Strategic Audit of Harley-Davidson - Case Study Example

Strategic Audit of Harley-Davidson Business Harley-Davidson is one of the top producers of motorcycles for over hundred years. The company is based in Wisconsin and is popular for its famous trademark of bar and shield. Harley-Davidson enjoys major market share not only in the United States but also from European and Asian markets. Harley-Davidson faced major competition from Japanese manufacturers in the decade of seventies and fortunately survived it. There are four possible reasons that account for the success of Harley-Davidson which include its strong brand loyalty, expansion into the global market, independent women riders and the increased efficiency of its plant. The company is divided into two main divisions namely the Financial Services and Motorcycles and Related Products. The financial services including insurance programs are offered to retail customers and dealers. The dealers of Harley-Davidson are present all over the globe and serve to make sales of the company’s merchandise including apparel, motorcycles and riding accessories. The product segment of Harley-Davidson works to produce heavy weight motorcycles which are designed in both standard and custom touring and offer high level of performance. Analysis of Mission Statement The mission statement of Harley-Davidson as per the annual report of 2009 says: "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." The mission delivers the message of firstly its culture which is based on the concept of individuality. It points out its superior service to the customers, effective marketing objective and high quality product range through its mission statement. However, the mission statement shows nothing that goes in the benefit of employees. Andrew Campbell proposed a tool for the assessment of mission statement of a company according to which Harley stands at number seventeen out of twenty. This explains that the mission statement of Harley-Davidson has been successful in describing its business, values, culture and philosophy to its stakeholders. Analysis of Vision Statement of Harley-Davidson The vision statement of Harley-Davidson says: Harley-Davidson is an international company which follows an action-oriented approach. It honors it commitments and strives to improve its relationship with all of its stakeholders. The company believes that real success could be achieved only if the interests of the stakeholders are brought in line with the involvement of the employees so that the focus could be built and maintained on carrying out activities that add value. The important stakeholders include customers, employees, government, legal and environmental agencies, suppliers and society in general. The vision statement reveals that the company understands that success is strongly linked to the customers’ loyalty. If the customers are satisfied with the performance of their motorcycles, they will communicate the image of Harley-Davidson positively to others. Taking care of the legal and environmental standards is also one of the keys to success. Harley-Davidson also ensures the empowerment of its employees because as we know that employees serves to be the best asset of any company. In the same way, Harley also believes that if the employees’ interests are taken care of, the company can progress in the right direction. Analysis of Porter’s Five Forces In the light of the Porter five forces analysis as presented by Hill and Jones (2010) and Harris (2006), we will carry out an analysis of our chosen company. Competitive Rivalry: The major threat to Harley is from its Japanese competitors which include the three giants in production of heavy weight motorcycles namely Honda, Yamaha and Suzuki. Like Harley Davidson, these competitors offer product related as well as financial services to its customers. They have a diversified portfolio and marketing resources. Although Harley has captured most of the markets in the US but Honda is heavily relying on its marketing and strategic moves to replace Harley-Davidson’s share. Threat of New Entrants The four major players Honda, Yamaha, Harley-Davidson and Suzuki have a very strong position in the market globally. A new entry will have to invest a lot of capital as well differentiation features but this would not reveal positive results because the market is already at the mature stage. Small motorcycle producing companies are present in Europe, Asia and US which are trying to gain recognition by offering distinct designs and features but their efforts are known at a small level only. The motorcycle segment does not offer high economies of scale which is one of the reasons why there have been only four players in the international market. Bargaining Power of Customers Since majority of the customers of Harley-Davidson are individual customers so they cannot really influence the financial position of the company. Also the dealers and suppliers of Harley-Davidson are those which rely on the relationships with individual customers which means their influence on the overall performance and image of the company is not significant. Threat of Substitutes Harley Davidson is popular among those who want to enjoy the heavyweight motorcycle experience. Some heavyweight substitute motorcycles can seriously affect the overall financial performance of Harley-Davidson but these are very few. Supplier’s Power The main material items required for the manufacturing of motorcycles at Harley-Davidson are steel equipments, motorcycle accessories, electrical products and shipping services etc. Although there are a number of suppliers which supply these products/services to Harley-Davidson but if any one or more suppliers do not fulfill their agreement with the company or make unnecessary demands than Harley-Davidson can easily switch to suppliers who are willing to build a rapport with the popular motorcycle manufacturers. Harley-Davidson could even rely on its in house production in case the suppliers do not meet their demands. PESTEL Analysis The PESTEL analysis gives an idea of how the external factors influence the environment in which Harley-Davidson operates. Political Factors Being an international company, Harley-Davidson isn’t welcomed much