Harley – Davidson Inc. Motorcycle IndustryINTRODUCTION The purpose of this report is to develop a strategic corporate objectivefor HarleyDavidson Inc., a publicly traded, employee owned manufacturer ofheavyweight motorcycles, recreational and commercial vehicles, military defenseitems, and small engines, distributing its products to domestic andinternational markets targeting all men and women of all ages.
INDUSTRY AND COMPETITIVE MARKET The industry under study is the motorcycle industry consisting of fivemajor manufacturers: one American (Harley Davidson), and four Japanese (Honda,Yamaha, Kawasaki, Suzuki) and some European companies (mainly BMW of Germany andsome other Italian companies). Most companies market their motorcycles andaccessories on a worldwide basis, handling international trade through foreigndistributors and domestic sales through franchised outlets. Industry sales ofmotorcycles were shrinking in the early l990s because of the recession and thecompetition from computers and electronic products decreasing consumers’discretionary income. Sales of accessories and parts make up 36% of total retail sales and is aviable area for producers to explore because people want something todifferentiate their bikes. Previously, motorcycles were viewed as a cheap meansof transportation.
By 1992, they came to be viewed as a recreational, or aluxury item. This new perception of motorcycles led to the introduction of moreexpensive models with higher prices. This led to the introduction of consumerfinancing, one of the fastest growing service areas in the motorcycle industry.MISSIONHarley’s strategic objective is to continue to provide safe, hightechnology heavyweight bikes and keep customer satisfaction at high levels. Thisquality vision more than doubled Harley’s market share and increased its brandloyalty.EXTERNAL PLANNING PREMISESCUSTOMERSThey can be divided into 2 categories men and women.
Men.A. Men under 30. This group accounts for 44% of all sales. Therefore, agreat opportunity exists here because of the group’s size. This group’s membersbuy motorcycles for their transportation and recreation needs. Men in this groupbuy more of mopeds, scooters andentry level lightweight road bikes.
B.Men between 30 and 50. This age group makes up 45k of buyers anotherlarge area providing opportunities for firms.The motorcycles most frequentlypurchased are the heavyweight tourers and cruisers.Many buyers are marriedcouples looking for an alternative to taking the car out for weekend drives tothe country.C.
Men over 50. This group accounts for about 11% of motorcycle sales.The heavyweight touring class and the middleweight road bike categories accountfor most of the sales here.Women. This group is a segment that is growing at a fast rate, therebyrepresenting an opportunity area.Firms to be successful here are to providesmaller, easier to handle, comfortable, and good quality bikes to build up brandloyalty.PRODUCTSThree types of products/services are being offered motorcycles,accessories, and financing services, all related to the sale of the main productmotorcycles.
Motorcycles: It includes mopeds or scooters (with engines under 125ccwhich are used as an alternative to walking), accounting for about 17% of totalmotorcycle sales; lightweight motorcycles road bikes, dirt bikes, dual purposebikes (with engines ranging from 125cc to 499cc), accounting for 51% of sales;sport motorcycles street bikes, and superbikes (with engines ranging from 450to 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, higherwindshields, customized seats, and clothing items are produced or contracted tobe produced by all leading manufacturers. Since these items realize high profitsand strengthen customer relations and customer loyalty, this area is providingan 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 thereach of many motorcycle enthusiasts, manufacturers begun to set up consumercredit arrangements falling into 3 categories consumer, dealer, and corporatefinancing. Financing services are vital for success in the industry and firmsunable to provide them will lose market share.
To succeed here, firms are toprovide a wide variety of flexible (in terms of maturity and paymentarrangements) plans.MARKETSAlthough motorcycles are sold internationally, 3 main geographic marketscomprise the bulk of motorcycle sales North America, Asia, and Europe. Thelargest is the North American Market (USA and Canada account for about 60% ofthis market) accounting for 60% of worldwide motorcycle sales.
With the babygeneration aging, opportunities exist for the penetration of new markets.The Japanese market accounting for a great chunk of the Asian Marketis an untapped one for foreign manufacturers. Government regulations and tradepolicies make it difficult for foreign manufacturers to enter though. MostAsians consider motorcycles as a basic means of transportation. Major targetareas include China, Korea, Taiwan and Vietnam.The European Market is another market with great potentials sinceEuropeans have a higher disposable income and enjoy a higher standard of living.
