Marketing Management - Harley Davidson

                                            

 

 

Harley-Davidson, Inc.

Strategic Marketing Plan

 

 

 

 Marketing Management

 

I.       EXECUTIVE SUMMARY

 

1. Current Situation

 

Harley-Davidson, Inc. is currently the world leader in the production and sales of heavy weight motorcycles.  Harley-Davidson, Inc. (HDI) is the parent company for the group of companies doing business as Harley-Davidson Motor Company, Buell Motorcycle Company and Harley-Davidson Financial Services.

 

Harley-Davidson Motor Company produces heavyweight motorcycles and offers a line of motorcycle parts, accessories, apparel and general merchandise.  The primary business of the Motorcycles segment is to design, manufacture and sell motorcycles for the heavyweight market.  It manufactures five families of motorcycles; namely, Touring, Dyna Glide, Softail, VRSC (VRod Sportster) and Sportster.

 

Buell Motorcycle Company produces sport motorcycles, including four big-twin XB models and the single-cylinder Buell Blast.  Buell also offers a line of motorcycle parts, accessories, apparel and general merchandise.

 

The majority of the Company's Harley-Davidson (Harley) branded motorcycle products emphasizes traditional styling, design simplicity, durability, ease of service and evolutionary change. In 2001, Harley expanded its traditional approach to styling with the introduction of the V-Rod motorcycle, the first member of a new family of Harley-Davidson motorcycles, the VRSC family.  The VRSC family of motorcycles was inspired by Harley-Davidson's racing heritage and combines the characteristics of a performance motorcycle with the styling of a custom motorcycle.  The Company manufactures and sells 28 models of Harley-Davidson touring and custom heavyweight motorcycles.

 

Harley-Davidson Financial Services provides wholesale and retail financing and insurance programs, primarily to Harley-Davidson/Buell dealers and customers.  Harley-Davidson Financial Services (HDFS) is engaged in the business of financing and servicing wholesale inventory receivables and consumer retail loans (primarily for the purchase of motorcycles).  Wholesale financial services include floor plan and open-account financing of motorcycles and motorcycle parts and accessories, real estate loans, computer loans, showroom remodeling loans and the brokerage of a range of commercial insurance products.  HDFS offers wholesale financial services to Harley-Davidson dealers in the United States and Canada.  HDFS' retail aircraft financial service programs are similar to programs for Harley-Davidson and Buell consumers described above.  HDFS' aircraft business is a small portion of its total business and made up less than 5% of total managed loans as of the end of 2003.

 

The major Parts and Accessories products offered by the Company are replacement parts (Genuine Motor Parts) and mechanical and cosmetic accessories (Genuine Motor Accessories).

 

The motorcycle industry classifies motorcycles according to the engine capacity; 50 to 250 cc engines are light weight, 251 to 750 cc engines are middle weight, 751 to 1199 cc engines are heavy weight and more than 1200 cc engines are super heavy weight.

 

Harley Davidson primarily produces motorcycles in the heavy weight and super heavy weight classes.   Most Harley motorcycles are powered by Twin Cam, air cooled twin cylinder engines with a 45 degree V configuration.  However, the VRSC motorcycles are powered by a liquid cooled twin cylinder engine with 60 degree V configuration.  Buell produces super handling air cooled twin cylinder 984 and 1203 cc engines.  Buell has recently introduced two new models called Firebolt XB12R and Lightning XB12S.

 

 

2. Objectives

 

• Sustainable growth
• Expanding production capabilities
• Improvement of Dealers’ capabilities
• Introduction of new lineup of products

 

3. Strategies

 

4. Action Programs

 

5. Financial Expectations

 

 

II.      INTERNAL SITUATION ANALYSIS

A.   Financial Resources

Harley, being the largest manufacturer of heavy weight motorcycles in the world, employs over 8000 workers around the globe.  The total revenue for the year 2004 is $ 5.02 billion which is an increase of 4.62 % from the prior year.  The net income for the year 2004 is $ 889.8 million, a 16.9 % jump from the previous year value of $ 760.9 million.

 

The financial results indicate that the Harley is a large corporation in this industry.  This will give them an advantage to prevent other companies from entering the field.  However there are other companies at their heels to take away the market share.  The BMW (Bayerische Motoren Werke AG) car manufacturer with revenue of more than $ 52 billion has a strong presence in the motorcycle industry and they are a strong competitor.  They employ about 2000 employees in their Berlin plant, where they manufactured 89,745 motorcycles in 2003 with a German market share of 44% and an international market share of 7%.  They produced 1.2 million cars and made a profit of 3.2 billion Euros of which the motorcycle division contributed less than five percent. Polaris Industries of USA is also very strong in this field.  They manufacture snowmobiles, all terrain vehicles and motorcycles.  The company has a market cap of just over $ 3 billion.  They had sales of $1.6 billion for the year 2003 and only 4% of this came from their motorcycle division.  They sold 419,000 motorcycles with a growth of 5% from 2002 to 2003.  Their sales increased a whopping 70% in 2003.  Triumph is a distant competitor and it is a privately held company.

 

Harley Davidson is in a very competitive market even though they are the leaders.  They lead with a market share of 48.1% in the United States and fall way behind in Europe with only 8.1% of the market share behind that of Honda with a 16.7% and BMW with a 15.3% market share.  The Polaris Company has an advantage in a sense that they also sell snowmobiles, all terrain vehicles and motorcycles.  This makes it easy for a customer to shop for a snowmobile for their wintertime activities, buy an all terrain vehicle for their children and buy a motorcycle all from the same company.  This synergy of product offering was a strong contributing factor behind their sales jumped during last year.  BMW with their high name-recognition luxury cars also has a chance of improving their market share.  Honda, Suzuki, Yamaha and Kawasaki also have a sizable penetration into the US motorcycle sales market.  Low market share in the European market and competition from company with synergistic offerings are critical areas were Harley should use there use its financial strength for the advancement of it objective. 

The following is Harley-Davidson’s Consolidated Financial Statement.

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B. Sales and Profit History:

In 2003, Harley shipped a total of 291,147 motorcycles and 9977 Buell motorcycles for a total of 301,121 units.  The volume jumped 10.4% from the previous year.  Harley has doubled its production volume during the past five years.  They had an increase of 8.8% in the US, 11.8% in Europe and 8.3% in Japan.  The net revenue was $4.62 billion in 2003, a jump of 13% from the previous year.  The net income raised to $760.9 million an increase of 31.1% from the prior year.

 

The following other items contributed to the total revenue:

• Revenue from parts and accessories was $712.8million, an increase of 13.3% from the previous year.
• General merchandise which includes their sales of clothing, memorabilia and other fashion accessories produced $22.4million, an increase of 12.7%
• The financial services included $1.9billion of consumer loans to purchase their motorcycles and other products.  The revenue from this section was $167.9million that is a 61.1% jump from the previous year.

 

Net revenue for its motorcycle and related product lines split by division:

• Harley Davidson Bikes       78.3%
• Parts and accessories           15.4%
• General Merchandise          4.69%
• Buell                                    1.7%

 

Harley’s Net revenue by region consisted of the following:

• US                   82.3%
• Europe             9.1%
• Japan               3.8%
• Canada                        2.9%
• Rest                 1.9%

 

The operating expenses for the company have gone up from a total of $639.3million in 2002 to $684.2million for 2003.  This is a jump of 7%.  Out of this the expenses for motorcycles and other products only went up by a 6.7%, but the corporate expenses went up by 22.6%

 

The debt of the company also is a worrisome factor.  The total debt of the company went from $763million in 2002 to $994million in 2003.  This debt consisted of commercial paper, domestic and European credit facilities, medium term notes and senior subordinated notes.

 

The cost of revenue has also gone up as the revenue was going up.  It went up from $2.6million in 2002 to $3.07million in 2003.  This is an increase of 18%

 

CHANGES AND TRENDS:

 

Obviously, Harley Davidson has strong brand name recognition and customer loyalty.  Their products are unique.  Their production and sales are superlative.  The trend in their sales indicates that they have done well in the past five years.  But the increase may not be sustainable because of severe competition from others and increasing cost of production.

 

The profitability trend for their basic Harley motorcycles is good.  In the past five years they have doubled their sales.  They are also increasing the revenue from the other sources.  Their Buell brand is relatively new and sold less than ten thousand motorcycles in 2003.  Profits may increasingly be generated from subsidiary operations.  The average price of the Harley motorcycles has been increasing and most recently been influenced by special offerings of Centennial Editions.

