Harley-Davidson Inc.

2015

1. What are the resources and capabilities of Harley-Davidson? How do they grant
the firm competitive advantage to compete in the motorcycle industry? (30%)
 Until the financial crisis in 2008-09, the heavyweight motorcycle market had the
most rapidly growing category in the world motorcycle market
 HD has dominated in the heavy weight motorcycle market in North America,
Japan, Australia, Brazil
 HD was heavily market-focused unlike its Japanese competitors, concentrating on
the super-heavyweight segment (over 850cc) and on cruising and touring
motorcycles.
 An important use of resource and capability analysis is in indicating the industry
and market segments that are best aligned with a firm’s strengths and
weaknesses.

RESOURCES AND CAPABILITIES

PRODUCT STRATEGY
 The product – super-heavyweight bikes and Harley’s commitment to stick to its
traditional design features, constantly upgrading and including incremental
refinements to its engines, frames and gearboxes, aimed at providing power
delivery and reliability, increasing braking power and reducing vibration
 Product developments – style changes, new paint designs and engineering
improvements and subsequently, technological developments.
 Every rider should own a unique personalised motorcycle—hence the wide range
of pre-sale and post-sale customisation opportunities

BRANDING AND CUSTOMER MARKETING

 The HD brand, image and loyalty – selling a lifestyle and not just a motorcycle.
Brand values include individuality, freedom and adventure. Marketing
communications were revolved around the central theme—the Harley Experience
and around its brand values and image.
 Customer loyalty: consumer’s riding experience was promoted using the Harley
Owners’ Group (HOG) which organised charity and social events to create a
Harley community. Customer loyalty was essential in their continual investment
in Harley products such as branded accessories and apparel, bike customisation
and eventually trade-ups for newer models. About half of bike sales were to
repeat customers.
 Customer experience was a key factor in driving this lifestyle; being reinforced as
the company’s whole strategy to extend relationships with its consumers.
General merchandise such as apparels, gifts were included in the product
offering portfolio to create a sense of belonging.
 Distributors and dealers were required to create the ultimate Harley Experience.

CUSTOMER SERVICE AND DEALERS NETWORK

 Dealers performance standards and guidelines were created to enhance dealer
competencies in every area, from customer satisfaction to inventory
management, service proficiency and front-line sales.
 Extensive distribution network – more than 90% of dealers in US were exclusive
dealerships who carry no other brands
 Dealers programme was created to increase support for its dealers to impose
high standards of pre- and post-sales service

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  Dealers were obliged to carry full line of Harley replacement parts and
accessories and to offer an expanding range of services; in addition to traditional
services (service and repair and financing)
 Dealers also offer test ride facilities, ride instruction classes, motorcycle rental,
consulting series for customising bikes
 HD authorised tours offered vacation packages with bikes supplied by dealers

2. How effective has Harley Davidson’s strategy been in the past and how has the
firm exploited its key strengths while protecting itself from its key weaknesses? (30%)
Guide: You are to identify its key strengths and key weaknesses and work out
Harley’s strategy to ‘counter’ its key weaknesses using its key strengths. What
strategy did it use in the past that was effective?

Tips: Read Grant pp 131, Chapter 5: Analyzing Resources and Capabilities

Key Strengths
Legacy
Harley-Davidson’s key strength is its brand identity
Strong base of loyal customers
Market leader in North America; adoption of best operations, sales best practices to
localise for local markets
Offers a wide range of customisation opportunities, accessories, spares and parts. HD
also expanded its product offering to include the sale of general merchandise such as
apparels, gift
The Harley Experience (Harley’s Owner Group)
Harley’s ‘Surge Production’ process which allows increasing flexibility to allow a wider
range of models to be produced and to match production to seasonal fluctuations in
demand
Harley’s MAN (materials-as-needed) system that adapt production methods to small-
batch production and it got suppliers to deliver just the number of parts it needs when
it needed them. This helps save a lot of money in inventory costs and warehousing
Harley’s strong distribution network

Key Weaknesses

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 Narrow product mix – traditional design focusing mainly on chopper motorcycles
Limited or slow technological advancements

Specific targeted core customer demographic

Limited product reach - weak international market shares/presence
Limited product offering (heavyweight bikes)

