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Read the case “Harley-Davidson: Strategic Competitiveness that Span Decades” and answer the following questions in a single Word document.Analyze the impact of the firm’s general environment. Highlight the global segment, economic segment, demographic segment, sustainable physical segment, political/legal segment, and sociocultural segment.Perform an internal analysis to identify the firm’s strengths and weaknesses.Based on the materials available to you, recommend an international corporate-level strategy for the firm and explain its rationale. Also identify the firm’s strategic options for entering the China market and focus on the available entry modes. Which mode of entry would you recommend? why?A sample paper was provided, which include the same professor’s comment. The sample paper was already turned in into turnitin.
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Case 14
Harley-Davidson: Strategic Competitiveness that
Spans Decades
Guriqbal Cheema, Joel Cunningham, Pallavi Daliparthi, John Klostermann, Brian Rabe
Texas A&M University
Kent Grayson
Professor of Marketing, Northwestern University
Introduction
Harley-Davidson is an American cultural and business
icon on the level of Levi Strauss and Coca-Cola. Often
imitated, but never duplicated, Harley-Davidson has
managed to survive, and has, at times, thrived for many
decades. Through depression, recessions, world wars,
high technology developments, Japanese competition,
and increasing government regulation, Harley-Davidson
has maintained operations where over a dozen other U.S.
motorcycle firms have failed. Harley-Davidson has even
survived over a decade as a subsidiary of a bowling alley
service firm. It has achieved this by essentially relying on
designing, manufacturing, selling, and servicing a relatively static product: two wheels, a 45° V-Twin engine,
and a set of handlebars.
How has Harley-Davidson managed to survive
through these and other hardships in a motorcycle
market that is dominated by leisure riders? How has it
kept the doors open while its historic U.S. rival, Indian
Motorcycles, is currently in its fourth incarnation? How
has it maintained its attractiveness with outlaw bikers,
investment bankers, and those who appear to be experiencing a “mid-life crisis” and who sometimes turn to
the firm’s products as a result? More importantly, what
is this firm selling that keeps it as the industry leader in
full-size motorcycles? The answer to these questions is
not a 526-pound batch of steel with 250 feet of wiring,
but rather the fact that Harley-Davidson is selling the
American dream of freedom. How it is able to do this is
a fascinating story.
The Challenge
With over 6,000 employees, 1,400 franchises, and nine
production facilities, Harley-Davidson has managed to
survive the economic downturn that was in full force in
late 2007 and for the next few years; but the firm is not
out of the woods yet. In fact, Harley-Davidson is struggling with three pivotal issues, the first of which is that
the firm’s products are viewed as leisure items. The other
two issues are similar in nature in that they deal with
the fact that managing the firm’s target market is challenging, particularly as demand for its products is changing. Individually and collectively these issues pose a real
challenge to the company’s long-term success. Without
addressing these issues, Harley-Davidson may lose its
ability to create value for customers and to serve stakeholders’ needs as a result.
As noted, 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. When
economic conditions are challenging, the motorcycle
market tends to experience difficulties in terms of generating adequate sales. While Harley-Davidson’s revenue
streams originate from several sources, very few of them
appeal to a cost-sensitive consumer base.
© Vividfour / Shutterstock.com
“It’s more than a brand. It’s a culture.”1
176
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Case 14: Harley-Davidson: Strategic Competitiveness that Spans Decades
Second, 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. But expanding
the segments the firm serves with its products is not a
risk-free decision or choice for the firm to make in that
serving others might cause the firm to lose its ability to
effectively serve the specific needs of the 29- to 55-yearold male (again, the historical target customer). This
matter is considered more fully later in the case.
Third, 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. With
over 12 percent and 55 percent of the European and U.S.
heavyweight motorcycle market respectively, HarleyDavidson has a substantial territory to defend.
History.2 Harley-Davidson, Inc. has been a pub-
licly traded firm since 1987. It has two primary divisions: Motorcycles and Related Products and Financial
Services. The Financial Services Division provides credit
to motorcycle buyers and dealerships as well as risk management and insurance services for all parts of the firm.
