Designer, Bill Harley, and Arthur Davidson, a pattern maker in the year 1901, founded the Harley-Davidson company in Milwaukee, Wisconsin. Starting from scratch both technically and financially worked together to construct and start their project which is the Harley-Davidson motorcycle. In 1903, a wooden building was erected in the Davidson family’s backyard, and their first factory was in operation. In 1904, production output was up to eight machines a year, and in 1906, fifty. The company was incorporated in 1907, and within ten years, they were producing 18,000 machines per year. Harley-Davidson has continued to advance their characteristic machines and many fine examples of their artisanship are seen on roads and tracks throughout the world.
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Since they welcomed their first Harley-Davidson dealer into the family in 1903, they have built a network of dealers in more than 60 countries determined to fulfil the dreams of customers around the world. Harley-Davidson is the largest manufacturer of heavyweight motorcycles in the world by market share, capturing half the U.S. market and a third of the global market. As a luxury good, Harley competes mainly on design and quality, rather than price, which keeps margins high; gross margin during 2009 was 31%, as opposed to 34.5% in 2008. Harley’s past growth and continued success is closely linked to its customers’ brand loyalty; Harley is questionably the only company whose customers have been known to habitually tattoo its trademark on their bodies. Despite this rebellious image, the average Harley customer is an upper class 42-47 year-old white male, and has been getting older at a rate of 6 months every year for the last 20 years.
Despite brand loyalty, the company had to shut down and merge factories in 2009 due to the effects of the recession and the fall of the U.S. Housing Market. About 15% of Harley’s business used to be writing loans to its motorcycle buyers. The company’s finance arm has since collapsed.
Global Customer Focus
Harley-Davidson has a strategy in place to expand their global presence and reach new demographics in the U.S. and in international markets. Figure 1 shows at present, a majority of their customers live in the U.S.; however, international retail sales have been growing as a percent of total sales. In fact, it is advocated that by 2014 over 40% of retail sales will occur outside the U.S.
Source: www.Harley-Davidson.comHarley-Davidson is currently executing a multi-generational and multi-cultural marketing strategy in the U.S.
Motorcycle registration results show Harley-Davidson is the segment leader in U.S. on-road motorcycle registrations, both in terms of heavyweight registrations and all displacement registrations, across their targeted demographic customer definitions including:
Harley-Davidson maintains a large margin in its dominance in the U.S. Heavyweight Motorcycle market as compared to its major competitors. While the United States is HOG’s most important market, the company sells motorcycles in many other markets worldwide. The two most important are Europe, where the company has grown market share from 9.8% in 2005 to 10.7% in 2007, and Canada where HOG had a 39.0% market share for 2007, up from 32.7% in 2005. Worldwide, Harley has a dominant worldwide market share of 33% in a growing industry.
Harley-Davidson’s main competitors include:
Honda Motor Company (HMC): headquartered in Japan, Honda is the world’s fifth largest automaker and largest motorcycle producer by FY2009 sales.
Suzuki Motor (SZKMF): a Japan-based manufacturing company, Suzuki operates in four business segments. The Two-wheel Vehicle segment is engaged in the manufacture of two-wheel vehicles, as well as the manufacture of parts for two-wheel vehicles and the sale of two-wheel vehicles in domestic and overseas markets. The Company has 141 subsidiaries and 37 associated companies.
Yamaha Motor (YAMHF): Yamaha Motor is the world’s second largest producer of motorcycles (after Honda). It also produces many other motorized vehicles such as all-terrain vehicles, boats, snowmobiles, outboard motors, and personal watercraft.
Kawasaki Heavy Industries (KWHIY): Kawasaki is a global manufacturer of transportation equipment and industrial goods. KHI manufactures ships, rolling stock, aircraft and jet engines, gas turbine power generators, environmental and industrial plants, and range of manufacturing equipment and systems. KHI also produces consumer products, such as Kawasaki-brand motorcycles and personal watercraft.
