Strategy Analysis of Harley Davidson

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This presentation illustrates the analysis of Harley-Davidson's competitive strategy. It is based on the case from Grant, R., 2010. Contemporary Strategy Analysis. 7th edition, pp. 636-654

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Strategy Analysis of Harley Davidson

  1. 1. 25th March 2014 Devendra Bhandari Saliha Sahin David Huckschlag Amani Alkaddah
  2. 2. Outline 1. Harley–Davidson at a Glance 2. Harley–Davidson’s Strategy 3. Comparison of Harley-Davidson‘s and Honda‘s Resources and Capabilities 4. Establishing Competitive Advantage 5. Harley-Davidson’s Threats 6. Sustain & Enhance Competitive Advantage 7. Conclusion 8. References 2
  3. 3. Harley-Davidson at a Glance  Founded in 1903: William Harley & Davidson brothers  Represents a tradition of US engineering and manufacturing  Focus in Heavyweight motorcycle market  Harley-Davidson is a lifestyle people choose We fulfill dreams inspired by the many roads of the world by providing extraordinary motorcycles and customer experiences. We fuel the passion for freedom in our customers to express their own individuality. OUR VISION 3
  4. 4. Harley Davidson’s Strategy According to Porter’s Generic Strategies:  Harley Davidson’s has a Focus - Differentiation Strategy: differentiate within just one or a small number of target segments Cost Advantage Differentiation Focus 4
  5. 5. Focus Strategy “Basically, we do not believe in the lightweight market. We believe that motorcycles are sports vehicles, not transportation vehicles. Even if a man says he bought a motorcycle for transportation, it’s generally for leisure time use. The lightweight motorcycle is only supplemental.” - William Davidson, President of Harley-Davidson 5 Cost Advantage Differentiation Focus  Focus on Heavyweight market with customers who consider their motorcycle a luxury product
  6. 6. Differentiation Strategy  Differentiation based on customers‘ social and psychologial needs  Harley-Davidson is in the business of selling lifestyle, not transportation  Internal and external product integrity – critical factor in such differentiation:  Ability of employees and customers to identify with one another  E.g management wearing biking leathers 6
  7. 7. Cont.  Differentiation advantage by careful examination of activities customers undertake:  Creating customer value by providing:  Test ride facilities  Owner‘s club activities  Various sponsored events for Harley riders Information gathering(e.g. price,fuelprice) DealerNetwork visit Selecting Purchasing Customization Maintaining Customer Value Chain 7
  8. 8. Strategic Importance RelativeStrength SUPERFLUOUS STRENGTH KEY STRENGTHS ZONE OF IRRELEVANCE KEY WEAKNESSES HARLEY-DAVIDSON‘S RESOURCES AND CAPABILITIES • Brand & Customer Loyalty • Distribution • MAN (Material As Needed) • Customized Design • Manufacturing • R&D • Product Development • International Exposure • Public Relationship Resources and Capabilities 8
  9. 9. BRAND & CUSTOMER LOYALTY greatest asset “Harley Davidson had long recognized that it was not selling motorcycles – it was selling the Harley Experience.”  Brand of one of the world‘s oldest motorcycle companies  Appeal of the Harley Brand - associated with an entire lifestyle - Rider‘s emotional attachement to the brand  1983 Harley Owners’ Group (HOG)  To increase involvement of customers’ riding experience  Played a critical role in building brand image and customer loyalty 9
  10. 10. DISTRIBUTION Harley believed that the quality and effectiveness of its dealer network was a key determinant of the strong demand for its products.  Dealership Network: 85% of Harley dealerships in the U.S.  Far more than any other motorcycle manufacturer  High standard of pre- and after- sales service  New services to customers:  Test ride facilities, rider instruction classes, motorcycle rental 10
  11. 11. MAN (MATERIAL AS NEEDED) “MAN“ (Materials as Needed): Just-in-time (JIT) system and production scheduling program Reduce inventories & costs Improve quality control Productivity gain from reorganizing around team- based production and commitment to continuous improvement  Cost Advantage 11• However, difficulties to satisfy the surging demand for its products
  12. 12. Wide range of customization opportunities Mutliple options for: Seats bars Pegs Controls Paint jobs Range of 7000 accessoires CUSTOMIZED DESIGN Every Harley rider would own a unique, personalized motorcycle  Competitive Product Strategy 12
  13. 13. Strategic Importance RelativeStrength SUPERFLUOUS STRENGTH KEY STRENGTHS ZONE OF IRRELEVANCE KEY WEAKNESSES HONDA‘S RESOURCES AND CAPABILITIES • Product Diversification (R&D) • International Exposure • Manufacturing • Product Development • Public Relationship 13
  14. 14.  Ability to share R&D across cars and bikes  Benefit from sharing technology, engineering capabilities, marketing and distribution know-how across different vehicle devisions PRODUCT DIVERSIFICATION - automobiles, motorcycles, power equipment, robots, aircrafts etc. 14
  15. 15. PRODUCT DEVELOPMENT Honda offering V-twin cruisers styles closely along the lines of classic Harleys At a lower price With more advanced technologies Harley’s smaller corporate size and inability to share R&D across cars and bikes (unlike Honda) limited its ability to invest in technology and new products. 15
  16. 16. MANUFACTURING HARLEY-DAVIDSON Low production volume relative to HONDA Significant scale & cost disadvantage Key cost disadvantage: purchasing components HARLEY lacked the buying power of HONDA 16
  17. 17. INTERNATIONAL EXPOSURE  Honda attracting younger customers  International Market Share  European motorcycle market differed significantly from the American market – differences in style preferences 17 Harley needed to fight to take market share from the established leaders in the heavy bike segment in Europe (like Honda)