The Motorcycles and Related Products Division currently operates through eight primary segments:
■■ Parts & Accessories (17.5 percent of net revenue in
2011)
■■ General Merchandise (5.9 percent of net revenue in
2011)
■■ Licensing ($43.2 million of net revenue in 2011)
■■ Harley-Davidson Museum
■■ International Sales (32 percent of net motorcycle revenue in 2011)
■■ Patents and Trademarks
■■ Other Services
■■ Marketing
In 1903, William S. Harley and Arthur Davidson
founded Harley-Davidson Motor Company, known
by enthusiasts as “the Motor Company,” in order to
fund their racing pursuits. Accordingly, their first
motorcycles were merely contemporary bicycles with
small engines retrofitted to the frame. It was HarleyDavidson’s early success in motorcycle racing that
CHE-HITT11E-13-0403-CaseStudy14.indd 177
177
fueled the demand for its early models, which were sold
in dealerships as early as 1904. Because these turn of the
century races were as much about endurance as speed,
Harley-Davidson acquired invaluable knowledge pertinent to practicality and robust design. After significant
success in road and endurance races, Harley-Davidson
broke fresh ground with the introduction of the V-Twin
engine design. Superior to large single-cylinder engines,
the lighter V-Twin design allowed similar displacement
in a lighter package with a shape that fit naturally into
the bicycle-inspired frames of the early 1900s. Few suspected that this design would become so integral to
modern motorcycles.
Having dedicated over a third of its production to
the U.S. Army, Harley-Davidson sales exploded during
World War I. With the advent of motorized warfare, the
motorcycle proved itself to be far more than just a novel
invention. In addition to proving itself to the Army,
Harley-Davidson also proved itself to soldiers. After
the war, soldiers returned home and became a loyal
customer base for the young firm. Through the 1920s,
Harley-Davidson continued to focus on design improvement and racing. It spent much of this decade fighting
for market share with multiple medium and small competitors. During this time, firms producing automobiles,
airplanes, bicycles, and industrial machinery also tried
their hand at building motorcycles.
The 1930s were a unique time for the motorcycle
industry. In the wake of the Great Depression, the public was looking for inexpensive, simple transportation.
At the same time, unemployment and inflation shrank
potential customers’ purchasing power. It was during
this time that many of the smaller motorcycle manufacturers dropped out of the industry. Most of these firms
were subsidiaries of companies in related industries.
These failed motorcycle firms had many of the capabilities needed to produce motorcycles, but lacked the corporate focus and support to continue production during
such a difficult economic time. It was during this time
that the U.S. domestic market shrank, with only Indian
and Harley-Davidson remaining. With the market
divided between only two domestic producers, HarleyDavidson’s production held steady.
With the onset of World War II, Harley-Davidson
found itself to be a major supplier for the Allied war
effort. Again, war vaulted Harley-Davidson into a position of higher volume, improved reputation, and deeper
loyalty with owners and soldiers. As the war came to
an end, the United States was flooded with a surplus of
Army WL45 motorcycles. Suddenly, this country was full
of prospective riders who understood Harley-Davidson’s
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178
product and appreciated how motorcycles could provide
inexpensive, dependable transportation. At this point,
only Indian Motorcycles was a competitor for HarleyDavidson. But in 1956, at the height of an economic
recession, Indian Motorcycles declared bankruptcy and
stopped producing motorcycles altogether, leaving only
Harley as a major producer and seller of motorcycles.
As the sole U.S.-based motorcycle power, HarleyDavidson enjoyed great success. Nevertheless, the lack
of competition nearly became its undoing. This market
condition allowed Harley-Davidson to take more risk
in the form of acquisitions, causing the firm to lose its
tight focus on a single market. It began branching out to
other leisure and motorized products such as off-road
motorcycles, ski boats, and golf carts. At the same time,
the bulk of Harley-Davidson’s revenue stream was still
coming from the sale of its heavy motorcycles. Many
of the acquisitions the firm completed in the latter part
of the 1950s and the early 1960s, such as the Tomahawk
Boat Manufacturing Company in 1962, were in similar
industries, but a poor fit with Harley nonetheless. The
acquired companies were often in deep trouble when
Harley-Davidson purchased them. In the end, HarleyDavidson was hobbled with losing ventures that diluted
its focus and did not fit well with its core competencies.
