Harley – Davidson Inc. Motorcycle Industry
Introduction
The purpose of this report is to develop a strategic corporate objective
for HarleyDavidson Inc., a publicly traded, employee owned manufacturer of
heavyweight motorcycles, recreational and commercial vehicles, military defense
items, and small engines, distributing its products to domestic and
international markets targeting all men and women of all ages.
INDUSTRY AND COMPETITIVE MARKET
The industry under study is the motorcycle industry consisting of five
major manufacturers: one American (Harley Davidson), and four Japanese (Honda,
Yamaha, Kawasaki, Suzuki) and some European companies (mainly BMW of Germany and
some other Italian companies).
Most companies market their motorcycles and
accessories on a worldwide basis, handling international trade through foreign
distributors and domestic sales through franchised outlets. Industry sales of
motorcycles were shrinking in the early l990s because of the recession and the
competition from computers and electronic products decreasing consumers’
discretionary income.
Sales of accessories and parts make up 36% of total retail sales and is a
viable area for producers to explore because people want something to
differentiate their bikes. Previously, motorcycles were viewed as a cheap means
of transportation. By 1992, they came to be viewed as a recreational, or a
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luxury item. This new perception of motorcycles led to the introduction of more
expensive models with higher prices. This led to the introduction of consumer
financing, one of the fastest growing service areas in the motorcycle industry.
MISSION
Harley’s strategic objective is to continue to provide safe, high
technology heavyweight bikes and keep customer satisfaction at high levels. This
quality vision more than doubled Harley’s market share and increased its brand
loyalty.
EXTERNAL PLANNING PREMISES
CUSTOMERS
They can be divided into 2 categories men and women.
Men. A. Men under 30. This group accounts for 44% of all sales. Therefore, a
great opportunity exists here because of the group’s size. This group’s members
buy motorcycles for their transportation and recreation needs. Men in this group
buy more of mopeds, scooters and entry level lightweight road bikes.
B. Men between 30 and 50. This age group makes up 45k of buyers another
large area providing opportunities for firms. The motorcycles most frequently
purchased are the heavyweight tourers and cruisers. Many buyers are married
couples looking for an alternative to taking the car out for weekend drives to
the country.
C. Men over 50. This group accounts for about 11% of motorcycle sales.
The heavyweight touring class and the middleweight road bike categories account
for most of the sales here.
Women. This group is a segment that is growing at a fast rate, thereby
representing an opportunity area. Firms to be successful here are to provide
smaller, easier to handle, comfortable, and good quality bikes to build up brand
loyalty.
PRODUCTS
Three types of products/services are being offered motorcycles,
accessories, and financing services, all related to the sale of the main product
motorcycles.
Motorcycles: It includes mopeds or scooters (with engines under 125cc
which are used as an alternative to walking), accounting for about 17% of total
motorcycle sales; lightweight motorcycles road bikes, dirt bikes, dual purpose
bikes (with engines ranging from 125cc to 499cc), accounting for 51% of sales;
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sport motorcycles street bikes, and superbikes (with engines ranging from 450
to 749cc) accounting for 13% of sales; heavyweight motorcycles cruisers, tourers
(ranging from 750cc to 1500cc) accounting for 19% of sales.
Accessories: Aftermarket accessories, such as saddle bags, higher
windshields, customized seats, and clothing items are produced or contracted to
be produced by all leading manufacturers. Since these items realize high profits
and strengthen customer relations and customer loyalty, this area is providing
an opportunity for companies. To succeed here, firms provide a wide product line,
of stylish items, and aggressively advertise/market them.
Financing Services: As prices of motorcycles increased well above the
reach of many motorcycle enthusiasts, manufacturers begun to set up consumer
credit arrangements falling into 3 categories consumer, dealer, and corporate
financing. Financing services are vital for success in the industry and firms
unable to provide them will lose market share. To succeed here, firms are to
provide a wide variety of flexible (in terms of maturity and payment
arrangements) plans.
MARKETS
Although motorcycles are sold internationally, 3 main geographic markets
comprise the bulk of motorcycle sales North America, Asia, and Europe. The
largest is the North American Market (USA and Canada account for about 60% of
this market) accounting for 60% of worldwide motorcycle sales. With the baby
generation aging, opportunities exist for the penetration of new markets.
The Japanese market accounting for a great chunk of the Asian Market
is an untapped one for foreign manufacturers. Government regulations and trade
policies make it difficult for foreign manufacturers to enter though. Most
Asians consider motorcycles as a basic means of transportation. Major target
areas include China, Korea, Taiwan and Vietnam.
The European Market is another market with great potentials since
Europeans have a higher disposable income and enjoy a higher standard of living.
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Eastern Europe is not offering a good deal mainly because of its unstable
political and economic environment.
