Harley-Davidson Inc Essay
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This case study analyzes the differentiation strategy adopted by Harley-Davidson Inc. to differentiate itself from the competition. Further, it will address the issues and challenges faced by Harley- Davidson Inc. due to changing demographics and financial turmoil. And last but not least the case study will give an idea of what strategies Harley- Davidson Inc. could apply in the future so that it could sustain and enhance its competitive position.
There are two generic business level strategies to yield a higher rate of profit over a rival according to M.
Porter. First, a firm can focus on cost leadership, which generates economic value by having lower costs than competitors. Second, a firm can focus on product differentiation and generates economic value by offering a product that customers prefer over the products of competitors. In other words the firm provides something unique that is valuable to buyers beyond offering the product at a low price.
Harley-Davidson Inc. does not focus on cost leadership, but on product differentiation. Its tangible dimensions of differentiation are among other things its classic style that had characterized Harleys since its early years, the ability to personalize the motorcycle according to one’s taste, the super-heavyweight cruiser bikes it sells and the wide price range. Moreover, H.D. offers a wide pre- and after- sales service that obliges dealers to carry a full line of Harley replacement parts and accessories and to perform service on Harley bikes, it offers test ride facilities, rider instruction classes, motorcycle rental, assistance for owners in customizing their bikes through dealer-based design centers and chrome consultants, insurance services and exclusive dealerships.
Its intangible dimensions of differentiation are its unique image, status, exclusivity and identity. Thus, H.D does incorporate the American lifestyle, stands for individuality, freedom, toughness and adventure and can be seen as the ultimate biker status. Some people might even state that it represents something close to a religion or a family. H.D. created the HOG, a community where Harley Owners meet and interact with other Harley owners and where Harley’s employees participate eagerly. That way H.D. could create a strong loyalty among Harley owners by creating a “Harley experience” and a unique relationship with its customers.
Harley still focuses mainly on the Baby Boomer generation, customers that are now age 35 and 54, male and middle class and on heavyweight cruiser motorcycles, which prioritize the statement of style over either comfort or speed.
In summary H.D. applied a differentiation strategy wherein it targeted specific products at niche segments (heavyweight cruiser motorcycles). The brand has a cult status among its loyal clientele and characterizes adventure, freedom, tradition and power. By differentiating its product from the products of competitors H.D. was able to command a premium for its products.
Further, H.D. resources and capabilities are compared to those of one of his competitors taking the example of Honda. H.D. represents one of the oldest motorcycle brands in the US. They are designed, engineered, assembled and built in the U.S.A. Honda designs and builds its motorcycles in Japan. Whereas Honda is known for the best weight to power ratios, emphasizes speed and power and aims at a younger clientele, H.M. is known for its cruiser motorcycles which prioritize the statement of style over either comfort or speed and are mainly bought by customers between age 35 and 54. Further, H.D. competes with Honda by also building performance motorcycles (Buell Motorcycles) and Honda competes with H.D. by also building cruisers targeting H.D.
Due to the smaller corporate size and inability to share R&D across cars and bikes H.D.s ability to invest in technology and new products is limited. Thus, most of Harley’s product development efforts in the past were limited to style changes, new paint designs and engineering improvements. In contrary, Honda has been continuously pursuing advancement of new technologies and new products. Thus, it puts emphasis on innovation in Fuel and Engine Technology. Because of the advanced nature of their research, Honda has a strong first-mover advantage over competitors such as H.D. It will be difficult for H.D., which does not actively pursue his own research to catch up with Honda. Moreover, Honda does also have a strong brand loyalty (64% vs. 48% Industry Average) and it offers multiple lines (cars, motorcycles, mowers). Further, Honda does cultivate mass production, whereas H.D. offers highly customized products, which allows H.D. to premium pricing.
Moreover, Honda successfully continues to broaden the sales distribution base beyond the North American and Japanese markets to Asia, Russia and Europe. H.D. sells the American lifestyle and is rooted in American culture. The European motorcycle market focuses on performance bikes (70%) and not on H.D.s specialty, the cruisers (only 30%). Those circumstances lead to difficulties for H.D. regarding its position in the European market. Difficulties Honda does not have. To extend its European presence H.D. bought the MV Agusta Group, which has two families of motorcycles, a line of exclusive, premium, high-performance sport motorcycles and a lightweight motorcycle to comply with the demand on the European market.
H.D. is thus facing the threat of growing advantages of determined competitors. Market shares on the international market continue to grow for other firms. Demographic changes represent a threat to H.D. because of the aging customer base H.D. does have. The owners continue to age (Baby Boomer generation and soon they are too old to ride their bikes.
Another threat is the economic recession. Customers are staying away due to less buying power. H.D. had to cut jobs and to close production facilities. Further, EU’s motorcycle noise standards and pollution and emission standards that are not up to level of some countries represent a threat to H.D.
Because of the aging customer base H.D. should market and position their products to the right market segment. Since the original H.D. customers are soon to be too old to ride their motorcycles H.D. could apply a multi-generational and multi-cultural marketing strategy that also includes young adults and women. In order to survive H.D. needs to supply different types of bikes with different brand images to appeal to different and changing types of customers. H.D. could then further take action in increasing their market share internationally by expanding their current presence and reaching new international markets and creating value for its brand outside the U.S.
Further, H.D. should focus on the Harley brand by leveraging unique H.D. strenghts. It should abandon the Buell line of sport bikes and the Agusta line. Moreover, H.D. should develop its technology to increase automation. This will lead to cheaper labor and to a more efficient customization. What H.D. should not do is lowering its customization level since customization also represents one of H.D.’s highest assets for their brand.
To get access to high-level technological capabilities H.D. could merge with groups like Renault/Nissan who bring Japanese manufacturing skills or Volkswagen, who has excellent Eastern European experience.