Harley found its strength was in the heavyweight division. The company also identified and exploited mini niches, such as customized, touring, sport/touring and sport/street motorcycles, in the heavyweight end of the market. The company learned it needed to give the customers a choice and now offers a variety of models, including Sportsters, Super Glides, Low Riders, Softails, Sport Glides, Tour Glides and Electra Glides, in numerous vivid colors. Many of these models and changes were developed when Harley realized their customers were customizing the bikes and none of the revenue from the work was going to the company. When a style is changed or developed, Harley always develops it around their signature image to make sure that the product is not only a high quality piece of equipment but is also charismatic. Figure 2 shows one of Harley’s distinctive heavyweight motorcycles.
Harleys biked are highly priced as they cater to a particular elite target group. Harley-Davidson quickly learned it could not compete with the foreign manufacturers on cost. Not only did Honda have a low priced product, it was able to defeat Harley in advertising 40-1. Therefore, Harley developed a strategy of value over price. This was created through the development of mini-niches and the heavy construction of the parts. Japanese manufacturers used plastic while Harley used steel, which is able to be rebuilt and reborn. Harley was careful not to exceed demand in production of their motorcycles. Currently, people must wait six to eighteen months for a new motorcycle and the price for a year-old Harley is 25% to 30% higher than a new one. By not being able to meet demands, an attitude of must-have has developed.
Harley-Davidson ‘s distribution strategy can best be described by its creed found on its website: “Harley-Davidson’s dealer’s are the company’s life-line to our customers, with a wide variety of product offerings, dealer’s provide knowledge, service, and information to riders out on the road.” The networks of dealers established by Harley-Davidson are placed in areas that provide access to the largest concentration of potential customers. These dealerships are used to distribute products, accessories, and merchandise. Harley-Davidson also promotes its motorcycles through dealerships with marketing programs, shows, and public relation programs. Demo bikes are also made available at events like Daytona and Sturgis. Harley-Davidson also has a non-dealer network of mid to high-end department stores like Costco’s and BJ’s. These outlets are meant to appeal to the non-enthusiast.
Good relationships, continuous improvement, employee and management involvement, team building or employee training and empowerment are not just words out of a management book for Harley-Davidson. Only by adopting those management techniques and building a solid base between the management and the Unions/employees made it possible for Harley-Davidson to perk up its management processes. Whilst management’s responsibility is to build relationships with the employees, marketing’s accountability is to build relationship with the potential and existing customers. The realization of the importance of customer feedback led Harley to develop new marketing techniques. However, marketing strategies would not be enough if quality and dependability did not improve.
News that 36 dealerships have closed in the past year, and more closures are expected in 2011, speaks for itself on how sales have been. On a conference call with analysts CFO John Olin said, “This contraction was expected and in-line with our desire to modestly consolidate our U.S. dealer network in response to lower overall volume since the economic downturn took hold,” which is a very glossed over way of saying that American brand has become too bloated over the past years, and needs to go on a diet. Harley-Davidson expects to ship between 221,000 & 228,000 motorcycles worldwide in 2011, which is up 8% over last year’s figure, but still pales in comparison to the numbers the Milwaukee brand was posting before the economic collapse (303,479 in 2008). Since 2006, sales at Harley-Davidson have continued to slide, but the most dramatic affect was in 2010, where sales were down 30% compared to before the recession.
Figure 3 shows that Sales have declined over the past 5 years but Harley-Davidson is optimistic about this coming year, and rebuttals talk of its aging demographic. The fact remains that the core demographic, the predominance of Harley-Davidson purchasers, are still coming from the Baby Boomer generation.
Fig.4 1hCurrently, the company is at its restructuring stage. Figure 4 shows that Harley is expected to have favourable outcomes in the future, as the motorcycle market growth rate seems to be steadily increasing towards the future.
