Identification of Harley-Davidson’s strategy and its rationale explaining its resources and capabilities. After that i compare these to those of Honda. Wfat does my analysis imply for Harley’s potential to establish cost and differentiation advantage over Honda. Knowing that, what threats does Harley face? And then how Harley can sustain and enhance its competitive advantage?
Question 1: Identify Harley-Davidson’s strategy and explain its rationale.
The fundamentals of the Harley-Davidson business strategy turn around three main points: The products, the relationship between the company and consumers, and the distribution network.
First of all, before I explain these three policies, we can try to see what was the problem that Harley-Davidson had to solve, and why it needed a real strategy to possess a higher competitive advantage. Actually, how the firm could evolve facing an important concurrence, with keeping a strong brand identity?
The main part of the concurrence is Japanese (Honda, Yamaha, …), which enjoys numerous shares on the market, thanks to its low prices, technology modernity, reliability and comfort. Nowadays, the concurrence is also British with “Triumph” and Italian with “Ducati”. So, Harley-Davidson had to change, to revolutionize several aspects of its brand, in order to continue to recruit new customers, but without evolving too fast, otherwise the company would lose its image, and its loyal & traditional bikers. Indeed, if a firm like Harley-Davidson (where the sense given by the brand includes a strong power) changes too fast, this one will lose the reason that gets consumers to buy its products. That’s why HD had to adopt a real strategy.
1/ The products policy: is the field where the company took the most significant risks.
On the one hand, this plan was characterized by the “Buell” acquisition in 1998 (Producer of more sportive motorbikes). HD decided to acquire this firm to enlarge its market to the younger segment.
On the other hand, within this strategy, we can stress the importance of constant technical innovations with the launch of new engines like the “Twin Cam 88” engine in 1998 and the “V-Rod” in 2001, which were successful, but included a lot of risks for the image of the group and the traditional brand.
Furthermore, the company tried its best to keep the lifestyle of the brand, and to continue to make it unique. That’s why, even if Harley took risks by creating and differentiating its products (new designs, merchandising,…), it managed to conserve the main elements of the traditional motorbike. It paid special attention to respect of the brand, its product, look of the engine, its noise. In other words, the company, despite innovations, succeeded in keeping its personality, the personality of a legend.
Finally, we can mention the important benefit created by the sales of accessories, and “general merchandise” whose clothes, which represent by 20 percents of total sales (500 millions of dollars every year), more than all other competitors on the market.
2/ The relationship between the company and its consumers: HOG (Harley Owners Group): the most important Fan club in the world. There are 750 000 members in the world who pay 60 euros/year and have to buy their motorbike on a HD’s dealer. This group is a family. HOG was created to develop the company involvement in consumers’ riding experience. Through this organization, Harley tried to deliver to customers, the sense of community, the traditional mentality of the firm, feelings and an atmosphere upon the brand. Actually, throughout the 1980’s and 1990’s, a key challenge for Harley was to extent the loyalty and passion of traditional Harley owners.
3/ Distribution network: Upgrading HD’s distribution network was a key aspect of Harley’s development strategy during the 1980’s and 1990’s. The company imposed stricter rules for dealers of the brand. Indeed, to be closer with needs and wants of consumers, the company had to have an appropriated retail environment to the requirements of the customer group. Dealers were compelled to provide a higher standard of efficiency in pre and after sales services. They also had to carry out a full line of Harley replacement parts and accessories, and to perform services on Harley bikes. So, the improvement in network distribution leaded to higher demand that outstripped supply.
Question 2: Compare Harley-Davidson resources and capabilities to those of Honda. What does your analysis imply for Harley’s potential to establish cost differentiation advantage over Honda?
First of all, we can do a table dividing resources and capabilities of each company.
Resources:- Since 1903- Domination in heavy and super-heavyweight segment (cruiser and touring bikes) focused in US market- 620 US dealers (exclusivity)- Poor technology advances, not diversified, cannot share technology- Property and equipment: $627.8 million (1998)- LT debt: $280.0 million (1998) Capabilities:- Smaller volume of bikes, low production capacity- Local advertising and promotion- Difficulties to access economies of scale, low bargaining power- International expansion (Latin America, Asia, Europe)- Sales: $2,064 million (1998)- Prices: between $5,500 and $19,000 Resources:- Since 1947- Entered US market in 1959- Performance and touring bikes segment- Go directly to retailers, largest dealership network in the US.- Diversified (automobiles) so share technology- Property and equipment: $ 8,811.4 million (1998)- LT debt: $5,130.6 million (1998) Capabilities:- Larger motorcycle manufacturer, superior productivity- Heavy advertising directly to consumer- Heavy investment in R&D, economies of scale and efficient distribution enable it to develop technically superior at lower prices- International expansion (Europe, Asia and US)- Sales: $45,418.2 million (1998)- Prices: between $6,000 and $ 11,000
Resources. 1/ In contrary to Honda, Harley-Davidson has a real domination on the heavyweight segment, but the problem is that it is principally focused on the US market.