To succeed in these markets, firms are to modify products to meet local
needs, provide after sales service, expand distribution networks, create strong
customer
COMPETITION
Competition in the motorcycle industry consists of only a handful of
producers worldwide. The Japanese producers Honda, Yamaha, Kawasaki, and
Suzuki are producing a full line of motorcycles ranging from scooters to
heavyweights, and together control the largest share of the market. Their wide
product line though has also created some customer complaints to them
(especially true for Honda and Kawasaki) for low quality service. This
significantly decreased their market shares. Japanese companies’ success began
with copying other products, but evolved to depend on innovative designs and
technology. Harley Davidson is producing heavyweight motorcycles emphasizing
good quality product and after sales service, thereby building up brand loyalty.
Honda is the largest company in terms of size, financial backing, and
reputation. It is offering the widest selection of styles, classes and sizes
within the heavyweight category. This wide product line hurts Honda since
salespeople have limited knowledge of each product. Kawasaki’s products include
a full line of motorcycles, all terrain vehicles, jet skis and other. It is the
leader in superbikes manufacturing but US legislation is limiting the number of
sports bikes to be imported because of safety reasons. Yamaha produces Harley
clones but lacks Harley’s image. Being a market follower, Yamaha is to face many
problems. BMW is famous of producing quality products but its high prices hold
it from expanding sales.
INTERNAL PLANNING PREMISES
CUSTOMERS
l. Men.
Under 30: This segment is growing since men in this category look for a
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cheaper alternative means of transportation and for recreational purposes.
Harley is to produce high quality, safe bikes, with radical styles and provide
them at reasonable prices to build up brand loyalty.
30 50: Recent demographic profiles show that the median age of buyers
of Harley products is 35 and their customers’ median household income is about
$45,000. These customers account for a great market chunk and, therefore,
provide an opportunity for Harley, which is to provide them with safe, high
performance, good quality bikes to increase brand loyalty and succeed in this
segment.
Over 50: Motorcycle lovers still want to ride Harleys when they are
above 50 years of age but they now look for more comfortable, easy to use bikes.
Harley is to provide them with both of them in order to penetrate this market.
PRODUCTS
Motorcycles. Harley Davidson produces only heavyweight motorcycles (with
enginedisplacements of 750cc or greater) that are categorized into touring and
cruiser motorcycles.
Touring motorcycles are designed for long distance riding and feature
many car like features (i.e., trunks), and provide Harley with the greatest
profit margin. Cruisers are styled after early motorcycles and are the kind
most often associated with Harley. They provide a very low profit margin
because of their low prices used as a means to attract young customers. Harley
is to increase its R&D to improve product designs, quality, and safety. It is
also to offer a guaranteed resale value (that most Japanese firms are lacking),
offer a high quality after sales service and, therefore, build up its brand
loyalty.
Accessories. This category includes a new line of riding and fashion
apparel bearing the Harley Davidson insignia. These products are distributed to
Harley retailers and outlets in the retail clothing market. Harley is to
provide a wide variety of stylish products and aggressively market them.
Financing Services. Harley offers financing through a joint venture
with Ford Motor Credit Company (FMCO).
Harley due to its lack of capital,
avoided forming its own subsidiary providing financing services something that
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Honda and Kawasaki have already done. Harley is to offer a wide variety of
flexible plans to meet this great opportunity that arose due to inflated prices
of motorcycles and willingness of people to use credit lines as a way to improve
their standard of living.
MARKETS
Harley is the established leader of heavyweight motorcycles in the North
American market, accounting for about 60% of the market share. The size of its
market share provides an opportunity for Harley to exploit. Its customers are
the most loyal of any other brand and its products have great reputation.
Foreign markets are growing very fast because customers there are obsessed with
Harley’s quality and safety bikes and provide a great opportunity for Harley to
exploit. The main problem is Harley’s limited production capability, putting
customers in a waiting list for a couple of months. To succeed here Harley is
to create good customer ties, provide after sales service, build up its customer
loyalty, expand its distribution network, and modify its products to meet local
customer needs.
DECISION CHART
Alternative 1 calls for the manufacturing of all types of motorcycles,
current accessories line, and providing financing services through FMCO,
targeting all customers in both the domestic (70% emphasis) and foreign markets
(30% emphasis).
Alternative 2 includes the expansion of the accessory line, offer
financing services through a wholly owned subsidiary and manufacture sport and
heavy weight motorcycles, targeting men (90% emphasis) and women (10% emphasis)
in both the domestic and foreign markets (equal emphasis on both).
Alternative 3 says that Harley should manufacture only heavyweight
motorcycles, but expand its accessory line and provide financing services
through FMCO, targeting men (95% emphasis) and women (5% emphasis) in both the
domestic (60% emphasis) and foreign markets (40% emphasis).
