Harley-Davidson Motor Company was founded in1903 by William Harley and Davidson Brothers. The company expanded rapidlybeyond Milwaukee, Wisconsin and produced motorcycles to serve various marketsi.e. military, police forces, sport racing and delivery services. American military was major client ofHarley-Davidson during the First World War which helped the company in sales.
However, following the World War II, Harley-Davidson had a surplus of militarymotorcycles which lead to the idea of uniquely customized bikes by providingplatform for “bobbers”.In the 1960s, Harley-Davidson faced fiercecompletion from Japanese manufacturers that affected the market sharesignificantly. From 1959 to 1965, Harley-Davidsons and Honda sales were asunder; Harley-Davidson – Sales increased from $16 million to $30 million. Honda – Sales grew from $500,000 to $77 million. Harley-Davidsonwent public in 1965 and was bought by American Machine and Foundry (AMF) in1969.
AMF ran into serious service and operational issues that motorcycles werecommonly referred to as “Hardly Drivable”. After this misfortune, AMFended up selling the company in 1981 to Harley-Davidson executives. The companymade changes to the product line by introducing new designs appealing to “babyboomers” during 1980s and 1990s and fulfill their dreams fed by popularmovies of the time. The company enjoyed continued growth almost till its 100thanniversary, and aging of baby boomers was an alarm to seek new opportunitiesand pursue them.SITUATION ANALYSIS The motorcycle market was mainly divided into two categories,heavyweight bikes and sport bikes. In addition to greater power and fasteracceleration, Harley-Davidson’s heavyweight bike would accommodate custom add ondue to its larger engine capacity of 601cc and higher.
These bikes were mainly used for touring,cruising and sometimes “profiling” (to show off). On the other hand,sports bikes were manufactured from light materials and were ideal for speedand racing. Smaller engine design in sport bikes was meant for fasteracceleration and quick handling. Harley-Davidson’s main focus was heavyweightbikes market, though it offered product for sport enthusiasts. Buell brandhelped Harley-Davidsons to compete in the sport category which was acquired bythe company partially in 1993 but fully in 1998. It was Erik Buell andex-Harley engineer who designed Buell brand in 1983.Though Harley-Davidson was North American market leader with theshare of 44% in the heavyweight bike category, but it faced competition inEurope and Japan.
BMW in Germany and Ducati in Italy were producing heavyweightbikes and sports bikes and posed real challenge to Harley-Davidson due toengineering precision and racing performance positioning. Four Japanesemanufacture’s i.e. Honda, Yamaha, Kawasaki and Suzuki affected company’s marketshare in the sports bike category and they were also making some copycats inthe cruiser space. The main factors that were attracting younger US customersto Japanese companies were, lower pricing, faster speeds and perceived quality.
Interestingly, in 2007 Harley-Davidson’s heavyweight bike was market leader inJapan. On a global scale BRIC (Brazil, Russia, India, and China) was rapidlygrowing market with enormous potential and Harley-Davidson’s had yet to tapinto this market.SEGMENTATION, TARGETING & POSITIONING Segmentation Being lifestyle brand Harley-Davidson used psychographicsegmentation with variables such as lifestyle, activities and interests.
Thecompany identified its consumer group based on ideals, values and lifestylesfor special marketing attention. Harley-Davidson tapped a significant profitopportunity by segmenting according to lifestyles. The outlaw biker didn’trepresent the main customers though it did define the brand to some extent. Theoutlaw biker in the Hell’s Angel era around 1960s represented a tiny fractionof company’s customer base. It is important to know that Harley-Davidson’s maincustomer lived branded lifestyle with personal commitment to the premium product.
The uniqueness of the product helped the company to attract internationalcustomers and build its image in global markets. By the year 2007, Harley OwnerGroup (HOG) had 600,000 members worldwide with majority from United States. Targeting In US, company’s target was mainly baby boomers, Caucasian malesaged between 43 and 61 with the median household income of $84,300.
Thissegment was more attractive because of lower competitive pressure, faster growthand higher profit potential. It appears that at first company used concentratedmarketing by keeping focus on the above segment. But due to entrance ofcompetitors especially Japanese started shifting towards differentiatedmarketing. An example would be company’s growing interest in the Outreachaudiences – attracting young adults and organizing women-only events.Harley-Davidson’s marketing spending in the US on its core customer base wasalmost 83% leaving significantly lower budget of 17% for its Outreachaudiences. Positioning Positioningalone does not provide competitive advantage, however, it provides platform forthe rest of the marketing strategies. Harley-Davidsons created its positioningstrategy to differentiate the brand based on the characteristics of the productand brand image which was meaningful to its core customers.
