Part 1: Industry Analysis

1. Industry Dominant Features

2. Porter’s five forces analysis

3. Drivers of change

Part 2: Company Analysis

1. What is the present strategy of the company

2. How well is the company’s present strategy working?

( require complete financial analysis for the last three

years)

3. What are the opportunities and strengths faced by the

company? Develop a EFE Matrix

4. What are the strength and weaknesses of the

company? Develop a IFE matrix

5. Identify the strategic issued/problems faced by the

company

6. Develop TOWS matrix

7. Identify the alternative strategies which may be

suitable to resolve the issue

8. Develop SPACE matrix

9. Recommend strategy

Part 1: Industry Analysis

Q1: What are the industry’s dominant features?

A: William Harley and Arthur Davidson were conducting the experiments of different ideas to

build their own motorcycles in the year of 1903 by working inside a 10x15 wood shed of

Davidson family backyard situated in Milwaukee, Wisconsin, USA. They built and sold three

motorcycles in same year. In year 1904, they built and sold 8 units with the help of Arthur’s

brothers, William and Walter, as mechanics. After that, they move their work from a shed to a

bigger work place of Juneau Avenue. At Juneau, in year 1907; they incorporated a company with

name of Harley – Davidson (H.D) motorcycles. In year 1969, the management of Harley –

Davidson was taken over by AMF Inc. In light of the given case study, the following are the

dominant features of the industry:

Number Of Rivals:

In year 1975 till year 1980, Honda Motor Company introduces a motorcycle named Gold

Wing in USA, which gets famous for it low price large touring motorcycle. Whereas,

Suzuki and Yamaha were entering the industry with H.D look-a-like motorcycles.

Degree Of Product Differentiation:

In year 1981, the company’s management was shifted hands from Amf towards Vaughn

Beals, the head of Harley at that moment. The new management installed a Material as

Needed (MAN) system of inventory for stablizing the productions and reduce the number

of inventories held in warehouse. Management purchase and installs a Computer Aided

Design (CAD) system thtat allows them to change the entire product line while

maintaining the traditional design of work. In year 2001, Harley – Davidson introduce the

V – Rod style for placing its motorcycle cruisers’ engines.

Market Size and Market Growth:

In the U.S., Harley-Davidson (H.D) has growing its appeal across borders and

generations 35.9% of total productions of motorcycles were shipped to international

markets.

Demographic and Market Conditions:

The segments of the market they cater are based on the demographic factors of market

segmentation. Now they are developing the strategy to focus on the growth of market

share between young adults, women, and their traditional core customers segments of the

markets so that they can be well line-up alongside these population trends.

Q2: Analyze Porter’s five forces acting on the industry?

A: The analysis of Porter’s five forces is given below.

Force1 – Rivalry among the competitive sellers of same industry: In North America, 43%

Harley – Davidson 651+ CC motorcycle were registered in year 2001, rest 57% market share is

with rivals. In Europe, the market share of Harley – Davidson 651+ CC motorbikes is 7%, rest

93% is with the rivals. In Asia-Pacific, H.D market share of 651+CC motorcycles is 20%, rest

80% resides with rivals. Rivals of H.D had their rivalry on product style, design, ease of service,

and performance features. The market is reaching to its maturity and availability of motorcycles

with easiness of working alongside with it plays an important role in determining the level of

profit earned. The major rivals all around the world are Honda Motors, Suzuki Motors, Yamaha

Motors, BMW Motors, Ducati Motors, and Kawasaki Motors.

Force2 – Firms in other industry offering substitute products : Heavyweight motorcycles are a luxury item for the vast majority of consumers so there are few close substitutes for

heavyweight motorcycles that could serious affect the market. Passenger cars are weak substitutes for heavyweight motorcycles because consumers rarely purchase them to satisfy transportation requirements. These bikes are more of a luxury item than a necessity for traveling

from point A to point B. Even though motorcycles may be better through traffic and use less gasoline than a car a consumer purchasing a motorcycle for these reasons would be more

inclined to purchase a lighter motorcycle, which would be more maneuverable and fuel-efficient than a heavyweight bike. Force3 – Bargaining power of buyers: Individual buyers have high bargaining power as they

have a choice in switching between the products offered in the industry. Individual buyers have

sufficient bargaining leverage for influencing the terms of sale in their favor. Another factor of

high bargaining power of buyers is the moderate or less differentiation between the motorcycles.