 

The capital expenditures, which included R&D etc, was steadily going up from the early 1990s. It was $290 million in 2001 and $324 million in 2002 and dropped to only $227 million in 2003. This may indicate that they are slipping in this field when their competition is improving their capital expenditures.  However, this could also be related to the launch of the new factory located in York PA.

 

An additional income factor for the company is the weak dollar.  They have improved their share in Europe and else where because of this currency difference.  The operating expense and the debt load of the company are two other important factors that are worrisome in the future.  Hopefully Harley Davidson will be able to control their cost and reduce their debt.  Even though the profit and revenue has gone up for Harley, the cost has gone up.  Other worrisome factor to be concerned about is the size of the company and its competitors and products.  Harley Davidson with a market cap of about $18 billion is small when compared to BMW which is about fifteen times as large with annual revenue of $41 billion.  The Polaris Company with a market cap of only just over $3 billion had sold more than 400,000 motorcycles in 2003.

 

Even though Harley is a strong leader in the heavy weight motorcycle category and enjoys impressive profit and sales growth, the growth of operating costs is a concern that can not be over looked.

 

C. The Plan

1. Mission

Harley Davidson’s mission is to “Fulfill Dreams, through the experience of motorcycling by providing motorcyclists and to the general public an expanding line of motorcycles, branded products and services in selected market segments.”

 

The company continues to capitalize on its brand name, maintaining high quality product and educating the general public on the ABC’s of motorcycling so that it may more easily recognize that it is a socially acceptable sport.  The focus is to create a balance between “Growing Value” and “Strengthening the Brand”.  Customer focus is a key element of its mission and it continues to foster its concept that all customers are part of the “Harley family”.

 

2. Goals

Harley Davidson had a 48.8% and 33.5% market share, respectively, of the U.S and Europe retail motorcycle transport sales market in 2003.  Profitability levels over the past 19 years have progressively increased and have consistently resulted in positive financial results.  Revenue for the full 2004 year was $5.02 billion, compared with $4.62 billion in 2003, an 8.5 percent increase.  Net income for the 2004 was $889.8 million, a 16.9 percent increase versus 2003’s $760.9 million.

“Once again Harley-Davidson achieved record revenue and earnings, making 2004 the nineteenth consecutive record year for the Company,” said Jeffrey L. Bleustein, Chairman and Chief Executive Officer.  “We focused on exceeding the impressive results of our 100th Anniversary year by increasing motorcycle availability to improve customer satisfaction and by stimulating interest among prospective customers.  U.S. retail sales for Harley-Davidson motorcycles increased more than 7 percent over last year, demonstrating that the dream of owning a Harley-Davidson® motorcycle remains extremely powerful,” said Bleustein.

Source:  Milwaukee Journal Sentinel : Jan. 2005

The 2004 fourth quarter retail sales of Harley-Davidson motorcycles increased by 6.7 percent in the U.S. versus the same period in 2003, and internationally, increased by 14 percent 2004 over 2003.

In 2004, there was a favorable impact on gross margin primarily due to manufacturing efficiencies and foreign currency exchange rates.  In conjunction with the higher gross margin, there was a 1.5% increase in operating margin to 23.0 percent in 2004, from 21.5 percent in 2003.

Harley Davidson established a goal to create and fulfill the demand for at least 400,000 motorcycles in 2007 and to generate an annual earnings growth rate in the mid-teens.  In consideration of this ultimate goal, it is expected that Harley will continue to grow in 2005 and will ship 339,000 Harley-Davidson motorcycles during the year to support that growth.

 

3. Strategy

Harley’s strategy has been to differentiate itself through product and services differentiation.  Harley Davidson prides itself on delivering experiences to its customers, rather than just providing products and services.  It does not differentiate itself through cost, as it is typically priced at somewhat higher motorcycle prices.   Harley creates and builds relationships with everyone they come in contact with; customers, suppliers, employees, outside investors, and even various local and national governments.  This is why the Harley Davidson brand is so well known and recognized throughout the country, some may even call it legendary.

 

Harley also reinforces its brand recognition by its commitment to the community through the Harley Davidson Foundation, which has made more than $23 million donations to over 1100 different charitable organizations.

 

In conjunction with these basic strategies, Harley Davidson is continuing its efforts to drive new products to the marketplace, attract new customers (such as women and new motorcyclists), and maintain its existing customer base. 

 

4. Objectives

In order to understand Harley’s objectives, one must understand its history.  Harley Davidson has been around for over 100 years.  There is a mystique about riding or driving a Harley motorcycle; that is where “strengthening the Brand” and developing a “strategic plan for sustainable growth” comes into play.

 

Corporate Objectives

It is Harley’s desire to establish and embrace a ten-year plan to attract new customers to fulfill their dreams for top quality products and great experiences.  To ensure this, Harley strives to improve processes and create efficiencies or productivity on an on-going basis at all levels of production.  Its 2005 objectives include growth of its motorcycle shipments to the 339,000 total units shipped.

 

Marketing and Program Objectives

Based on analyses of its long-term historical trends, Harley believes that demand for its motorcycles grow at a core growth rate of 7 - 9%.  However, Harley has consistently exceeded this rate of growth.  There was a 13% net revenues increase in 2003, which was primarily made up of a 14.6% increase in net motorcycle revenue, a 13.3% increase in parts & accessories revenue, which is offset by an 8.7% decrease in general merchandise revenue.  This decrease in general merchandise revenue is due to a spike in sales from the previous year and was associated with sales of 100^th anniversary merchandise.  It is expected that long-term growth in general merchandise will be lower than annual anticipated growth of  7-8% in motorcycle sales.

 

Operating expenses increased in 2003 by 7% to $684 million compared to 2002, due to the company’s investment in initiatives related to current and future growth objectives.  For example, in 2003, motorcycle shipments increased 10.4% from its 2002 level of 263,653 shipments. 

 

By 2007, Harley’s goals are to reach total motorcycle shipments of 400,000.  In order to achieve this, one must note that strengthening the brand and sustainable growth are key objectives of Harley.  Detailed below are some of the many supporting strategies that Harley continues to employ:

q       Introducing a new lineup of products.

q       Developing a set pace for introduction of new products.

q       Visualizing new dimensions to the total experience of owning a Harley.

q       Improving the Dealer’s capabilities of fueling the Harley mystique to its customer base.

o       Some ways to accomplish this is through expansion of the Harley Davidson University and ongoing continuing education and certification for sales staff and technicians.

q       Expanding its production capabilities to ensure units are available based on customer’s wants and/or demands by increasing production by 7% in 2005.

 

Key to Harley’s successfully meeting its short and long-term growth goals is the implementation of a manufacturing strategy, which supports the continued increases in motorcycle shipments.  This strategy, which includes a new factory location in York, Pennsylvania, enhances Harley’s capacity capability, allowing improvements in product quality, along with reducing costs and allowing more flexibility to respond to marketplace fluctuations.  This is key in its continued ability to maintain close watch over its inventory levels in future years.

 

Pricing has been a challenge over the past few years as Harley dealers have charged above-list prices for selected Harleys.  Harley management wants to narrow the gap between supply and demand and reduce long wait times for purchases of new bikes and the best way to do that is by increasing its product availability, which will hopefully result in reduced pricing.  In addition, in early 2005, Harley is trying a new sales promotion – if you are a HOG (Harley Owners Group) member and purchasing selected new bike models, they will receive $1,000 in parts and accessories.

 

Advertising in 2002 and 2003, focused on the 100^th Anniversary Media coverage, with key objectives: celebrate with family and friends, try to reach out and attract new customers and raise money for the Muscular Dystrophy Association, where they raised $7.3 million.   This advertising provided results of 2.6 billion media impressions over 14 months, with one million people participating in the 100^th Anniversary events.  In addition, they are, more recently, making a concerted effort to increase its electronic advertising channels, such as television, internet, etc. and have also produced some promotional electronic materials that are available to the public. 

 

Harley prides itself on lasting relationships; therefore, in 1983, to reinforce this concept and help promote its motorcycles, they developed the member’s only Harley owners group called the “HOG” which has grown to 840,000 worldwide members in 1370 chapters.  In addition, there is also a Buell Riders Adventure Group (BRAG), to reach customers in riding elements and to help make lasting connections or relationships.

