marketing mistake finalized for alex

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Harley-Davidson

Ella Emily Derek Jordan Kevin Mok Maxwell

We ride free!

1

Arthur DavidsonWilliam S. Harley

1903 Serial#1 bike

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Background

High Performance1905, H-D motorcycle wins a 15 mile race in Chicago with a time of 19:02

1908, Walter Davidson scores a perfect 1,000 points at the 7th Annual Federation of American Motorcyclists Endurance and Reliability Contest

Distribution channel1917, one-third of all Harley-Davidson motorcycles produced are sold to the U.S. military

Early time success

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Background

Innovation

ReputationArmy-Navy "E" Awards

Endorser1956, Elvis Presley

Uncommonly quiet!

Early time success

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Word of Harley-Davidson's extremely tough motorcycle spreads rapidly.

Had a solid 70% of the motorcycle market in its first 60 years.

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But from then on....

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Honda’s invasion and Harley’s reaction

Early 1960s

1965 1981

AMF

1986

Vaughan Bealss

Struggle

back1989

Timeline1960-1989

Timeline (1960-1989)

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•Honda began to penetrate the U.S. market, but with a distinctly different strategy.

•Lightweight cycles and an advertisements approach directed toward new customers

•Harley’s market share fell dramatically

•No reaction at all on the early stage!

•The management saw no threat in Honda’s thrust into the market with lightweight machines.

•The company actually attempted to fight back by introducing an Italian-made lightweight in the mid-1960s, but far too late.

Honda’s invasion and Harley’s reaction

Early 1960s

Timeline1960-1989


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Timeline1960-1989


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Timeline1960-1989

From 1960 to 1981

Model Light weight motorcycle Heavy weight motorcycle

Function Transportation use Leisure-time use

Style Practical, functional, features Cool, stylish, American spirit

Target customers Mass People pursuit freedom, individualism, life style

Communication strategies

Aggressive, Direct approach to new customers

Passive

Production control Excellent Poor

Product quality Excellent

5% failed quality-control check

Poor

50%-60% failed quality-control check

Operating cost 30% lower than Harley-Davidson High


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Timeline1960-1989


• Promotion strategy

To compete with Harley, Honda adopted an advertising slogan that countered this tough image. The “You meet the nicest people on a Honda” campaign became the overriding theme of Honda. Armed with the slogan, Honda launched the SOHC inline 4-cylinder 750 in 1969 which became very successful.

• Product Strategy

Honda focused fully on lightweight motorcycle market, which is exactly different from Harley’s products.

1. Production advantage: Cheaper labor cost

2. Problem handling

• Distribution Channel

1. Store location: Honda established its stores in downtown area.

2. New market, new customers: renting service

Honda’s analysis

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•In 1965, the company faced a struggle for control soon after its first public stock offering, which made Harley with no choice to merge with AMF, an American company with strong interests in recreational equipment.

•The marriage was troubled, and quality was going down just as fast as production was going up”.

•AMF suffered an average $4.8 million operating loss for eleven years.

•Market share fall to a record low 3% in motorcycle market

1965 1981

AMF

Timeline1960-1989


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Vaughan Beals led a team that used $81.5 million to complete a leveraged buyout of Harley-Davidson.

•Who is Vaughan Beals? Why he was so magical?

•In 1983, Congress passed a huge tariff increase on Japanese motorcycles, from 4 percent to 45 percent!

•Key to rebuild market share was restoring confidence in the quality of its products.