Force4 – Bargaining power of Supplier: The suppliers and/or manufacturers of 651+ CC

motorcycles have low bargaining condition. But the suppliers of repair parts have a moderate

bargaining power for the engines repairs as the substitute available for specific engine repair

parts are hard to find. Buell has the potential to influence the market as they are customizing the

engine as per the collaboration with HD.

Force5 – Potential new entrants’ threats: The threats of new entrants is very low because the

new entrant have to bring some drastic change in the infrastructure of motorcycle building as the

industry is going towards maturity.

Forces Strategic Significance

Internal Rivalry LOW-MODERATE

Threat of New Entrants LOW

Threat of Substitutes Products LOW-MODERATE

Bargaining Power of Buyers HIGH

Bargaining Power of Supplier LOW

Threats for new entrants

Factors HUFA MUFA Neutral MFA HFA comment

Economies of

scale

Capital require

red

Access to

distribution

channels

Expected

retaliation

Differentiation

Brand Loyalty

Experience

Curve

Govt. Action

Small

Low

Ample

Low

Low

Low

Insignificant

Low

2

3

3

3

3

4

5

5

Large

High

Restricted

High

High

High

Significant

High

Exit Barriers

Factors HUA MUA Neutral MA HA Comments

Specialized

Assets

Fixed Cost of

Exit

Strategic

interrelationship

Government

Barriers

Hi

Hi

Hi

Hi

1

2

3

4

LOW

Low

Low

Low

Competitive Rivalry

Factors HUFA MUF

A

Neutra

l

MFA HF

A

Comment

Composition of

Competitors

Mkt. Growth rate

Scope of

competition

Fixed storage Cost

Capacity Increase

Degree of

differentiation

Strategic Stake

Equal

Size

Slow

Global

High

Large

Commo

dity

High

1

1

2

2

2

4

4

Unequal

Size

High

Domesti

c

Low

Small

High

Low

Threats of Substitutes Products

Factors HUFA MUFA N MFA HFA Comment

Threat of

Obsolescence of

Industry’s product

Aggressiveness of

substitute products in

promotion

Switching Cost

Perceived price/

value

Hi

Hi

Low

Hi

1

3

4

5

Low

Low

High

Low

Powers of Buyers

Factors HUFA MUFA N MFA HFA Comment

Number of

Important buyers

Threat of

Backward

integration

Product supplied

Switching cost

% of buyer’s cost

Profit earned by

buyer

Importance to final

quality of buyers

Pr.

Few

High

Commodity

High

High

Low

High

1

2

2

2

3

5

5

Many

Low

Specialty

Low

Low

High

Low

Powers of Suppliers

Factors HUFA MUFA N MFA HFA comment

# of important Suppliers

Switching cost

Availability of

substitutes

Threat of forward

integration

Importance of Buyer

industry to supplier’s

profit

Quantity purchased by

the industry of

supplier’s product

Suppliers product an

important input to the

buyer’s business

Few

High

low

High

small

low

Highly

Important

1

2

2

3

3

4

4

Many

Low

high

Low

large

High

Less

important

Over All Industry Attractiveness

Factors Unfavorable Neutral Favorable

Entry Barriers

Exit Barriers

Rivalry among existing firms

Power of buyers

Power of Suppliers

Threat of substitutes

1

1

1

2

3

3

QNO3) what are the Drivers of change for the industry?

There are many forces which play main role in shaping the industry so does in biking industry

there are some very crucial forces are influencing and changing industry direction some most

important of them are this four forces or drivers which are being explained in below description.

1) Regulatory Influences and Government Policies:

Steel tariffs had been put by President Bush in 2002 on steel that posed a threat toward all steel

using manufacturing products and biking industry was one of those industries which has great

used of steel in their bikes.

Assessment of Impact:

If steel tariffs put in place it surely posed a great threat because the cost of manufacturing bike

will increase and it will leave a great impact on the industry on the one hand it will reduce the

demand of bikes if bikes prices increased less people would like to make a purchase or shift to

substitute on the other hand it will decrease the profitability of the firms as cost increases. This

result could be loopholes big enough to drive a flatbed of cold-rolled sheet metal through.