STRATEGY
1. “Differentiation Focus” competitive advantage (Read Grant pp 167, Chapter 7)

a.
it can supply a product or service that is differentiated in such a way that the customer is
willing to pay a price premium that exceeds the additional cost of the differentiation.
b. Differentiation by a firm from its competitors is achieved “when it provides something unique
that is valuable to buyers beyond simply offering a low price.
2. Rethinking and restructuring of its manufacturing operations
a. Including reduction in capacity and increasing flexibility to allow a wider
range of models to be produced and to match production to seasonal
fluctuations in demand
b. Consolidation of its otherwise dispersed manufacturing operations to
enhance manufacturing efficiency
c. Negotiated agreements with unions allowed for more flexible employment
arrangements and working practices which supported better resources
planning and management, combined with Harley’s “surge production”
d. “MAN” materials-as-needed: Harley’s MAN system allows:
i. Adapt production methods to small-batch production and it got
suppliers to deliver just the number of parts it needs when it
needed them. This helps save a lot of money in inventory costs and
warehousing
ii. If you have just the number of parts on hand that you need, every
single one of them had better be good, so you have to statistically
evaluate the quality of the parts you’re building to spot problems
before the parts get our of tolerance and then you can tighten the
specifications and further increase quality
iii. In 1982, after using first full year of MAN, HD saved more than $20
million. Cash freed up from inventory offsets the operating loss.
MAN has also resulted in noticeable quality improvements.

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 3. Expansion of international sales
a. Whilst the biggest primary focus for Harley’s overseas sales has been
Europe which was mired in recession, emphasis shifted to emerging
markets of Asia and Latin America
4. Expansion of customer base
a. Broaden its customer base from its core demographic of white males of
age 45 or more
b. Targeted groups included: women riders, Latino riders, African-American
riders, military and veteran riders and younger riders through new models
c. The result was a major investment in new product development
5. Expansion of product offerings
a. Sales of parts, accessories and “general merchandise (apparels and
collectibles) and financial services (represented 28% of Harley’s total
revenue in 2014)
b. Clothing include not just riding apparel
c. Licensing of Harley’s name and trademarks to third-party manufacturers of
clothing, giftware, jewellery etc. Most sold through channels other than the
Harley dealership network.
d. To expand sales of licensed products, Harley also opened ‘non-traditional’
dealerships: retail outlets that sell clothing, accessories etc but not
motorcycles.
6. Branding reinforcement
a. Elaborate here on what Harley did to reinforce its brand and identity such
as the HOG, getting internal employees to ‘live’ the Harley Experience by
donning leather jackets
i. (Read Grant pp 194) This integration of internal and external
product integrity is especially important to those supplying
“lifestyle” products (Harley is selling a lifestyle), where
differentiation is based on customers’ social and psychological
needs. Here, the credibility of the image depends critically on the
consistency of the image presented. One element of this integration
is a linked identity between customer and company employees. For
instance:
1. Harley-Davidson’s image of ruggedness, independence,
individuality, and community is supported by a top
management team that dons biking leathers and
participates in owners’ group rides, and a management
system that empowers shop-floor workers and fosters
quality, initiative, and responsibility.
7. Establish strong dealership network

3. What threats to its continuing success does Harley Davidson face, and how should it
respond to future challenges? (40%)
1. Aging of baby-boomers
2. Smaller number of white males aged 40-55 (its evergreen core customer demographic)
3. Younger generations are less interested in ‘what the old man rides’
4. Different international market requirements which deviates from its traditional product offering and
the Harley image
5. Stay focused on heavyweight bikes OR make smaller, affordable bikes?
6. If the market is moving away from Harley, what choice does it have?

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 REFERENCES & GOOD READS
https://digital.hbs.edu/platform-rctom/submission/harley-davidson-being-bad-can-be-so-so-good/
NOTES FROM GRANT

