Harley Davidson a comprehensive Case Study Solution

Harley Davidson Inc. (2002) the 100th Anniversary.

Prepared by: Fayyaz Ahmed (1402)Kaleem Ullah (3026)Muhammad Salman Qurashi

(0267)Muhammad Talha (0300)

Prepared for: Ahsan Durrani.Subject : Strategic managementSemester: Fall 2014

Harley Davidson: 100th AnniversaryPart 1: Industry features

Industry’s dominant features

• Number Of Rivals:In year 1975 till year 1980, Honda Motor Company introduces a motorcycle named Gold Wing in USA, which gets famous for it low price large touring motorcycle. Whereas, Suzuki and Yamaha were entering the industry with Harley-Davidson look-a-like motorcycles.

Degree Of Product Differentiation:

In year 1981, the company’s management was shifted hands from AMF (American Machine Foundry) towards Vaughn Beals, the head of Harley at that moment. The new management installed a Material as Needed (MAN/JIT) system of inventory for stabilizing the productions and reduce the number of inventories held in warehouse. Management purchase and installs a Computer Aided Design (CAD) system that allows them to change the entire product. In year 2001, Harley – Davidson introduce the V – Rod style for placing its motorcycle cruisers’ engines.

Market Size and Market Growth:

In the U.S., Harley-Davidson (H.D) has growing its appeal across borders and generations 35.9% of total productions of motorcycles were shipped to international markets.

49%

Analyze Porter’s five forces acting on the industry?

Force1 – Rivalry among the competitive sellers of same industry: In North America, 43% Harley – Davidson 651+ CC motorcycle were registered in year 2001, rest 57% market share is with rivals. In Europe, the market share of Harley – Davidson 651+ CC motorbikes is 7%, rest 93% is with the rivals. In Asia-Pacific, H.D market share of 651+CC motorcycles is 20%, rest 80% resides with rivals. Rivals of H.D had their rivalry on product style, design, ease of service, and performance features. The market is reaching to its maturity and availability of motorcycles with easiness of working alongside with it plays an important role in determining the level of profit earned. The major rivals all around the world are Honda Motors, Suzuki Motors, Yamaha Motors, BMW Motors, Ducati Motors, and Kawasaki Motors.

Force2 – Firms in other industry offering substitute products: Heavyweight motorcycles are a luxury item for the vast

majority of consumers so there are few close substitutes for heavyweight motorcycles that could serious affect the market. Passenger cars are weak substitutes for heavyweight motorcycles because consumers rarely purchase them to satisfy transportation requirements. These bikes are more of a luxury item than a necessity for traveling from point A to point B. Even though motorcycles may be better through traffic and use less gasoline than a car a consumer purchasing a motorcycle for these reasons would be more inclined to purchase a lighter motorcycle, which would be more maneuverable and fuel-efficient than a heavyweight bike.

Force3 – Bargaining power of buyers: Individual buyers have high

bargaining power as they have a choice in switching between the products offered in the industry. Individual buyers have sufficient bargaining leverage for influencing the terms of sale in their favor. Another factor of high bargaining power of buyers is the moderate or less differentiation between the motorcycles.

Force4 – Bargaining power of Supplier: The suppliers and/or manufacturers of

651+ CC motorcycles have low bargaining condition. But the suppliers of repair parts have a moderate bargaining power for the engines repairs as the substitute available for specific engine repair parts are hard to find. Buell has the potential to influence the market as they are customizing the engine as per the collaboration with HD.

Force5 – Potential new entrants’ threats:

The threats of new entrants is very low because the new entrant have to bring some drastic change in the infrastructure of motorcycle building as the industry is going towards maturity.