1981

1986

Vaughan Beals

Timeline1960-1989


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Timeline1960-1989


1986Struggle

back1989

• Bealss and other managers visited Japanese plants in Japan and Honda’s assembly plant, then results of the production improvement

Management technique introduced Functions Results changed in 1988

Just-in-time inventory Control and minimize all inventories both inside and outside the plants

Inventory reduced by 67%

Material-as-needed (MAN) system

Quality circles (QCs)Increase employee involvement in quality

goals and to improve communication between management and works Productivity up by 50%

Scrap and rework down 2/3Defects per unit down 70%

Statistical operator control (SOC)Employees are responsible for checking

the quality of their work and making proper collecting adjustments

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1990s Harley Davidson is on its way

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Licensing Business

Marketing

Product Demand

Export Potential

Specifics of the Resurgence of Harley-Davidson

1990s Success1990s success

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1990s SuccessLicensing business

•Unauthorized usage of company logo on the products of poor quality

•image damage•Licensed goods were popular and were even being bought by new customer segments

•indicating high growth potential -> a great source of revenue•high customer loyalty

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All it seemed to take was the Harley name and logo.

Harley black leather jackets

$500

Fringed leather bras $65

Shot glasses $12


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USD0

USD50

USD100

USD150

USD200

1991 1992

USD130.3000

USD155.7000

Non-cycle business sales of Harley-Davidson

Non

-cyc

le b

usin

ess

sale

s (M

illion

)


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1983 t

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1990s Success

•Product oriented Market orientedBealss Joined HOGs (Harley Owners Group), Hard-core loyalist of Harley-Davidson, to understand their concerns and needsThe company learned that it needed to give the customers a choice and now offers a variety of models, including Athletes, Super Glides, Low Riders etc.

Marketing

•Brand ImagePerfectly match with American Culture

•Customer relationsHOG was founded

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By 1993, Demand>Supply

High customer loyalty

1990s SuccessProduct Demand

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“Quantity isn’t the issue, quality is the issue.” ------ Richard Teerlink

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Harley-Davidson had such a loyal body of customers that delays in product gratification were not likely to turn many away to competitors.

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150.0

237.5

325.0

412.5

500.0

1992 1993 1996

280

345

420

Harley’s Output

bike

s m

ade

per

day


1990s SuccessProduct Demand

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- The European big-bike market grew by an

astounding 33% between 1990-1992. And Harleys

had become very popular in Europe.

- But company had promised its domestic dealers

that exports would not go beyond 30%.

1990s SuccessExport Potential

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- So, Harley could only maintain a 9% - 10% share

of this market.

- To enhance its presence in Europe, Harley

opened a branch office of its HOG club in

Frankfurt, Germany, for its European fans.

1990s SuccessExport Potential

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Year Revenue Net Income

1982 210 def.$25.1

1983 254 1.0

1984 294 2.9

1985 287 2.6

1986 295 4.3

1987 685 17.7

1988 757 27.2

1989 791 32.6

1990 865 38.3

1991 940 37.0

1992 1,100 54.0

1993 1,210 68.0

1994 1,537 83.0

stock sold$7

stock sold $39market share 63%

market share 12.5%

Harley-Davidson’s Growth in Revenue and Income (million of $),

1983-1994

1990s Success

Specific Resurgence of Harley Davidson

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Harley’s Recent Development

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- 1990s, demand grew with the mystique as

strong as ever.

- 1997, a new engine plant in Milwaukee.

- 1998, a new assembly plant in Kansas City.

Recent development

Recent Development

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U.S. Exports

1997 96.2 36.1

1993 57.2 24.5

Revenues ($M)

Net Income ($M)

1997 1,763 174.0

1993 1,217 18.4

Motorcycle shipments (in thousands of units)

Growth in revenues and income

Recent development

Recent Development

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- Despite continuous increases in production, U.S.

consumers still had to wait to purchase a new Harley

Davidson bike, but the wait only added to the mystique.

- 1998, Wolverine World Wide entered into a licensing

agreement with Harley to use its name for a line of boots and fashion shoes.

- In January 7, 2002 issue, Forbes declared Harley to be

its “Company of the Year”.

Recent development

Recent Development

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- Jeffrey Bleustein was diversifying into small, cheaper bikes

to attract younger riders, as well as women, who represented only 9% of Harley riders.