 

In reviewing its distribution channel, it is evident that Harley uses an independent worldwide dealer network as its distribution channel for its wholesale motorcycle unit shipments.  In 2003, retails sales in the US, Europe and Japan/Australia markets exceeded industry sales averages and were up 8.7%, 11.8% and 11.7%, respectively.

 

Some of the ways that Harley continues to provide great service and develop new products is by identifying its ever-changing target markets and attract new customers.  Harley has recently beefed up its efforts in developing cheaper, lower-riding bikes, by targeting women and younger riders, introducing three new motorcycle products in 2006, promoting a redesign of the V-Rod Sportster, and dropping three of seven existing models.  In addition, it has designed a motorcycle with lower seat heights, adding rubber-mounted engines and stiffer frames, introduced the 15^th Anniversary-edition Fat Boy and the V-Rod and Sportster new models which should stimulate Harley’s sales in Europe (European  sales were down in 2004).

 

D. Corporate Culture

Harley’s corporate offices are based in Milwaukee, Wisconsin, where the major decisions regarding finances, new product rollouts, marketing and pricing are made, under the direction of Jeffrey L. Bleustein, Chairman and Chief Executive Officer.

There are more than 8,200 people employed worldwide by Harley-Davidson, Inc.  Its domestic production facilities are in Wisconsin, Pennsylvania and Missouri where Harley offers factory tours at three of its production facilities for that behind-the-scenes look at a motorcycle manufacturing process.

There are also some other key business operations located in Chicago, Illinois; Franklin, Wisconsin; Talladega, Alabama; Highland Heights, Ohio; Ann Arbor, Michigan; Carson City, Nevada; and Plano, Texas.

It should be noted that Harley Davidson prides itself on some basic values that they firmly believe in and that helps them in guiding management and its employees on a daily basis, as follows:

q       Tell the Truth.

q       Be Fair.

q       Keep your promises.

q       Respect the individual.

q       Encourage intellectual curiosity.

Harley is a firm believer in ensuring employee involvement.  Employee participation in the business has helped the continuing success of the firm.  Harley has striven to minimize traditional bureaucracy and management levels by adhering to an “open door” policy throughout the company, to include the CEO’s office.

To ensure that all employees are engaged at Harley, all salaried and unionized employees are participants in the Harley-Davidson Business Process, to try to more positively align employee’s contributions to the company goals and shared vision.  There is a unique Partnering agreement that Harley has agreed to whereby Harley management and leaders of the two unions, IAM and PACE work together on important studies and making decisions.  By doing this, Harley believes that employee involvement will remain active at very high levels thereby ensuring consideration of employee concerns and suggestions. 

In addition, Harley believes that by structuring its operations groups into three functional areas called “Circles”, this will encourage a team environment and promote the coordinated effort of making well-considered decisions.  These three circles interconnect to create Harley’s Leadership and Strategy Council (LSC), and are as follows:  1) Create Demand Circle, 2) Produce Products Circle and 3) Provide support Circle. 

The Create Demand Circle includes primarily a focus on the marketing and sales functions, such as for motorcycles, clothing and parts & accessories.  Also, it includes the motorcycle styling, government affairs, owner groups (such as HOG), new business development, and customer service.  The Produce Products Circle includes the manufacturing related functions, such as: engineering, manufacturing operations, materials and cost management and quality.  The Provide Support Circle includes more of the administrative functions, such as:  human resources, legal, finance, communications and strategic planning.  Harley feels this is key to continued growth and fostering of creativity.

 

E. Strengths/Skills of Firm

Harley is responsive to the needs of its motorcycle family and dealer network.  In its new Softail plant facility, it has capitalized on new technology in ensuring quality in its assembly processing.  Harley has a commitment to continue its demo rides and rentals, along with its Rider’s Edge New Rider Course to introduce the sport of motorcycle riding. 

In 2003, in the last 6 of 7 years, Harley has made Fortune’s list of “100 Best Companies to Work for”, solidifying its reputation for market innovation, teamwork, and attention to technology and working together in cross-functional teams with dealerships and within the company.

Also, Harley’s Willie Davidson Product Development Center (PDC) finished a 70% expansion increase in 2003.  This expansion added technology to help maximize efficiencies and provide a creative environment for continuous development of new products.  For example, its new sound lab will help ensure that testing is 260% more efficient than utilizing outdoor tracks.  This PDC expansion also helped Harley receive a LEED (leadership in energy and environmental design) Award from the US Green Building Council. 

 

 III. EXTERNAL SITUATION ANALYSIS
A. Nature of Demand
1. Who are Harley’s Customers?

Creating longstanding interest and devout brand loyalty in a luxury item has fueled the mystique and the selective demand in the purchase and ownership of a Harley motorcycle. Harley Davidson customers are distinguished, unique men and women from various occupations, backgrounds and social status who value their individuality and the "riding experience" that only Harley can give.  Our market is defined into five segmented categories.  The Prestige Riders include CEOs, CFOs, CIOs, V.P.s, and Upper to Middle management position holders that purchase motorcycles and invest in the company.  Knight Riders have little vested interest in long-term usage, these customers tend to purchase as an alternative means of transportation.  Die-Hard Riders are passionate loyalist to their motorcycles and Harley Davidson they are immersed into every aspect of riding.  Rescue Riders include Police officers, Public Safety, Municipal Officers and Fireman.  Sterling Silver Riders are a group of customers that are made-up of senior citizens who want to preserve their youth.

According to the Harley Davidson Company demographic profile, 91% of Harley Davidson customers are males and 9% are women between the ages of 35 and 50 years old with median annual incomes between $60,000 and $80,000 during 1999-2003.  This composite incorporates 28% of new riders or those who have not owned a motorcycle in the past 5 year, 44% have previously owned a Harley motorcycle.  Another 28% are identified as coming off a competitive motorcycle.  Overall, Harley has seen an increase most recently in their number of women riders because the company’s efforts to respond to this particular gender’s needs by re-designing features on their motorcycles to include extra padding and longer handles.  As stated earlier these individuals and many other marketing factors are incorporated in our discussion of our various market segments.  Prestige Riders can be defined as your professional executives/ business owners, upper to middle management between the ages of 35 to 65 who are married/ or single.  Buying decisions for this group are more complex and largely based on supportive indicators of their status and the psychological value association of liberty and the feeling of importance felt through their riding experience.  Oftentimes, Prestige riders are leaders and tend to take on the initiator role, influencing others to buy the product.  Assuming they have a stake in owning a Harley this group has the greatest likelihood to own stock in the company. This group buys harley’s Custom/Standard models, which can allow one to customize through accessories and or have a more traditional look for the more conservative consumer.  These professionals tend to ride infrequently because of the practicality issues when entertaining potential clients, weather and other climate conditions, or only on special occasions.

 

Knight Riders are between the ages of 18-25 single males/females, various ethnicities, and white and blue collars workers concerned with trends, speed, current technology and image. It has estimated that knight rider’s primary use of owning a Harley, as an alternative means of transportation.  This group also likes to ride for leisure and will tend to rent Harley through their rental Harley through their rental programs if they are in the decisions making on whether or not to purchase.  Customers here have less money to spend because most are recent college graduates who have not had enough time in their careers to build substantial income or liquid assets.  Cycles that catch their attention are the Buell line which is known for its sporty sleek design, and being fast.

Die-Hard Riders can are described between the ages of 35 and 48 male/females, who tend to be employed in service, industrial or blue-collar employment.  Die Hard riders are Harley’s repeat customers who are familiar with the brand and estimated to have owned their motorcycles for years. These riders tend to make- up a large percentage of the company’s revenue.  This segment also has the second largest disposable income because of their career maturity and varying resources from investments, inheritances, lawsuits, severance pay.  It can be inferred that this group has the highest tendency to keep up with the latest in motor accessories, which allow customers to customize their Harley for their individual preference.  It is important to note a fair number of these riders enjoy competing in monthly or annual drag competitions.  Die-Hard riders keep scheduled service check-up, which help to ensure high quality on-the-road performance for which Harley is known.  Among this type of customer, the heavy weight cycles like Touring and the Sportster are preferred.

Sterling Silver customers are between 60 -90 years old are your senior citizens, retirees, who want to retain their youth and look for a more comfortable, easy to ride motorcycle.  This group will purchase the traditional Harley, which serves this group because of leisure and recreational use.  Preservation of their cycles because of less use seems to be a lot longer because the occasional use.  Custom accessories and motor clothes purchases are minimal.  Some of the more active seniors will drag race or participate as a spectator.

