New Emission Standards
New Emission Standards
One of the growing Threats to Harley Davidson’s reign of dominance in US markets has been a growing awareness of the environment. In response to this, the bar for emission standards is continuously raised. In 2010 model year or newer motorcycles emission standards for both HC + NOx were reduced from 1.4 prior to 2010 to just 0.8 after 2010 (US Government Printing Office. 2013). For at least 5 years now, there have been rumors circulating that Harley Davidson would abandon the traditional air cooled designs in favor of a new liquid cooled lineup in response to ever growing emission standards (Huze. 2011). If emission control standards continue to tighten, Harley Davidson may be forced to do exactly that. Procurement of Raw Materials
Historically, Harley Davidson has relied on limited number of suppliers for raw materials to provide the components used in its manufacturing plants. In some cases, the entire company’s business is dependent on just one supplier to deliver certain raw materials in time. The lack of versatility in this area means that rising input costs could lead to capacity issues in the long run. Additionally, increasing costs for commodities could lead to capacity constraints, ultimately leading to lower production (Harley Davidson, Inc. 2012).
Currently, Harley Davidson holds 56% of the market share for heavyweight motorcycles, defined as those motorcycles that displace more than 650cc. To some this may be an impenetrable advantage in the market, to other, a source of vulnerability (Taylor III, 2012). For years, Harley has been the undisputed king of the “bad boys”, but in recent years up and coming companies such as Polaris are trying to muscle in to the motorcycle arena. Polaris, a company known for its snow mobiles has only recently begun selling motorcycles 14 years ago (Taylor III, 2012).
Polaris has shown that it understands what its buyers want and has demonstrated success in achieving higher sales through its colorful names such as Victory, 8-Ball, and Jackpot lineup. With aggressive pricing strategies and comparable quality, Polaris has quickly passed foreign competitors such as Honda, Yamaha, and Kawasaki and is now setting its eyes on Harley Davidson after its recent acquisition of Indian. Harley Davidson – Opportunities (O)
In response to declining domestic sales, Harley Davidson has decided to expand its global presence in China and India. In 1995 Harley Davidson entered the Hong Kong market, opening its first mainland China office just 10 years later in 2005 (Miller. 2012). Currently, Harley has 8 full service dealerships in china and have plans to open an additional 5 more within the next 5 years. Harley’s biggest challenges have been the understanding of foreign markets. In China for example, the motorcycle market was riddled with low cost economic alternatives for daily transportation.
The average engine size ranges anywhere from just 50cc to 600c. With some of Harley’s heavyweights tipping the scales in the range of 800c to 1600cc beasts, the concept of heavyweight leisure riding was simply not understood yet in foreign markets. Harley would have to start from the ground up if it wants to succeed. Today, Harley has succeeded in growing its international presence in over 70 countries across the globe. Although growth into international markets has been substantial, there is still significant room for further expansion (Miller. 2012). New Product Launches
Another area of opportunity for Harley Davidson lies in the arena of launching new products. In 2014 Harley expects to launch eight new models, a record number of new models within the same year. Harley realized that with the baby boomer generation coming to a close, younger audiences will demand new and innovative products. The company, now in its 110th year of operation, has launched a customer driven product development program dubbed “Project Rushmore” in hopes of succeeding in understanding what design elements are appreciated more by younger buyers (UPI.com. 2013). If they succeed, Harley could feasibly further expand its market share in both US and international markets significantly. Restructuring Plans
The Milwaukee based motorcycle maker has succeeded in keeping its full-year shipment forecast intact despite signs of weakness in dealer sales in several markets (Reuters. 2013). In response to this, Harley Davidson has acknowledged the need to restructure the company into a leaner and more cost efficient beast if it is to maintain its market share and keep pace with the competition. Harley hopes to reduce the number of defaults on their loans, improve the company’s cash flows, and improve its liquidation strategy by having at least 12 months of projected liquidity in cash reserves.