“Porter’s five forces summary”

Forces Strategic Significance

Internal Rivalry LOW-MODERATE

Threat of New Entrants LOW

Threat of Substitutes Products LOW-MODERATE

Bargaining Power of Buyers HIGH

Bargaining Power of Supplier LOW

Threats for new entrants

Factors HUFA

MUFA

Neutral

MFA HFA comment

Economies of scale

Capital required

Access to distribution channels

Expected retaliation

Differentiation

Brand Loyalty

Experience Curve

Govt. Action

Small

 Low

Ample

 Low

Low

Low

Insignificant

Low

 2

 3

 3

 3

3

4

 5

5

Large

 High

Restricted

 High

High

High

Significant

High

It is too high because industry leader has been working for the last century.Because of luxuries industry183 new outlets have been established.Major shareholder so may be retaliate or not.

Exit BarriersFactors HUA MUA Neutral MA HA Comments

Specialized Assets

Fixed Cost of Exit

Strategic interrelationship

Government Barriers

Hi

Hi

Hi

Hi

1  

2

3

4

LOW

Low

Low

Low

Competitive Rivalry

Factors HUFA MUFA

Neutral MFA HFA Comment

Composition of Competitors

Mkt. Growth rate

Scope of competition

Fixed storage Cost

Capacity Increase

Degree of differentiation

Strategic Stake

Equal Size

Slow

Global

High

Large

Commodity

High

1

1

2

2

2

4

4

Unequal Size

High

Domestic

Low

Small

High

Low

Threats of Substitutes Products

Factors HUFA MUFA N MFA HFA Comment

Threat of Obsolescence of Industry’s product

Aggressiveness of substitute products in promotion

Switching Cost

Perceived price/ value

Hi

Hi

Low

Hi

1

3

4

5

Low

Low

High

Low

Powers of BuyersFactors HUFA MUFA N MFA HFA Comment

Number of Important buyers

Threat of Backward integration

Product supplied

Switching cost

% of buyer’s cost

Profit earned by buyer

Importance to final quality of buyers Pr.

Few

High

Commodity

High

High

Low

High

1

2

2

2

3

5

5

Many

Low

Specialty

Low

Low

High

Low

Powers of SuppliersFactors HUFA MUFA N MFA HFA comment

# of important Suppliers

Switching cost

Availability of substitutes

Threat of forward integration

Importance of Buyer industry to supplier’s profit

Quantity purchased by the industry of supplier’s product

Suppliers product an important input to the buyer’s business

Few

High

low

High

small

low

Highly Important

1

2

2

3

3

4

4

Many

Low

high

Low

large

High

Less important

Part 2: Company Analysis.

Over All Industry Attractiveness

Factors Unfavorable Neutral Favorable

Entry Barriers

Exit Barriers

Rivalry among existing firms

Power of buyers

Power of Suppliers

Threat of substitutes

1

1

1

2

3

3

 QNO3) what are the Drivers of change for the industry?

There are many forces which play main role in shaping the industry so does in biking industry there are some very crucial forces are influencing and changing industry direction some most important of them are this four forces or drivers which are being explained in below description.

1) Regulatory Influences and Government Policies:

Steel tariffs had been put by President Bush in 2002 on steel that posed a threat toward all steel using manufacturing products and biking industry was one of those industries which has great used of steel in their bikes.

Assessment of Impact:If steel tariffs put in place it surely posed a

great threat because the cost of manufacturing bike will increase and it will leave a great impact on the industry on the one hand it will reduce the demand of bikes if bikes prices increased less people would like to make a purchase or shift to substitute on the other hand it will decrease the profitability of the firms as cost increases. This result could be loopholes big enough to drive a flatbed of cold-rolled sheet metal through.

Needed Strategy Changes:

Companies should make a bond with internal American steel supplier so by doing this those manufactures would have a competitive advantage over rivals who will purchase expensive tariff levied steel from the other world, so by internally steel purchasing one manufactures can cope up with this industry changing force and make it an opportunity and increase profitability.

RECESSION MAY ALSO SHAPE THE INDUSTRY AND

MAKE A TURN TOWARD DIFFERENT DIRECTION SO

IT DID HAPPEN IN THIS INDUSTRY AS WELL.

2) Global Recession:

Assessment of Impact:

When the recession collides to the economy, people tend to save money instead of investing into stocks and inclined not to purchase luxuries and as heavy bikes are also parts of recreation not mostly used for typical transportation. So this industry has also felt the impact by this driver of change.

