Harley Davidson a comprehensive Case Study Solution

1. Harley Davidson Inc. (2002)
the 100th Anniversary.
Prepared by: Fayyaz Ahmed (1402)
Kaleem Ullah (3026)
Muhammad Salman Qurashi (0267)
Muhammad Talha (0300)
Prepared for: Ahsan Durrani.
Subject : Strategic management
Semester: Fall 2014

2. Harley Davidson: 100th
Anniversary
 Part 1: Industry features

3. Industry’s dominant features
• Number Of Rivals:
In year 1975 till year 1980, Honda Motor
Company introduces a motorcycle
named Gold Wing in USA, which gets
famous for it low price large touring
motorcycle. Whereas, Suzuki and
Yamaha were entering the industry with
Harley-Davidson look-a-like
motorcycles.

4. Degree Of Product
Differentiation:
In year 1981, the company’s management was
shifted hands from AMF (American Machine
Foundry) towards Vaughn Beals, the head of
Harley at that moment. The new management
installed a Material as Needed (MAN/JIT)
system of inventory for stabilizing the
productions and reduce the number of
inventories held in warehouse. Management
purchase and installs a Computer Aided Design
(CAD) system that allows them to change the
entire product. In year 2001, Harley – Davidson
introduce the V – Rod style for placing its
motorcycle cruisers’ engines.

5. Market Size and Market
Growth:
 In the U.S., Harley-Davidson (H.D)
has growing its appeal across borders
and generations 35.9% of total
productions of motorcycles were
shipped to international markets.

6. 49%

7. Analyze Porter’s five forces acting
on the industry?
 Force1 – Rivalry among the competitive sellers of
same industry: In North America, 43% Harley –
Davidson 651+ CC motorcycle were registered in year
2001, rest 57% market share is with rivals. In Europe, the
market share of Harley – Davidson 651+ CC motorbikes
is 7%, rest 93% is with the rivals. In Asia-Pacific, H.D
market share of 651+CC motorcycles is 20%, rest 80%
resides with rivals. Rivals of H.D had their rivalry on
product style, design, ease of service, and performance
features. The market is reaching to its maturity and
availability of motorcycles with easiness of working
alongside with it plays an important role in determining
the level of profit earned. The major rivals all around the
world are Honda Motors, Suzuki Motors, Yamaha Motors,
BMW Motors, Ducati Motors, and Kawasaki Motors.

8. Force2 – Firms in other industry
offering substitute products:
 Heavyweight motorcycles are a luxury item for the vast
majority of consumers so there are few close substitutes
for heavyweight motorcycles that could serious affect
the market. Passenger cars are weak substitutes for
heavyweight motorcycles because consumers rarely
purchase them to satisfy transportation requirements.
These bikes are more of a luxury item than a necessity
for traveling from point A to point B. Even though
motorcycles may be better through traffic and use less
gasoline than a car a consumer purchasing a motorcycle
for these reasons would be more inclined to purchase a
lighter motorcycle, which would be more maneuverable
and fuel-efficient than a heavyweight bike.

9. Force3 – Bargaining power of
buyers:
 Individual buyers have high bargaining
power as they have a choice in
switching between the products
offered in the industry. Individual
buyers have sufficient bargaining
leverage for influencing the terms of
sale in their favor. Another factor of
high bargaining power of buyers is the
moderate or less differentiation
between the motorcycles.

10. Force4 – Bargaining power of
Supplier:
 The suppliers and/or manufacturers of
651+ CC motorcycles have low
bargaining condition. But the suppliers of
repair parts have a moderate bargaining
power for the engines repairs as the
substitute available for specific engine
repair parts are hard to find. Buell has
the potential to influence the market as
they are customizing the engine as per
the collaboration with HD.

11. Force5 – Potential new entrants’ threats:
The threats of new entrants
is very low because the
new entrant have to bring
some drastic change in the
infrastructure of motorcycle
building as the industry is
going towards maturity.