The company has set an ambitious goal to continue to widen its gross margin figures by nearly a full two percent in 2013 (Reuters. 2013). Harley Recognized that declining retail sales figures could no longer be simply shrugged off as weather related anomalies but were rather a generational decline of the number of loyal riders in the market. This suggests that younger rider’s between the ages of 18-34 are quickly becoming a significant portion of the market. Harley would need to restructure its operations in order to meet the demands of these new riders and develop both a strategy and a product that would appeal to them. Harley Davidson – Weakness (W)
Product Recall Issues
In late 2011, Harley Davidson recalled more than 300,000 motorcycles to fix a switch problem that presented a safety issue. The switch prevented the brake lights from coming on and could potentially cause the brakes themselves to fail as well (Associated Press. 2011). The defect has already caused at least one crash. As a result, the US Securities and Exchange Commission indicated that they expect that this recall will cost Harley anywhere from 10 to 12 Million Dollars. This coupled with another recall in 2012 for a faulty voltage regulator that affected an estimated 100,000 owners suggests that recalls are costing Harley a sizable chunk of their annual budget. Defects reasons have been tracked back to supplier quality issues arising in the manufacturing production chain. Dependence of Domestic Market
Harley Davidson has recently celebrated its 110th year of business within the US. From its onset, it was clear that Harley’s target market was first and foremost the US markets. Much of Harley’s success has stemmed from targeting the baby boomer generation and appealing to big open spaces, the idea of freedom, and the feeling of exclusivity and belonging. Although business has steadily increased for Harley over the past century, it is clear that change is on the horizon. Harley’s competition is ever more aware of foreign markets and consistently devising entry strategies to further expand global market share (Burkey, 2009). Simply put, Harley has been lagging in this area. Harley’s flagship motorcycles carry a significantly higher price tag than foreign competing models making them appealing only to small elite group of riders that can afford the expense. Harley Davidson – Strengths (S)
Few people cannot instantly recognize the Harley Davidson brand. For over a century now, Harley Davidson has built a positive brand image by targeting a wide range of individuals. Harley Davidson has been continuously ranked among the top global brands in the world, holds over half of the heavyweight motorcycle market share in the US, and is ranked either first or second in the heavyweight motorcycle segment in at least nine countries across Europe (Harley Davidson, Inc. 2012). Historically, Harley Davidson has historically appealed to wide predominantly male audience ranging in ages from early 30s to late 50s. Recently, Harley Davidson has decided to further expand the brand by beginning successful marketing campaigns targeted at an audience of women.
With the majority of its ads targeting a relatively specific group of individuals, Harley-Davidson has been able to build a community of enthusiasts around its brand that includes members from very diverse groups, and with almost no advertising. How does the king of heavyweight motorcycling keep its fans so loyal? It gives them a reason to “belong” (Rifkin. 1997). The symbolism of “belonging” is a powerful one reinforced by images of riding as part of a pack on the open road. This is further reinforced by a strong positive brand image that individuals frequently associate with superior quality and prestige of ownership. Broad Product and Service Portfolio
One of Harley Davidson’s greatest strengths has been a long history of maintaining a broad product and service portfolio. Harley Davidson leverages its premium pricing model supported by a superior quality of its product line up ranging from an extensive line up of heavyweight, touring, custom, and performance motorcycles. Harley Davidson has also been able to successfully keep its owners engaged in personalizing and modifying their motorcycles by offering an extensive catalogue of parts and customization options.
When you add the reliability of a two year warranty, and consider the superior level of service afforded to its owners, it is no wonder that Harley Davidson has been able to maintain the upper hand on its competition for so many years. The financial unit of the company has been successful in reducing the percentage of defaults and losses on its in house loans. While the annualized loss experienced on its managed retail motorcycle loans has come down from 1.58% to 1% in the last quarter, the retail 30+ day delinquencies on managed loans has come down from 3.68% to 2.56% (Trefis Team. 2012).