Needed Strategy Changes:

Companies should make a bond with internal American steel supplier so by doing this those

manufactures would have a competitive advantage over rivals who will purchase expensive tariff

levied steel from the other world, so by internally steel purchasing one manufactures can cope up

with this industry changing force and make it an opportunity and increase profitability.

2) Global Recession:

Recession may also shape the industry and make a turn toward different direction so it did

happen in this industry as well.

Assessment of Impact:

When the recession collides to the economy, people tend to save money instead of investing into

stocks and inclined not to purchase luxuries and as heavy bikes are also parts of recreation not

mostly used for typical transportation. So this industry has also felt the impact by this driver of

change.

Needed strategy Changes:

Harley strategy was also doing favorable in spite of recession because Harley had seen sales and

stock price growth and among the 17 wall street analysts were tracked by Bloomberg where 16

rated it buy and only one hold” it. That’s a clear sign of attraction in Harley stocks, by this there

strategy seemed to hold true that this is a recession-resistant, but off course it’s not recession

proof.

3) Changes in who buys the Product and how they use it:

This is another driver of change as it moving the this industry toward a new direction which is

making its way as more and more females using this heavy bikes where as It had believed to be

the man love to have a heavy bike or it used to be the masculinity sign but the percentage of

purchases of heavy bikes made by ladies have been increasing every years.

Assessing impact:

The change in purchaser demography may have an impact on the industry as it’s creating new

gender into purchasing the product of this industry it will also increase the demand of product as

more buyers are entering into the industry it can alter industry and competitive condition.

Needed Strategy Changes:

Harley must need to take females into consideration, while designing their bikes in order to

attract more this demographic purchaser, they can also design a different model for females that

may have less weight than the male one but will seem and maintain the same shape and design

with a heavy and rough image.

PART 2: COMPANY ANALYSIS

Q1) what is the present strategy of the company?

Business Strategy:

Focused differentiation

Company exclusively focused on heavy weight motorcycle segments.

Distinctive design and well known for heavy customization.

Best style and quality.

Not just a product but symbols of American Free-spiritedness.

Brand focused on becoming a "lifestyle brand” or “a cult brand”.

A strong bond between Customers and Product.

Had made it beyond competition.

Majorly the target group is people age between 35 and above.

First to launch “The ladies of Harley” for women.

CURRENT INTEGRATION AND CORPORATE STRATEGIES

1. Vertical Integration

2. Horizontal Diversification

1. VERTICAL INTEGRATION

• HD uses both backward and forward integration

• More than 750 suppliers of g&s are used in the design and manufacture of motorcycles,

parts and accessories

• The control of inputs is a necessary part of just-in-time manufacturing

• HD has been backward integrating to maintain control over the quality of suppliers

• HD owns most of its distributors

• Distributing completed motorcycles throughout the world

• HD is responsible for the delivery of parts and accessories

2. HORIZONTAL DENSIFICATION

• HD has acquired Buell Motorcycles and Eagle mark Financial Services, in order to

provide new product lines for their customers

• Buell was acquired in order to be able to provide customers with a V-twin powered

Sport motorcycle

• This type of motorcycle has become increasingly popular with the younger and

European riders

• Eagle mark provides motorcycle financing, motorcycle casualty insurance and

extended service contracts for HD and Buell motorcycles

• They also issue the HD Chrome VISA Card, allowing riders and customers to show

their brand loyalty

Q2) How well is the company’s present strategy working? (Require complete financial

analysis for the last three years)