- The cult image was stronger than ever.- Around 4,000 company’s employees rode Harleys around

the country for pleasure and to promote the company.

- In 2002, there were 640,000 owners and the Harley-Davidson name was on everything from blue jeans to pickup

trucks.

Recent development

Recent Development

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Recent development

Light sports bike designed for American men 25 to 34 rose to 90% from 1998 to 2001.

Trend: younger generations of Americans prefer the sleeker, sportier and lighter types of motorcycles as opposed to the big cruiser bikes so closely identified to Harley's brand.

Harley’s reaction this time?

Harley has introduced new models designed to attract the youth. The $17,000 Harley V-Rod is one of these bikes targeted for the younger generations.

Future: Harley will need to compete with Honda head-on.

Recent Development

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- 2003-2005, developed classic style

motorcycle. And clothes for not only men

but also women and kids .

- 2006, Harley-Davidson entered

mainland China’s market.

- 2008, an all-new museum opened in

Milwaukee.

Recent development

Recent Development

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Vaughn BealssQ1&H1

DevelopmentQ3&Q4

MystiqueQ2&Q5&H3

Japanese Competitors

Q6&H2

Questions & Hands on exercises

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Vaughn BealssQ1&H1

Case Content


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Vaughn BealssQ1&H1

Case Content


“Do you think Beals’s rejuvenation strategy for Harley-Davidson was the best policy?”

Discuss and evaluate other strategies that he might have pursued.

Q1

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Q1

“Beals’s rejuvenation strategy” 1. Production improvement by acquiring Japanese management techniques

2. From product oriented to market oriented

3. Massive lobbying in order to impose heavy tariff for the Japanese motorcycles import

4. Licensing program on merchandised goods

5. Sponsor HOGs to strengthen customer loyalty

“best” – the way or the solutions to make Harley Davidson re-lead the heavyweight motorcycle market as much as possible.

Definition

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Q1

Internal Situation

• Harley was falling down on quality.

ı “If you’re buying a Harley, you’d better buy two - one for spare parts.” – Dexter Hutchins

• Passive Marketing Strategy

• Product-oriented

• Outdated management techniques and old equipment delay the development.

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Q1

External Situation

• Market Share fell down deeply.

ı Early 1960s – solid 70% market

1981 - Only contain 3% market after buyout

• Japanese manufacture flooded the market with high-quality lightweight motorcycles.

• 1977 - Honda grabbed 47% of the motorcycle market in U.S.

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Q1

Other Possible Strategies



1. No action

2. Switch the focus

3. Grab the customers

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Q1

Comparison

Pros Cons

Bearl’s Strategy •Hit the core problem

•Reduce competition

•Learn but can not exceed

•No Action •No potential risks

•Good for company’s steady operation

•No good future

•dilemma situation

Switch Focus •May attract new customers

•Diversification for the company

•The company image will be diluted

•Need time and money to adjust strategy

Grab customers •May beat challengers •Head on competition

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Q1

Beals’s strategy outcome

Tariff leads to entry barrier

Magnificent production improvementInventory reduced by 67%

Productivity up by 50%

Scrap and rework down 2/3

Defects/unit down 70%

Market share increase to 63% in 1993

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Vaughn BealsQ1&H1

Case Content


• Be a Devil’s Advocate. • Your mutual fund has a major investment in Harley-Davidson,

and you are concerned with Vaughn Beals’s presence at motorcycle rallies, hobnobbing with black-jacketed motorcycle gangs. He maintains this is the way to cultivate a loyal core of customers.

• Argue against Beals’s practices.

H1

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• Be a Devil’s Advocate. • Your mutual fund has a major investment

in Harley-Davidson, and you are concerned with Vaughn Beals’s presence at motorcycle rallies, hobnobbing with black-jacketed motorcycle gangs. He maintains this is the way to cultivate a loyal core of customers.


