Arthur’s brothers, William Harley and Walter, started Harley-Davidson Motor Company in 1903. They first started the business in the Davidson family’s backyard in Milwaukee, Wisconsin. In 1904, the company then moved into an office. The company was acquired by AMF Inc, which favoured short-term profits instead of investing in research and development and retooling.
Harley focused solely on sales, while competitors were continuously improving the quality of their motorcycles. This resulted in a downturn of the company with weak profits. In 1981, a new management team joins to buyout the company.
Prices start at $12
Prices start at $11
Prices start at $12
Harley-Davidson Inc. acquired the Buell Motorcycle Company in 1993. This investment offers Harley-Davidson the possibility of gradual entry into the sport and performance motorcycles market.
In 1995, the company acquired Eaglemark. As a financial service company, Eaglemark provides financial services to leisure product manufacturers and their dealers and customers in the United States and Canada. At the same time, Eaglemark provides motorcycle floor planning to participate in North American dealers of the Motor Company because it is a majority-owned subsidiary. They also offer retail-financing to the Motor Company’s domestic customers and provide insurance for motorcycles as well as service contract extensions. Eaglemark works complementary for the Motor Company.
Harley-Davidson Inc. operates in two business segments: Motorcycles and Related Products and Financial Services. These two segments offer different products and services, and they are managed separately. However, the financial service works as a complementary for the Motor Company.
The motorcycle industry is a consolidated industry. The U.S. and international heavyweight motorcycle markets are highly competitive. The major players, such as Yamaha, Suzuki, and Honda, generally have financial and marketing resources that are substantially greater than the non-major players. Competitions in the heavyweight motorcycle market are based on several factors; price, quality, reliability, styling, product features, customer preference, and warranties.
Harley’s first segment is the motorcycle and related products business.
It included designing, manufacturing, and selling primarily heavyweight touring and custom motorcycles and offering a broad range of related products that included motorcycle parts and accessories and riding apparel. The custom products charge a higher price because of its features, styling, and high resale value. Their target market is mainly in US. By the end of 1997, they have an approximate 48.3% share in the US market, 6.1% share in Europe, and 16.5% share in Asia/Pacific.
New competitors have entered the marketplace because the demand for motorcycles has exceeded production. The demand is prospected to grow in the future, and the switching cost is low.
Their customers are mainly male, middle age, married, and have some degree of education. Most buyers hold a motorcycle for recreational purposes rather than for transportation purpose. These buyers have mostly experienced motorcycle riders. They are loyal toward the brand, quality, and style. Since the consumer switching cost is not high, so the consumer has medium to high power to choose the product and the supplier has medium to low power.
The power of a threat of substitute products is medium since there are other products, such as bicycle and recreation car, that serve similar customer needs. Since most Harley’s motorcycles are buying for recreational purposes, all other recreational entertainments are possible substitutions.
Every country has various environmental control requirements relating to air, water, and noise pollution. This affected the business and operations of the business. The company has to ensure that the facilities and products comply with all applicable environmental regulations and standards. Certain levels of cost are required for the company to deal with this issue.
First, The Motor Company established a long-term mutually beneficial relationship with its suppliers. Through these relationships, the Motor Company is able to gain access to technical and commercial resources for application directly to product design, development, and manufacturing initiatives.
This strategy resulted in improved product technical integrity, application of new features and innovations, reduced lead-time for product development, and faster new vehicle introductions. Excellent relationships with suppliers enable them to ask for cost-reducing and quality improvement.
Second, since the company discontinued the operation of the Transportation Vehicles segment and sold the related division, which lead to $100 million cash for the company, the company can pay back their debt and have more cash available.
Third, the company developed a long-lasting relationship with employees to ensure continued success, and joined in community affairs to enhance the company’s image. For example, they raised funds for the fight against neuromuscular disease, and the employees were encouraged to volunteer and become involved in charitable organizations. As the largest motorcycle club in the world, Harley Owner Group offers their customers organized opportunities to ride. By doing so, they strengthen the relationships among members, dealers, and employees.
Fourth, the company licensed the production and sale of a broad range of consumer items, which not only generated revenue for the company but also enhanced the company’s image.
Even though the company has much strength, some weaknesses drive them down. They have poor marketing strategies over the foreign market. According to Figure 1, they were only able to establish limited market shares in Europe and Asia Pacific market comparing to North America. Moreover, as commented by the CEO, many buyers have high repurchase intentions; but they seem weak in generating new customers.