Eastern Europe is not offering a good deal mainly because of its unstablepolitical and economic environment.To succeed in these markets, firms are to modify products to meet localneeds, provide after sales service, expand distribution networks, create strongcustomerCOMPETITIONCompetition in the motorcycle industry consists of only a handful ofproducers worldwide. The Japanese producers Honda, Yamaha, Kawasaki, andSuzuki are producing a full line of motorcycles ranging from scooters toheavyweights, and together control the largest share of the market. Their wideproduct line though has also created some customer complaints to them(especially true for Honda and Kawasaki) for low quality service. Thissignificantly decreased their market shares.Japanese companies’ success beganwith copying other products, but evolved to depend on innovative designs andtechnology. Harley Davidson is producing heavyweight motorcycles emphasizinggood quality product and after sales service, thereby building up brand loyalty.
Honda is the largest company in terms of size, financial backing, andreputation. It is offering the widest selection of styles, classes and sizeswithin the heavyweight category. This wide product line hurts Honda sincesalespeople have limited knowledge of each product. Kawasaki’s products includea full line of motorcycles, all terrain vehicles, jet skis and other.
It is theleader in superbikes manufacturing but US legislation is limiting the number ofsports bikes to be imported because of safety reasons. Yamaha produces Harleyclones but lacks Harley’s image. Being a market follower, Yamaha is to face manyproblems. BMW is famous of producing quality products but its high prices holdit from expanding sales.INTERNAL PLANNING PREMISESCUSTOMERSl.
Men.Under 30: This segment is growing since men in this category look for acheaper alternative means of transportation and for recreational purposes.Harley is to produce high quality, safe bikes, with radical styles and providethem at reasonable prices to build up brand loyalty.
30 50: Recent demographic profiles show that the median age of buyersof 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, highperformance, good quality bikes to increase brand loyalty and succeed in thissegment.Over 50: Motorcycle lovers still want to ride Harleys when they areabove 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.PRODUCTSMotorcycles.
Harley Davidson produces only heavyweight motorcycles (withenginedisplacements of 750cc or greater) that are categorized into touring andcruiser motorcycles.Touring motorcycles are designed for long distance riding and featuremany car like features (i.e., trunks), and provide Harley with the greatestprofit margin.
Cruisers are styled after early motorcycles and are the kindmost often associated with Harley.They provide a very low profit marginbecause of their low prices used as a means to attract young customers.Harleyis to increase its R;D to improve product designs, quality, and safety.It isalso to offer a guaranteed resale value (that most Japanese firms are lacking),offer a high quality after sales service and, t…
..herefore, build up its brandloyalty.Accessories.This category includes a new line of riding and fashionapparel bearing the Harley Davidson insignia. These products are distributed toHarley retailers and outlets in the retail clothing market.
Harley is toprovide a wide variety of stylish products and aggressively market them.Financing Services.Harley offers financing through a joint venturewith Ford Motor Credit Company (FMCO).Harley due to its lack of capital,avoided forming its own subsidiary providing financing services something thatHonda and Kawasaki have already done.
Harley is to offer a wide variety offlexible plans to meet this great opportunity that arose due to inflated pricesof motorcycles and willingness of people to use credit lines as a way to improvetheir standard of living.MARKETSHarley is the established leader of heavyweight motorcycles in the NorthAmerican market, accounting for about 60% of the market share.The size of itsmarket share provides an opportunity for Harley to exploit.Its customers arethe most loyal of any other brand and its products have great reputation. Foreign markets are growing very fast because customers there are obsessed withHarley’s quality and safety bikes and provide a great opportunity for Harley toexploit.
The main problem is Harley’s limited production capability, puttingcustomers in a waiting list for a couple of months.To succeed here Harley isto create good customer ties, provide after sales service, build up its customerloyalty, expand its distribution network, and modify its products to meet localcustomer needs.DECISION CHARTAlternative 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, offerfinancing services through a wholly owned subsidiary and manufacture sport andheavy 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 heavyweightmotorcycles, but expand its accessory line and provide financing servicesthrough FMCO, targeting men (95% emphasis) and women (5% emphasis) in both thedomestic (60% emphasis) and foreign markets (40% emphasis).DecisionThe first alternative is based on the idea that Harley should capitalizeon its current reputation and success by rapidly increasing demand, and byexpanding its product line to include all kinds of bikes.This will enableHarley to match its competitors (i.e.