Needed strategy Changes:

Harley strategy was also doing favorable in spite of recession because Harley had seen sales and stock price growth and among the 17 wall street analysts were tracked by Bloomberg where 16 rated it buy and only one hold” it. That’s a clear sign of attraction in Harley stocks, by this there strategy seemed to hold true that this is a recession-resistant, but off course it’s not recession proof.

3) Changes in who buys the

Product and how they use it:This is another driver of change as it moving the

this industry toward a new direction which is

making its way as more and more females using

this heavy bikes where as It had believed to be the

man love to have a heavy bike or it used to be the

masculinity sign but the percentage of purchases of

heavy bikes made by ladies have been increasing

every years.

Assessing impact:

The change in purchaser demography may

have an impact on the industry as it’s creating

new gender into purchasing the product of this

industry it will also increase the demand of

product as more buyers are entering into the

industry it can alter industry and competitive

condition.

Needed Strategy Changes

Harley must need to take females into

consideration, while designing their bikes in

order to attract more this demographic

purchaser, they can also design a different model

for females that may have less weight than the

male one but will seem and maintain the same

shape and design with a heavy and rough image.

Q1) what is the present strategy of the company?

Business Strategy:

Focused differentiation

Company exclusively focused on heavy weight motorcycle segments.

Distinctive design and well known for heavy customization.

Best style and quality.

Not just a product but symbols of American Free-spiritedness.

Brand focused on becoming a "lifestyle brand” or “a cult brand”.

A strong bond between Customers and Product.

Had made it beyond competition.

Majorly the target group is people age between 35 and above.

First to launch “The ladies of Harley” for women.

CURRENT INTEGRATION AND CORPORATE STRATEGIES

Vertical Integration

Horizontal Diversification

1. VERTICAL INTEGRATION

HD uses both backward and forward integration More than 750 suppliers of g&s are used in the

design and manufacture of motorcycles, parts and accessories

The control of inputs is a necessary part of just-in-time manufacturing

HD has been backward integrating to maintain control over the quality of suppliers

HD owns most of its distributors Distributing completed motorcycles throughout

the world HD is responsible for the delivery of parts and

accessories

2. HORIZONTAL DENSIFICATION

HD has acquired Buell Motorcycles and Eagle mark Financial Services, in order to provide new product lines for their customers.

Buell was acquired in order to be able to provide customers with a V-twin powered Sport motorcycle.

This type of motorcycle has become increasingly popular with the younger and European riders.

Eagle mark provides motorcycle financing, motorcycle casualty insurance and extended service contracts for HD and Buell motorcycles.

They also issue the HD Chrome VISA Card, allowing riders and customers to show their brand loyalty.

Q2) How well is the company’s present strategy working? (complete financial analysis for the last three years)

Particulars 2001 2000 1999 1998 1997

Gross Profit to sales ratio 35.1 34.1 34.1 33.5 33.3

Net Income To sales ratio 13.0 12 10.9 10.3 9.9

Interest income to sales ratio 0.5 0.6 0.3 0.2 0.4

Cost of goods sold to sales ratio 64.9 65.9 65.9 66.9 66.7

Profit before tax to sales ratio 20.0 18.9 17.2 16.3 15.7

Selling expense to sales ratio 17.2 17.7 18.2 18.3 18.6

Working Capital 949154 799521 430840 376448 342333

Current Ratio 2.3 2.6 1.8 1.8 1.9

Quick Ratio 2.1 2.2 1.5 1.4 2.9

Debt to equity ratio 78% 73.30% 81.90% 86.40% 93.40%

Debt to Asset ratio 43.60% 42.30% 45.02% 46.30% 48.30%

Receivable turnover 12.8 days 12.3 days 15.1 days 63.7 days 21.2 days

Inventory turnover 30.2 days 36.5 days 38.1 days 41.4 days 36.4 days

Days of operating cycle 43 days 48.8 days 53.2 days 105.1 days 57.6 days

Key External Factors Weight Rating Weighted score

OPPORTUNITIES      

The European demand for Harley Davidson is the highest in the international market and represents the single largest motorcycle market in the world 0.15 4 0.6