In 2011, the Company expects to ship 221,000 to 228,000 Harley-Davidson motorcycles to dealers and distributors worldwide, an approximate five percent to eight percent increase compared to 2010. The Company expects to ship more motorcycles to U.S. dealers than it anticipates dealers will sell at retail in 2011, to return aggregate U.S. dealer inventory to what the Company believes is an appropriate level. In the first quarter of 2011, Harley-Davidson expects to ship 51,000 to 56,000 motorcycles.
The Company expects 2011 gross margin to be between 34.0 percent and 35.0 percent. Harley-Davidson expects full-year capital expenditures of between $210 million and $230 million, including $60 million to $75 million to support restructuring activities.
Each industry aims to exercise an individualistic, effective and efficient business strategy that will allow them to always retain a positive and progressive position in the competitive market, particularly in the international market. The purpose of this report is to evaluate the strategic options available to the Harley-Davidson company. This report will entail the use of different strategic analytical tools such as the swot analysis, porters five forces analysis, a pest analysis, a value chain analysis and recommendations to relevant issues of the company.
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brief Company Overview
The Harley-Davidson company is based in Milwaukee, Wisconsin United states of America and was founded in 1903. It sells and produces heavyweight motorcycles, as well as motorcycle accessories, parts and allied services. Harley Davidson is the parent company for the group of Companies together with the Harley-Davidson Motor Company, Buell Motorcycle Company and Harley-Davidson Financial Services. The company offers over 35 models of customized motorbikes via a worldwide network of over 1,500 dealers. The company also produces motorcycles under BUELL.
Furthermore, Harley-Davidson operates its company by means of two particular segments that is Motorcycles and Related Products, and Financial Services. The Motorcycles and Related Products segment engages in the manufacture, design, and sale of primarily heavyweight touring, custom, and performance motorcycles primarily in North America, Europe, the Middle East, Africa, the Asia/Pacific, and Latin America. It also provides a line of motorcycle parts and accessories, including replacement parts, and mechanical and cosmetic accessories; general merchandise, such as apparel and accessories; and related services. Financial services include instalment lending for its new and used motorcycles. The Financial Services segment also provides motorcycle insurance and property/casualty insurance, as well as sells extended service contracts, gap coverage, and debt protection products to motorcycle owners. Harley-Davidson sells its products through independent dealers and distributors. The reputation and popularity of these Harley-Davidson motorcycles is indisputable. Now, after more than a hundred years of existence, Harley-Davidson motorcycles have become an attraction in every road around the world.
In this academic report, the analysis of the Harley-Davidson company will be executed via several marketing tools. Herewith, Harley-Davidson will firstly be inspected using the SWOT Analysis. The root purpose of the internal and external analysis is to further comprehend issues that can affect the said business and to position itself to manage threats derived from an examination if the external environment and take advantage of opportunities. Additionally it helps in pinpointing threats and weaknesses that can gravely affect the company’s strategic capabilities.
Domestic market share. There are approximately 70% market share in relation to the market for heavyweight motorcycles.
Has a strong brand and is well established in the consumer’s mind with the image of “freedom and strength.”
Company reputation strong and durable long-term relationship with employees.
Core competencies in developing and designing heavyweight motorcycles of quality
Customer loyalty first and foremost strength of the company (Once a customer buys a motorcycle, jacket, scarf, etc become a part of it).
Customer “bonding”-H.O.G., charity- The company admits SNBC (Breast Cancer Network of Strength).
Dealer Networks – Strong marketing and distribution channel in the U.S.
Custom Motorcycles is a significant amount of revenue for Harley Davidson
Cutting dealer inventory as opposed to lowering prices which diminishes residual value
Strategic Alliance with Michelin Tires Excellent relationship with the supplier, so that the integrity of the work and performance is achieved without the expense of quality.
Has its operation in the manufacture of motorcycles, and is also active in providing financial services.
BRAC (Buell Riders Adventure Group), formed to support the brand and engage customers leverage their standard of fidelity.
Strong image with respect to the goodwill of the factors (the company has its employees to join with communities to lend a hand.)