 

2. Why Do Customer Buy Harley Motorcycles?
 For the past century, customers have responded to Harley’s motto of "grow the value and strengthen the brand."  In the past five years, Harley has brought innovation to the market their primary market is Twin Cam 88B, the Rod motorcycle, and the re-engineering of the Sparser based on direct feedback from existing customers.

 

Harley’s motorcycles are classified into four selective demand categories:

• Custom: Characterized by American Styling.  Often personalized by accessorizing
• Touring: Designed for long trips, with emphasis on comfort, cargo, reliability and feature two-way radios communicating with passengers, stereos, and cruise control.
• Performance: Known for quick acceleration, top speed, and handling, commonly
  referred to as sport bikes.
• Standard: A basic, no frills motorcycle with an emphasis on low price.  Standard segment percentage may also include the adventure touring niche.

 

Motor clothes apparel provides variety in selection and expression for customers.  Clothing ranges from t-shirts, leather jackets, hats, home accessories etc.  Sizing varies with certain apparel ranges from infants to 3x (Big&Tall).  Customer’s ability to customize and display their personality through their Harley and general motor parts and accessories help customers create dream bikes through customize options.

 

3. Shopping Behavior
 Men over 50 account for 11% of sales.  Men between the ages of 18-30 make up 44% of sales, this group purchase Harleys for their recreation needs, and they purchase mopeds, scooters, and lightweight bikes for their transportation needs.  At Harley, value is emphasized over price.  The average motorcycle purchase will cost the consumer between $2,700-$25,000.  Harley prices tend to be on the high end, making the first time purchase or a repurchase of a Harley Davidson motorcycle less attractive than lower value alternatives.

a. Where and When do Customer Buy Harley Motorcycles
Independent and local dealerships make up a network of more than 1,300 dealerships around the world.  These dealerships are located in United States, Europe, Asia/Pacific, Canada, Japan and Australia, which allow Harley to compete on this global playing field.  Harley motorcycle shipments do fluctuate on a quarterly basis.  First and 3rd quarter shipments are strong with the 4th quarter shipments coming in lower.  Climate and other environmental factors have some affect on dealer activities and may play some role in shipment fluctuations.  However, a large back order list gives Harley the option to produce at full capacity.  This implies that other factors influence their production rate decisions.

 

b. Buying Procedures and Practices
In 2003, Women bought 23,000 new bikes out of 6 million motorcycles sold in America. Women spend more on accessories than men they pay for extra protection and padding.  Dealerships are finding that overall they make less money on women than men because women keep their bikes longer and maintain them better. Men tend to keep their bikes often as long as many will keep a car 18 to 30 months. Men between the ages of 30-50 buy heavyweight touring and cruisers.  Many of these buyers are looking for an alternative to taking a car.

 4. Consumption Behavior
Men under 30 use motorcycles as a cheap alternative to automobiles for their transportation and recreational needs.  Men 30 to 50 use motorcycles for weekend rides in the country and are for recreational in nature.  Men over 50 still want to ride Harleys and look for more comfortable, easy to use bikes.  This customer segment utilizes their motorcycles for leisure and general transportation purposes.  Motorcycles are used in motor sports in particular they are commonly used as dragsters for drag strip competition.  Entry level motorcycle enthusiasts who are only concerned with infrequent usage have the option of motorcycle rental.  This is a small but growing type of end use.  Riders Edge classes are offers to cover basic as well as advanced safety information with expert instructors.

The service requirements of motorcycle have been dramatically reduced with the introduction the maintenance free concept for more many their components.  Some of these maintenance free features include electronic ignitions to increase the interval between tune-ups and maintenance free batteries.  The use of computer-aided design and manufacture has resulted in more robust and durable designs that produce motorcycles that require less frequent service.

 

Another service offered by Harley is GAP insurance.  This insurance is for Harley owns that incur losses such as motorcycle theft, loss of employment or bodily injury.  One key feature of this GAP insurance is its coverage of the gap between the insurance company’s settlement and the outstanding loan amount.  GAP insurance can be purchased in values up to $100,000, in most cases both the insurance deductible amount and loan payment amount will be paid off in full. 

 

5. Frequency, Quantity, and Timing of Purchase
 Demo rides and rentals help customers to make informed decisions based on their personal decisions based on their personal needs along with undergoing the actual experience of riding a Harley.  The frequency of purchasing Harley motorcycle is ongoing.  New and existing customers have many options available to them depending on the customer’s budget.  Existing Harley owners can upgrade and personalize their bike to reflect their individual style.  Production expansion, manufacturing improvements and innovations have contributed to quantity, and timing of purchases.

Harley has responded to market fluctuations by improving its marketing strategy.  Changing their distribution channel by creating a dealer network of independent owners for wholesale units and a new factory in York, Pennsylvania, has re-defined Harley’s ability to improve quality, and reduce cost.  Also, as new product lines are introduced and careful consideration given to the timing of the announcement relative to when these would be available.  This was an attempt to reduce the wait time from point of purchase and to product deliver.  Management has tuned into pricing and sales promotion in their “Right Now” efforts toward supplying demand in a more timely fashion.

6. How Do They Choose/ Evaluation Criteria
HD customers choose their make and model based on design, speed, economics, usage (primary, recreational, leisure etc.)  Some customers choose lightweight over heavyweight, traditional vs. sporty. Customers evaluate their purchase based on personal experience with their cycles.  Riders education classes are designed to train new to experience riders on safety, execution, and riding techniques. It also a good selling tool for HD because upon completion of classes riders self-promote to family and friends which then peek their interest in buying Harley.  Customers evaluate whether to buy a Harley over BMW, Yamaha, and Suzuki based on driving experience, product loyalty, and product impact.  Harley prides itself on delivering excellence in customer service and fostering the mystique of elitism in owning a Harley.  Management trains their employees to become familiar with customers on a first name basis. Member’s only functions and groups such as HOG and the Buell Riders Adventure Group (BRAG) help to make Harley owners feel special and privileged.

B. Extent of Demand
The demand types under considerations in this extent assessment are characterized into space levels, product levels and time levels.  The space levels are Regional (including: United States, Canada, Europe, Japan and Australia) and the product level is Product Line Sales (651cc and up); and the Time Levels are Medium Run and Long Run.  These demand-typing definitions narrow the broader market toward these customers that have interest, income, and access to the motorcycle industry's offerings.  This will constitute Harley Davidson Incorporated's (Harley's) Available Market.  The potential market will be addressed; however it does not warrant primary focus.

1. Size of Motorcycle and Related Accessories Market
Harley's principal activities are classified under two business segments namely motorcycles and related products and financial services.  The motorcycle and related products segment designs, manufactures and sells primarily heavyweight touring, custom and performance motorcycles and related parts. The standard and performance segments are served by the Group's Buell motorcycle line.  They presently manufacture and sell 28 models of Harley-Davidson touring and custom heavyweight motorcycles.  The financial services provided include servicing wholesale inventory receivables and consumer retail installment contracts.  Motorcycles and related products accounted for 95% of 2002 revenues and financial services accounted for 5%. 

It is essential to note that this analysis is for the Motorcycle and Related products segment of Harley's business activities.  This segment of their business has an industry classification of Automotive & Transportation, sub-section Motorcycles and Other Small Engine Vehicles, however its product line focus is on offering motorcycles that have engine displacements of 651cc or larger.  The health of Harley's motorcycle segment is clearly a key to its future success.  This does not mitigate the importance and significant growth potential of the company’s financial segment.

The table below indicates the potential motorcycle market approximated by a measurement of motorcycle registrations during the year 2002.  This information includes sales of used motorcycles which will tend to over estimate the potential but is presented to provide prospective. The data is presented below by region for motorcycles with engine displacements of 651cc or larger

Region              Total Units                                 

U.S. and Canada              474,955                                            
Europe                              303,483                                           
Japan and Australia           63,857                                            
TOTALS                         842,295                                

 

2. Growth of Motorcycle and Related Accessories Market
Over the periods of 1998 through 2002, the volume of annual market sales for motorcycles with engine displacements of 651cc and larger grew in the U.S., Canada and Europe but, reduced in Japan and Australia.  The table below indicates annual market registrations and corresponding growth rates for the regions in which Harley has penetrated markets.   