The international heavy weight market is growing and is now larger than the U.S. heavyweight market 0.15 4 0.6

Women and younger riders are increasing interested in bikes 0.1 3 0.3

Market share is increasing in Europe and Asia for the last two years 0.1 3 0.3

Increasing demand in US markets for bikes 0.1 2 0.2

Customers value quality parts 0.025 1 0.025

THREAT      

Harleys ongoing capacity restraints caused a shortage supply and a loss in domestic market share in recent years 0.15 4 0.6

Harleys average buying age is 42 years old and increasing 0.1 3 0.3

The European Union's motorcycles noise standards are more stringent than those of Environmental Protection Agencies in the U.S. and increased environmental stand 0.025 3 0.075

Some competitors of Harley Davidson have larger financial and marketing resources and they are more diversified 0.025 2 0.05

Environmental protection laws 0.025 4 0.1

Buell division needs to continue to produce a quality motorcycle under Harley's brand name 0.05 1 0.05

TOTAL 1   3.2

Q3) what are the opportunities and strengths faced by the company? Develop an EFE Matrix?

EXTERNAL ANALYSIS FACTOR (EFE) MATRIX

 Q4) what are the strength and weaknesses of the company? Develop an IFE matrix?

INTERNAL ANAYLSIS FACTOR (IFE) MATRIX

Key External Factors Weight Rating Weighted score

STRENGTHS      

Strong brand name 0.15 4 0.6

It has strong market department 0.15 3 0.45

Strong relations built on trust and respect with suppliers and dealers0.1 3 0.3

It is only major American motorcycle manufactures 0.1 3 0.3

The standard and performance segments of Harley Davidson make up 70 % of the European heavy weight motorcycle market 0.1 4 0.4

 strong financial performance   0.05   4   0.2

WEAKNESSES      

Harley Davidson doesn’t emphasize price in it’s product 0.1 2 0.2

Loss of benefits 0.1 3 0.3

Lack of opportunity for advancement 0.1 3 0.3

Facing ongoing capacity constraints 0.05 4 0.2

TOTAL 1   3.25

Q5) Identify the strategic issued/problems faced by the company?

The first and foremost addressed problem was for Harley was

facing the national competition in this market.

Retail motorcycle financing

Banks and different financial institution that provide retail financing

to local markets.

Wholesale financing market condition of Banks and other

institutions and aircraft manufactured were also giving a tough time.

In September 28 they also had to face a Lawsuit which was lodged

against them by a nationwide class. The reason behind it’s that the

repairing suits were defective found.

Capacity constraints led to decreased international market share

Due to rapid expansion, quality control suffered.

The first issue Harley-Davidson must successfully address is the fact that consumers see the firm’s products primarily as leisure items. This means that in many consumers’ eyes, purchasing motorcycles, performance parts, and high-dollar apparel is a luxury rather than a necessity. Because of this, Harley’s products must compete for funds from what at least sometimes can be volatile discretionary budgets for consumers.

Harley-Davidson is challenged to effectively specify its target market as a first step to appropriately serving that market’s needs. Historically, the firm’s target market has been males between the ages of 29 and 55. However, in the last decade, Harley-Davidson has pursued younger riders and women as a means of expanding its target customer segments.

Demands and cost drivers for the motorcycle market are ever changing. Overseas competitors have shifted their focus from being the least expensive to being affordable and to providing a wider variety of motorcycles to customers as options to purchase. This competitive shift has put pressure on Harley-Davidson’s key markets and has forced the firm to respond.

Q6) Develop TOWS matrix?