In 1969, the American Machine and Foundry Company
(AMF – a longtime producer of leisure products such as
tile bowling pins and ball returns) purchased the financially distressed Harley-Davidson.3
Most enthusiasts consider the AMF years as the
“dark ages” of Harley-Davidson’s history. AMF operated
Harley-Davidson as a profit center, reducing ­allocations
to the unit’s marketing and research and development
(R&D) functions as a result. For the next 13 years, Harley’s
aging product line remained essentially unchanged.
In fact, its line was so static over the years that many
of the parts from a 1937 model fit on the 1969 design.
Harley-Davidson had just two motorcycles with different trim packages: the low-budget sportster, the sport
bike of its day, and a full-size motorcycle available in
two different models. In light of Honda and Kawasaki’s
entrance into the U.S. market, Harley-Davidson’s stale
product line was even more disappointing. Many did
not see these imports as a threat given the prestige and
heritage of the Harley-Davidson name. However, the
Harley-Davidson image was deteriorating. Even with
its products in desperate need of a facelift, AMF relied
on Harley-Davidson’s reputation to defend its competitive position; AMF plastered Harley-Davidson’s name on
products like snowmobiles and golf carts. While trying to
capitalize on the value of Harley-Davidson’s brand name,
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Part 4: Cases
quality became a serious problem; customers would have
to return new motorcycles to a dealership multiple times
to fix manufacturing problems. It was during this time
that owners coined the saying “a Harley always marks its
spot,” a phrase referring to the machine’s nearly universal
oil leaks. This turned off many prospective customers, as
they believed a Harley-Davidson would require constant
owner maintenance. All the while, Japanese motorcycle
companies enticed more and more riders looking for
inexpensive, dependable transportation.
By 1981, Japanese motorcycles were established in the
U.S. market not only as dependable transportation, but
also as performance machines. Harley-Davidson’s sales
were in free-fall as its tired designs appealed to a narrowing market segment. It was selling to customers who
liked classic style and dated functionality, and all for a
high price. Finally, the employees and management of
Harley-Davidson led a managed buyout of the company
from AMF.4 The new owners immediately took stock
of the firm’s strengths and vulnerabilities and increased
its R&D and marketing budgets significantly. Because
negative effects of AMF’s past business decisions still
hampered the new management team, sales remained
low. In 1985, Harley-Davidson’s top management team
struggled to restructure the firm and divested itself of
most of its unrelated assets. In 1987, Harley-Davidson
became a publicly traded company, and none too soon
as Harley-Davidson had revamped its product line into
four motorcycle styles that were united by the introduction of a new engine. This was the turning point for
Harley-Davidson. From this point forward, the firm’s
quality control was exponentially more effective. In
addition, Harley-Davidson focused more on efforts to
operate efficiently and effectively. Following the precepts of just-in-time techniques and enhancement to the
logistics function were critical to the firm’s attempts to
enhance efficiency and effectiveness. At the same time,
Harley shifted to three major initiatives:5
■■ Improved manufacturing process, leveraging technology, robotics, and employee involvement
■■ Restructuring business management to a modern
system
■■ Aggressive management of its brand name through
dealership management, patenting activities, and
careful licensing of related products
The modern Harley-Davidson fought back from the
brink several times, each time seeming to evolve and
adapt. What appears to be universal to each evolution
of the company is that quality, promotion, and market
focus have always been a priority.
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Case 14: Harley-Davidson: Strategic Competitiveness that Spans Decades
How Harley Does It6
Harley-Davidson focuses on a subset of the motorcycle
market featuring customers who value heritage, style,
reputation, durability, and adaptability. Until 2000,
Harley-Davidson’s motorcycles sold at nearly a 25 percent premium. In the last decade, that premium has
dropped to 5 to 10 percent, depending on the class of
motorcycle. This is due to Japanese motorcycle manufacturers shifting to marketing and selling somewhat
unique motorcycles for a better than average price. In
comparison, Harley-Davidson uses the Sportster© line
as an introductory product, but most of its motorcycles
sell for over $15,000, with the average sale price of just
over $16,893.7 Harley-Davidson motorcycles provide a
unique product at a price that its target customers deem
acceptable or reasonable. While its competitors may have
attempted to cut costs, Harley-Davidson has continued
to invest in its products in ways that protect the quality of its brand image. Harley-Davidson’s market focus is
primarily males between the ages of 29 and 55. However,
this has been changing.8 Recently, it has targeted female
customers.