Annual Market and Growth Rates - Measured by Units Registered
(adapted from investor.harley-davidson.com)                                    

U.S. and Canada	1998	1999	2000	2001	2002
Annual Registrations	246,214	297,849	365,399	422,787	474,955
Growth rate	19.9%	21.0%	22.7%	15.7%	12.3%

 

Europe	1998	1999	2000	2001	2002
Annual Registrations	270,212	306,748	293,424	293,554	303,483
Growth rate	8.0%	13.5%	-4.3%	0.044%	3.4%

 

Japan And Australia	1998	1999	2000	2001	2002
Annual Registrations	69,222	63,097	62,667	62,069	63,857
Growth rate	17.6%	-8.8%	-0.7%	-0.95%	2.9%

 

Totals	1998	1999	2000	2001	2002
Annual Registrations	585,648	667,694	721,490	778,410	842,295
growth rate	13.8%	14.0%	8.1%	7.9%	8.2%

 

3. Cyclicity
Motorcycle sales, 651cc and larger, in the regions in which Harley has penetrated markets is pro-cyclical.  During the economic downturn starting in 2001, annual market sales growth slowed from the 14% range down to the 8% range.  With less disposable income, and motorcycles being considered to be a recreational form of transportation, makes the projected increase in purchases of motorcycles less likely.

4. Seasonality
Sales of motorcycles, based on the example below, appear to have a seasonal aspect.  However this data is actually for shipments to dealers which seem to slow in the winter.  First, second and third quarters have stronger and relatively equal shipments.  The forth quarter having notable reductions.  Motorcycle riding in the Northern Hemisphere is done when this is above 50 deg. F and roads are not covered with snow or sand.  These conditions exist late in the first quarter, the second quarter and third quarters.  This reduction in winter riding could have an effect on the rate of redemptions for ordered motorcycles.  A conclusion of a strong seasonality relationship is not warranted with this example, dealership issues are addressed in a later section associated with distribution. 

 

As an example, the table below indicates shipment figures for Harley Davidson in the quarter indicated.

                                                              

                                 1Q 2002          2Q 2002          3Q 2002          4Q 2002
Harley Davidson Inc.
Motorcycle Shipments              65,999             68,849             70,647             53,805 
(Quarterly SEC filings)

 

5. Forecasts
The rate of Growth in motorcycle sales are forecast to remain moderately strong and consistent with the last several years (in the 8% range).  Europe had a significant reduction in growth rate in 2000 but, has shown a rebound in 2001 and 2002.  Japan and Australia had negative growth rates in 1999, 2000, and 2001 but, rebounded in 2002 with a 2.9% growth rate.  U.S. and Canada have see reducing growth rates but, in 2002 was still showing double-digit growth of 12.3%.  Because motorcycle sales are pro-cyclical an increase in sales rates are anticipated as the North American and European economies resume stronger growth over the next several years.  The overheated Chinese economy may be an area of concern if it has a hard landing resulting in recession.  Such a recession could cause a negative impact on the Japanese economy and in turn impact motorcycle sale in that country.

C. Nature of Competition

1. Industry Analysis

The Motorcycle industry consists of five major manufacturers, American (Harley Davidson, Indian motorcycle), Japanese (Honda, Yamaha, Kawasaki, Suzuki) and some European companies (mainly BMW of Germany and some Italian companies). Between 1975 and 2003, Honda, Kawasaki, Suzuki and Yamaha have dominated the motorcycle industry, but several American and European manufacturers such as Harley Davidson and BMW and Ducati have established strong niche markets.

            a. Competitive Structure

The motorcycle industry is a large and high growth industry where, in many countries, the motorcycle is seen as a viable and affordable alternative to the automobile.  Previously motorcycles were viewed as a cheap means of transportation, but by the early 1990s they came to be viewed as recreational and luxury items. This new perception of motorcycles led to the introduction of more expensive models with higher prices especially in the more developed economies of North America, Europe and Japan.  In addition, strong political and economic developments in other regions for example strong growth in Asia, forced manufacturers to make significant adjustments.

 

The manufacture of low-end motorcycles shifted closer to the emerging markets and the result was that the motorcycle industry evolved from an export base operation to a truly global business.  In this global economy, Honda, the largest motorcycle manufacturer in the marketplace, controlled North America and Japan, and was strategically positioned to take over the emerging markets, where it was prepared to satisfy the demand for cheap transportation.

 

On the other hand, Harley Davidson found success in the large custom-made heavy weight motorcycles in North America, Japan and a few European countries.  However,

BMW chose to focus on luxury and the sport-touring segment, achieving a strong position in Europe. BMW emphasizes a safe technology and an adventurous image and was therefore able to attract recreational riders willing to pay for comfort and the premium label.  The engine size is the main method by which the industry classifies Motorcycle models.

 

The following represents the characteristics, including pricing, of the major classes of motorcycles.  It is interesting to note that the average price range of the motorcycle market leader, Honda, is $5,500 versus Harley’s average price of $16,000.

 

 

Class                      Price Range                           Engine Size            Weight Class                        Mfr.

Standard                                $2,700  - $4,000                     50cc - 250cc           Lightweight                          Suzuki,Yamaha

Performance          $5,000  - $6,000                     251cc - 1200+cc   Middle/Heavyweight            Honda, Kawasaki

Touring                  $10,000 - $18,000   251cc - 1200+cc  Middle/Heavyweight             Harley,BMW

Custom                  $12,000 - $25,000   751cc - 1200+cc    Super Heavyweight             Harley

Source: Motorcycle Industry Council

 

b. Market Potential and Major Trends

The motorcycle industry has experienced a significant increase in sales in the past year. In fact, the Motorcycle Industry Council estimates that in 2004, motorcycle sales reached 1,050,000, building on a trend which has seen the sale of motorcycle increasing for the past 12 years as shown in the following diagram.

Year                             Total

1992                            278,000                                                                                  

1993                            293,000

1994                            306,000

1995                            309,000

1996                            330,000

1997                            356,000

1998                            432,000

1999                            546,000

2000                            710,000

2001                            850,000

2002                            936,000

2003                            1.001,000

 

Source: Motorcycle Industry Council - U.S. New Unit Motorcycle sales

 

 

The Motorcycle Industry Council notes that 1973 was the year that America experienced its highest sale, when it recorded 1.5 million motorcycles sold.  These sales were achieved by purchase of dirt bikes and affordable imports from Japanese manufacturers by baby boomers and their children. Prior to 2003, the last time that motorcycle sales in American exceeded was in 1979.  Motorcycle sales has experienced a double digit annual percentage increase between 1998 and 2002, as more Americans, including women, kids with dirt bikes and seniors have taken up motorcycle riding.

 

The latest data from the Motorcycle Industry Council indicates that foreign brands account for most of the motorcycles sold in the U.S., with the top brands in 2003 being Honda, with 27.4% of sales, Harley Davidson 23.7%, Yamaha 17.4%, Suzuki 10.8% and Kawasaki 8.7% and others 12%.  BMW and Ducati are two brands that are quietly making inroads into the U.S. market by trying to establish strong positions in niche market, where they can create a base to operate from as they move forward to compete with the other major players.

 

It is noted that those firms that are successful in terms of increased motorcycle units shipped, operating efficiencies and favorable product and market mix, dominate the industry.  The World Bank statistical database notes that in 2002, the GDP per capita of the United States was approximately $32,000, and 15 of every 100 people owned a motorcycle.  It is also noted that although sales have been increasing rapidly since 1998, most of the units bought were from customers re-entering the motorcycle market after a period of non-activity. Based on the discussion above, it can be assumed that the market segment in the United States that shows greatest potential for Harley Davidson would be that younger motorcycle generation and women.

 

In addition to the North American market, the motorcycle industry can be broken down into two other major regions, Asia/Pacific and Europe.  The 2002 figures for motorcycle unit sales by manufacturer for the major countries within these regions are shown below.  A brief discussion of motorcycle market trend and potential in some of these countries that are major players in the motorcycle industry will follow.

