Harley-Davidson new opportunities and pursue them. SITUATION ANALYSIS


Harley-Davidson Motor Company was founded in
1903 by William Harley and Davidson Brothers. The company expanded rapidly
beyond Milwaukee, Wisconsin and produced motorcycles to serve various markets
i.e. military, police forces, sport racing and delivery services.

American military was major client of
Harley-Davidson during the First World War which helped the company in sales.
However, following the World War II, Harley-Davidson had a surplus of military
motorcycles which lead to the idea of uniquely customized bikes by providing
platform for “bobbers”.

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In the 1960s, Harley-Davidson faced fierce
completion from Japanese manufacturers that affected the market share
significantly. From 1959 to 1965, Harley-Davidsons and Honda sales were as
under;

Harley-Davidson – Sales increased from $16 million to
$30 million.
Honda – Sales grew from $500,000 to $77 million.

Harley-Davidson
went public in 1965 and was bought by American Machine and Foundry (AMF) in
1969. AMF ran into serious service and operational issues that motorcycles were
commonly referred to as “Hardly Drivable”. After this misfortune, AMF
ended up selling the company in 1981 to Harley-Davidson executives.

The company
made changes to the product line by introducing new designs appealing to “baby
boomers” during 1980s and 1990s and fulfill their dreams fed by popular
movies of the time. The company enjoyed continued growth almost till its 100th
anniversary, and aging of baby boomers was an alarm to seek new opportunities
and pursue them.

SITUATION ANALYSIS

 

The motorcycle market was mainly divided into two categories,
heavyweight bikes and sport bikes. In addition to greater power and faster
acceleration, Harley-Davidson’s heavyweight bike would accommodate custom add on
due 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 speed
and racing. Smaller engine design in sport bikes was meant for faster
acceleration and quick handling. Harley-Davidson’s main focus was heavyweight
bikes market, though it offered product for sport enthusiasts. Buell brand
helped Harley-Davidsons to compete in the sport category which was acquired by
the company partially in 1993 but fully in 1998. It was Erik Buell and
ex-Harley engineer who designed Buell brand in 1983.

Though Harley-Davidson was North American market leader with the
share of 44% in the heavyweight bike category, but it faced competition in
Europe and Japan. BMW in Germany and Ducati in Italy were producing heavyweight
bikes and sports bikes and posed real challenge to Harley-Davidson due to
engineering precision and racing performance positioning. Four Japanese
manufacture’s i.e. Honda, Yamaha, Kawasaki and Suzuki affected company’s market
share in the sports bike category and they were also making some copycats in
the cruiser space. The main factors that were attracting younger US customers
to Japanese companies were, lower pricing, faster speeds and perceived quality.
Interestingly, in 2007 Harley-Davidson’s heavyweight bike was market leader in
Japan. On a global scale BRIC (Brazil, Russia, India, and China) was rapidly
growing market with enormous potential and Harley-Davidson’s had yet to tap
into this market.

SEGMENTATION, TARGETING & POSITIONING

 

Segmentation                    

 

Being lifestyle brand Harley-Davidson used psychographic
segmentation with variables such as lifestyle, activities and interests. The
company identified its consumer group based on ideals, values and lifestyles
for special marketing attention. Harley-Davidson tapped a significant profit
opportunity by segmenting according to lifestyles. The outlaw biker didn’t
represent the main customers though it did define the brand to some extent. The
outlaw biker in the Hell’s Angel era around 1960s represented a tiny fraction
of company’s customer base. It is important to know that Harley-Davidson’s main
customer lived branded lifestyle with personal commitment to the premium product.
The uniqueness of the product helped the company to attract international
customers and build its image in global markets. By the year 2007, Harley Owner
Group (HOG) had 600,000 members worldwide with majority from United States.

Targeting

 

In US, company’s target was mainly baby boomers, Caucasian males
aged between 43 and 61 with the median household income of $84,300. This
segment was more attractive because of lower competitive pressure, faster growth
and higher profit potential. It appears that at first company used concentrated
marketing by keeping focus on the above segment. But due to entrance of
competitors especially Japanese started shifting towards differentiated
marketing. An example would be company’s growing interest in the Outreach
audiences – attracting young adults and organizing women-only events.
Harley-Davidson’s marketing spending in the US on its core customer base was
almost 83% leaving significantly lower budget of 17% for its Outreach
audiences.