What It Does Best9
In its modern incarnation (1987 to present), HarleyDavidson achieved success by doing what it does
best. Granted, multiple firms make great motorcycles,
and many of these firms have a dedicated following.
However, through the actions the firm has taken over the
years, Harley-Davidson has developed and maintained
what is a unique position in the U.S. motorcycle market. Effectively managing its brand name, production
or manufacturing simplicity, and a dedicated product
following are the key sources of the firm’s competitive
strength.
Harley-Davidson’s brand name is its most important
asset. Cultivated through good times and bad, its brand
name is a powerful motivator for current and prospective customers. For many Americans, Harley-Davidson
is the American motorcycle. This belief is no accident.
After being separated from AMF, Harley-Davidson’s top
management team decided to significantly increase the
amount of resources being allocated to marketing and
R&D. This appears to have been a wise decision in that
Harley-Davidson now holds 55 percent of the entire U.S.
motorcycle market, and an even higher share in the U.S.
heavy motorcycle market. Strict protection of its brand
name permeates every decision the firm makes. Its
motorcycles, while occasionally deviating in style, generally follow traditional themes. Harley-Davidson only
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makes a design change after witnessing a strong market
trend.10 For example, the custom portion of the motorcycle market has been designing machines with wide rear
tires for nearly two decades; in 2007, Harley-Davidson
launched a single model with a wide rear tire.
Harley-Davidson is also very selective about its
franchise (dealership) opportunities, another method
through which the firm protects its brand. Due to
­free-trade laws, Harley-Davidson is no longer able
to insist that its dealerships sell only Harley products.
However, it utilizes price incentives to encourage dealerships to stay “Pure-Harley.”11 Harley-Davidson is especially protective of its name and logo when it comes to
licensed products, most of which are sold in its dealerships. If it is not the best quality, the product’s license
is revoked. Retailers can sell ladies’ shirts at a 100 percent premium because they are of excellent quality and
cannot be found anywhere. This aura of exclusivity is
embedded in the very DNA of Harley-Davidson Inc.,
from the headquarters to the dealerships. This aspect of
culture is an asset in that the notion of wanting to be
seen as providing products that are somewhat “exclusive”
in nature permeates the firm’s decision processes as it
seeks to serve its target customers’ needs.
Harley-Davidson’s production process is another
important firm-specific asset. The key elements of
the process are the melding of a JIT supply chain with
team production management and part interchangeability.12 When combined, the elements of Harley’s
production process are unique. Japanese manufacturers have used the same JIT concept for years, but have
not stressed a limitation of key components. After 1987,
Harley-Davidson updated its production facilities and
design process. Its production facilities in Kansas City,
Missouri and York, Pennsylvania are the best examples
of modern robotics combined with team enablement.
Interchangeable parts are the most important component of this asset. This concept simplifies all areas of the
motorcycle production process; but it is perhaps most
evident in the production of Harley’s frames and engines.
Harley-Davidson produces five unique frames for each
motorcycle ­family: Sportster©, Dyna, Softail©, V-Rod©,
and Touring. Even with 28 different models and seemingly limitless options, Harley-Davidson produces only
three engines. Internal machining, displacement, and
color coating are the only differences across the engines.
The Sportster© line comes in two displacements: 883 and
1204 cubic inches. The Dyna, Softail©, and Touring lines
all share the same Twincam© engine, available in 96 and
103 cubic inches. The V-Rod’s© engine is only produced
in one version.13 This production approach with respect
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180
to interchangeable parts appears to be a competitive
advantage in that it allows Harley to produce several
models, subdividing its target market segments even
further, while keeping production costs lower than if it
produced 28 different frames and engines.
Loyalty to the brand is another important asset for
Harley-Davidson. While its brand name protection
applies primarily to pr …
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