TOWS ANALYSIS:

S-O Strategies

Expand production into Europe and Asia Expand marketing to female riders

S-T Strategies

• Increase strong brand name

W-O Strategies

• Pursue foreign markets more agressively

W-T Strategies

• Improve employee relationships

Q7) Identify the alternative strategies which may be suitable to resolve the issue? Expand into Foreign Markets

• Asia

• Europe Product Development

• Expand Motorcycle line for younger market

• Buell expansion Concentric Diversification

• Other recreational vehicles

• Expand HOG and BRAG owner member groups Made new alliances with some local bike companies to produce low

cost in India Increasıng dıversity programing

• Tour

• museum Increasing Adversting Activities

Q8) Develop SPACE matrix?

Q9) Recommend strategy that the company should follow?

1 BRANDING TO GENERATION Y

The goal of this paper is to get insights into the Harley-Davidson brand and to make it more attractive to young people outside the US. In the following paragraphs, generation Y and how they can be targeted more efficiently will be described by using research of Van den Bergh on this subject. (VAN DEN BERGH, Joeri, 2011)

1.1 AUTHENTICITY/ REALNESS Van den Bergh states that authenticity is still one of

the major drivers for young people to consider a brand. (VAN DEN BERGH, Joeri, 2011). Authenticity however, is not anymore about origin, history and heritage but all about being honest to yourself, to your consumers and to society. The classic interpretation of authenticity should never be shouted but only be whispered. Eristoff has used this insight to build “Pretty honest for a vodka-campaign”.

Recommendation 1: If Harley-Davidson wants to appeal to young people, it has to keep it real and it has to stay true to itself.

Recommendations (contd.)1.2 SELF-IDENTIFICATION WITH THE BRAND The new generation is stimulus junkies. They have grown up in a

society where advertising and stimuli are omnipresent. They know advertising is there to sell products but they couldn’t be bothered less about it. Content is king but they have more trust in people than ever. Friends help this generation decide what to buy and employees or shop personnel are key to sell products. Brands that appeal to this generation use social media and don’t push their messages but engage the new consumer by offering him control.

1.3 UNIQUENESS Another thing that is very important for branding to young people

is uniqueness. On this subject, Harley-Davidson has to stick to its brand positioning and brand

DNA. Trying to change this identity will damage the brand.

Recommendations (contd.) 2 GENERAL RECOMMENDATIONS

2.1 QUALITY

The product quality of Harley-Davidson is one of its weaknesses. This will have to be fixed. If Harley-Davidson wants to keep high brand equity, it will have to improve the quality of its products. 2.2 BRAND MANAGEMENT EXTENSION

If the brand wants to stay relevant for every consumer, Harley-Davidson will have to develop marketing programs for every life stage of the consumer. New consumers and old consumers both have a different depth of relationship with the brand but both need tailored communication plans. Apply Kapferer’s model for brand management extension and adapt marketing programs to different consumer life stages.

Recommendation (contd.)◦ BRAND EXTENSIONS

Harley-Davidson made a mistake by launching too much category extensions like perfume but not only this kind of category extension can harm the brand. It is not wise for Harley-Davidson to start producing bikes in the race category or performance category. First of all, extending the Harley-Davidson brand in these categories will damage the brand DNA and secondly, buyers of these kinds of motorcycles will never be convinced about Harley-Davidsons brand values. They have other values and they will never match those of Harley-Davidson. Creating a new sub brand can be a solution if it is financially possible. If Harley-Davidson wants to avoid brand dilution, the brand has to be more careful with category extensions.

Line extensions on the other side, can help to strengthen the brand and to make it more attractive to certain target groups.

Recommendation 8: Continue introducing line extensions but avoid too much line extensions to remain profitable.

Recommendation (contd.) BRAND COMMUNICATION STRATEGIES

Placing the brand communication strategy behind the recommendations may seem a bit strange, but since this brand communication strategy is based on the recommendations, it is better to present it here. TARGET AUDIENCE

The target audience of the new brand communication strategy is young people between 20 and 35 who are attracted by values like freedom, pleasure and dreams with a touch of rebellion. Men as well as women have to be taken into consideration, eventually with different but consistent communication plans. Because of the current customer profile of Harley-Davidson, the new brand communication has to appeal to baby boomers as well without driving them away from the brand.

Thank You