2/ The HD’s dealership network is less extensive than this of Honda.
3/ It seems obvious that Harley is not a leader as far as the technology is concerned. As we can see, Honda has some diversified technological products. Honda produces also automobiles, which enables it to share technology advances. So, in this domain, the only means by which Harley could find potentialities to establish differentiation advantage is to continue to acquire or merge with other technology advanced companies.
4/ According the amount of sales, we can say that Harley-Davidson has a lower cost advantage than Honda. Indeed, these costs represent about 1/3 of sales for Honda whereas they represent almost 1/2 of sales for Harley. So, HD has also a potential to improve its operating and investment cost.
Capabilities. 1/ Harley has a low production capacity, while Honda has a superior productivity. This point should stay like that, regarding the distribution program of Harley, whose purpose is to keep a high demand opposed to a small supply.
2/ Harley has a potential to establish a differentiation advantage overseas, but it should invest abroad and communicate as best as possible, to become also a leader on heavyweight segment, somewhere else than in the USA. The advertising and promotion is an issue where Harley can take a real differentiation advantage over Honda. By this way, the company could get better its image around Europe and new territories to recruit new riders, because for the moment, the promotion of Honda is staying heavier, and is directly tailored to customers.
3/ Harley has difficulties to access economies of scale, as regards to the small production capacity. Also, although the close relationships with suppliers (SAC), and reliance with only a few key suppliers has been successful so far (Harley extended its program of quality improvement to encompass its suppliers), there is a risk of significant interruptions in production if a particular supplier failed to provide the needed materials, or ceased operations. This gives the suppliers a relatively large amount of bargaining power, and is something Harley should be keenly aware of.
4/ We know that the focal point of HD’s overseas ambitions is Europe. But we also know that the domination of Honda in this market is higher. The reason is easy to understand. Honda produces heavyweight motorbikes, but also middleweight and sportive motorbikes, which are successful in Europe. So, the potential of Harley in increasing its shares on the European market, is to continue to recruit the younger segment, which is more interested in the second kinds of motorbikes. Also, we can precise that the Harley’s presence in Asian markets outside of Japan is small.
Question 3: What threats does Harley face?
On the one hand, we can lay emphasis on barriers to trade that persist to come down, and that forces manufacturers to focus their efforts to become international competitors, or else risk losing market share. Companies engaged in the industry of heavyweight motorcycles have to contend with the increasing competition from the so-called “copy-cat” manufacturers. Harley Davidson, being a leader in the heavyweight motorcycle segment, has had to be particularly aware of this increasing threat of competition. It must constantly be aware of the threat of substitute products that have the potential to erode existing market shares.
Moreover, demand for Harleys is so high that the company’s manufacturing operations cannot sustain. This has led resourceful entrepreneurs to take advantage of Harley’s inability to meet demand, by assembling similar bikes using third party after market components. In addition, high prices for heavyweight motorcycles are causing some consumers to switch to those competitors who are focused on reducing manufacturing costs and passing these savings along to the consumers.
Besides, two major factors within the global economy can have a profound effect on HD’s ability to boost foreign sales.
The first of these factors is the recent trend in developing countries such as, Southeast Asia, who have experienced a surge in technological development and rising income levels. Secondly, trade agreements/associations have lead to the establishment of large regional trading blocks, like NAFTA, that are reducing trade barriers and increasing access to previously “unexploited” markets. These trends are evident of the progressive shift towards a truly global economy, in which the boundaries and lines of business will continue to disappear.
On the other hand, Legal-Political factors are also significant threats that Harley-Davidson has to face. As Harley will find opportunities to enlarge its market share in these foreign countries, it will have to become increasingly aware of the differences in culture and the acceptable business practices within each country/region. This issue will become ever more important seeing that Harley-Davidson aims hardly at spreading its presence overseas.
Labour union negotiations are another factor that Harley-Davidson should consider. As many companies in the industry have experienced, when negotiations break down, this can have extremely negative results on production operations and the potential for lost market share, to aggressive companies who are more than eager to take advantage any weaknesses in their competitors. Indeed, we can highlight the Harley Davidson’s recent legal dispute with Loews Corporation’s Lorillard tobacco unit. Harley and Lorillard had previously entered into an agreement where Lorillard could use Harley’s trademark on its cigarettes.