Particulars 2001 2000 1999 1998 1997

Gross Profit to sales ratio 35.1 34.1 34.1 33.5 33.3

Net Income To sales ratio 13.0 12 10.9 10.3 9.9

Interest income to sales ratio 0.5 0.6 0.3 0.2 0.4

Cost of goods sold to sales ratio 64.9 65.9 65.9 66.9 66.7

Profit before tax to sales ratio 20.0 18.9 17.2 16.3 15.7

Selling expense to sales ratio 17.2 17.7 18.2 18.3 18.6

Working Capital 949154 799521 430840 376448 342333

Current Ratio 2.3 2.6 1.8 1.8 1.9

Quick Ratio 2.1 2.2 1.5 1.4 2.9

Debt to equity ratio 78% 73.30% 81.90% 86.40% 93.40%

Debt to Asset ratio 43.60% 42.30% 45.02% 46.30% 48.30%

Receivable turnover 12.8 days 12.3 days 15.1 days 63.7 days 21.2 days

Inventory turnover 30.2 days 36.5 days 38.1 days 41.4 days 36.4 days

Days of operating cycle 43 days 48.8 days 53.2 days 105.1 days 57.6 days

At the time when auto dealers are increasing their profits with high margins with 0% financing

Harley every bike sold and dealers charged two thousands to four thousand dollars above the

sticker price. This has been fueled mainly by continued strong demand and the most of their

bikes. Including sportster, customs, touring and the Buell lines. Management of the company

focused on the trimming of the cost and also with the increase in the sales of the parts and

accessories, which results in improved operating margin of the quarter and the full year. Since

Harley went the public and its shares are risen 15000% Harley Davidson Stock had remained

strong even when the market is weakening. Short sellers bearish investors that is when the

market is fallen who sells shares hoping to replace them later with the cheaper ones are banking

on at some point the story cracking says Chris Cox a Goldman Sachs analysts who is bullish on

Harley Shares “ My point is that it does it’s not happening any time soon”

If we observed the financial analysis of Harley Davidson mentioned in the above table. It’s

clearly visible that the company financial performance is improving continuously and the figure

of the ratio shows the significant improvement in the financial performance of the company.

Hence we can say that the financial performance of the company is good.

Q3) what are the opportunities and strengths faced by the company? Develop an EFE

Matrix?

EXTERNAL ANALYSIS FACTOR (EFE) MATRIX

Key External Factors Weight Rating Weighted

score

OPPORTUNITIES

The European demand for Harley Davidson is the highest in the international market and represents the single largest

motorcycle market in the world 0.15 4 0.6

The international heavy weight market is growing and is now larger than the U.S. heavyweight market 0.15 4 0.6

Women and younger riders are increasing interested in bikes 0.1 3 0.3

Market share is increasing in Europe and Asia for the last two years 0.1 3 0.3

Increasing demand in US markets for bikes 0.1 2 0.2

Customers value quality parts 0.025 1 0.025

THREAT

Harleys ongoing capacity restraints caused a shortage supply

and a loss in domestic market share in recent years 0.15 4 0.6

Harleys average buying age is 42 years old and increasing 0.1 3 0.3

The European Union's motorcycles noise standards are more

stringent than those of Environmental Protection Agencies in the U.S. and increased environmental stand 0.025 3 0.075

Some competitors of Harley Davidson have larger financial

and marketing resources and they are more diversified 0.025 2 0.05

Environmental protection laws 0.025 4 0.1

Buell division needs to continue to produce a quality motorcycle under Harley's brand name 0.05 1 0.05

TOTAL 1 3.2

Q4) what are the strength and weaknesses of the company? Develop an IFE matrix?

INTERNAL ANAYLSIS FACTOR (IFE) MATRIX

Key External Factors Weight Rating

Weighted

score

STRENGTHS

Strong brand name 0.15 4 0.6

It has strong market department 0.15 3 0.45

Strong relations built on trust and respect with suppliers and

dealers 0.1 3 0.3

It is only major American motorcycle manufactures 0.1 3 0.3

The standard and performance segments of Harley Davidson

make up 70 % of the European heavy weight motorcycle market 0.1 4 0.4

WEAKNESSES

Harley Davidson doesn’t emphasize price in it’s product 0.1 2 0.2

Loss of benefits 0.1 3 0.3

Lack of opportunity for advancement 0.1 3 0.3

Facing ongoing capacity constraints 0.05 4 0.2

Difficult to attract and retain talented employee 0.05 4 0.2

TOTAL 1 3.25

Q5) Identify the strategic issued/problems faced by the company?

The first and foremost addressed problem was for Harley was facing the national

competition in this market.

1) Retail motorcycle financing

2) Banks and different financial institution that provide retail financing to local markets.

