C-Team 10 1
Marketing Management
Professor Dawn Iacobucci
Harley-Davidson Case Study
May 16, 2015
Reggie Crenshaw
Arlie Haddix
Erin Raccah
Patrick Willcox
AMBA C-Team 10
Reggie Crenshaw
Arlie Haddix
Erin Raccah
Patrick Willcox
C-Team 10 2
1. Warm-up, don’t write-up: Do any of you own or know someone who owns a Harley? What is your
impression of the brand, the motorcycles, the people who ride them, or those who ride sports bikes?
We used a social media survey to find people in our networks that either ride Harleys or know of
someone who rides a Harley. We received a 1.4% response rate from an 800-person survey. The
consensus is a love-hate relationship.
For those in love with Harley-Davidson, it represents the following: 1) You feel a sense of
achievement or arrival; 2) You feel like you own a piece of history; 3) You feel like you are part of a
brotherhood; 4) You feel that all other bikes are substandard; 5) You feel that are you are cream of the
crop. For those who hate Harley-Davidson, it represents the following: 1) Owners that largely appear
to be middle-aged, conservative, once divorced, and white males; 2) Harley image is a fraud; 3) Guys
who ride them are posers or weekend warriors -- lawyers/engineers/desk job guys; 4) Harley owners
seem to want to ride from bar to bar on poker rides; they do not enjoy the art of riding. Those who are
blue collar see it as the ultimate motorcycle and those who are white collar see it for its sub-culture or
as a way to escape.
C Team-10 has one member that has owned a motorcycle store and another who owns
motorcycles; they have varying direct and indirect experiences with Harley-Davidson bikes and sports
bikes. Another member has ridden motorcycles but not owned one while the fourth member has
never ridden or owned. The team's impressions of the brand ranged from high to the poser comment
above.
2. What are Harley-Davidson’s strengths? (5Cs/SWOT)
The company's primary strength is its very strong brand appeal with a very strong brand loyalty;
this brand appeal has enabled the capture of 47% of the North American heavyweight market (and
33% of the overall North American market), 22.5% of the overall motorcycle market in Japan and
China, and 8.2% of the overall motorcycle market in Europe (Roese 3). The company's primary focus
is the heavyweight portion of the motorcycle market. Its closest competitors in the North American
heavyweight market are Suzuki and Honda with 13.7% and 13.5% respectively (Roese 10).
The most important part of the Harley-Davidson brand appeal is the tie to the male baby boomers
(Caucasian males ages 43-61). Male baby boomers, the company's primary customer, are significant
because of their relative affluence (median income in 2007 was $84.3K while U.S. average was
$52.7K -- Roese 5). Male baby boomers are also important because their culture drives them to
overwhelmingly prefer Harley-Davidson heavyweight motorcycles. Heavyweight motorcycles have a
35% gross margin compared to a 5% gross margin for sports bikes (the other primary type of
motorcycle -- Roese 7). The combination of high gross margin, boomer affluence, and boomer
culture has made Harley-Davidson very profitable (2006 was the firm's most profitable year with a net
income of $1.04B on revenue of $6.18B -- Morningstar 31).
The heart of this brand appeal is the Harley-Davidson lifestyle/sub-culture that reinforces the ties
between boomer lore and Harley-Davidson. Boomer lore is tied to Harley-Davidson via the lone
outlaw legacy (cruising is a key part of the legacy and cruising requires heavyweight vice sport bikes)
that arose from the 1950s/1960s bike gangs and clubs that rode Harley-Davidsons and used the brand
as their symbol. This lone outlaw ideal and its corresponding Harley-Davidson tie were solidified into
boomer culture by the 1969 movie Easy Rider (Roese 2). Harley-Davidson subsequently aligned its
efforts to support the connection between baby boomers, the loner image, and its brand. It further
C-Team 10 3
strengthened the connection by forming a nationwide owner's group in 1983 to better sustain and
further expand this lifestyle/sub-culture (Roese 3). The Harley-Davidson image received another
boost in 1991 with the movie Terminator 2 (Roese 2). Thus, the movie industry and motorcycle
gangs/clubs became unwitting collaborators in the creation of a lifestyle/sub-culture that is centered
on Harley-Davidson's product (heavyweight bikes). The Harley-Davidson bike and its sub-culture
equate to virtual self-actualization for male baby boomers and sustain the brand's very strong appeal.