Case Content


H1

Definition

– “You”= Mutual fund investor, care about the profitability of HD

– “Loyal core of customers”=HOG members+ Rubbies

– “Beals’s practices”=present at motorcycle rallies,communicate with HOG members

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• Be a Devil’s Advocate. • Your mutual fund has a major investment

in Harley-Davidson, and you are concerned with Vaughn Beals’s presence at motorcycle rallies, hobnobbing with black-jacketed motorcycle gangs. He maintains this is the way to cultivate a loyal core of customers.


Case Content


H1

Arguments

• Beals’s practices would:• Harm the company’s public image

– The public will associate the company’s image with the CEO’s practice

– HOGs are regarded as the potsmoking, beer-drinking, woman-chasing, tattoo-covered, leather-clad biker

• Ignore the new market segment

– The Rubbies (rich urban bikers)• E.g, Bankers, doctors, lawyers, and entertainers

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MystiqueQ2&Q5&H3

Case Content


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MystiqueQ2&Q5&H3

Case Content

How durable do you think the Rubbies’ infatuation with the heavyweight Harleys will be?

What leads you to this conclusion? Q2


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What leads you to this conclusion?

Case Content

Q2


Definition

“Durable” – The length that customers’ fascination to Harley Davidson lasts. ı

“Rubbies” – the rich urban bikers, and high prices for bikes did not bother them in the least.

“Infatuation” - The state of being completely carried away by unreasoned passion or love; addictive love for Harley Davidson.

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Q2


Rubbie’s infatuation

Harley-Davidson’s Share of the U.S. Heavyweight Motorcycle Market, Selected Years, 1983-1993

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Q2


Why infatuation?

• The company culture is fascinating.

ı Harley Davidson stands for “Strength”, “Style”, “Respect” and “Freedom”, which match with the American spirit.

• The company has earned high reputation through over a hundred year’s operation.

• Identity recognition.

ı It’s a symbol of identity.

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Q2


How long will the infatuation last?

• Environment Change (financial crisis)• Philosophy Change (Sense of worth)• Values and Tastes

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MystiqueQ2&Q5&Q9

Case Content


Q5

“Harley-Davidson’s resurgence is only the purest luck. Who could have predicted, or influenced, the new popularity of big bikes with the affluent?” Discuss

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Q5

•Resurgence: its market share rebound from 3% to the leading position of heavy weight motorcycle market•Purest luck: the company did nothing and regained its market leader position•The affluent: bankers, lawyers, professionals or managers with high household income about $45000

Definition

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Q5

•Its high quality and charismatic products which tailors the needs of the target customers•Its company culture, every employee engage in producing the best Harley Davidson motorcycles.•Its brand image which perfectly match with the culture of American

Not purest luck

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Q5

•Vaughan Bealss•took a leading role in understanding the needs and concerns of HOGs and modified the products to cater the needs of target customers

•HOGs•Super-loyal customers to make HD survival during the down period•HD’s true spokesperson who are representing American Spirit which attract more Americans

Influencer

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MystiqueQ2&Q5&H3

Case Content


H3

• As a staff assistant to Vaughan Bealss when he first took over, you have been charged to design a strategy to bring a mystique to the Harley-Davidson name.

• How would you propose to do this? • Be as specific as you can, and defend your reasoning.

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• How would you propose to do this?

• Be as specific as you can, and defend your reasoning.

Case Content


H3

– “You”= staff assistant to Bealss– “Mystique”= an aura of heightened value or

interest or meaning surrounding a person or thing

Definition

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H3

Ways to develop/acquire a mystique

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• For a company to achieve a mystique, certainly its product has to be unique.

• Unique product can help a firm achieve differentiation, but far from mystique.

Focus on product differentiation

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H3

Differentiation

• For a company to achieve a mystique, certainly its product has to be unique.

• Unique product can help a firm achieve differentiation, but far from mystique.