3) Wholesale financing market condition of Banks and other institutions and aircraft

manufactured were also giving a tough time.

4) In September 28 they also had to face a Lawsuit which was lodged against them by a

nationwide class. The reason behind it’s that the repairing suits were defective found.

5) Capacity constraints led to decreased international market share

6) Due to rapid expansion, quality control suffered

7) The first issue Harley-Davidson must successfully address is the fact that consumers see the firm’s products primarily as leisure items. This means that in many consumers’

eyes, purchasing motorcycles, performance parts, and high-dollar apparel is a luxury rather than a necessity. Because of this, Harley’s products must compete for funds from

what at least sometimes can be volatile discretionary budgets for consumers. When economic conditions are challenging, the motorcycle market tends to experience difficulties in terms of generating adequate sales. While Harley-Davidson’s revenue

streams originate from several sources, very few of them appeal to a cost-sensitive consumer base.

8) Harley-Davidson is challenged to effectively specify its target market as a first step to appropriately serving that market’s needs. Historically, the firm’s target market has been males between the ages of 29 and 55. However, in the last decade, Harley-Davidson has

pursued younger riders and women as a means of expanding its target customer segments. But expanding the segments the firm serves with its products is not a risk-free

decision or choice for the firm to make in that serving others might cause the firm to lose its ability to effectively serve the specific needs of the 29- to 55-year-old male (again, the historical target customer). This matter is considered more fully later in the case.

9) Demands and cost drivers for the motorcycle market are ever changing. Overseas

competitors have shifted their focus from being the least expensive to being affordable and to providing a wider variety of motorcycles to customers as options to purchase. This competitive shift has put pressure on Harley-Davidson’s key markets and has forced the

firm to respond. With over 12 percent and 48 percent of the European and U.S. heavyweight motorcycle market respectively, Harley-Davidson has a substantial territory

to defend.

Q6) Develop TOWS matrix?

TOWS ANALYSIS:

S-O Strategies

Expand production into Europe and Asia

Expand marketing to female riders

S-T Strategies

• Increase strong brand name

W-O Strategies

• Pursue foreign markets more agressively

W-T Strategies

• Improve employee relationships

Q7) Identify the alternative strategies which may be suitable to resolve the issue?

Expand into Foreign Markets

• Asia

• Europe

Product Development

• Expand Motorcycle line for younger market

• Buell expansion

Concentric Diversification

• Other recreational vehicles

• Expand HOG and BRAG owner member groups

Made new alliances with some local bike companies to produce low cost in India

Increasıng dıversity programing

• Tour

• museum

Increasing Adversting Activities

Q8) Develop SPACE matrix?

Financial Strength(FS)

Leverage +6

Liquidity +4

Return on investment +3

Working capital +4

Industry Strength(IS)

Growth potential +5

Profit potential +4

Capacity utilization +4

Ease of entry +5

Environmental Stability(ES)

Competitive pressures -4

Risk -2

Price range of competing products -5

Demand fluctuations -2

Competitive Advantage(CA)

Market share -2

Loyalty -1

Product life cycle -1

Product quality -1

SPACE Matrix Calculations

ES Average Score = -3.25 + Average FS Score ( + 4.25 ) = + 1

Average CA Score = -1.25 + Average IS Score (+ 4.50 ) = + 3.25

FS

Conservative +5 Aggressive

+4

+3

+2

+1 *

CA -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6 IS

-1

-2

-3

-4

-5

Defensive Competitive

ES

Q9) Recommend strategy that the company should follow?

A) RECOMMENDATIONS

1 BRANDING TO GENERATION Y The goal of this paper is to get insights into the Harley-Davidson brand and to make it more

attractive to young people outside the US. In the following paragraphs, generation Y and how they can be targeted more efficiently will be described by using research of Van den Bergh on this subject. (VAN DEN BERGH, Joeri, 2011)

1.1 AUTHENTICITY/ REALNESS Van den Bergh states that authenticity is still one of the major drivers for young people to

consider a brand. (VAN DEN BERGH, Joeri, 2011). Authenticity however, is not anymore about origin, history and heritage but all about being honest to yourself, to your consumers and to society. The classic interpretation of authenticity should never be shouted but only be whispered.