12. “Porter’s five forces summary”
Forces Strategic Significance
Internal Rivalry LOW-MODERATE
Threat of New Entrants LOW
Threat of Substitutes
Products LOW-MODERATE
Bargaining Power of Buyers HIGH
Bargaining Power of
Supplier LOW

13. Threats for new entrants
Factors HUF
A
MUF
A
Neutra
l
MFA HFA comment
Economies of scale
Capital required
Access to
distribution channels
Expected retaliation
Differentiation
Brand Loyalty
Experience Curve
Govt. Action
Small
Low
Ample
Low
Low
Low
Insignificant
Low
2
3
3
3
3
4
5
5
Large
High
Restricted
High
High
High
Significant
High
It is too high because
industry leader has been
working for the last
century.
Because of luxuries
industry
183 new outlets have been
established.
Major shareholder so may
be retaliate or not.

14. Exit Barriers
Factors HUA MUA Neutral MA HA Comments
Specialized Assets
Fixed Cost of Exit
Strategic
interrelationship
Government
Barriers
Hi
Hi
Hi
Hi
1
2
3
4
LOW
Low
Low
Low

15. Competitive Rivalry
Factors HUFA MUF
A
Neutral MFA HFA Comment
Composition of
Competitors
Mkt. Growth rate
Scope of competition
Fixed storage Cost
Capacity Increase
Degree of
differentiation
Strategic Stake
Equal
Size
Slow
Global
High
Large
Commo
dity
High
1
1
2
2
2
4
4
Unequal
Size
High
Domestic
Low
Small
High
Low

16. Threats of Substitutes Products
Factors HUFA MUFA N MFA HFA Comment
Threat of Obsolescence
of Industry’s product
Aggressiveness of
substitute products in
promotion
Switching Cost
Perceived price/ value
Hi
Hi
Low
Hi
1
3
4
5 Low
Low
High
Low

17. Powers of Buyers
Factors HUFA MUFA N MFA HFA Comment
Number of Important
buyers
Threat of Backward
integration
Product supplied
Switching cost
% of buyer’s cost
Profit earned by buyer
Importance to final
quality of buyers Pr.
Few
High
Commodity
High
High
Low
High 1
2
2
2
3
5
5
Many
Low
Specialty
Low
Low
High
Low

18. Powers of Suppliers
Factors HUFA MUFA N MFA HFA comment
# of important Suppliers
Switching cost
Availability of substitutes
Threat of forward integration
Importance of Buyer industry
to supplier’s profit
Quantity purchased by the
industry of supplier’s product
Suppliers product an important
input to the buyer’s business
Few
High
low
High
small
low
Highly
Important
1
2
2
3
3
4
4
Many
Low
high
Low
large
High
Less
important

19. Part 2: Company Analysis.

20. Over All Industry
Attractiveness
Factors Unfavorable Neutral Favorable
Entry Barriers
Exit Barriers
Rivalry among existing firms
Power of buyers
Power of Suppliers
Threat of substitutes
1
1
1
2
3
3

21. QNO3) what are the Drivers of
change for the industry?
There are many forces which play main role in
shaping the industry so does in biking industry
there are some very crucial forces are influencing
and changing industry direction some most
important of them are this four forces or drivers
which are being explained in below description.

22. 1) Regulatory Influences and
Government Policies:
Steel tariffs had been put by
President Bush in 2002 on steel
that posed a threat toward all
steel using manufacturing
products and biking industry was
one of those industries which
has great used of steel in their
bikes.

23. Assessment of Impact:
 If steel tariffs put in place it surely posed
a great threat because the cost of
manufacturing bike will increase and it
will leave a great impact on the industry
on the one hand it will reduce the
demand of bikes if bikes prices
increased less people would like to make
a purchase or shift to substitute on the
other hand it will decrease the
profitability of the firms as cost
increases. This result could be loopholes
big enough to drive a flatbed of cold-
rolled sheet metal through.

24. Needed Strategy Changes:
 Companies should make a bond with
internal American steel supplier so by
doing this those manufactures would
have a competitive advantage over
rivals who will purchase expensive
tariff levied steel from the other world,
so by internally steel purchasing one
manufactures can cope up with this
industry changing force and make it
an opportunity and increase
profitability.

25. RECESSION MAY ALSO SHAPE THE INDUSTRY
AND MAKE A TURN TOWARD DIFFERENT
DIRECTION SO IT DID HAPPEN IN THIS INDUSTRY
AS WELL.
2) Global Recession:

26. Assessment of Impact:
When the recession collides to the
economy, people tend to save money
instead of investing into stocks and
inclined not to purchase luxuries and
as heavy bikes are also parts of
recreation not mostly used for typical
transportation. So this industry has
also felt the impact by this driver of
change.