Positioning

 

Positioning
alone does not provide competitive advantage, however, it provides platform for
the rest of the marketing strategies. Harley-Davidsons created its positioning
strategy to differentiate the brand based on the characteristics of the product
and brand image which was meaningful to its core customers. A typical HD
customer was very brand loyal and lived a branded lifestyle. HD products
defined personal identities of its customers under various subcultures. It is important
to note that commitment to the brand was accented equally across the board. In
2007, company’s primary focus was heavyweight bikes at home and abroad. The
company’s brand image resonated equally well with its Japanese customers. Harley-Davidsons
was selling a lifestyle and customers felt a sense of pride in owning the
motorcycle.

TARGETING NEW SEGMENT

 

It is good to revisit
marketing strategies when there is disruption weather due to change in
environment or due to change in customers’ perception. The reason company needs
to identify new segment is, its core customer base which mainly comprises of
baby boomers is aging. And generation of young riders and women who are
considered 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 expand
globally to Asian markets (China, Russia and India).

There is
huge 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 of
a work to do on this segment as product does not appeal to Young Adults and
perception about the price is not right. Increasing marketing budget alone
wouldn’t suffice to attract the Young Adults as company has to overcome the
following 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 of
dealerships

·        
High cost to but entry level Harley-Davidson
motorcycle

As we have
seen that in 2007company’s brand image of heavyweight bikes struck same
emotional chord in Japan as it did in US. Through its European study company
found 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 at
home and also help company to grow internationally. Company has to work on the
physical attributes of the product to accommodate the features desired by the
Young Adults (domestic and international) to profit from this segment. The
company has already established dealer network to reach to the end user, but
needs to work on the product to make it relevant to Young Adults (Domestic and
International). Harley-Davidson can leverage its current and most powerful
brand image with the new product designed exclusively for Young Adults to
outplace its competitors. In order to be successful in this segment, company
must use the market knowledge and experience to position itself in a way that
it is seen as meaningful to its potential customers.

EFFECTIVE TARGETING OF NEW SEGMENT

 

In order to
effectively cover the target segment of Young Adults, Harley-Davidson should
use differentiated marketing as this segment is homogenous internally and
heterogeneous to its core customer base. The uniqueness of two segments i.e.
“millennial” from the core customer base is a plus for the company as
it would not cannibalize the existing brand offering to the ”baby
boomers”. Since, Harley-Davidson’s customer are willing to pay for the
customized product when it is tailored to their needs therefore a
differentiated targeting approach is preferred over concentrated marketing
(one-on-one) and undifferentiated marketing (mass marketing).  

It makes
perfect sense for Harley-Davidson to target this new segment as answer to the
following questions is “yes”

A. Is the
segment reasonable size?

B. Is
company capable of serving this segment?

C. Are these
segments mutually exclusive?

Since
Japanese companies are posing a real challenge to Harley-Davidson so targeting
this segment based on price would be bit optimistic. The company can play to
its strengths of established brand image and develop new product to the demand
of this segment. This will help the company to connect with Young Adults and
establish loyalty as it did in the case of “baby boomers” and
leverage it with its lifestyle brand image to outperform competitors.
Harley-Davidson had promoted it as a lifestyle and depth of commitment of its
core customers was deep and exceptional. Its core clientele looked beyond the
physical attributes of the product and cherished owning a bike as a spiritual
and emotional experience. The company had demonstrated success in the past with
the ”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 financial
and ethical issues as a responsible business. Though company survived the great
depression but retirement of core customer base and on boarding of outreach
audience is a challenge. In order to achieve sustainability and profitability, Company
needs to go after the new segment.

As noted in the case, in 1960s outlaw biker typically known as
Hells Angel didn’t have very positive image. In this era, of technology and
social media any negative perception about the company can substantially damage
its social image and hurt financially. Going forward, Harley-Davidson should be
prepared for any ethical issues that arise.

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