Decision
The first alternative is based on the idea that Harley should capitalize
on its current reputation and success by rapidly increasing demand, and by
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expanding its product line to include all kinds of bikes. This will enable
Harley to match its competitors (i.e., Honda and Kawasaki) wide product lines
and gain market share from them. This would also create major problems since
increased quantity will destroy Harley’s good reputation of producing safe, high
quality, high performance bikes, thereby decreasing brand loyalty. Also, Harley
is to produce lightweight, sport, and heavyweight motorcycles and that is to
require additional capital that the firm is lacking. Therefore, Harley is to
cut down on R&D and products quality and eventually lose out. Honda and
Kawasaki demonstrated well that effect since their market shares decreased
significantly.
Alternative 2 calls for an expansion of the accessory line that is
experiencing an increasing demand. The main focus of Harley will be on men it
is to provide lower priced, high quality, safe, stylish products to its
customers. Harley is to try to maintain its brand loyalty, good quality, after
sales service, and strong customer ties (all major competitors are lacking these
keys to success).
The major drawbacks here are Harley’s plan to pay equal
emphasis on both domestic (its leading position here gives the firm a
competitive advantage over its foreign competitors) and foreign markets. Since
Harley is unable to meet demand for its products, and modify its products to
meet local demands, it is to fail in succeeding in the foreign markets while
loosing out in its high revenue producing domestic market. Also, more capital
is needed since Harley is to create its own financing Subsidiary company. That
is to cut down on Harley’s ability to invest on R&D, and produce high quality
products. Also, 10% emphasis on women is considered too large, since women
account for less than 5% of Harley’s customers.
Alternative 3, which is the one that I recommend, capitalizes on
Harley’s strengths. The company is to produce only heavyweight motorcycles,
thereby focusing its R&D on producing safe, good quality products. The company
is to guarantee a high resale value and provide good after sales service. Also
its decision to stay with FMCO financing gives the company an additional
financial advantage to be used in targeting specific marketing niches.
Customers under 30 years of age are to be provided with safe, stylish, high
quality products at reasonable prices, thereby increasing brand loyalty. Safety
issues are not being focused by the Japanese and that gives Harley a competitive
edge here though they can provide their products at lower prices. Customers from
30 to 50 years of age are to be provided with high performance, safe products,
building up Harley’s brand loyalty that is considered the strongest, especially
in the domestic market. Customers over 50 years of age are to be provided with
comfortable, easy to handle bikes to increase their convenience. Foreign bikes
are lacking this key and are expected to be outperformed by Harley. Harley’s
line of accessories (more emphasis on clothing) is to be expanded by providing a
wider product line. That by itself would advertise its products and increase
brand loyalty. Its plan to focus on the domestic market with 60% emphasis and
on the foreign market with 40% emphasis is both good and bad. It is good in the
sense that international demand for Harley products is increasing and that would
increase the company’s revenues since it will expand its distribution network,
provide after sales service, and appear there with an already established brand
loyalty. It is bad though to expand with 40% emphasis in the foreign markets
because Harley is not strong in meeting consumer demand that is expected to grow
even more and dissatisfy both domestic and foreign customers. Surely, Harley
can solve this problem by getting loans, thereby expanding its plant capacity
and meeting this increased demand. The future cash flows that will arise due to
increased sales will be used to repay these loans and maintain the company’s
good credit rating.
SWOT ANALYSIS
Harley’s high R&D accounts for innovative designs providing Harley with
unique product designs that set Harley apart from its competition. In order to
achieve that, Harley is to increase its R&D to improve product designs, quality,
and safety. It is also to offer a guaranteed resale value (that most Japanese
firms are lacking), offer a high quality after sales service and, therefore,
build up its brand loyalty. Harley also, provides a wide variety of stylish
accessory products and aggressively market them.
Harley due to its lack of capital, avoided forming its own subsidiary
providing financing services something that Honda and Kawasaki have already
done, and that is a wickeness for the company. That lack of capital also makes
the company unable of producing the amount of products needed.
There are some oportunities for the company, For example the expansion
of its markets o Asia and Europe. In addition, of having its own financial
services is a profitable expansion.
Some of the threats are the tarrifs that might exist in other markets,
and the immitation of Harley’s products from other competitors.
STRATEGIES
The strategies that the company might use have to do withe expansion to
other markets like Asia, or Europe in order to increase sales and market share.
In addition the creation of its own financial services could bring more profit.
Harley should give a lot more emphasis to the male customers and also increase
the emphasis on the foreign market close to 40%.
IMPLEMENTATION ISSUES
Some of the problems that the previous strategies may face depend on the
lack of capital. Of course a loan could be beneficial since the returns from
the sales would be enough to pay back the loan. In addition, exports in Europe
are not that easy since the products are going to be taxed more, since they come
from a country outside the Europian community. In the future a subsidiary in
one of the European community countries would relax the tarrifs.
TOWARDS THE FUTURE
Towards the future the company is expected to do very well and increase
its market share. The management objectives is expected to be the same as the
current ones. Therefore the company is expected to manufactore only heavyweight
motorcycles, but with the use of some loans will be able also to icrease sales
in Asia and Europe.