27. Needed strategy Changes:
 Harley strategy was also doing favorable
in spite of recession because Harley had
seen sales and stock price growth and
among the 17 wall street analysts were
tracked by Bloomberg where 16 rated it
buy and only one hold” it. That’s a clear
sign of attraction in Harley stocks, by this
there strategy seemed to hold true that
this is a recession-resistant, but off
course it’s not recession proof.

28. 3) Changes in who buys the
Product and how they use it:
 This is another driver of change as it moving the
this industry toward a new direction which is
making its way as more and more females using
this heavy bikes where as It had believed to be the
man love to have a heavy bike or it used to be the
masculinity sign but the percentage of purchases
of heavy bikes made by ladies have been
increasing every years.

29. Assessing impact:
 The change in purchaser demography may
have an impact on the industry as it’s creating
new gender into purchasing the product of this
industry it will also increase the demand of
product as more buyers are entering into the
industry it can alter industry and competitive
condition.

30. Needed Strategy Changes
 Harley must need to take females into
consideration, while designing their bikes in order to
attract more this demographic purchaser, they can
also design a different model for females that may
have less weight than the male one but will seem and
maintain the same shape and design with a heavy
and rough image.

31. Q1) what is the present strategy of the
company?
 Business Strategy:
 Focused differentiation
 Company exclusively focused on heavy weight motorcycle
segments.
 Distinctive design and well known for heavy customization.
 Best style and quality.
 Not just a product but symbols of American Free-spiritedness.
 Brand focused on becoming a "lifestyle brand” or “a cult brand”.
 A strong bond between Customers and Product.
 Had made it beyond competition.
 Majorly the target group is people age between 35 and above.
 First to launch “The ladies of Harley” for women.

32. CURRENT INTEGRATION AND
CORPORATE STRATEGIES
 Vertical Integration
 Horizontal Diversification

33. 1. VERTICAL INTEGRATION
 HD uses both backward and forward integration
 More than 750 suppliers of g&s are used in the
design and manufacture of motorcycles, parts and
accessories
 The control of inputs is a necessary part of just-in-
time manufacturing
 HD has been backward integrating to maintain control
over the quality of suppliers
 HD owns most of its distributors
 Distributing completed motorcycles throughout the
world
 HD is responsible for the delivery of parts and
accessories

34. 2. HORIZONTAL DENSIFICATION
 HD has acquired Buell Motorcycles and Eagle
mark Financial Services, in order to provide new
product lines for their customers.
 Buell was acquired in order to be able to provide
customers with a V-twin powered Sport motorcycle.
 This type of motorcycle has become increasingly
popular with the younger and European riders.
 Eagle mark provides motorcycle financing,
motorcycle casualty insurance and extended
service contracts for HD and Buell motorcycles.
 They also issue the HD Chrome VISA Card,
allowing riders and customers to show their brand
loyalty.

35. Q2) How well is the company’s present
strategy working? (complete financial
analysis for the last three years)
Particulars 2001 2000 1999 1998 1997
Gross Profit to sales ratio 35.1 34.1 34.1 33.5 33.3
Net Income To sales ratio 13.0 12 10.9 10.3 9.9
Interest income to sales ratio 0.5 0.6 0.3 0.2 0.4
Cost of goods sold to sales ratio 64.9 65.9 65.9 66.9 66.7
Profit before tax to sales ratio 20.0 18.9 17.2 16.3 15.7
Selling expense to sales ratio 17.2 17.7 18.2 18.3 18.6
Working Capital 949154 799521 430840 376448 342333
Current Ratio 2.3 2.6 1.8 1.8 1.9
Quick Ratio 2.1 2.2 1.5 1.4 2.9
Debt to equity ratio 78% 73.30% 81.90% 86.40% 93.40%
Debt to Asset ratio 43.60% 42.30% 45.02% 46.30% 48.30%
Receivable turnover 12.8 days 12.3 days 15.1 days 63.7 days 21.2 days
Inventory turnover 30.2 days 36.5 days 38.1 days 41.4 days 36.4 days
Days of operating cycle 43 days 48.8 days 53.2 days 105.1 days 57.6 days