Due to the increase in smoker’s lawsuits against cigarette companies, Harley became concerned over the risk of potential related legal liability exposure. Harley decided to break its nine-year old licensing contract with Lorillard, and as a result, Lorillard filed a lawsuit. Harley and Lorillard have since reached a settlement over the licensing dispute, but the details of the settlement are still pending. This significant issue shows how organizations need to be aware of our societies changing cultural views, and ideals in order to avoid costly financial mistakes and the loss of goodwill associated with brand name recognition.
Furthermore, it can be mentioned that the threatening slight decrease in market share, from 1993, could lead to a lost of market share to competitors, by customers who must be discouraged over the lack of supply of heavyweight motorcycles and the unreasonably long wait times and production delays, especially by Harley-Davidson (even if Harley’s recent expansion plans intend to alleviate this problem over the next five years by increasing capacity within existing facilities).
Question 4: How can Harley-Davidson sustain and enhance its competitive position?
It seems to be obvious that HD should increase the perceived reliability to its motorcycles and focus on its sense of American community. It is in these domains that the brand has to improve or confirm its reputation. Because it is inevitable to say that the image of the brand (the most important asset of Harley-Davidson) allows it to stay on a good competitive position on heavyweight bikes market, but we can also state that HD is not considered as a reliable brand regarding competitors, and needs renewing or improving.
As far as the American sense of community is concerned, the company should adopt a Market coverage strategy according to the diversity of needs and wants of existing or potential customers. Actually, to sustain its competitive position, Harley-Davidson should continue to target an undifferentiated segment of customers, which appeals to the rebellious side of every person’s personality, regardless of age, gender, or lifestyle. When we say undifferentiated segment, it includes also the new riders, the younger segment whose represents a big challenge for HD to target. Whoever people targeted are rebellious consumers, or conservative consumers, HD must maintain its willingness to capture the rebel in everyone, because everyone can find his own rebellious side, and it is the purpose that HD can reach step by step. So, the firm should try to define as well as possible the different needs of this undifferentiated segment to differentiate better its product (offer a wide range of products), to communicate the Harley experience, and to get all consumers to belong to the HD’s community.
Indeed, if we analyze the consumer’s purchasing decision about a touring HD motorcycle, we can see that consumer buy it in order to have a domestic motorcycle with a strong sense of community. This dimension needs all the more considering that Honda has recently been taking actions to increase its sense of community. The more Harley will decrease its indifference and get consumers to prefer the American made version, the more their involvement in the identity brand will increase. To let customers understand that Harley-Davidson can provide owners the original American motorcycle, so that the brand becomes unique.
For the reliability, the company has to consider before, the process through which a consumer prefers to purchase a sport or a touring motorcycle. Everyone is looking for high reliability when purchasing a touring motorbike, especially for a Harley-Davidson’s one. So, although the firm makes reliable motorcycles as a result of many changes in quality control, it is still perceived as producing a less-reliable motorcycle when compared to foreign companies due to the high level of technology and advanced processes used by those companies. That is why, regarding the consumer’s behavior, Harley-Davidson has to extend as best as possible its technology and services to grant a high perceived reliability to consumers. Features (suspension, storage capacity, comfortable seat, gas mileage), the increasing number of quality checkpoints during production, and the extent of the manufacturer warranty can without any doubt allow the company to shift consumers’ perceptions of reliability and to be perceived so reliable as other competitors like Honda. Also, by adding new features and quality improvement, the brand will prevent to go over the maturity age of the motorbike life cycle, and to stay close with consumers’ needs.
Finally, we can lay emphasis on the tactical marketing mix variables that Harley-Davidson should exploit in order to execute the strategic positioning, also overseas and especially in Europe. We can sum up these variables as the 3P’s. A price skimming: slightly higher prices relative to direct competitors, a selective distribution: a limited number of dealers could cause an increase in demand, and a pull promotion: media advertising. The company must continue to use competitive pricing for the motorcycles themselves and competitive pricing for the numerous accessories available to customize the bike. These accessories would cause the bike’s total price, after customization, to be higher than competitors, but the initial price is competitive. The distribution should be selective to maintain high demand while the production of motorbikes is small.
By this way, by creating a low volume of motorcycles and selling them through a low number of distributors, they can continue to benefit high margin sales. Furthermore, the promotion should pull customers to Harley by using advertising. The company must insist on it, because one of the best means to succeed in communicating with consumers is to create a message for a pull strategy. This message should use media advertising to communicate as best as possible its idea, that is to say the following message: Harley offers reliable American motorcycles and invites you to become a member of its family.