A typical HDcustomer was very brand loyal and lived a branded lifestyle. HD productsdefined personal identities of its customers under various subcultures. It is importantto note that commitment to the brand was accented equally across the board. In2007, company’s primary focus was heavyweight bikes at home and abroad.
Thecompany’s brand image resonated equally well with its Japanese customers. Harley-Davidsonswas selling a lifestyle and customers felt a sense of pride in owning themotorcycle.TARGETING NEW SEGMENT It is good to revisitmarketing strategies when there is disruption weather due to change inenvironment or due to change in customers’ perception. The reason company needsto identify new segment is, its core customer base which mainly comprises ofbaby boomers is aging. And generation of young riders and women who areconsidered part of outreach audiences are not impressed with current products.HD can target the new segment of Outreach Audience at home (Young Adults,Caucasian Women, Hispanic Men and Women, African-American Men and Women) and expandglobally to Asian markets (China, Russia and India).There ishuge potential among Young Adult buyers as Harley-Davidson’s share was only 22%in 2007 in this segment across on all road motor cycles.
The company has bit ofa work to do on this segment as product does not appeal to Young Adults andperception about the price is not right. Increasing marketing budget alonewouldn’t suffice to attract the Young Adults as company has to overcome thefollowing barriers of perception prevalent in this group;· Don’t see a right bike· Don’t belong to Harley-Davidson’s culture· Dealership aversion due to negative image ofdealerships· High cost to but entry level Harley-DavidsonmotorcycleAs we haveseen that in 2007company’s brand image of heavyweight bikes struck sameemotional chord in Japan as it did in US. Through its European study companyfound a pattern of preferences among Young Adults similar to the ones in the US.This segment is more attractive as it can help to increase the market share athome and also help company to grow internationally. Company has to work on thephysical attributes of the product to accommodate the features desired by theYoung Adults (domestic and international) to profit from this segment. Thecompany has already established dealer network to reach to the end user, butneeds to work on the product to make it relevant to Young Adults (Domestic andInternational).
Harley-Davidson can leverage its current and most powerfulbrand image with the new product designed exclusively for Young Adults tooutplace its competitors. In order to be successful in this segment, companymust use the market knowledge and experience to position itself in a way thatit is seen as meaningful to its potential customers.EFFECTIVE TARGETING OF NEW SEGMENT In order toeffectively cover the target segment of Young Adults, Harley-Davidson shoulduse differentiated marketing as this segment is homogenous internally andheterogeneous to its core customer base. The uniqueness of two segments i.e.”millennial” from the core customer base is a plus for the company asit would not cannibalize the existing brand offering to the ”babyboomers”.
Since, Harley-Davidson’s customer are willing to pay for thecustomized product when it is tailored to their needs therefore adifferentiated targeting approach is preferred over concentrated marketing(one-on-one) and undifferentiated marketing (mass marketing). It makesperfect sense for Harley-Davidson to target this new segment as answer to thefollowing questions is “yes”A. Is thesegment reasonable size?B.
Iscompany capable of serving this segment?C. Are thesesegments mutually exclusive?SinceJapanese companies are posing a real challenge to Harley-Davidson so targetingthis segment based on price would be bit optimistic. The company can play toits strengths of established brand image and develop new product to the demandof this segment. This will help the company to connect with Young Adults andestablish loyalty as it did in the case of “baby boomers” andleverage it with its lifestyle brand image to outperform competitors.Harley-Davidson had promoted it as a lifestyle and depth of commitment of itscore customers was deep and exceptional. Its core clientele looked beyond thephysical attributes of the product and cherished owning a bike as a spiritualand emotional experience. The company had demonstrated success in the past withthe ”baby boomers” segment and can do it again with the “millennial”segment by striking the right chords. CONCLUSION Harley-Davidson should carve its strategy to address financialand ethical issues as a responsible business.
Though company survived the greatdepression but retirement of core customer base and on boarding of outreachaudience is a challenge. In order to achieve sustainability and profitability, Companyneeds to go after the new segment.As noted in the case, in 1960s outlaw biker typically known asHells Angel didn’t have very positive image. In this era, of technology andsocial media any negative perception about the company can substantially damageits social image and hurt financially. Going forward, Harley-Davidson should beprepared for any ethical issues that arise.