It is also compatible with the MDA (Muscular Dystrophy Association) and has done so in many ways helped the association with regard to research and development, providing financial resources.
Customer age is increasing (dying breed)
High Costing Product- Higher overall unit costs relative to key competitors
Lack of adequate global distribution capability
Untapped markets in different demographics
Plagued with internal operating problems or obsolete facilities-Facility shutdowns
Short on financial resources to grow the business and pursue promising initiatives
No clear strategic direction
Poor market techniques that’s not attracting new international customers
Openings to win market share from rivals
Expanding the product line to meet a broader range of customer needs-Younger generation, Buell line
Using existing company skills or technological know-how to enter new product lines or new businesses-New CEO Keith Wandell
Expanding into new geographic markets-HARLEY-DAVIDSON in India 2009. India is a large untapped market for motorcycles
More international growth (currently 30%)
Falling trade barriers in attractive foreign markets
Acquiring rival firms or companies with eye-catching technological
Entering into alliances or joint ventures to expand market coverage or boost its competitive capabilities
Creating more strategic alliances with supply chains
The demand for Harley Davidson is the highest in the international market, the international market for bicycles is much larger than the US market
International duties and tariffs that amount to 100% of the price of the bike-Restrictive trade policies on the part of foreign governments.
Increased standards in the European Market.
Costly new regulatory environmental regulations
Global Market Leaders: Honda, Yamaha, Suzuki, Kawasaki
Some of the competitors of the company is using more resources in marketing their product line and is a threat because it can change your risk factor for having a diversified product line
Slowdowns in domestic market growth because of the low cost of making a bike and the higher profit margin, it is clear that more competition can participate especially those already in the car manufacturing market
Dying breed of customers – the average age of purchasing customers are age 42 and growing
Harley-Davidson faces a favorable political environment in 2009. This year, motorcycles are added into the economic stimulus package, passed into legislation by the Barack Obama Administration, that offers tax deductions to buyers. This stimulus allows customers to receive deductions for their purchases on the 2009 tax returns, which in turn gives buyers an incentive that might push them from the “on the fence buyer” to customer status (Wachter, 2009).
Another political byproduct that may favor Harley-Davidson is the extensive consumer protection law passed last summer. “â€¦the regulations have squeezed the brakes on sales of all-terrain vehicles and small dirt bikes intended for use by children 12 and under. Since the new rules went into effect Feb. 10, an expensive inventory of them has piled up as shoppers across the country are turned away without their new rides (Cate, 2009).” This restricts their competitors and eradicates substitutes and or any opportunity cost that can propel consumers to spend more cash on Harley-Davidson’s motorcycles.
According to the Datamonitor report in 2010, Harley-Davidson a US-based motorcycle manufacturer, has reported a net income of $88.83 million,$0.40 per diluted share, for the third quarter ended September 26, 2010, compared to $26.48 million, or $0.24 per diluted share, for the third quarter ended September 27, 2009. For the third quarter of 2010, net revenue from motorcycles and related products were $1.09 billion, compared to $1.11 billion for the third quarter of 2009. Net income for the first nine months ended September 26, 2010 were $193.31 million, or $1.29 per diluted share, compared to $163.58 million, or $0.93 per diluted share, for the nine months ended September 27, 2009. For the first nine-month period of 2010, net revenue from motorcycles and related products were $3.26 billion, compared to $3.52 billion for the same period of 2009.
These figures are definitely going to change in the future. There are only a few companies operating within the motorcycle industry with fair to moderate competition. There are only a few companies are unlikely to occur because of high barriers of entry into the market. Hence, Harley-Davidson will continue to lead in the industry because of its sustainable advantage of product differentiation. Economically Harley-Davidson is in a position for business. Furthermore, within the U.S. economy Harley-Davidson holds the majority of motorcycle sales. Therefore, even while industry growth is declining, Harley-Davidson sales and other motorcycle sales are continuing to increase.