President and CEO’s Comments Criticize
The president and CEO of Harley-Davidson Inc. are sometimes too confident and overly stated on their comments. They believe that their motorcycles are among the most admired in the world. The word ¡¥world¡¦ is quite controversial. As of 1997, Harley has generated 48.3% market shares of the US market, which is almost half of the motorcycle industry (Fig 1). These data showed that the company did exceptionally well in targeting the US market. However, the company did relatively poor on managing foreign sales.
In the European industry, they can only obtain 6.1% market share of the 250.3 thousand units in total. This figure is extremely low compare to the US market. Furthermore, the company could only acquire about 1/6 of the total Asia/Pacific market. With these insignificant foreign market shares, Harley-Davidson cannot claim to have a big share of the ¡§world¡¨ market.
They did prove that they have success in the US, but not the overseas market. They are proud of the sixth consecutive year of continued growth for the worldwide heavyweight motorcycle market. Although they had generated profit year by year, these profits are growing relatively slow (Fig. 2).
When the European motorcycle industry was growing rapidly, Harley’s sales were not. This slight growth may be a great improvement for some smaller companies, but not for such a large corporation. They also believe their image creates brand loyalty and led to high repurchase intent of the customers. Maintaining a high repurchase intention is essential, but they should also attract more new customers.
Figure 3 shows that the buyers of Harley-Davidson’s motorcycle were getting older and older. There were fewer male buyers and more female buyers, they are mostly married and have 3 or more children. There seems to be a trend that most buyers are re-purchasers. As the average age of the buyers is getting older, we can suggest that these buyers belong to the same group from the 60s; they are getting married and ride Harley motorcycle with their partners/spouses. The fact is what if these re-purchasers eventually die and the company is not generating new customers.
The international heavyweight market is growing and is significantly larger than the U.S. heavyweight market. As of 1997, Europe has the largest motorcycle industry (Fig 1), even larger than the US. There is high potential in expanding business in Europe. However, the company holds a smaller market share in the European market. Therefore, continuing to develop the European market should be a major issue for the company over the next few years. The following recommendations could be used in the European market.
Not only should they target the heavyweight motorcycle market, but they can also target the sport motorcycle market. The reason is that the European sport/performance market is four times larger than the U.S., and is expecting to grow even more in the future. The company could distribute the Buell Motorcycle Company’s product to the European market in order to establish a sporty image and able to directly compete with other competitors.
Also, the company can build a motorcycle plant in Europe by using a strategic alliance or joint venture. Building the plant in Europe can reduce the transportation cost and increase the company’s international experience. Strategy alliances are suitable in this case since the company can create value from transferring competencies or sharing resources between diversified businesses in order to realize economies of scope.
They could improve their foreign marketing strategy. Over the years, Harley built up a strong heavyweight image over the American buyers, but this image could be unfit for the European or Pacific market. When the company first started up the business, the heavyweight idea was developed according to American’s taste. They actually did successfully in the US market. However, when they expand to globalize the company, they did not do as successfully as they did in the US market. They should do more research on people’s preferences and tastes in the targeted countries. Space could also be one of the reasons. Cities in Europe and Asia have very high density compared to the US.
For example, Hong Kong is a tremendously high-density city. High-rise buildings are everywhere. Streets and roads are usually one to two lanes. Thus, people in Hong Kong would rather choose to buy a transportation vehicle than a motorcycle since pollution levels are very high. Moreover, traffic density in Hong Kong is also very high, and traffic jams happen every day. If people want to buy a motorcycle, they would rather buy a small and light one, as it is more convenient to wander around small and narrow streets.
Prices could be another reason why they fail in the overseas market. Harley’s motorcycles are priced slightly higher than competitors. In the U.S. market, since the customers are brand, quality, and style loyalty. Instead of focusing on the price leadership strategy, they should focus on differentiate strategy.
Therefore, under the current financial availability, they should be able to generate certain funds to run the Product Development Center, which brings together employees and suppliers to design the fashion products. At the same time, the company should focus on product development and product proliferation strategy. They should concentrate on creating new products or improving existing products in order to attract existing and new customers.
The company should continue to build its enterprise. Since the industry does not have significant economies of scale, a growth-via-acquisition strategy could be used. Harley-Davidson can merge or acquire weaker rival or smaller players. Taking over the weaker and smaller players will increase the entry barriers.
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