 

 

Motorcycle Unit Sales by Manufacturer and Country, 2002

Region                          Honda              BMW              Harley              Total

North America 590,000           13,231             223,200           n/a

Europe                         315,000           64,264             21,900             n/a

Asia/Pacific                  n/a                    4,723               14,300             n/a

Brazil                            624,000           400                  n/a                    780,000

Canada                                    n/a                    1,100               37.000             144,785

China                           n/a                    -                       -                       12,130,478

France                          33,500             8,100               3,100               179,600

Germany                      n/a                    28,800             n/a                    160,000

India*                           1,680,700        -                       -                       2,800,000

Japan                           404,000           2,800               7,477               771,100

South Africa                 n/a                    1,100               n/a                    7,891

United States                237,200           13,500             186,200           850,000

Vietnam**                    280,000           -                       -                       2,500,000

Total Units                    6,095,000        92,600             263,700           -

 

Source: Honda 2002 annual report, Motosargentinas (http://www. Motosargentinas.com.ar/bmw.htm). BMW Canada (www.bmw.ca/english/enterprise/milestone.html), Japanese Automobile Manufactures Association, Motorcycle Newswire 2/15/2002, Motorcycle Industry Council 2002 Statistical Annual, US-Vietnam Trade Council (http://www.usvtc.org/index.htm), Yahoo Finance 2003 (hhp://finance.yahoo.com), Harley –Davidson website (http://www.harleycanada.com)

*Hero Honda (26% owned by Honda Motor Company)

** Total based on number of import kits plus number of domestically produced units

 

The Production of motorcycles in Japan has decreased from the early 1980s to the mid 1990s as the manufacturing shifted overseas.  The shift in production operation to overseas allowed the Japanese manufacturer to take advantage of low wages and closer vicinity to regional markets.  It also allowed the Japanese manufacture to tailor its products to the needs of the individual market.  The number of motorcycle use in Japan has also declined from the all time high of 18.7 million in 1987 to 13.7 million in 2001.  However, the number of large motorcycles used in Japan (>250cc) has shown an increase since 1975 reaching 1.3 million in 2001.  The Japanese market is showing an increasing interest in the larger motorcycles, and therefore, it can be assumed that the potential for Harley Davidson to increase its share in this market to a greater extent is a possibility.

 

Motorcycles in China are used primarily as a means of affordable transportation.  China with its large population and a fast growing economy has an immense market potential.  However, this market potential is centered mainly in the 100cc and less capacity.  In 2001, China produced 12.4 million units compared to 49,000 units in 1980. It can be noted that in 1994, China produced 280,000 units with over 250cc, but by 2001 this number had fallen to 67,000 units.  It can be assumed that the market potential for Harley Davidson in the China market is limited since demand for the Harley’s main brands, the heavy weights, are very low.

 

In India, the motorcycle industry is valued at about US$2.2 billion and accounts for 80% of all vehicles sold. India manufactured over 4.3 million motorcycles in 2001 compared with 70,000 in 1975. India with the second largest population and one with rising spending power presents a great potential market for motorcycle manufacturers.  However, like China, the demand is for lighter weight motorcycle, which Harley would have to reassess its priorities if they were to become a significant player in this market.

 

By 2002 Southeast Asia had seen a significant decline in its growth rate.  However, despite this decline, the need for cheap and affordable transportation made this potentially the biggest market in the world. Although there was significant demand, foreign competitors were not able to compete effectively with the domestic manufacturers because of strict government restriction.

 

In the 1980s the motorcycle industry saw a decline in demand for motorcycles because of an increase in the affordability of small cars in European countries such as Germany, Italy, France and the United Kingdom.  However, by the 1990s motorcycle sales increase as more individuals took up riding for recreation and sporting means.  In Germany or example, the sales of motorcycle with engine capacity greater than 250cc grew from 41,000 in 1975 to 165,000 in 1994 to 339,000 in 2001. It can be assumed that in Europe where the demand is for the larger motorcycle, Harley Davidson has the potential of increasing its market share.

 

c. Size, Scope and Share of Market

Harley Davidson has proven to be an industry leader in the heavy and super-heavy market segment, especially with its custom made motorcycles, while the Japanese makers have dominated the market for the light and middleweight classification.  For Harley Davidson, the custom-made motorcycles represent its highest unit volume shipped and a price commanding as much as 50% more than its competitors.  Harley Davidson also has a large share of the touring segment of the heavyweight market and its heavyweight traditional long distance touring motorcycles with fairings, windshields and saddlebags are some of its customer’s favorite models.  The figures below uses motorcycle registrations to represent the scope of Harley Davidson’s market share in the three major markets. It demonstrates that in North America and Asia/Pacific Harley is the leader in this 650cc+ classification, but in Europe it lags behind the major competitors.

 

2003 North American 651cc+ Motorcycle registrations (units in thousands)

Harley Davidson           48.1%

Honda                          18.6%

Suzuki                          10.3%

Yamaha                        9.1%

Kawasaki                     7.1%

BMW                          2.8%

Other                           4.0%

 

2003 European 651cc+ motorcycle registrations (units in thousands)

Honda                          16.7%

Yamaha                        16.0%

Suzuki                          15.5%

BMW                          15.3%

Kawasaki                     10.0%

Harley Davidson           8.1%

Ducati                          6.0%

Triumph                        3.7%

Other                           8.7%

 

2003 Asia/Pacific 651cc+ motorcycle registrations (unit in thousands)

Harley Davidson           25.8%

Honda                          17.8%

Kawasaki                     13.8%

Yamaha                        11.4%

Suzuki                          10.7%

Ducati                          6.6%

BMW                          6.2%

Other                           7.7%

 

Source: Harley Davidson 2003 Annual Report

 

Within the heavy and super-heavyweight classification some of the other models have tried to compete with Harley Davidson by focusing on certain features or usage for example Ducati focused on the performance models while BMW was the touring motorcycles.  In fact, Harley Davidson has done so well with the larger models that some of the other manufactures have made "Harley look alikes" to compete with Harley.  In order to compete both nationally and internationally, it is important that manufacturer understand the nature of demand for motorcycle in that market.  In developing countries, the demand for motorcycle is primarily as a source of cheap transportation and for that reason the demand is more for the low cost models with smaller engine.  On the other hand, in developed economies where motorcycle use is for transportation and recreation, the demand is for heavy and super-heavyweight custom, touring and performance models.

 

2. Competitor Analysis

Harley Davidson

In the 650cc+ market, Harley Davidson has captured 48% of the United States market, 21% of the Japan market but in Europe Harley lacked behind BMW with only 6.6% of the heavyweight market.  Harley Davidson differentiated its bikes from its Japanese counterpart with design emphasis on highly visible chrome parts and the distinctive sound of its motorcycles.  Harley Davidson takes pride in competing with its major competitors on the basis on brand loyalty.  Harley Davidson’s customers display extreme brand loyalty with 41% indicating that they previously owned a Harley, and 92% expressing the intent to repurchase a Harley.

 

 In fact, in the United States, the typical Harley Davidson customer is willing to wait up to six months to receive their motorcycle.  Harley manufactures mostly the touring and custom-made heavy weight motorcycles and prices range from about $6,000 for the Sportster to over $30,000 for the top of the line custom bikes.  The waiting list for a Harley outside the United States is even longer, and in Europe and Japan where supply is intentionally kept low, the price is as much as 25% more than in the United States.  Harley Davidson also uses HOG to promote its motorcycle and its related products.

 

Honda

Honda established a global strategy flexible enough to give it substantial market share in the major regions.  The strategy focused on shifting production closer to the market, understanding the needs of its customers and exceeding their expectation.  In each region, Honda also tried to diversify and make adjustments to its product to satisfy the need of the local market.  Honda also place great emphasis on research and development in an effort to maintain an edge and to keep ahead of its competitors. This is apparent by the 295 billion yens Honda spent on research and development in 2002.  Despite strong competition from Harley and the other major Japanese brand, by 2001 Honda was the leading brand in the United States, with approximately 28% market share compared to its nearest rival Harley with 22% share. Honda like its competitor Harley Davidson also has a riders club, Honda Riders Club that assists to educate its rider on Honda services and products.

 

BMW

BMW pursued a strategy that concentrated on maintaining a premium luxury image.  By adopting this strategy BMW was able to charge high margins while at the same time strengthening the identity of its brand.  A distinctive brand, loyal and dedicated employees, and a profitable growth allowed BMW to achieve and maintain its goal of 10% market share in each of its major markets. BMW has also experienced an increase in the number of units sold, increasing from just 30,000 in 1993 to over a 100,000 in units delivered in 2002.  BMW’s concentration on the larger motorcycles displayed some degree of differences in style and performance from Harley Davidson’s cruisers, and the two companies were able to focus on different market niche.  However, in 1998, BMW produced the R1299C, a retro style cruiser that competed directly with Harley.