by the developing and underdeveloped countries as they consider the brand as an American idol. Moreover, the political environment of each market varies from the other so expansion becomes an issue. Economic Factors The main economic factors like exchange and interest rates and the pattern of economic growth influence the development of strategies in Harley-Davidson. Economic growth also predicts the buying pattern of the consumers. If interest rates and inflation are not high then the customers tend to make luxury purchases such as of heavy motorbikes and vice versa. Economic recession adversely affects the financial structure of Harley-Davidson. Social Factors According to Porter (1985), the main target customers of heavy motorcycle by Harley-Davidson are the baby boomers. The baby boomers loyal to Harley-Davidson have an income and education level of above average. Baby boomers make around two third of the total customers of Harley-Davidson. Because of the association of the brand to those in their mid to late forties, Harley-Davidson is experiencing a challenge in attracting and retaining new target segments such as those of youngsters and women. Legal Issues Motorcycle riders must obey the regulations as set down by the authorities in order to enjoy their ride safely. Helmets are a must for the riders to wear while driving their heavy machines. They also have to meet the licensing requirements. Technological Factors Customers are now looking for motorcycles that are technologically advanced as well as consume less energy. Harley Davidson finds it a challenge to work on the increasing and improving the efficiency of the engine and gear systems. Environmental Factors One of the major concerns faced by Harley Davidson in the external environment is that of the environment. The fuel emission and noise from the heavy motorcycle is not considered healthy in the eyes of those who want to protect the environment. The motorcycle industry is most of the times criticized by the environmentalists which poses another challenge for Harley Davidson. SWOT Analysis Hunger, J. David and Thomas Wheelen (2010) proposed that the internal analysis or SWOT analysis is necessary to conduct during a strategic audit because it serves to determine the strong points of an organization and the weaknesses it needs to eliminate so that it could make the most of the opportunities offered by the environment in which it operates. Internal Factor Analysis Summary (IFAS) Internal Factors Weight Rating Weighted Score a)Established brand b)Marketing and advertising for creating brand awareness c) Customer loyalty d)Exceptional Product mix 0.2 0.5 0.15 0.1 5 3 5 4 1 0.15 0.75 0.40 Weaknesses a)Sinking product quality b) Motorcycle Prices c) Poor quick and current ratio d) Marketing Strategy e) Financial Loss in year 09 SUM 0.10 0.10 0.10 0.15 0.5 1 3 2.5 3 3 2 3.7 0.3 0.25 0.30 0.45 1.00 According to the IFAS discussed by Srinivasan, R (2008), Harley-Davidson enjoys a successful position in the industry due to its strengths. The brand has been one of the oldest and most recognized not only in the US but also in countries of Asia and Europe. The customers, employees and suppliers of Harley-Davidson are loyal and satisfied. Customer loyalty is one of the critical success factors for any company (Porter, 1985). The company offers motorcycles for tourism, custom, performance and standard. Harley-Davidson must try to eliminate its weaknesses in order to progress successfully. The financial position of the company is not strong enough as it faces decrease in quick and current ratios as well as a major loss in the year 2009. The promotion and advertising strategies are not as attractive as those of competitors. Because Harley-Davidson is known for luxury motorcycles so the prices are kept high and only those with above average income makes its loyal customers. In order to improve its financial performance, Harley-Davidson needs to set competitive prices. External Factors Analysis Summary External Factors Weight Rating Weighted Score Opportunities a) Youngsters and Women to be targeted b) Global Expansion c) Racer motorcycles becoming popular d) Social demographics changing like increased internet usage 0.15 0.20 0.1 0.05 4 5 2 2 0.60 1 0.20 0.1 Threats a) Environmental and Legal concerns b) Economic Recession c) Baby Boomers d) Seasonal sale of motorcycles SUM 0.05 0.2 0.15 1 2 4 5 3.85 0.1 8 0.75 As per the EFAS described by Dobbins, Craig (n.d.), Harley-Davidson could explore quite a number of opportunities in order to increase its profits. Other than taking care of its middle aged customers, it must also encourage women and young people to enjoy the heavy bike experience by installing features for their interests. Harley-Davidson could earn more profits by tapping markets in Europe and Asia especially India where people are more enthusiastic about motorcycles and labor is cheap. Social trends are changing as people are becoming more technologically advanced-Harley Davidson must upgrade its technology accordingly. The threats to Harley Davidson include the inconsistent sales figures because motorcycles are sold in summers mostly and winters season faces loss. The baby boomers are the targeted customers of Harley-Davidson and if the other segments are not catered, the brand will establish association with the middle aged only. When the economic growth, interest rates and inflation is not favorable, the buying pattern of customers also changes as a result of which the performance of the company suffers. Generic Strategy of Harley Davidson In the decade of eighties, Harley-Davidson suffered from a great loss of its market share and even today it has to struggle a lot to stay in competition. The time has now come that the company is in the process of reformulation of its marketing strategy. Harley Davidson has positioned itself in the motorcycle market on the basis of its differentiation factor. Porter explains the concept of differentiation as a strategy that targets a market segment on the basis of its exclusive product features or service quality. According to Hwy-chang, M., (2010), this differentiation enables the customers to develop the idea that the offerings of this company are definitely superior to those of