Harley Davidson continues to dominate market share in the United States commanding over 60% market share for the domestic market. Although Harley Davidson’s targeting of the youth market remains a subject of contention, their strategy remains crystal clear; to keep baby boomers in the saddle for as long as possible (Madson, 2013). To achieve this, Harley Davidson is exploring some concepts that may appeal to aging baby boomers such as a three wheeled Penster concept. The Trike concept has gained remarkable traction over the past few years and Harley Davidson has certainly taken notice. Harley Davidson – Strengths and Opportunities (SO)
Harley Davidson’s offensive strategy should focus on leveraging the company’s strengths such as its strong brand image and focused research and development to capitalize on opportunities such as further penetration into foreign markets. Harley Davidson is uniquely positioned with a globally recognized brand. This is a monumental advantage when comparing it to penetration strategies from relatively new motorcycle companies such as Polaris. Harley can utilize its strong focused research and development to study foreign market demands and develop a line of products to specifically appeal to that market. This would further help Harley in overcoming another
one of its areas of opportunity around new product launches. Recently, Harley Davidson has shown significant progress in their expansion to the Chinese marketplace. Harley projects that within the next five years growing Chinese demand will support the opening of an additional 5 dealerships overseas (Miller. 2012). Growing global demand is proof that not only would this be a good business decision, but it is the necessary next step if Harley expects to keep up with its competition. Harley Davidson – Strengths and Threats (ST)
Harley Davidson faces some significant threats to its business in the form of changing emission standards for motorcycles, and an ever growing competitive landscape. Emission controls continue to tighten on a global scale making Harleys century long approach to air cooled engines all but obsolete (Huze. 2011). Furthermore, Harley faces some competitive threats from new entrants to the market like Polaris who are actively seeking to tap into Harley’s heavyweight motorcycle market share. Harley Davidson needs to develop a defensive strategy focusing on areas of strength such as focused research and development and broad product and service portfolio to ensure they overcome these threats.
One solution would be a proactive approach to changing emission standards. Harley has been toying with the idea of introducing a lineup of liquid cooled motorcycles that would dramatically reduce their ecological footprint (Huze. 2011). Harley Davidson’s superior focused R&D would have little issue with finding a way to adapt this new engine to existing models. Furthermore, the infrastructure for servicing these new engines, making adjustments, and maintaining them is already in place with is significant network of service centers around the globe. In doing so, they would not only be ready for any emission control changes that they may face in the future, but also be more competitive across product lines. Harley Davidson – Weaknesses and Opportunities (WO)
In recent years, Harley Davidson has literally spent millions of dollars dealing with significant recalls and associated issues (Associated Press. 2011). Most notably, two significant recalls that affected a total of more than 600,000 motorcycles over two years. Outside of the obvious cost associated with correcting the issue which is estimated to cost over 20MM over the course of 2009 and 2010, Harley Davidson is exposed to additional legal risk from possible accidents resulting from these defects (Associated Press. 2011). Harley has traced the source of the problem back to defects associated with its parts suppliers. This suggests the need for an improved quality control process prior to using the parts in production.
Although this may present an additional cost initially, the reduction from costs associated with recalls off of Harley Davidson’s bottom line would be much more significant. Harley Davidson has already experienced success in its restructuring plans. The addition of inspection points could be seamlessly implemented with minimal impact to its existing business (Reuters. 2013). This would increase the chances of catching defects on parts prior to the parts being shipped to manufacturing. As a result, Harley would experience a reduction in the number of recalls in the coming years. Harley Davidson – Weaknesses and Threats (WT)
The combination of existing weaknesses to Harley Davidson’s business and the presence of potential threats in the market could potentially spell disaster. Harley should develop a strategy around minimizing their exposure to weakness and the avoidance of existing threats. Harley can achieve this by outsourcing the procurement of raw materials to a larger number of overseas suppliers while being supervised by in-house Harley Davidson quality control specialists to ensure a sustained level of quality of their products (Burkey. 2009).
This would help to avoid one of Harley’s largest weaknesses, product recalls, as well as dramatically improve the availability of raw materials minimizing the impact that one single supplier could potentially have on their business (Taylor III. 2012). Furthermore, the fewer amount of recalls and the overall improved degree of quality would bolster the already strong Harley Davidson brand, improving its position in the competitive marketplace (Rifkin. 1997).
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