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Case text:

Harley-Davidson

Growth Challenges Ahead

The Great Recession hit Harley-Davidson hard. During the fourth quarter of 2008, Harleys global sales dropped 13 percent, profits decreased by 30 percent for the year, and, over a 12-month period, its stock price plummeted 70 percent.1 Harley had not confronted a drop in sales and profits of this magnitude since the early 1980s, when it barely avoided bankruptcy as a subsidiary of VMF. But, fortunately for Harley, it faced a new challenge with resources that it simply didnt have 30 years earlier. By 2016, the Harley bar and shield logo, a symbol of American individualism, was the 80th most valuable global brand, with an estimated value of $5.5 billion.2 The brand sold not only motorcycles, but also a wide variety of merchandise. Moreover, the Harley Owners Group (HOG) was the largest motorcycle enthusiast organization in the world, with almost 1 million members. The Harley brand with its loyal customer base, combined with an increase in consumer confidence, helped boost sales to $6 billion in 2015.3 Despite the recent rebound in revenues and earnings, Harleys sales were still almost $300 million lower than they were in 2008. The challenge of flat to declining sales, even in a good economy, had Harley Davidson CEO Matt Levatich and his team concerned about whether Harley could grow during the next decade the way it had in the previous decade (see Exhibit 1). Traditional riders, Caucasian men ages 35 to 74, had represented the largest portion of Harleys retail sales for many years.4 And, although this demographiccoming in at around 50 million people5 was expected to remain stable from 2013 through 2050, the baby boomers who had grown up with the Harley brand were aging, with fewer riding motorcycles each year. Moreover, many questioned whether Harley-Davidson could grow outside its traditional customer base.

Harley had struggled for decades trying to sell to nontraditional riders, including young adults (ages 1835), women, Hispanics, and African Americansfour groups that together are three times larger than the number of traditional riders.6 A survey done by Harley-Davidson revealed that young adults found the dealership experience intimidating and tended to have sticker shock when seeing the price of a Harley.7 Furthermore, some critics blamed the bikes reputation and size (average weight between 450 to 800 pounds) for Harleys lack of popularity among women.8 Investors were looking for continued growth, so they wanted to know what Harley was going to do to expand into other demographics.9 Likewise, they wanted to know if the American motorcycle could improve sales in international markets.

History: Born in a Shed and Raised

on a RaceTrack

In 1901, William Harley completed his blueprint drawing of an engine designed to fit into a bicycle.10 Two years later, the first Harley-Davidson motorcycle emerged from a 10-by-15- foot wooden shed, and William and his colleague, Arthur Davidson, started selling the Harley-Davidson bikesI to the public. The first Harley-Davidson motorcycle was built for speed and designed to be a racer to compete with Hendee Manufacturing Companys 1.75 horsepower, single-cylinder motorcycle, which had to that point dominated both the emerging motorcycle market and motorcycle racing sport.11 On July 4, 1905, a Harley-Davidson motorcycle won its first race (a distance of 15 miles) in Chicago with a time of 19:02 minutes.12 Other victories on Harley bikes quickly followed, and they became popular in the budding racing community. Harley-Davidson oficially entered motorcycle racing as a company in 1914, with engineer and cofounder William Harley as its first racer.13 William, who was a passionate competitor, was determined to win every race and so made racing performance the companys primary objective. Consequently, William and Arthur invested heavily in research and development (R&D), which allowed the company to develop new and superior features, including their own electric starter, front brakes, and standardized parts.14 The company pioneered several early industry breakthroughs, including the V-twin engine, clutch, and internal expanding rear brake.15 Not surprisingly, as Harley-Davidsons motorcycles continued to improve, the company NY's racing team began to fulfill Williams ambition to win every race in which it competed. Immediately following each win, the team traditionally took its mascot, a pig, on a victory lap. The victory routine was popular with the racing community, and, as a result, Harley-Davidson bikes were nicknamed Hogs afer their mascot.16 The nickname was immediately embraced, and the Hog label is still used to describe Harley-Davidson motorcycles.

