Use the case Harley Davidson by Bhaskar Mitra to answer the question. Dont use other information than the information in the case it will be not useful.

2. What are the primary components of Harley davidson Motorcycles value chain?

reputa 1 of 28 Q HARLEY DAVIDSON CASE STUDY. BHASKAR MITRA ABSTRACT 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. motorcyde 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 rela-tively 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. KEYWORDS:- Harley Davidson, Motorcycles, Competition, Challenges faced, etc. LITERATURE REVIEW 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 chang-ing. 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 stake-holders' needs as a result. 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-year-old male (again, the historical target customer). This matter is considered more fully later in the case. Third, demands and cost drivers for the motor- cycle 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, Harley-Davidson has a substantial territory to defend. 7 of 28 a BODY. COMPANY HISTORY:- 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 Harley-Davidson's early success in motorcycle racing that 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 perti- nent 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. Ammy, 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 improve-ment and racing. It spent much of this decade fighting for market share with multiple medium and small com- petitors. 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, Harley-Davidson'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 posi- tion 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 product and appreciated how 8 of 28 Q motorcycles could provide inexpensive, dependable transportation. At this point, only Indian Motorcycles was a competitor for Harley-Davidson. But in 1956, at the height of an economic recession, Indian Motorcydes declared bankruptcy and stopped producing motorcycles altogether, leaving only Harley as a major producer and seller of motorcycles As the sole U.S.-based motorcyde power, Harley-Davidson 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, Harley-Davidson 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 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 US 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 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 nar-rowing market segment. It was selling to customers who 8 of 28 0 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. 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 fim's quality control was exponentially more effective. In addition, Harley- Davidson focused more on efforts to operate efficiently and effectively. Following the pre-cepts 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 Improved manufacturing process, leveraging tech-nology, 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 day Harley Davidson has fought back from the brink several times, each time seeming to evolve & adapt. What appears to be universal to each evolution of the company is that quality, promotion, and market focus have always been a priority Harley-Davidson, Inc. has been a publicly traded firm since 1987. It has two primary divi- sions: Motorcycles and Related Products and Financial Services. The Financial Services Division provides credit to motorcycle buyers and dealerships as well as risk man- agement and insurance services for all parts of the firm. The Motorcycles and Related Products Division cur- rently operates through eight primary segments: Parts & Accessories (17.5 percent of net revenue) General Merchandise (5.9 percent of net revenue) Licensing ($43.2 million of net revenue) Harley-Davidson Museum nternational Sales (32 percent of net motorcycle revenue) Patents and Trademarks Other Services Marketing 10 of 28 Q Today Harley-Davidson Inc., an employer of 4,694 workers, consists of Harley-Davidson Motor Company based in Milwaukee and Eagelmark Financial Services Inc. based in Chicago, Illinois. In addition, there are nearly 600 dealerships throughout the United States. HOW DOES HARLEY DO IT?? 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 per cent 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. 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. Recently, it has targeted female customers. WHAT DOES IT DO BEST?? In its modern incarnation (1987 to present), Harley-Davidson 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 mar- ket. Effectively managing its brand name, production or manufacturing simplicity, and a dedicated product following are the key sources of the fim'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 motorcydes, while occasionally deviating in style, generally follow traditional themes. Harley-Davidson only makes a design change after witnessing a strong market trend. For example, the custom portion of the motorcy- 11 of 28 Q cle 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 dealer- ships to stay "Pure-Harley.Harley-Davidson is especially protective of its name and logo when it comes to licensed products, most of which are sold in its dealer-ships. If it is not the best quality, the product's license is revoked. Retailers can sell ladies' shirts at a 100 per- cent 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 interchange- ability. 