, Honda and Kawasaki) wide product linesand gain market share from them.This would also create major problems sinceincreased quantity will destroy Harley’s good reputation of producing safe, highquality, high performance bikes, thereby decreasing brand loyalty.Also, Harleyis to produce lightweight, sport, and heavyweight motorcycles and that is torequire additional capital that the firm is lacking.Therefore, Harley is tocut down on R&D and products quality and eventually lose out.Honda andKawasaki demonstrated well that effect since their market shares decreasedsignificantly.Alternative 2 calls for an expansion of the accessory line that isexperiencing an increasing demand.
The main focus of Harley will be on men itis to provide lower priced, high quality, safe, stylish products to itscustomers.Harley is to try to maintain its brand loyalty, good quality, aftersales service, and strong customer ties (all major competitors are lacking thesekeys to success).The major drawbacks here are Harley’s plan to pay equalemphasis on both domestic (its leading position here gives the firm acompetitive advantage over its foreign competitors) and foreign markets.SinceHarley is unable to meet demand for its products, and modify its products tomeet local demands, it is to fail in succeeding in the foreign markets whileloosing out in its high revenue producing domestic market.Also, more capitalis needed since Harley is to create its own financing Subsidiary company.
Thatis to cut down on Harley’s ability to invest on R&D, and produce high qualityproducts.Also, 10% emphasis on women is considered too large, since womenaccount for less than 5% of Harley’s customers.Alternative 3, which is the one that I recommend, capitalizes onHarley’s strengths.The company is to produce only heavyweight motorcycles,thereby focusing its R&D on producing safe, good quality products.
The companyis to guarantee a high resale value and provide good after sales service.Alsoits decision to stay with FMCO financing gives the company an additionalfinancial advantage to be used in targeting specific marketing niches. Customers under 30 years of age are to be provided with safe, stylish, highquality products at reasonable prices, thereby increasing brand loyalty.Safetyissues are not being focused by the Japanese and that gives Harley a competitiveedge here though they can provide their products at lower prices.
Customers from30 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, especiallyin the domestic market.Customers over 50 years of age are to be provided withcomfortable, easy to handle bikes to increase their convenience.Foreign bikesare lacking this key and are expected to be outperformed by Harley. Harley’sline of accessories (more emphasis on clothing) is to be expanded by providing awider product line.
That by itself would advertise its products and increasebrand loyalty.Its plan to focus on the domestic market with 60% emphasis andon the foreign market with 40% emphasis is both good and bad.It is good in thesense that international demand for Harley products is increasing and that wouldincrease the company’s revenues since it will expand its distribution network,provide after sales service, and appear there with an already established brandloyalty.
It is bad though to expand with 40% emphasis in the foreign marketsbecause Harley is not strong in meeting consumer demand that is expected to groweven more and dissatisfy both domestic and foreign customers.Surely, Harleycan solve this problem by getting loans, thereby expanding its plant capacityand meeting this increased demand.The future cash flows that will arise due toincreased sales will be used to repay these loans and maintain the company’sgood credit rating.SWOT ANALYSISHarley’s high R;D accounts for innovative designs providing Harley withunique product designs that set Harley apart from its competition.
In order toachieve 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 Japanesefirms are lacking), offer a high quality after sales service and, therefore,build up its brand loyalty.Harley also, provides a wide variety of stylishaccessory products and aggressively market them.Harley due to its lack of capital, avoided forming its own subsidiaryproviding financing services something that Honda and Kawasaki have alreadydone, and that is a wickeness for the company.That lack of capital also makesthe company unable of producing the amount of products needed.
There are some oportunities for the company, For example the expansionof its markets o Asia and Europe.In addition, of having its own financialservices 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.STRATEGIESThe strategies that the company might use have to do withe expansion toother 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 increasethe emphasis on the foreign market close to 40%.IMPLEMENTATION ISSUESSome of the problems that the previous strategies may face depend on thelack of capital.Of course a loan could be beneficial since the returns fromthe sales would be enough to pay back the loan.In addition, exports in Europeare not that easy since the products are going to be taxed more, since they comefrom a country outside the Europian community.In the future a subsidiary inone of the European community countries would relax the tarrifs.TOWARDS THE FUTURETowards the future the company is expected to do very well and increaseits market share.The management objectives is expected to be the same as thecurrent ones.Therefore the company is expected to manufactore only heavyweightmotorcycles, but with the use of some loans will be able also to icrease salesin Asia and Europe.