36. Key External Factors Weight Rating Weighted score
OPPORTUNITIES
The European demand for Harley Davidson is the highest in the international market and
represents the single largest motorcycle market in the world 0.15 4 0.6
The international heavy weight market is growing and is now larger than the U.S.
heavyweight market 0.15 4 0.6
Women and younger riders are increasing interested in bikes 0.1 3 0.3
Market share is increasing in Europe and Asia for the last two years 0.1 3 0.3
Increasing demand in US markets for bikes 0.1 2 0.2
Customers value quality parts 0.025 1 0.025
THREAT
Harleys ongoing capacity restraints caused a shortage supply and a loss in domestic market
share in recent years 0.15 4 0.6
Harleys average buying age is 42 years old and increasing 0.1 3 0.3
The European Union's motorcycles noise standards are more stringent than those of
Environmental Protection Agencies in the U.S. and increased environmental stand 0.025 3 0.075
Some competitors of Harley Davidson have larger financial and marketing resources and they
are more diversified 0.025 2 0.05
Environmental protection laws 0.025 4 0.1
Buell division needs to continue to produce a quality motorcycle under Harley's brand name 0.05 1 0.05
TOTAL 1 3.2
Q3) what are the opportunities and strengths faced by the company? Develop an EFE
Matrix?
EXTERNAL ANALYSIS FACTOR (EFE) MATRIX

37. Q4) what are the strength and weaknesses of
the company? Develop an IFE matrix?
INTERNALANAYLSIS FACTOR (IFE) MATRIX
Key External Factors Weight Rating Weighted score
STRENGTHS
Strong brand name 0.15 4 0.6
It has strong market department 0.15 3 0.45
Strong relations built on trust and respect with suppliers and dealers
0.1 3 0.3
It is only major American motorcycle manufactures 0.1 3 0.3
The standard and performance segments of Harley Davidson make up 70 %
of the European heavy weight motorcycle market 0.1 4 0.4
strong financial performance 0.05 4 0.2
WEAKNESSES
Harley Davidson doesn’t emphasize price in it’s product 0.1 2 0.2
Loss of benefits 0.1 3 0.3
Lack of opportunity for advancement 0.1 3 0.3
Facing ongoing capacity constraints 0.05 4 0.2
TOTAL 1 3.25

38. Q5) Identify the strategic
issued/problems faced by the
company?
The first and foremost addressed problem was for Harley was
facing the national competition in this market.
 Retail motorcycle financing
 Banks and different financial institution that provide retail
financing to local markets.
 Wholesale financing market condition of Banks and other
institutions and aircraft manufactured were also giving a tough
time.
 In September 28 they also had to face a Lawsuit which was lodged
against them by a nationwide class. The reason behind it’s that the
repairing suits were defective found.
 Capacity constraints led to decreased international market share
 Due to rapid expansion, quality control suffered.

39.  The first issue Harley-Davidson must successfully address is the
fact that consumers see the firm’s products primarily as leisure
items. This means that in many consumers’ eyes, purchasing
motorcycles, performance parts, and high-dollar apparel is a
luxury rather than a necessity. Because of this, Harley’s products
must compete for funds from what at least sometimes can be
volatile discretionary budgets for consumers.
 Harley-Davidson is challenged to effectively specify its target
market as a first step to appropriately serving that market’s
needs. Historically, the firm’s target market has been males
between the ages of 29 and 55. However, in the last decade,
Harley-Davidson has pursued younger riders and women as a
means of expanding its target customer segments.
 Demands and cost drivers for the motorcycle market are ever
changing. Overseas competitors have shifted their focus from
being the least expensive to being affordable and to providing a
wider variety of motorcycles to customers as options to
purchase. This competitive shift has put pressure on Harley-
Davidson’s key markets and has forced the firm to respond.