others. Harley-Davidson decided to compete in the motorcycle industry by offering heavyweight bikes. Apart from the motorcycle enthusiasts, the traditionally targeted segment is of baby boomers. Baby boomers are generally the ones who earn a little above than the average level of income. The purchasing pattern of the customers is not solely based on the performance and quality offered by Harley Davidson but also on its stylish features and successful history. Although the product is differentiated from those offered by competitors but Harley Davidson has not been able to maintain its quality standards due to which its financial performance keeps dropping. In order to gain profits by executing the differentiation strategy successfully, Harley Davidson worked on improving its quality. By proper implementation of the process of continuous improvement, not only the quality standards rose up but the cost structure was also brought under full control. In order to further strengthen its differentiation strategy, Harley Davidson also decided to focus more on its customers’ needs. In order to achieve this objective, the company launched a marketing effort in the name of The Harley’s Owner’s Group or simply, H.O.G. The basic idea is to involve the customers by keeping them informed of the forthcoming events, new product and features, motorcycle accessories, improved models and service. Also the campaign aimed at acquiring feedback from the customers so that the company knows how the customers perceive the quality and performance of heavy motorbikes of Harley Davidson in relation to the motorcycles offered by the competitors. H.O.G has been an important marketing strategy which actually made the customers including the end users and suppliers/dealers feel as if they were an integral part of the Harley Davidson family. Another significant outcome of H.O.G has been the increase in loyalty from customers as well as improved brand image. This new marketing orientation helped Harley Davidson make the most of its strategy of differentiation-the company gain recognition in both domestic and international markets. There are however some issues that are associated with the implementation of the differentiation strategy (Sehgal, V.,2011). . First of all, the models and features of Harley Davidson could get imitated by the competitors, not wholly but partially. Second issue linked with the differentiation strategy is that although Harley Davidson acquires majority of its profits from its neatly targeted segment of baby boomers but if any of the competitors follow the niche strategy to carve out a better segment than Harley Davidson, then chances are that the company will lose its customers and market share. Lastly, due to social and economic changes in the outside environment, the preferences and tastes of the customers could change as a result; the profits and brand image of Harley Davidson might suffer. Competitive and Growth Strategies of Harley Davidson As discussed, differentiation strategy not only helps the company stand out in the industry due to the unique characteristics but also help gain loyal and satisfied customer base. In order to further increase its profits and enjoy a strong reputation in the international market, Harley Davidson could adopt a growth as well as stability strategy. A horizontal growth strategy is known to yield better results in the long run because this move will facilitate expansion into international markets where labor and per capita income is less therefore, minimum investment amount would be required (Porter, M. E., 1985). Although growth strategy ensures profit generation and improved brand performance but it does not ensure steady growth. We have discussed earlier that the year 2009 was a year of major losses for the company so it would be rather wise move for Harley Davidson to develop and follow stability strategy. In stability strategy, Harley Davidson will be evaluating its past performance and working on future directions which are necessary for its future. Reasons that cause a decrease in the revenue could be identified and possible areas which pose risk for the company will undergo evaluation (Stephen, R.,2009). Also a review of marketing strategy could be carried out and possible corrective measures will be investigated. Once Harley Davidson is stable, it will develop a strong foundation both financially and in terms of resources so as to make its aim of international expansion while keeping the customers’ delighted turn into reality (Lewis,P., Goodman,S., Fandt, P., Michlitsch, J.,2007).  Business Expansion Strategy A good strategy that Harley Davidson could follow to expand internationally is the integration of its licensing agreement. If Harley gets a partnership licensing then it could easily bring its risks to minimum or negligible levels. Since Harley Davidson has been doing merchandise in the past so the shift to licensing should not be difficult at all. However, this strategy does not come without risks. A major risk possibility is that the licensee could become a major competitor of Harley Davidson. The licensee would be aware of the major strategies and product policies of Harley Davidson so it would be quite easy for it to develop its capabilities. This type of risk could be mitigated only if Harley Davidson does not license out its core competencies. The Four P’s of Marketing W. G. Leader, N. Kyritsis (1989) and Hoffmann, S (2005) suggested a much clear explanation of the four P’s of marketing or marketing mix. Product We know that the products offered by Harley Davidson include motorcycles and related accessories. It is one of the luxurious types of motorcycles offered by America. The product life cycle of Harley Davidson shows that the product is of high quality and is enjoying its maturity stage. Harley Davidson ensures that the motorcycles offered to the customers are safe and make the ride enjoyable and secure for them. Because nowadays people spend most of their time on the computers so Harley Davidson has kept online manuals and related information for their use on its website. Also courses are offered that teach the customers how to enjoy the best ride. Harley Davidson goes beyond in offering unique and high quality product features to its