Social factors play a large role in the external industry in which Harley-Davidson operates. While buyer power is weakened due to large product differentiation, most loyal customers to Harley-Davidson have a defined lifestyle-brand image that characterizes its buyers. Even with moderate switching costs, buyers are not likely to switch to substitutes because of these social factors. Other competitors such as Yamaha, Winnebago, and Honda Manufacturers such as Honda offer competitive but different lifestyles that define the buyer. In this way competition is weakened due to differences in lifestyle and strong brand loyalty.
Harley-Davidson’s rivalries are all continually trying to innovate their products in order to gain competitive edge.
Surprisingly, Harley-Davidson and other Motorcycle manufacturers do not take advantage of the technology currently in use that grants their bikes more economical gas mileage. With new technologies emerging for optimal engine performance, this may be a strategy that Harley-Davidson should meld into their motorcycles. “MAST, Inc. has developed an oil sensor device to provide simple, easy-to-use monitoring of the basic properties of engine oil, and allow vehicle owners to change the oil at intervals that optimize engine performance” (Mircromem, 2009).
Harley-Davidson’s Pest Analysis synopsis
In 2009 Harley-Davidson was experiencing positive outcomes in the Political Environment due to the economic Stimulus that permitted tax breaks to consumers. Although the market has recently faced economic recession, motorcycle sales are staying comparatively stable when compared to substitutes. This may be due to the sound social aspect of the industry that relies on certain lifestyle factors and a strong brand loyalty. In a Social aspect, Harley-Davidson is on top of the game because of demographic trends with the increase of female riders and their customer base. Furthermore, technologically Harley-Davidson needs to take advantage of developing mechanisms that will increase its sustainability and keep them at a competitive edge in the industry.
Porters Five Forces Analysis
Firstly, there are only four major companies producing motorcycles, so the market is concentrated. Yamaha, Suzuki and Honda are the other three main participants in addition to Harley-Davidson. These competitors are more diversify and they posses larger financial and market resources. This is a threat to Harley-Davidson as rivalry is fierce. Normally, Harley-Davidson has been in control of the market in excess of 50% in the past. However, presently the market share has decreased by 50% due to rivalries expanding their range of heavyweight motorcycle production and strategically altering their marketing and altering their style of motorcycles. Harley-Davidson is increasingly relying on their brand name to sustain and build its customer volume.
The heavyweight motorcycle industry is extremely capital concentrated. As with other industrialized industries, there exist major economies of scale. On a small scale, overlooking marginal costs as production increases can be unfavorable because the capital requirements for manufacturing similar products are very high. Noteworthy economies of scale are the major reason why there or only for main participants in the motorcycle market. Nevertheless, there are several small-scale manufactures that make customized motorcycles but they do not produce a large enough amount to threaten the business of Harley-Davidson.
Firstly, it is unmistakable that Harley-Davidsons’ motorcycles are luxury items, so there are few close substitutes for heavyweight motorcycles. Yamaha, Honda and Suzuki all manufacture motorcycles, which are smaller and quicker and act as a substitute for Harley-Davidson bikes. These motorcycles require a different riding style and their brand names are not as admired as ‘Harley-Davidson’. On the other hand, these heavyweight motorcycles project an elite and classy image that is a driving force in a consumer’s decision to purchase.
Power of suppliers
Harley-Davidson functions on almost every point of production from basic necessary raw materials to the shipping of completed motorcycles to its range of dealers. Since there are an extensive range of merchants existing so if one supplier makes a decisions that is not beneficial to the business of Harley-Davidson they can simply switch from one supplier to the next without affecting business production.
Power of Customers
Harley-Davidson’s customers are individual consumers, this means if they refuse to oblige, they still will not be able to affect the financial positioning of the company. Furthermore, the number of dealers around the world is less and they are reliant in individual customers. This also means that this cannot affect Harley-Davidson’s economic position as a business.