  18. 18. Establishing Competitive Advantage  Harley-Davidson lacks in their resources and capabilities to have cost advantage over Honda  low economies of scale and learning curve due to low production  Differentiation advantage is obtained through brand recognition and the Harley experience  providing the customers a unique motorcycle  However, Harley’s international exposure as a key weakness demonstrates the inefficient sales in order to sustain their other resources such as R&D and product diversification 18
  19. 19. Harley-Davidson’s Threats  Threats faced by Harley-Davidson creating a barrier to sustain competitive advantage: 1. Brand Recognition 2. Customers 3. International Exposure 4. Intellectual Property 5. Lack of Diversification 19
  20. 20. 1. Brand Recognition “Everyone lost interest in the brand as HOG didn’t feel like an exclusive club for loyal customers anymore.” – Anthony Gikas, senior research analyst at Piper Jaffray  Increase in demand and sales led to loss of exclusivity  Losing appeal  loss of their strongest asset  Risk of changing consumer preferences (increasing interest in sport models) 20
  21. 21. 2. Customers  Harley-Davidson highly focused on American traditional style for higher-class customers  In 1987, 50% of buyers are under 35 and now less than 15%  Generation threat  Current customers are ageing  More focus on younger middle-class customers “To grow and thrive, they must create a deep emotional connection with younger consumers.” – Gregory Carpenter, a marketing professor at the Kellogg School of Management at Northwestern 21
  22. 22. 3. International Exposure  EU and Asia prefer lightweight, high technology, sportive and low-priced motorcycles  Falling back on innovation and technology  High cost due to low production  high prices for above average profit  Acquired Buell  in order to gain market share outside America  tried offering same experience as Harley- Davidson  Unsuccessful  Low market-share in Europe and Asia 22
  23. 23. 4. Intellectual Property Company # Patents Level of Secured Innovation Harley-Davidson 90 Very Low Honda 3971 Very High Yamaha 2057 High Kawasaki 502 Medium Suzuki 247 Low Offering average or similar product  price will play the final role Company Average Retail Price ($) Harley-Davidson 14.549 Honda 10.565 Suzuki 10.765 Kawasaki 9.299 Yamaha 9.340 23
  24. 24. 5. Lack of Diversification  Portfolio consisted mainly Cruiser Motorcycles However, competitors imitated Harley-Davidson  loss of competitive advantage  Touring Motorcycles not up to customers’ requirements  low on technology  No market of Performance Motorcycles  most demanded by consumers Harley-Davidson maintains on a vision of traditional heavyweight motorcycles  lowers the potential of diversification 24
  25. 25. Sustain & Enhance Competitive Advantage  Grant (2010) identified that superior Economic and Financial performance is viewed as evidence of competitive advantage: As identified, Harley-Davidson falls behind its competitors and therefore needs to sustain and enhance its competitive position In 2008 Harley-Davidson Honda Income after tax $655 million $5,135 million Operating Cash Flow -$685 million $11,382 million R&D Expenditure $164 million $5,703 million Return On Equity 19.50% 11.19% 25
  26. 26. Measuring sustainability: VRIO Framework Valuable? Rare? Costly to imitate? Exploited by organizations? Competitive implications No No No No Disadvantage Yes No No No Parity Yes Yes No No Temporary Advantage Yes Yes Yes Yes Sustained advantage Harley Davidson  Temporary Advantage However: • Brand is losing perceived customer value • Faces threat of losing exclusivity • Not costly to imitate 26
  27. 27. Cont.  According to Grant (2010), sustainability can be achieved through price-based strategies, differentiation, and lock in. 1. Price-based strategy 2. Differentiation 3. Lock-in Accept reduced margin Create difficulties for imitation Achieve size/market dominance Win a price war Achieve imperfect mobility of resources/competencies First-mover advantage Reduce costs Reduce margin Reinforcement Focus on specific segments Rigorous enforcement 27
  28. 28. 1. Price-based strategies  Harley-Davidson?  Potential cost reduction throughout value chain  Improvement in price transparency  Increase of sales in European and Asian market  leading to economies of scale  Increase production volume to lower cost per unit 28
  29. 29. 2. Differentiation Strategy  Harley-Davidson?  Roberts (1999): “Sustainable advantage comes from …innovation, pure and simple.”  Separate department for R&D  in order to realize and obtain consumer preferences  Sustain intellectual property  make imitation difficult 29
  30. 30. 3. Lock-in  Harley-Davidson?  Sustain dominance in American market  Aim to achieve higher market share in Europe and Asia through lightweight motorcycles  Economies of scale through price-based strategy  Reinforce intellectual property rights such as more patents  difficult to imitate 30
  31. 31. Conclusion  Harley-Davidson remains to be among the market leaders in America  Many threats regarding losing competitive advantage  Trends of heavyweight is going down  Temporary advantage needs to be retained with proactive strategies  International exposure is essential as it will open many new sources of cash flow for the company 31
  32. 32. References  Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120.  Grant, R., 2010. Contemporary Strategy Analysis: Text and Case. 7th Edition, Sussex: John Wiley & Sons Ltd.  Porter, M. E. (2008). Competitive advantage: Creating and sustaining superior performance. Simon and Schuster.  Pugliese, M. J., & Cagan, J. (2002). Capturing a rebel: modeling the Harley-Davidson brand through a motorcycle shape grammar. Research in Engineering Design, 13(3), 139- 156. 32
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