customers. Springs and chords are not used to form saddle bags. In fact they are replaced with a smooth cable so as to give the riders a comfortable ride. Harley also offers warranties so as to maintain its position and pride. Pricing Because Harley Davidson offer heavy weight motorcycles to its customers which offer luxury so the company has set a price which is a little higher than those of other beands competitng in the segment. As discussed in the previous sections, the target customers of Harley Davidson’s motorcycles are the middle aged people with income level in the above average range so the high prices serves to satisfy them psychologically. Now that Harley Davidson is shifting its target customers to young and women, so pricing of some products will be set in the affordable range. Placement We learnt Harley Davidson is in the maturity stage of its lifecycle which means that in the next stage that is the declining stage, the figure of sales will drop. This analysis helped Harley Davidson come to the conclusion that in order to increase sales revenue, they should set up their selling centers in areas where marketing activity is high and people are given more exposure. Also presence of Harley retail stores in busy areas and cities is essential so as to interest the relatively new segment of young people. Harley Davidson needs to realize that is it important for the customers to have a good sales experience because this experience is what they will be sharing with others in their circle which will eventually have an impact on the sales level. Customers would feel honored if Harley Davidson focuses on direct sales. When the customers and sales team get into a face to face interaction with each other, the concerns of customers are given priority and the Harley employees is able to communicate the features of the motorcycle in the best possible manner. Promotion The techniques Harley Davidson uses for promoting its motorcycles and related products as well as financial services include direct sales, viral marketing, print as well as online advertisements, billboards, flyers, television commercials, radio and magazines. Harley-Davidson has always targeted its primary customers that are the baby boomers. Baby boomers offered good sales volume to the company but eventually when the product life cycle reached maturity, the sales figures did not remain satisfactory. So now the company has decided to shift its marketing efforts to the new segment of young people and women. This is a potential market segment because Harley-Davidson wants to entice this segment by introducing the element of thrill and adventure in their promotional campaigns. Another good idea that Harley Davidson must adapt for promoting its motorcycles is through social media. The competitors such as BMW, Yamaha, Honda and Suzuki are promoting their products online successfully. Although Harley Davidson has its website where information is available for the interest of riders but there is a lack of an interactive online platform where riders could talk about the brand, maintenance, share their experiences and get live update about the new/improved version of motorcycles. Recommended Strategic Options for Harley-Davidson and their Implementation The strategies for Harley Davidson are proposed in this section in three areas of product development, market penetration, diversification and market development. Product Development Because now Harley Davidson has decided to increase its revenues by focusing on the new segments of women and young people so obviously, the company needs to design and manufacture models that perfectly fit the social and psychological desires of the targeted segment. Harley-Davidson must introduce new motorcycles with improved specifications and designs which meet the needs of the customers residing in Europe and Asia. Market Penetration The competition in the motorcycle market especially across the US is quite high so Harley Davidson can increase its market share by following the strategy of market penetration (Lamb,C., Hair,J., McDanie, C.,2012).  Harley Davidson is a popular brand worldwide and ranked as number one or two among the heavy motorcycle manufacturers. The company could expand into European market easily by focusing more and more on its advertising campaigns. In Europe, people know what the brand does and its reputation. A good marketing campaign that takes into account the social and demographical trends of the market could do wonders in the balance sheet of Harley Davidson. The strategy of H.O.G is doing very well in the US market. If the H.O.G could be expanded into the Asian markets then there are bright chances that the Asian customers will feel more satisfied and valued like the American customers. This move will help the company make better and stable profits. Diversification Harley Davidson could diversify its products and services to grab more market share. It could offer low cost and recreational products to customers especially in China and India or it can even introduce new motor vehicles in the Europe and Asian markets. In simple words, concentric diversification is better for Harley Davidson. Market Development Apart from America, a large number of population lives in the continents of Europe and Asia. If these markets are offered the products and financial services of Harley Davidson with extensive marketing and advertising campaigns, the company is likely to flourish. It is not that easy to expand into Asian markets because of the stringent environmental laws set up by the authorities. Moreover, if Harley Davidson imports its vehicles to India or China, taxes would be highly charged. There can be two solutions to this. Either Harley Davidson could set up a medium sized manufacturing plant in an Asian country so as to minimize transportation costs and taxes or it could negotiate with the government on environmental laws. Conclusion Harley-Davidson has been one of the most successful companies in the motorcycle industry but it needs to take its future concerns seriously in order to maintain its image. Harley Davidson must keep a check on its current and quick ratio so as to get an idea of where it is going financially. 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