Summary of Porters Five Forces for Harley-Davidson
The competitors within the industry examined position and the competitive setting but face fair rivalry. Competition between large multinational corporations with interests ranging across several industries; this reduces the reliance on the motorcycle market and makes competition for market share less intense and more focus driven. Due to the moderate power of suppliers and buyers, high barriers to entry and high capital investment, larger competitors are presumably to continue to lucratively function the industry’s external environment.
The value chain describes the categories of activities within and around an organisation,
which together create a product or service. (Johnson et al, 2005)
Knowledge, trust, managerial competency and organizational culture are Harley-Davidson’s most valuable human resources. The company’s culture gives it a competitive boost. Suppliers as well as employees know that their contribution is appreciated and they take pride in their work. Involved stakeholders are compassionate about the bran and this adds an invisible advantage to the company.
The company ensures that all developments throughout the value chain are incorporated using barcodes. SMS systems and reports to enable smooth inventory flow hence, enabling a smooth production flow. The Harley-Davidson company also ensures that its staff is trained for all areas of their job combining employee knowledge with the aim of having s smooth flow in repairs and transitions.
Harley-Davidson just in time inventory pull system means that it must have restructured manufacturing capabilities. Harley-Davidson does this by ensuring quality inputs into its manufacturing plants, flow assembly methods, and well-maintained equipment. Harley-Davidson manufacturing plants are capable of producing many different models and base their inventory off customer pull demand, reducing costs across the board as well as inventory-finished products.
To actively pursue each of these goals, Harley-Davidson has developed a supply management strategy that provides roadmap guidelines and objectives for organizing its inbound materials. Specifically focusing on purchasing and the acquiring of raw materials and pre-manufactured items such as tires, Harley-Davidson has organized its inbound logistics into four main categories that allow it to focus on specific areas which add value to the inbound logistics segment of the value stream.
When a customer orders a Harley, the order triggers the just-in-time flow process which Harley-Davidson uses to produce its motorcycles. In order to have a continuously updating, real-time manufacturing schedule Harley-Davidson uses use bar codes and electronic trigger systems for replenishing materials and ordering the inbound raw materials it needs to keep continuous flow. In many cases their suppliers get a planning schedule, but it is more common that the materials are actually pulled from the suppliers’ facilities into Harley-Davidson by means of the trigger system. Harley-Davidson has a whole range of electronic resources such as funds transfers, Purchase Orders, and scheduling that keep its operations running smoothly.
Shipments between the three and the material velocity centers help Harley-Davidsosn control costs and quality, and ensure timeliness of the deliveries the make just-in-time inventory production possible. While Harley-Davidson’s private fleet carries 75% of inbound materials, the opposite is true for outbound products with 80% of shipments being outsourced.
Since Harley-Davidson streamlined its transportation methods with a strong transportation network, it has also found a way to give its suppliers access to shipping information. This allows more accurate inbound logistics since suppliers have streamlined means of accessing information about demand and other data that relates to raw material shipment needs.
The company ships to independent retailers in different regions using outbound logistics that aim for timely delivery of just-in-time orders and low cost management of the associated shipping costs. These shipments packaged in returnable containers, which required significant investment costs but are now yielding a great return on investment. Because Harley-Davidson uses a just-in-time inventory system, fewer containers needed and the turnaround time for container use is extremely quick – reducing materials needed to ship finished goods and eliminating the waste associated with non-reusable, outdated packaging methods. As long as Harley-Davidson manages to keep track of its containers using the same barcode tracking system, this strategy helps reduce waste in outbound logistics.
Marketing and Sales
Harley-Davidson gives its customers a reason to fit in. Its products are sold for their lifestyle implications, their quality and their merits. With the use of almost no advertising, Harley-Davidson relies on its strong brand recognition to market its product. Harley-Davidson has followed a non-traditional route through history and focused on its product and the lifestyle that comes with owning a Harley, as opposed to forcing the product on consumers. When someone enters a dealership to buy a Harley, they are offered multiple options and variations per product, and can customize their order to be a one-o
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