Segmentation Analysis - (Page 102)

 a process of disaggregating industries into specific markets
 Segmentation is particularly important if competition varies across the different
submarkets within an industry such that some are more attractive than others.
 The purpose of segmentation analysis is to identify attractive segments, to select
strategies for different segments, and to determine how many segments to serve.
 The analysis proceeds in five stages:
o Identify key segmentation variables
o Construct a Segmentation Matrix
o Analyze segment attractiveness
o Identify the segment’s key success factors (KSFs):
o Select segment scope
 Finally, a firm needs to decide whether it wishes to be a segment
specialist or to compete across multiple segments. The advantages
of a broad over a narrow segment focus depend on two main
factors: similarity of KSFs and the presence of shared costs. If KSFs
are different across segments, a firm will need to deploy distinct
strategies which may require different capabilities for different
segments. Harley-Davidson has found it difficult to expand from its
core segments of heavyweight cruiser and touring bikes into other
segments of the motorcycle industry. Conversely, in automobiles,
segment specialists have found it difficult to survive competition
from broad-scope, volume producers.
 Segmentation analysis can also be useful in identifying unexploited opportunities
in an industry. Companies that have built successful strategies by concentrating

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 on unoccupied segments include Walmart (discount stores in small towns),
Enterprise Rent-A-Car (suburban locations), and Edward Jones (full-service
brokerage for small investors in smaller cities). This identification of unoccupied
market segments is one dimension of what Kim and Mauborgne refer to as blue-
ocean strategy: the quest for uncontested market space
 Harley-Davidson’s key strength is its brand identity; its strategy has been to focus
upon traditionally styled, technologically backward, cruiser motorcycles.
 Turning key weakness into competitive strength: Clever strategy formulation can
allow a firm to negate its vulnerability to key weaknesses. Consider once more
Harley-Davidson. It cannot compete with Honda, Yamaha, and BMW on
technology. The solution? It has made a virtue out of its outmoded technology and
traditional designs. Harley-Davidson’s old-fashioned, push-rod engines, and
recycled designs have become central to its retro-look authenticity.

The Industry Context of Resource Analysis

An important use of resource and capability analysis is in indicating the industry and
market segments that are best aligned with a firm’s strengths and weaknesses.
HD is weak in technology, hence it focuses on differentiation which allows it to focus on
the heavyweight cruiser motorcycle segment where tech is not so important.

The role of social and psychological factors

HD recognizes quite clearly that it is in the business of selling lifestyle, not
transportation.
If the dominant customer needs that a product satisfies are identity and social affiliation,
the implications for differentiation are far reaching. In particular, to identify profitable
differentiation opportunities requires that we analyze not only the product and its
characteristics but also customers, their lifestyles and aspirations, and the relationship of
the product to those lifestyles and aspirations. Market research that focuses upon
traditional demographic and socioeconomic factors may be less useful than a deep
understanding of consumers’ relationships with a product.

Simultaneously achieving internal and external integrity is a complex organizational

challenge: it requires a combination of close cross-functional collaboration and intimate
customer contact.57 This integration of internal and external product integrity is especially
important to those supplying “lifestyle” products, where differentiation is based on
customers’ social and psychological needs. Here, the credibility of the image depends
critically on the consistency of the image presented. One element of this integration is a
linked identity between customer and company employees.

For instance: Harley-Davidson’s image of ruggedness, independence, individuality, and

community is supported by a top management team that dons biking leathers and
participates in owners’ group rides, and a management system that empowers shop-floor
workers and fosters quality, initiative, and
responsibility.

HD finds means to signal quality (its differentiation focus) to its customers because differentiation is
only effective when it’s communicated to customers. Brand names, warranties, expensive packaging,
money-back guarantees, sponsorship of sports and cultural events, and a carefully designed retail
environment in which the product is sold are all signals of quality.

The Costs of Differentiation

Differentiation adds cost: higher-quality inputs, better-trained employees, higher
advertising costs, and better after-sales service. If differentiation narrows a firm’s market
scope, it also limits the potential for exploiting
scale economies. One means of reconciling differentiation with cost efficiency is to
postpone differentiation

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 to later stages of the firm’s value chain. Modular design with common components
permits scale economies while permitting product variety. All the major automakers have
standardized platforms, engine types, and components while offering customers multiple
models and a wide variety of colors, trim, and accessory
options.
***HD tackles the cost of differentiation by having standardised components but offer multiple
customisation and models

Despite an increased pace of technological change in many mature industries,

most opportunities for establishing competitive advantage are likely to arise from
strategic innovation—including new game strategies and blue-ocean strategies
 Embracing new customer groups: Harley-Davidson has created a market for expensive motorcycles
among the middle-aged but it also expanded its offerings to its non-core customer groups

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