3. What is the problem? (5Cs/SWOT)
Threats (problems) are often driven by a change in one of the 5Cs (Iacobucci, Chap 4, Slide 8);
Harley-Davidson fits this model. Its primary root problem is that has one primary customer segment
(male baby boomers) and that segment is quickly aging, which means it needs to find ways to target
other segments. Harley-Davidson has had very limited success with the young adult (18-34),
Caucasian women (35+), African-American men and women (35+) and Hispanic men and women
(35+) segments.
Harley-Davidson's immediate problem is also due to a 5C delta; in this case, it is context
(macroeconomic conditions). The company has potentially insufficient credit to sustain sales
operations due to the economic recession of 2008-2009. 25% of the loans Harley-Davidson issued in
2007 and 2008 were sub-prime (Harley-Davidson was attempting to expand the number of male baby
boomers with Harleys -- Hamner 2). These loans defaulted due to the recession, and Harley-Davidson
had to write-off substantial amounts which made investors unwilling to lend additional money.
Harley-Davidson has a current credit shortfall of $400M (Hamner 3) and without sufficient credit bike
sales and cash flow will cease.
While profitable in 2009 ($654M), Harley-Davidson's profits have been declining since 2006
(Hamner 3). Profits fell 10% in 2007 due to shrinking customer base followed by the 2008 recession
resulting a 30% decline in 2008. Furthermore, the company's stock value declined 70% in 2008; this
is twice the S&P 500 average of 36% (Hamner 3). This trend of declining sales and profits if unhalted
will threaten the company's survival.
4. How should they attract new customers (“outreach”) without upsetting their current customers
(“core”)? (STP)
Two assumptions underlie this case study. The first is that actions to target young adults and
minority groups may result in sufficient image change such that the company may lose its core
customers. The second assumption is that the company must focus on heavyweight bikes, what it is
known for, or move into sports bikes but that it cannot do both.
We recommend Harley-Davidson pursue a multi-pronged strategy. Within this framework,
Harley-Davidson should continue its focus on heavyweight bikes and not look to expand into the
sports bike market (22% of the overall North American market -- WBW 1). Harley-Davidson does
heavyweight bikes very well, hence its lock on much of that market. Rather than re-invent itself,
Harley-Davidson should play to its strength (competitive advantage) and look to bring other
customers into the heavyweight market.
The first prong is to expand into other segments that may also be attracted to the typical Harley
image such as women and minority boomers ages 43-61. Expanding into same age segments allows
Harley-Davidson to maintain a consistent image and marketing approach without having to potentially
C-Team 10 4
compromise its core lifestyle/sub-culture. Based on the garage party efforts, we believe Harley-
Davidson has sufficient information to create a program to attract women into the heavyweight
motorcycle market. However, the company will need to adjust its bikes to fit the typically smaller
frames of women; according to the C-Team 10 members with extensive motorcycle experience, this
size differential is a major issue for women who wish to ride the company's bikes. Harley-Davidson
will want to approach the African-American and Hispanic markets in a similar fashion -- by
introducing the image and forming a cultural connection with these customers.
The second prong is to expand into the younger riders aged 35-42 years. The effort to expand to
the 35-42 age bracket should focus on the 1991 movie Terminator 2 as Terminator 2 is a large part of
millennial lore (Roese 2). The relative closeness in age of the millennials to the boomers should
enable preclude alienation of the primary customer base.
The third prong is expansion into the young adult market of 18-34 years. Harley-Davidson has
22% of the young adult heavyweight market (Roese 5) and can build on this vice expanding into the
young adult sports market. We recommend Harley-Davidson split the young adult segment into two
pieces (ages 18-25 and 26-34) and focus its efforts on the 26-34 age bracket due to the significant
differences in maturity (and changes in preferences/attitudes) between these age brackets (and the
closer alignment of 26-34-year olds with 35-42-year olds). Much of the differences between the 18-
25 and 26-34 age brackets are due to natural life events such as completing college, getting the first
true job, getting married, buying a house, and starting a family. Harley-Davidson should create a
natural path into its lifestyle/sub-culture that emphasizes the maturation of a teenager/young 20-
something into a responsible adult and align that path with natural life events such as buying the first
house (i.e., make the transition from a sports bike to a heavyweight bike a natural rite of passage that
is coincident with more responsibility and being part of the proverbial American dream).