 

Yamaha

Yamaha has seen its domestic sales and export units move up and down within the past several years. The domestic sales of Yamaha motorcycles had its highest level of 1,110,000 total units (55,000 units of 250cc or greater) in 1981, but by 2001 this had dropped to 217,000 units.  The export of 250cc or greater motorcycle also had its highest level in 1981 at 346,000 units, but subsequently dropped to 86,000 in 1988. However, by 2001, Yamaha was exporting 211,000 units in this category.  It can be assumed that based on the export figures Yamaha might concentrate more on the heavier motorcycles, which would force them to look at that market segment targeted by Harley.

 

Suzuki

Suzuki, like Yamaha, has seen a fair degree of fluctuation in domestic sales and exports over the past years.  The domestic sales of Suzuki motorcycles in 1981 was over 705,000, and 27,000 were 250cc or greater.  By 2001, the domestic sales had experience a significant decline to107, 000 with the 250cc+ units falling to as low as 6,000 units being delivered.  Suzuki’s worldwide export of motorcycles greater than 250cc reached its highest level in 1981 but declined sharply to 64,000 in 1985. By 2001, sales in this category had increase to 232,000 units.

 

Kawasaki

Kawasaki not only shifted its manufacturing overseas but in the case of its United States operation, in the 1980s produced the 1500cc “Vulcan Cruiser”, a custom bike to compete with Harley Davidson.  Kawasaki experienced its highest level of export in the 1980 at 429,000 units, but this declined rapidly to 200,000 units by 1985.  This has basically remained the same for past few years, with the 2001 exports showing 200,000 units, the 250cc+ accounting for over 50% of that total.  During the 1980s and 1990s Kawasaki saw its sales increased to as high as 65,000 units, 250cc+ models rising to as high as 37,000 units.  However, by 2001 the overall domestic sales hard dropped to 20,000 units, with sales in the 250cc+ units falling to as low 7,600.

 

The following matrix shows the basis on which manufacturers compete in the motorcycle industry. Some of the items were discussed in different sections above and we will complete the analysis by examining the remaining items.

 

 

 

MOTORCYCLE INDUSTRY COMPETITIVE STRATEGY

 

HEAVYWEIGHT CLASS (651+cc) PRODUCTS

LOW COST

PERFORMANCE

TOURING

CUSTOM

 

MARKETS

INTRA MARKET

EUROPE

NORTH AMERICA

ASIA-PACIFIC

 

PRICE STRATEGY

LOW COST

DIFFERENTIAL

 

MANUFACTURING

SALES

DISTRIBUTION

 

COMPANY STRUCTURE

ALLIANCES

INDEPENDENT

 

INFORMATION SYSTEMS

ENGINEERING SYSTEMS

LOGISTICAL SYSTEMS

MANUFACTURING SYSTEMS

BUSINESS SYSTEMS

 

 

Product

Motorcycle manufacturers experience a great deal of competition based on the strategy of product classification. The Motorcycle Industry Council bases this classification on engine capacity, lightweights (50cc - 250cc), middleweight (251cc - 750cc), heavyweight (751cc - 1199cc) and super heavyweight (1200cc and up).  In addition, the competition is also based on the type of use which involves the standard, which highlights simplicity and cost, performance, which emphasize racing and speed, touring mainly for comfort and amenities for long distance travel and the custom made which emphasize the style and customized specifications of the individual owner.

 

Price

Many industries often use price as one of their main competitive tool.  The main benefactor of lower prices in most cases are the consumers, however, the motorcycle company might not gain any financial advantage from a low price strategy.  Lower price was the major strategy used by the Japanese to enter the heavyweight, custom motorcycle market in the 1970s and 1980s.  At that time, this strategy was successful for the Japanese because they had an unlimited amount of financial and marketing resources, as well as a diversified product line.  Harley Davidson realizes that it could not compete with the foreign competitors on the basis of cost and therefore developed a strategy where value was emphasized over price. Harley Davidson differentiated its bikes from its Japanese counterpart with the emphasis on highly visible chrome parts and a distinctive sound, which gave the Harley owner a sense of pride and prestige.

 

Harley Davidson also gave its owners the confidence that the brand was sturdy and constructed to last a long time.  Harley Davidson motorcycles were built mostly from steel, compared to the Japanese manufacturers who used mostly plastic.  Because of the high cost of its inputs, Harley Davidson had to streamline its operation in order to compete with its other competitors.  The motorcycle Industry Council notes that, "Harley introduced a Just-in-time inventory system, a technology improvement program, extensive cost reduction, quality improvement, and employee empowerment programs to counter the manufacturing prowess of the Japanese competitors".

 

Company Structure

The company structure may also help companies maintain their competitive advantage in today’s global environment.  Companies may have an independent operation or in other cases they may have alliances.  In an independent company structure, the company is able to arrange its assets more efficiently according to demand.  On the other hand, in an alliance structure the company is able to offer additional values to the customer on a much more cost-effective basis.  Harley Davidson is an independent company with a high performance work organization, with remarkable leadership from its union, a manufacturing operation that consist of self directed teams and an integrated structure that involves cooperation from its production group, the demand group and its support group.  The Harley Davidson philosophy is that the company, the customer and its support services are one big family who cares intimately about the success and image of the Harley Davidson experience and the brand. 

 

Brand recognition and acceptance are very powerful selling features in the marketing of any product.  The Harley Davidson brand is well known all over the world, and in recent years have made a remarkable comeback where it is once again able to compete with its counterparts on the basis of quality and performance.  Harley Davidson has achieved a cult status with its customers, who think that a Harley is not just the greatest motorcycle in the world, but the greatest vehicle.

 

In some cases, Harley Davidson status has become a lifestyle choice for some individuals, who are not just rider of Harley Davidson motorcycles, but wear the Harley clothes and use Harley gears of all kind.  The primary promoter of this Harley lifestyle is the HOG activities, which not only serve as a customer relation’s tool, but also help to make customers aware of new products and developments.  The HOG has also been a major competitive tool that has helped to keep the Harley Davidson brand in the spotlight with Harley fanatics as well as those who are casually interested in the motorcycle industry.

 

Harley Davidson is able to compete globally because it has over 1065 dealers worldwide.  The dealers are considered to be business partners, with the headquarters helping individual dealers to develop programs, financing improvements, implementing support and management programs to help the overall brand in the motorcycle industry.  The strong support service between headquarters and the individual dealers is a major asset of the company.  This strong distribution channel allows the company to get the general pulse of the industry, both in terms of what the customers are saying as well as technological changes and innovations of its major competitors.

 

Information Technology

Information technology plays an important role within the motorcycle industry.  Motorcycle companies use information technology in all segments of the motorcycle operation from new design tools, new manufacturing technology and the integrated product development process.  In today’s global economy it would be very difficult for a motorcycle manufacturer to compete without a comprehensive information technology system.  Companies have to make sure that there is efficient and effective coordination and communication between the Engineering System, Logistical System, Manufacturing System and Business System.  Harley Davidson maintains a competitive advantage among the industry in terms of information accessibility.  Harley’s information systems do not create a competitive advantage by itself, but combine tactics and techniques to produce what has been entitled the “Productivity Triad”.  It is noted by experts in the industry that, “the combination of (JIT) just in time inventory, (EI) employee involvement and (SOC) statistical control working in concert with information systems as an integrated approach to improve quality and productivity”.

 

Harley Davidson is able to maintain an image as a superior manufacturer in the industry by providing exceptional product styling, performance, quality and reliable customer service.  Harley has done a lot of things right and have built a powerful cult image. However, the company faces many challenges in the future. One of the more serious threats comes from the European Community that will increase custom duties on several American goods.  The Harley Davidson motorcycle is one of the goods that is targeted to suffer this additional tariff.  Harley Davidson must therefore monitor the current events and implement strategies that will reduce the cost of such threats.

 

D. Environmental Climate

1. Technological

 

            a. Core

Advances in engine technology are focusing on 2-stroke engines.  These advances are designed to take advantage of the high power density characteristic of the 2-stroke engine while minimizing the traditional disadvantages.  One innovative design uses a pivoting piston design instead of the standard sliding design.  This design takes advantage of advanced surface coating for compression sealing an to reduce the amount of lubricating oil by 90%.  The motorcycle applications of these new 2-stroke engine designs will tend to impact lightweight segments like dirt bikes and sport bikes.  The key ongoing technological advancements for all motorcycle engines including the 4-stroke engines used on heavyweight and cruiser segment are increased reliability, reduce maintenance, smoother operation, reduced emissions and fuel efficiency.  Most of these advances are realized through the utilization of tighter manufacturing controls and the application of electronic engine management controls.