Looking for Growth: International Markets

Throughout its storied history, Harley Davidson had been a US-centric company with the majority of its sales coming from the United States. Critics have argued that Harley hasnt moved fastor efectivelyenough overseas, either to establish low-cost factories or to find new customers.51 These criticisms come despite the fact that Harley has expanded sales to 70 countries around the world. However, less than 20 percent of Harleys sales come from outside of the United States.It wasnt really until 2000 that Harley looked to expand its footprint into international markets because the US market had matured. However, while international markets seemed to be a potentially attractive way to grow, Harley found international expansion to be quite challenging. Harleys entry into mainland China, for example, illustrates the companys challenges. Harley-Davidsons entry into China started in the Hong Kong market in 1995 and served as a launching pad for entry into mainland China, which occurred 10 years later with a dealership in Shanghai. However, it quickly became apparent that Harleys heavyweight bikes would have a tough time selling in the country. Sean Jiang, managing Harley-Davidson director for China, described some of the problems: Regulations make it dificult for consumers to buy and ride motorcyclesmostly because it is dificult to get a license plate. Plus, China has a compulsory scrap policy that dictates all bikes must be scrapped afer 11 years. Chinas regulations were set some 20 years ago when conditions were quite diferent. The smaller bikes that were mass produced then were generally of poor quality. Road conditions and trafic management were also poor. The bikes caused safety, trafic, and pollution problems. These bans still remain in efect today, even though motorcycle quality, road conditions, trafic management, and rider profiles have all changedThe regulations that made selling Harleys heavyweight bikes a challenge were only part of the companys uphill battle to sell motorcycles in China. Import duties in China could add 30 percent to the sticker price on a new Harley, and shipping could add an additional 5 percent to 10 percent to the bottom line.53 For example, in 2013, the Touring Ultra Classic Electra Glide, which cost $21,800 in the United States, started at 340,000 Yuan ($53,000) in China. This high price limited the motorcycles potential customer pool to the wealthy. As Jiang explained, Because of the import structure and high pricing, our customers here have a much higher disposable income.54 The price problem was made more complicated because of the availability of less-expensive substitutes. Honda, which has had a long presence in China, sold 1.29 million units in China in 2010, compared to Harley, which sold only 268 motorcycles in the same year. Put another way, 2010 saw more Harleys sold in one Milwaukee dealership than all of China.55 To help mitigate this problem, Harley turned to diplomacy in order to promote the brand and reduce import tarifs. During a tour of China, Wisconsin Governor Scott Walker participated in Harley-Davidsons 110th anniversary celebration to help promote the brand.56 He met with President Xi Jinping to mediate for the American manufacturer amid political accusations of unfair trade practices. However, the meeting made little diference, and Harley continued to face high tarifs and competition from several well-known Chinese manufacturers such as Lifan and Loncin (each of which produced more than 1 million units). Jiang noted: In 2010, China produced 27 million motorcycles, 99 percent of which were small, easily afordable bikessuch as mopedsused for basic transportation. Only a couple of domestic manufacturers make models with engines sizes up to 600 cc. For comparison, Harley-Davidsons smallest engine is 800 cc, and ranges up to a very large 1,600 cc. The concept of heavyweight leisure motorcycles is not yet understood in China. Theres no infrastructure, wholesale or retail financing, insurance, or roadside assistance, as compared to Chinas more mature auto industry. Because the segment isnt yet established, consumers in China have little awareness of heavyweight motorcycling as a leisure activity.57 In addition to the challenges associated with regulations and price, Harley had to figure out how to help customers in China and other international markets appreciate the Harley brand and the value associated with being part of the Harley community. In 2006, as part of that efort, Harley launched the first HOG chapter in Beijing, China, and progressively sponsored numerous rides and rallies through its 11 Chinese dealerships. With these initiatives, Harley hoped to gradually gain traction in the large Chinese market. As the company looked to expand into new markets and customer segments, Harley continued to focus on ways to help potential customers understand the meaning of owning a Harley-Davidson motorcycle

Riding into the Unknown

Under the June supermoon, a group of bikers cruised the open road in the southern Utah desert under the collective thudding of their Harley Davidson V-twin engines. These friends were united years ago by their mutual love for riding and adventure. Ever since their first exhilarating ride together, they meet at least once a year and go on a new trek, making lifelong memories on the journey. Suddenly, as the twilight appears on the eastern horizon, an incoming telephone call appears on the bikes dashboard. The rider looks down to see whos callingits his boss. The biker with a subtle grin uses the thumb-operated joystick to toggle from Answer to Ignore and goes back to his joy ride. That scene, taken from a Harley-Davidson commercial, is part of the largest new model launch in Harley-Davidsons history: Project Rushmore.58 The launch involved eight new motorcycles with dramatic shift in both technology and feelareas that traditional Harley riders might consider sacrilege to change. But to Harley, these changes were far overdue. Critics claimed that Harley was too dependent on older white males and wasnt diversifying its owner base quickly enough. Nor was Harley keeping up with Asian competitors, such as Honda and Kawasaki, in quality or productivity.59 As part of the transformation, the new bikes were designed to vibrate less and included gadgets more technologically advanced than those on any bike Harley had previously produced.60 Beyond Project Rushmore, in early 2017 CEO Matt Levatich announced that Harley had plans to ofer 50 new models in the next five years in order to drive sales. The success we saw with the launch of the Milwaukee-Eight engine is a sign of the innovation we have in place. We are confident our 2018 line will also help sales, said Levatich. I have never been more excited about the products in our pipeline.61 Despite Levatichs optimism, many analysts questioned whether more new models would be enough to help Harley overcome the challenges the company faced, such as attracting nontraditional riders and growing in international markets. Would higher quality and more technologically advanced motorcycles open new doors to future growth? Was it a good idea for Harley to focus more on product attributes such as quality and technology, areas where competitors had topically been stronger? Moreover, could the Harley brand and product transcend US culture to connect with new customers in international markets? Was it worth the investment? Finally, had Harley maximized its opportunities to grow by licensing its brand to merchandisers? Or could the company grow by expanding into other product categories beyond motorcycles? These questions, and others, faced Levatich and his team as they looked for ways to keep Harley growing.

Question:

Looking into the future, what threats does Harley face (from rivals such as Honda and BMW)? What opportunities does it have? How might Harley modify its strategy to respond to its opportunities and threats?

An important point, please answer correctly and accurately so that my time and money are not wasted. Thanks

More information: Refer to the book Concepts and Cases of Strategic Management (Jeffrey H. Dyer, Paul Godfrey, Robert Jensen, etc.) (z-lib.org) page 360.