Focus on product differentiation

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H3

Image-building advertising

• Build brand identity and personality (HOGs/Rubbies)

• Attitude branding – the choice to represent a larger

feeling, which is not necessarily connected with the product or consumption of the product at al

• Highlight the people that customers might wish to emulate.

• Founder’s story– It's a classic American story. Boys get

idea. Boys start company. Boys make lots of money.

• Company museum

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H3

• Harley Owners Groups (HOGs)– The old group of core customers– Very loyal to Harley-Davidson– Represent the classic image of Harley-Davidson

• Rich urban bikers (Rubbies)– The new group of key customers– Loyal to Harley-Davidson– Rich and willing to spend a lot on Harley-Davidson bikes– The Rubbies brought Harley back to a leading position in the industry by 1989– Their demands are growing rapidly, from 10% (1983) to 63% (1989)

Focusing on the target buyers

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H3

Related/Unrelated Expansion

• Expand the reach of the name/logo to other goods– Related expansion• E.g Jackets,helmets,boots, etc

– Unrelated expansion• E.g Parjamas,sheets, towels, etc

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H3

• Besides the strategy talked before, there’s some other ideas we could use. Like:

• Personalization: carve the customers’ names on their own motorcycle. Customers could join designing and the color choosing.

• Advertisement: consistent style (Black background), Broadcast time (Before action movies in cinema), Sponsor (for competition like boxing, car racing)

• Some standard or rules to the customers in order to increase their ownership and loyalty to HD. Also create a mystery image to potential market.

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DevelopmentQ3&Q4

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DevelopmentQ3&Q4

Q3

ı A Harley-Davidson stockholder criticizes present management: “it is a mistake of the greatest magnitude that we abdicate a decent share of the European motorcycle market to foreign competitors, simply because we do not gear up our production to meet the demand.” Discuss.

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A Harley-Davidson stockholder criticizes present management: “it is a mistake of the greatest magnitude that we abdicate a decent share of the European motorcycle market to foreign competitors, simply because we do not gear up our production to meet the demand.” Discuss.

Q3

• “Mistake” – no further actions while the demand in Europe is always larger than production

• “abdicate” – Harley Davidson won’t even consider the Europe market unless the domestic market is fulfilled.

Definition

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Q3

• The abdication is reasonable

• Quality cycle & Distribution center• Loyal customers won’t leave.

• Harley Davidson is highly appreciated for its Customized motorcycle

• Also create a mystique to potential market.

At that time…

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Q3

What about now？

• Increase 31% market share in Europe (2007)• Buyout MVAgusta Group,Italy (2008)• 10+% increase of market share three years in a roll

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DevelopmentQ3&Q4

Q4

Given the resurgence of Harley-Davidson in the 1990s, would you invest money now in the company?

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Q4

Definition

“You” means Public Investors

“NOW”=2005 (when the book was published)

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Q4

Considering Factors

Financial statisticsStock MarketCompany Development

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• Range from $50 to $60

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Q4

Financial Statistics

2005 2004 2003

Net Income $959,604 $889,776 $760,928

Shares 280,303 295,008 302,271

EPS 3.42 3.02 2.52

•EPS is increasing steadily every year•PE is about 12 to 15, which is in average level

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• Range from $50 to $60

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Q4

Financial Statistics

2005 2004 2003

Total assets $5,255,209 $5,483,293 $4,923,088

Current finance debt

204,973 495,441 324,305

Long term finance debt

1,000,000 800,000 670,000

Total finance debt 1,204,973 1,295,441 994,305

Not much finance debt, cash flow will be good

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Q4

Stock Market

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Q4

Company Development

• Introduce new product line– the Street Bob and the

Street Glide

• Work with the dealers to create a better customer experience

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Q4

Answer

YesHOG is the

stock worth of investing

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Q6&H2

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Q6&Q8

Q6

“The tariff increase on Japanese motorcycles in 1983 gave Harley-Davidson badly needed breathing room. In the final analysis, politics is more important than management in competing with foreign firms.” What are your thoughts?