 

            b. Process

Manufacturing processes such as statistical process control and the lean manufacturing are critical to today's highly competitive manufacturing environment.  The use of computer aided design and manufacturing will help ensure high quality production, minimizing waste and reducing costs.  These areas continue to yield new efficiencies and synergies as these new manufacturing technologies mature.  Continual investments in upgrading work force skills in these areas are essential for future success of motorcycle manufacturers. 

            c. Information

The use of information technology has revolutionized many industries.  Computer aided design and manufacturing are integrated.  Inventory control and sales information are now easily integrated into inexpensive computer networks.  Easily accessible information is critical for managers to allocate resources toward meeting customer needs and desires while minimizing inventories of parts for slow selling product offerings.  Robust utilization is essential for being able to quickly respond to customer trends while minimizing overhead costs.     

 

            d. New Product Lead time

Being able to bring new products to market with short lead times is more important to some motorcycle segments than to others.  The high performance sport bike segment is very sensitive to advances in performance technology.  Quick integration of the new technologies can have a big impact on sport bike sales.  The cruiser class motorcycles are more sensitive to comfort and ease of operation issues which tend to evolve more slowly and make this class less reliant on quick new product lead times.   

 

2. Legal/Political

Helmet law issues are the most notable legal concern in this category.  Although very controversial when first enacted, its affect on sales is minimal.  Its expansion of Asian operations within Japan or other Asian regions may encounter political barriers.  As Harley is recognized as an American brand, it may find difficulty with national sentiment, tariffs and renewed Asian competition.  Market penetration could likely be achieved through creative arrangements and partnerships but may dilute the strength of the Brand in North America and Europe.      

 

3. Ecological

The production and operation of motorcycles utilize technologies and resources that are also needed for the production and operation of automobiles.  The infrastructure for raw material supplies and energy resources are ensured as long as automobile industry remains viable.  Emissions issues are also aided by the automobile industry as it makes the emission from motorcycles, as a group, insignificant by comparison.  However, Harley's commitment to quality brought fuel efficiency to the engine design with electronic ignitions and electronically controlled fuel systems which help reduce emissions as a by-product. Threats from an ecological perspective are minimal. 

 

4. Economic

Sales of motorcycles with engine displacements of 651cc and larger are generally pro-cyclical.  Declining economic growth will result in declining sales growth; however, regional impact may vary.  The United States and Canada showed a decline in the growth rate of sales during the economic down turn starting in 2001, 22.7% in 2000 down to 12.3% in 2002.  Japan and Australia peaked in 1998 at 17.6% and posted declines of -8.8% and -0.7% in 2000 and 2001, respectively.  Europe peaked in 1999 at 13.5% and posted results of -4.3% and 0.044% in 2000 and 2001, respectively.  Motorcycles sales in Japan, Australia and Europe are more dramatically impacted than sales in the United States and Canada.  Economic recoveries, with sustainable rates of growth have taken hold in all of the regions discussed above.  These sustainable growth rates will help sales of all pro-cyclical industries including motorcycle sales.

 

5. Social/Cultural

As the internet is adopted throughout the world, American icons and brands are becoming more familiar and tolerated if not outright acceptable.  Advertising and "selling" the brand via the internet may lead the way to new world markets.

 

6. Demographics

The population growth rates in the United States, Canada, and Europe have annual growth rates between 0.9% and 0.3%.  Population growth in these key markets will not be the driver for sales growth growing, increasing market share and higher penetration levels within the critical customer demographics are the areas of opportunity.  The customer demographic, men ages 30 to 50, will not lose its last baby boomer until 2015 indicating a sustained source of customers in this critical range for the heavyweight motorcycle.

The table below provides motorcycle uses and preferences by age and gender.

Age (men)	% of All Sales	Uses
30	44	transportation and recreation needs, predominately lightweight      class but, a great opportunities because of the group’s size
30-50	45	motorcycles most frequently purchased are the heavyweight            tourers and cruisers, weekend rides in the country, clearly a strong opportunity for heavyweight producers
Over 50	11	most sales are heavyweight touring class and the middleweight road bike
Women (all)	<1	segment is small but growing at a fast rate, smaller and easy to handle motorcycles are preferred

 

E.              Product Life Cycle

1. Current Stage                           

Harley-Davidson’s product offerings fall into four major categories; 1. Motorcycles, 2. Genuine Parts, 4. Financial Services and 4. Merchandise.  The chart below demonstrates Harley’s revenues are primarily derived from the sale of motorcycles.  Because motorcycles are the product category driving Harley’s revenues, this product life cycles analysis is focused on them.  Motorcycles are Harley’s Major product and all other channels of business are operating in a complementary fashion, not independently.

 

            a. Category Level

The product life cycle (PLC) for motorcycles, as a category, has reached maturity. 

 

            b. Product Level

Harley’s motorcycle product types are basically grouped as sportster, custom or touring, all three of these product groups have reached maturity.  

 

Revenue Categorized by Product Category

2. Other Product Life Cycle Issues

Harley is no longer developing new, differentiated product categories but, instead is working to gain market penetration, changing incidental clients to regular clients and regular clients into heavy clients.  The sales and net income life cycle of different group categories below depicts the maturity level for each product group. Within the product categories of motorcycles, new models are launched which fluctuates the market but only has marginal effect on the overall PLC.  Technological improvements in efficiency, performance, safety, handling and comfort are the kind of product upgrade driving the mini-cycles of these mature products.  

 

a. Product Shipments

The Sales Trend Chart depicted below shows the continuous increase in shipments for the three motorcycle product types that Harley produces; (Sportster, touring and Custom).

Note: The Custom product includes Dyna Glide, Softail and VRSC models.

      

Shipments by Motorcycle Product Type 1986 - 2003

 

The Continuously growing of shipments’ of Harley-Davidson motorcycles are indicated in the chart above.  The annual rate of Custom motorcycles shipments is twice as high as the other two types are more than any other Harley product.

 

 

 

b. Product Life Cycle and Income

 

Net Income Trend of Harley Davidson

 

The chart above indicates the Net Income trend of Harley-Davidson depicting it maturity level and the gradual net income increase over the years.  Many wonder if Harley can sustain these growth levels.

 

3. Life Cycle Conclusions

The product life cycle of a Harley-Davidson motorcycle (technological upgrades as discussed above) is not more than 8 to 10 years.  New models with different styles and looks are launched every year but the older models still remain under production unless the demand goes down. Passionate motorcyclists who don’t want to lose their legendary motorcycles replace the old parts with new ones and may continue to use their  Harley for 30 to 40 years.  It is not uncommon to see motorcycle shops that may not necessarily sell new Harleys, but offer valid Harley motorcycle support  by providing parts and services.

 

F. Cost Structure of the Industry - Fixed vs. Variable costs

**still under construction by Ewan -2/26/05

 

G. Distribution Structure

Harley-Davidson motorcycles are sold by over 1,065 dealers worldwide. Their distribution intensity is low and they have exclusive outlets for motorcycles. With exclusive showrooms selling other Harley products like clothing and parts and accessories, it distinguishes itself from others.

 

 

Harley-Davidson has positioned itself for motorcyclists and to the general public. They sell themselves as a dream rather then just a transportation means. By concentrating more on Brand building and quality service, Harley has projected its brand image producing greater results than many of its competitors.

 

 

Harley Davidson, Inc.

Bibliography and Other Resources

 

 

Other References:

 

1. http://a1264.g.akamai.net/7/1264/734/d1a1838e309312/www.harley-davidson.com/CO/INV/AnnualReports/2003/pdfs/2003HDAnnual%20Report.pdf
2. Annual Report: Harley Davidson 2003
3. http://www.investor.reuters.com
4. Yahoo finance
5. Source:  Milwaukee Journal Sentinel : Jan. 2005
6. Annual Report: Harley Davidson 2003
7. Yahoo finance
8. Business.com
9. Harley-Davidson.com
10. Harley Davidson Inc. Annual Reports 1998,1999,2000,2001,2002,2003
11. SEC Quarterly filings
12. investor.harley-davidson.com