Eristoff has used this insight to build “Pretty honest for a vodka-campaign”. Recommendation 1: If Harley-Davidson wants to appeal to young people, it has to keep it real

and it has to stay true to itself. 1.2 SELF-IDENTIFICATION WITH THE BRAND

The new generation is stimulus junkies. They have grown up in a society where advertising and

stimuli are omnipresent. They know advertising is there to sell products but they couldn’t be

bothered less about it. Content is king but they have more trust in people than ever. Friends help this generation decide what to buy and employees or shop personnel are key to sell products.

Brands that appeal to this generation use social media and don’t push their messages but engage the new consumer by offering him control.

Recommendation 2: Harley-Davidson has to engage with young people through social media and offer them the power to become brand ambassadors. Harley-Davidson has to friend its consumers.

1.3 UNIQUENESS Another thing that is very important for branding to young people is uniqueness. On this subject,

Van den Bergh’s theories are aligned with the preliminary paragraphs about brand equity. In order to appeal to young people, brands have to be unique, that is, they need to position themselves with a unique brand DNA or brand identity. Furthermore, this complies with Aaker’s

model because it is all about brand perception. In order to make this work, a consistent positioning through the years is indispensable. A brand that is doing very well in this area is

Lynx which has been using the same brand mantra for decades: “helping man to attract women”. Recommendation 3: Harley-Davidson has to stick to its brand positioning and brand DNA. Trying to change this identity will damage the brand.

2 GENERAL RECOMMENDATIONS

2.1 QUALITY The product quality of Harley-Davidson is one of its weaknesses. This will have to be fixed. If Harley-Davidson wants to keep high brand equity, it will have to improve the quality of its

products. 2.2 BRAND MANAGEMENT EXTENSION

If the brand wants to stay relevant for every consumer, Harley-Davidson will have to develop marketing programs for every life stage of the consumer. New consumers and old consumers both have a different depth of relationship with the brand but both need tailored communication

plans. Apply Kapferer’s model for brand management extension and adapt marketing programs to different consumer life stages.

2.3 BRAND EXTENSIONS

Harley-Davidson made a mistake by launching too much category extensions like perfume but

not only this kind of category extension can harm the brand. It is not wise for Harley-Davidson

to start producing bikes in the race category or performance category. First of all, extending the

Harley-Davidson brand in these categories will damage the brand DNA and secondly, buyers of

these kinds of motorcycles will never be convinced about Harley-Davidsons brand values. They

have other values and they will never match those of Harley-Davidson. Creating a new sub brand

can be a solution if it is financially possible. If Harley-Davidson wants to avoid brand dilution,

the brand has to be more careful with category extensions.

Line extensions on the other side, can help to strengthen the brand and to make it more attractive to certain target groups.

Recommendation 8: Continue introducing line extensions but avoid too much line extensions to remain profitable.

3. BRAND COMMUNICATION STRATEGIES

Placing the brand communication strategy behind the recommendations may seem a bit strange, but since this brand communication strategy is based on the recommendations, it is better to

present it here. 4. TARGET AUDIENCE

The target audience of the new brand communication strategy is young people between 20 and 35 who are attracted by values like freedom, pleasure and dreams with a touch of rebellion. Men as well as women have to be taken into consideration, eventually with different but consistent

communication plans. Because of the current customer profile of Harley-Davidson, the new brand communication has to appeal to baby boomers as well without driving them away from the

brand. OBJECTIVES - Making Harley-Davidson more appealing to young consumers and raise sales in this category

without repelling existing consumers. - Creating a real relationship with each type of consumer

- Keeping a strong brand equity throughout all consumer groups - Improving the brand image among young consumers CREATIVE STRATEGY

The new creative strategy will be based on the CRUSH-model to appeal to younger consumers. The focus will lay on realness, uniqueness, self-identification with the brand and happiness with

a rough edge. Young people are attracted by these values and this kind of creativity. Every marketing campaign will have to respond to this model. Furthermore, the creative strategy will mainly focus on user-generated content. Harley Davidson is a strong brand with lots of fans who

like to show this. Engaging these fans by stimulating them to create their own content and sharing it, will give the creative boost Harley-Davidson needs.