word of mouth advertisement which is the most coveted marketing tool. This media is interactive as the receiver of the information or the targeted customer can actually interact by asking questions and getting answers on the same blog. In fact he can even leave his positive or negative comments for other readers to see. This media is also linkable to different formats. For instance a message can be on the net in print with a link to a video demonstration or an audio reference to enhance its value or to offer a larger view to the customer. This linkability is missing in the traditional media. One of the greatest advantages of the social media is that it has changed the perception of the customer. He is now involved, interacting and sometimes even interfering; and more action means more publicity (positive and/or negative) and this brings vibrancy to the marketplace. The social media has now changed the way people now look at products and promotions. By far the greatest change the social media has brought about is B2B and B2C or business to business and business to customer sales. Actual transactions now take place on the web. For example sites like Amazon.com and e-bay.com are now selling a variety of products in billions of dollars. On a smaller scale stores and shops like MacDonald and Pizza Hut are doing a roaring business by taking orders via the net. Customers have the comfort of not only ordering put paying through the internet under secured environment. Product Placement This interactive marketing gave birth to the idea of a new phenomenon in communication. It is collaborative in nature and innocuous in appearance. The latest trend in advertising is to make it appear normal and innocent. The product placement is often not disclosed at the time that the good or service is featured. The tendency is to move away from straightforward advertisements where the product is the main item, to movies, books, television, or radio where they appear in real life scenes, displayed either in the background or in use. This is product placement that is happening across the various media in a way that the emphasis shifts from the product to the scene but is so interlaced with the event that it becomes part of memory and recall of the scene automatically brings the recall of the product. This is indeed a very clever move. The product is never the focus but it is a need, a prop, without which the scene, whether in a movie, book or television show, would be incomplete. It is woven inconspicuously with the storyline, script, and even dialogue and sometime becomes a famous by-line by itself. This is a great leverage that appears most naturally. The impact is enormous. Millions get to see, feel, and experience the visual or written matter without realizing it to be an advertisement that they would avoid in the print media or television commercials. They would absorb its radiance willingly, often recalling it fondly; something they would not do if it was forced on them through another method. This is exactly what HD had done through the movie Easy Rider mentioned earlier in this paper. This idea should be replicated in other ways using the social media and product placement tactics. 6 Conclusions Branding has assumed a vital position in marketing as it is certain method to capture markets. The brand image of a product as well as that of a company has established itself in the minds of the consumer, A company needs to position itself the market to take advantage of the brand it has developed. It requires certain sacrifices to attain a position as this is long term strategy and interim short term possibilities have to be ignored in order to build an image and then to maintain it. HD as a company caters to a niche market and offers premium products. It is concluded that it needs to build upon its brand value that it has accumulated over a very long period and to sustain its unique position in the market it needs to associate itself with a suitable celebrity to project its masculine and rugged image. In this cyberage where the customer is more at ease with interactive media it will also be prudent to take advantage of the social media to further the cause of the company. It is advisable for HD to explore this medium. It should not be difficult for them as they can make use of the HOG clubs and this will be a natural extension of the existing concept. 7 Bibliography Aaker, David (1991), Managing Brand Equity. New York: The Free Press. Atkin, Charles and Martin Block,. (1983)Effectiveness of Celebrity Endorsers. Journal ofAdvertising Research 23, 1 (February/March) 57-62. Belch, G. & Belch, M (5th ed.) (2001). Advertising & Promotion: An Integrated Marketing Communications Perspective. Irwin Mcgraw-Hill: Boston Hamel, Gary. and Prahalad, C.K., (1996), Competing for the Future, Harvard Business Review, May-June, HOG available at: www.harley-davidson.com/wcm/Content/Pages/HOG/HOG.jsp Interbrand, (2006), Best Global Brands 2006 available at: www.ourfishbowl.com/images/surveys/BGB06Report_072706.pdf accessed on 22 Apil2008 Keller, Kevin L. (1998), Strategic Brand Management. Upper Saddle River, NJ: Prentice Hall. Kelman, Herbert, Processes of Opinion Change. (1961):Public Opinion Quarterly 33, (Spring),57-78. Kotler, Philip and Eduardo L. Roberto. (1971).Social Marketing, Kotler, Philip, Ned Roberto and Nancy Lee. (2002) Social Marketing: Improving the Quality of Life, SAGE, McCracken, Grant, (1989), Who is the Celebrity Endorser? Cultural Foundations of the Endorsement Process. Journal of Consumer Research 16, (December: 310-32 1. Millward Brown (2006), Top 100 Brands, available at: http://www.millwardbrown.com/Sites/Optimor/Media/Pdfs/en/BrandZ/BrandZ-2006-Top100Brands.pdf Mintzberg, Henry., (1992). "Five Ps for Strategy" in The Strategy Process, pp 12-19, H Mintzberg and JB Quinn eds., , Prentice-Hall International Editions, Englewood Cliffs NJ. Porter M.E., (1996), What is Strategy, Harvard Business Review Rappaport, Alfred (1986), Creating Shareholder Value. New York: The Free Press Solomon, Michael R. (2002), Consumer Behavior: Buying, Having, and Being, 5th ed., New Jersey: Prentice Hall. Srivastava, Rajendra K., Tasadduq Shervani, and Liam Fahey (1997), “Driving Shareholder Value: The Role of Marketing in Reducing Vulnerability and Volatility of Cash Flows,” Journal of Market- Focused Management, 2 (1), 49–64. Srivastava, Rajendra K.,, Tasadduq Shervani, and Liam Fahey (1998), “Market-Based Assets and Shareholder Value: A Framework for Analysis,” Journal of Marketing, 62 (January), 2–18. Srivastava, Rajendra K.,, Tasadduq Shervani, and Liam Fahey (1999), “Marketing, Business Processes, and Shareholder Value: An Organizationally Embedded View of Marketing Activities and the Discipline of Marketing,” Journal of Marketing, 63 (Special Issue), 168–79. Tobin, J. (1969) “A General Equilibrium Approach to Monetary Theory,” Journal of Money, Credit and Banking, 1 (1), 15–29. Read More