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Q6

It depends.

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Q6

How did tariff save Harley-Davidson?

Direct competitor Japanese company, Honda, introduced lightweight cycles of good quality.

Harley-Davidson’s market share decrease dramatically to 3%.

US imposed a 45% tariff for coming 5 years.

New tariff policy increase the cost of Honda substantially. And it helps prevent the foreign automobile companies from entering US market.

Harley-Davidson began to rebuild market share by restoring consumer confidence on its products quality.


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Q6

In the case, both politics and management are essential to the company competing with foreign firms.

Management Politics

Inventory reduced by 67%

Increased entry barriers for new foreign competitors

Productivity up by 50% Decreased the bargaining power of existing foreign competitors

Increased product quality

Benefits


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Q6&Q8

• As a vice president at Harley-Davidson in the 1990s, you believe the recovery efforts should have gone well beyond the heavyweight bikes into lightweights.

• What arguments would you present for this change in strategy, and what specific recommendations would you make for such a new course of action?

• What contrary arguments would you expect? How would you counter them?H2

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• What contrary arguments would you expect? How would you counter them?

– “You”=Vice president of HD in 1990s– “this change in strategy”= enter the lightweight motorbike

market

Definition

H2

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Arguments for entering the lightweight market

H2

• Heavyweight motorcycle market is just a niche market, whereas lightweights is a mass market and a growing potential one.

• There are more younger riders,as well as women, who ride smaller and cheaper bikes.

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Recommendations for such a new course of action

H2

– Introduce the Harley-Davidson lightweight motorbikes– Harley-Davidson lightweights can mainly target the

young females.– Promote the American values (seek for freedom and

adventure)

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Contrary arguments

H2

– Harley-Davidson might not be able to compete with Honda in the lightweight market.

– Harley-Davidson is only for men, not suitable for women.

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How would you counter?

H2

– Honda is regarded as a transportation vehicle, while Harley-Davidson is an American icon. Harley-Davidson lightweight motorbike can target a different group of customers who appreciate the American culture.

– Harley-Davidson does not target at all the females. The feminist can be a perfect match to the Harley-Davidson lightweight motorbike.

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1. Quality vs. Quantity

Marketing ImplicationQuality first!!

Why?Focus on quality controlIncrease urgency of buyingShow high status

Richard Teerlink, “Quantity isn’t the issue, quality is the issue...”

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Limited Product Line

User-friendly nameMacbook ------ For common usersMacbook Pro ----- For more “Pro” usersMacbook Air ----- Thin as “Air”No R65 or VGN-Z550N

Controlled Distribution channelApple store (iTunes)Apple store (Retails)Other qualified distributors

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June 2008 “Starbucks to Close 600 Stores”

Global expansion From profit to loss

Lower cultural added valueLower service quality

Decentralized staff trainingCapacity challenge (e.g. queue)

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2. Relationship Marketing

Marketing ImplicationRelationship First!!

Why?Keeping a current customer is more profitableBuilding Brand LoyaltyWord-of-mouth Marketing from them

HOG

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Relationship Marketing is not only forLuxury ProductsBig Brandsbut everyone, like

Seth GodinMarketing GuruBestselling Author e.g. <Permission Marketing>

How does he build relationships with his readers?By his Blog (Most viewed one in the world)After you subscribe, you can getSample of his new bookPowerPoint of his new bookVideos which is talking about his new bookand you will spread it to your friendsYou are not only his reader, but also his evangelist!

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3. Yell out your brandMarketing ImplicationSpirit First!!

Why?Exposure to Icon to Spirit

Licensing

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Rebellion & Freedom

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Dream & Happiness

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The story of Harley-Davidson to be continued...

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marketing mistake finalized for alex

Documents

cycle business

rich urban

jacketed motorcycle

exercisesjapanese

firm achieve

vaughn bealss

rebuild market

european motorcycle