To enable this third prong, Harley-Davidson must revamp the dealership (sales) experience for
young adults. According to information available to the company, young adults find the dealership
experience intimidating and consistently over-estimate the price of Harley-Davidson motorbikes
(Roese 5). The dealerships need to be directed to modify their approaches (and provided with
supporting protocols and incentives) and become inclusive rather exclusive to young adults. Harley-
Davidson should also implement an internet sales program tailored to young adults as an additional
mechanism to facilitate changes in its dealerships and create an alternative sales environment free of
dealership issues. This same internet program can also be used to communicate pricing information to
young adults to correct their misconceptions on the prices of heavyweight bikes. Lastly, Harley-
Davidson must use its information on young adult preferences and modify its motorcycles accordingly
(such as having a model without chrome -- Roese 5).
These three prongs need to be tied together by an overarching strategic communications campaign;
this campaign must target the current customer base and each of the segments in the above prong
discussions. The first central theme should focus on sustainment and improvement of the Harley-
Davidson lifestyle/sub-culture and how expansion of the customer base accomplishes this (i.e., more
people make the sub-culture stronger and how differences can make a group stronger). The second
central theme must set the stage for the passing of the Harley-Davidson torch to the next generation
(and hence ensure the sub-culture's continuation). This theme should emphasize a moral
responsibility to pass the brand and culture for the next generation (this theme should play upon the
boomers being parents and grandparents and emphasize the passing of the brand and the culture to the
children and then grandchildren).
C-Team 10 5
We have identified three prongs so far in this strategy. The customer segments in prongs one and
two do align with the Harley-Davidson lifestyle by virtue of age (primarily) and common life
experiences (secondary). These segments hold profit potential as they have $752M and $1.5B
respectively in buying power (male baby boomer buying power is $1.05B -- BLS 7, Abstract 455).
The overall customer segment in prong three does not share an age/life experience alignment with
Harley-Davidson; however, by focusing on a specific part which does share a similarity for
heavyweight bike use, we believe we can overcome the age/life experience gap. The current buying
power of this prong is $1.6B (BLS 7, Abstract 455); given their age, their power will increase, and we
feel that efforts to attract this segment into the Harley-Davidson lifestyle/sub-culture will pay long-
term dividends. Overall, we believe we have a proper a top-down strategic fit and a bottom-up
profitability fit with this proposed way ahead (Iacobucci, Chap 4, Slide 5).
Harley-Davidson should consider an additional prong and this is further expansion into the
heavyweight markets of Europe and Japan. The company's 13.8K sales in Japan constitute 26% of the
heavyweight market of 53.1K motorcycles while the company's 38.9K sales in Europe are 9.6% of the
403K European heavyweight market (Morningstar 35/36, Weber 2). Harley-Davidson should conduct
additional research on how best to better align the Harley-Davidson lifestyle/sub-culture with
European and Japanese cultures; however, the current penetration into both markets indicates a
strategic fit between the heavyweight market, cultures and the Harley-Davidson brand. The relatively
small percentages of the market captured indicate the company has opportunity for profit growth.
Harley-Davidson is a very visible aspect of American culture overseas and the company should
leverage this visibility. However, the success of this avenue will have long-term dependencies on the
first three prongs because there is a direct tie between the popularity of a good in America and its
appeal in a foreign market (i.e., if the prongs fail and Harley-Davidson does not succeed in the United
States, the appeal to the overseas classes will evaporate).
5. Should H-D proceed strategically as a house of brands (like P&G) or as a branded house (like
Nike)? (STP)
For the customer, a Harley-Davidson is a specialty purchase which involves a high degree of
customer involvement in the shopping process (Iacobucci, Chap 2, Slides 6 & 8). This requires a
corresponding involvement level from Harley-Davidson. The post-purchase phase of buying is also
critical to Harley-Davidson because that is when customers determine overall satisfaction with the
product and image and image is critical to the Harley-Davidson lifestyle/sub-culture (Iacobucci, Chap
2, Slide 4). Thus, Harley-Davidson must support high levels of customer involvement/interaction and
is better served focusing on one or few vice many market segment(s). We recommend Harley-
Davidson continue using a depth strategy (serving one/few segment(s) well -- Iacobucci, Chap 3,
Slide 14).