40. Q6) Develop TOWS matrix?
 TOWS ANALYSIS:
 S-O Strategies
 Expand production into Europe and Asia
 Expand marketing to female riders
 S-T Strategies
• Increase strong brand name
 W-O Strategies
• Pursue foreign markets more agressively
 W-T Strategies
• Improve employee relationships

41. Q7) Identify the alternative strategies which may be
suitable to resolve the issue?
 Expand into Foreign Markets
• Asia
• Europe
 Product Development
• Expand Motorcycle line for younger market
• Buell expansion
 Concentric Diversification
• Other recreational vehicles
• Expand HOG and BRAG owner member groups
 Made new alliances with some local bike companies to produce low cost in
India
 Increasıng dıversity programing
• Tour
• museum
 Increasing Adversting Activities


42. Q8) Develop SPACE matrix?

43. Q9) Recommend strategy that the
company should follow?
 1 BRANDING TO GENERATION Y
The goal of this paper is to get insights into the Harley-Davidson
brand and to make it more attractive to young people outside the
US. In the following paragraphs, generation Y and how they can
be targeted more efficiently will be described by using research
of Van den Bergh on this subject. (VAN DEN BERGH, Joeri,
2011)
1.1 AUTHENTICITY/ REALNESS
 Van den Bergh states that authenticity is still one of the major
drivers for young people to consider a brand. (VAN DEN
BERGH, Joeri, 2011). Authenticity however, is not anymore
about origin, history and heritage but all about being honest to
yourself, to your consumers and to society. The classic
interpretation of authenticity should never be shouted but only
be whispered. Eristoff has used this insight to build “Pretty
honest for a vodka-campaign”.

44. Recommendations (contd.)
1.2 SELF-IDENTIFICATION WITH THE BRAND
 The new generation is stimulus junkies. They have grown up in a
society where advertising and stimuli are omnipresent. They know
advertising is there to sell products but they couldn’t be bothered
less about it. Content is king but they have more trust in people than
ever. Friends help this generation decide what to buy and employees
or shop personnel are key to sell products. Brands that appeal to this
generation use social media and don’t push their messages but
engage the new consumer by offering him control.
1.3 UNIQUENESS
 Another thing that is very important for branding to young people is
uniqueness. On this subject,
 Harley-Davidson has to stick to its brand positioning and brand
DNA.
 Trying to change this identity will damage the brand.

45. Recommendations (contd.)
 2 GENERAL RECOMMENDATIONS
2.1 QUALITY
The product quality of Harley-Davidson is one of its
weaknesses. This will have to be fixed. If Harley-Davidson
wants to keep high brand equity, it will have to improve the
quality of its products.
 2.2 BRAND MANAGEMENT EXTENSION
If the brand wants to stay relevant for every consumer, Harley-
Davidson will have to develop marketing programs for every life
stage of the consumer. New consumers and old consumers
both have a different depth of relationship with the brand but
both need tailored communication plans. Apply Kapferer’s
model for brand management extension and adapt marketing
programs to different consumer life stages.

46. Recommendation (contd.)
◦ BRAND EXTENSIONS
 Harley-Davidson made a mistake by launching too much
category extensions like perfume but not only this kind of
category extension can harm the brand. It is not wise for
Harley-Davidson to start producing bikes in the race category
or performance category. First of all, extending the Harley-
Davidson brand in these categories will damage the brand
DNA and secondly, buyers of these kinds of motorcycles will
never be convinced about Harley-Davidsons brand values.
They have other values and they will never match those of
Harley-Davidson. Creating a new sub brand can be a solution
if it is financially possible. If Harley-Davidson wants to avoid
brand dilution, the brand has to be more careful with category
extensions.
 Line extensions on the other side, can help to strengthen the
brand and to make it more attractive to certain target groups.
 Recommendation 8: Continue introducing line extensions but
avoid too much line extensions to remain profitable.

47. Recommendation (contd.)
 BRAND COMMUNICATION STRATEGIES
Placing the brand communication strategy behind the
recommendations may seem a bit strange, but since this brand
communication strategy is based on the recommendations, it is better
to present it here.
 TARGET AUDIENCE
The target audience of the new brand communication strategy is young
people between 20 and 35 who are attracted by values like freedom,
pleasure and dreams with a touch of rebellion. Men as well as women
have to be taken into consideration, eventually with different but
consistent communication plans. Because of the current customer
profile of Harley-Davidson, the new brand communication has to
appeal to baby boomers as well without driving them away from the
brand.