Harley-Davidson however needs to transform from niche marketing focused on male baby
boomers to segmentation marketing (Iacobucci, Chap 3, Slide 6). The company needs to appeal to the
female, minority, and age segments discussed in the proposed strategy. Due to the high level of
customer involvement, the communications must provide information to the consumers (and let them
reach our desired conclusions) vice trying to capture audience attention (Iacobucci, Chap 2, Slide 10).
Therefore, we think Harley-Davidson should stay as a branded house rather than create multiple
brands (tailored strategy -- Iacobucci, Chap 3, Slide 15). The Harley-Davidson brand is strong and is
a product of multiple years. The brand is built around the heavyweight motorbike. Since we are
recommending Harley-Davidson remain focused on the heavyweight motorbike market and bring
C-Team 10 6
other segments to the heavyweight bike, the creation of another brand seems unnecessary.
Furthermore, we recommend Harley-Davidson drop its Buell line and disengage from the sports bike
market as it is inconsistent with Harley-Davidson lifestyle/sub-culture. Keeping one brand allows
Harley-Davidson focus which is consistent with the depth strategy (Iacobucci, Chap 3, Slide 14).
Brand creation typically involves substantial time and resources; we assess Harley-Davidson would
do better to use those resources to make the current brand appeal to more customers.
C-Team 10 7
Appendix A: 2007 10K: Retail Unit Sales and Motorcycle Registration Data
The Company sells its motorcycles at wholesale to an independent network of distributors and dealers
who in turn sell the Company’s products at retail. Worldwide retail sales of Harley-Davidson
motorcycles decreased 1.8% during 2007 relative to the same period last year. Retail sales of Harley-
Davidson motorcycles decreased 6.2% in the United States while growing 13.7% internationally
including a 15.0% increase in Europe. On an industry-wide basis in 2007, the heavyweight (651+cc)
portion of the market was down 5.0% in the United States while growing 5.4% in Europe when
compared to 2006 (Morningstar 35/36).
C-Team 10 8
Appendix B: Calculations of Market Segment Buying Power
CT-
10
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CT-
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arle
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C-Team 10 9
Appendix C: Income of Families by Race, Ethnicity, and Age
C-Team 10 10
Appendix D: Earnings by Race, Ethnicity, and Age
C-Team 10 11
Works Cited
Form 10K: Harley-Davidson Inc., HOG. Morningstar Document Research, 31 December 2007
Form 10K: Harley-Davidson Inc., HOG. Morningstar Document Research, 31 December 2008
Hamner, Susana., "Harley, You're Not Getting Any Younger," New York Times, 21 March 2009
Iacobucci, Dawn., Marketing Management Slides Chapter 2 Customer Behavior, Chapter 3:
Segmentation, Chapter 4: Targeting
"Income, Expenditures, Poverty, and Wealth," Statistical Abstract of the U.S., U.S. Census Bureau,
2012
Roese, Neal J. and Mohan, Kompella. "Harley-Davidson: Chasing a New Generation of Customers,"
Kellogg School of Management. Northwestern University 2013.
"Usual Weekly Earnings of Wage and Salary Workers First Quarter 2015," Bureau of Labor Statistics,
21 April 2015
"U.S. Motorcycle Sales 1992-2014," Web Bike World, 10 Feb 2015
Weber, Joseph., "Harley Just Keeps on Cruising," Bloomberg Businessweek, 5 November 2006
C-Team 10 12
Works Consulted
"American Fact Finder: 2011-2013 American Community Survey 3-Year Estimates," U.S. Census
Bureau, S0201, May 2015
Iacobucci, Dawn., Marketing Management., South-Western, Cengage Learning, Mason, Ohio 2013
Madson, Bart., "Motorcycle Sales Down 40.8%," MotoUSA, 21 January 2010