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 seem-ingly 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. This production approach with respect tointerchangeable 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 prospective customers, its product following centers on existing customers, many of whom are repeat buyers of the firm's products. There are multiple examples of Harley's dedicated following. At the extreme for example, consider the fact that some private riding clubs only grant membership to those willing to tattoo the bar and shield logo on multiple locations of their body. For others, remaining committed to the firm's mantra that owning a Harley "is a journey, not a destination" and participating in company-sponsored events with others sharing this belief accounts for their loyalty. Regardless of the reason for it, 12 of 28 0 customer loyalty to the Harley brand appears to influence these individuals to purchase Harley products other than motorcycles such as clothing and a wide range of product accessories. Historically, loyalty to the brand has resulted in a large percentage of Harley customers choosing to buy another Harley when it is time for a new motorcycle. However, the "graying" of Harley's customer base is potentially a problem as at some point, this group of customers will no longer be purchasing new products. KEEPING THINGS SIMPLE In 2011, Harley-Davidson generated 88 percent of its revenues from a single business area (Motorcycles and Related Products) and 12 percent from its second pri- mary segment (Financial Services). This composition of sales revenue is consistent with previous years and sug- gests that Harley may continue business as usual to help the firm reduce its idiosyncratic risk. It will also try to expand its business in other countries with a primary focus on providing quality product and services. Harley-Davidson has been able to earn positive returns while focusing on just two businesses because it has developed strengths that allow it to create value for customers Moreover, there are fewer challenges in managing only two businesses. This approach allows Harley-Davidson to not only gain economies of scale, but also use its resources efficiently. MARKETING Historically, males between the ages of 29 and 55 have been Harley-Davidson's target customer. However, this is changing. Recently for example, the firm is also targeting female customers with motorcycle models that have a lower seat height and pink, purple, and light blue color schemes. Its marketing has also reflected an effort to attract more female riders. It has even tailored its riding classes (the Riders Edge Program) to have all-female sessions and to make new women riders feel more com-fortable. A woman could walk into a Harley- Davidson dealership having never sat on a motorcycle and within an hour purchase a motorcycle for as little as $8,000. She could then join a riding class that would grant a motor- cycle endorsement on her driver's license. Thus, Harley-Davidson is beginning to market to a multi-generational and multi-cultural audience. In this regard, the firm is working to attract a more diversified audience in terms of age, gender, and ethnicity. Harley-Davidson is a market leader in the US. heavy- weight segment. The average median household income of a Harley-Davidson purchaser is $89,000. Harley-Davidson primarily uses advertising and promotional activities via television, print, radio, direct mailings, electronic advertising, and social media to market its product. Moreover, local marketing efforts in conjunction with dealers are highly encouraged. Harley-Davidson uses its customers' experience to continuously develop and introduce innovative products. The market is flooded with high quality, low price Japanese bikes. However, Harley-Davidson does not seek to imitate these bikes. Instead, it uses direct input from its customers to improve its product. Harley-Davidson modifies its product based on input generated through customer 13 of 28 0 surveys, interviews, and focus groups. Thus, some believe that The real power of Harley- Davidson is the power to market to consumers who love the product."In 2010, the company introduced "Creative Model" - a Web-based method for marketing its product. In this model, passionate fans are enabled for the purpose of helping Harley develop creative approaches for targeting new customers Customer experience has traditionally been the main source of Harley-Davidson's marketing strategy. It all started in 1983, when the company intro-duced Harley Owners Group (H.O.G), which has now grown to more than 1 million members worldwide. Harley-Davidson distributes its products through an independent dealer network that almost exclusively sells Harley-Davidson motorcycles. These dealerships are licensed dealers and fully authorized to sell and service new motorcycles They can have secondary locations to provide additional service to the customers. These non-traditional outlets are an extension of the main dealership and consist of Alternate Retail Outlets (ARO) and Seasonal Retail Outlets (SRO). AROs are generally located in high traffic areas such as airports, vacation destinations, tourism spots, and malls and only sell parts, accessories, and general merchandise. SROs are also located in high traffic areas, but operate only on a seasonal basis. AROs and SROs are not allowed to sell new motorcycles. The parts and apparel orders from the dealer are not taken at face value. Harley-Davidson's for- ward-looking, market-driven allocation system restricts the number of units a particular dealer is able to order. In Canada, the company sells its products to one whole- sale dealer, Deeley Harley-Davidson Canada/Fred Deeley Imports Ltd., which in turn sells to independent dealers. The European, the Middle Eastern and African (EMEA) region is managed from regional headquar- ters in Oxford, England. Harley-Davidson distributes its products through subsidiaries located in Austria, Dubai, Czech Republic, France, Germany, and Italy. In the EMEA region, Harley-Davidson distributes all products sold to independent dealers through its subsidiar-les located in Austria, Czech Republic, United Arab Emirates, France, Germany, Italy, South Africa, Spain, Switzerland, Netherlands, Russia, and United Kingdom. A headquarters in Singapore manages the Asia Pacific regions with the company distributing its product to independent dealers in China, India, Australia, and Japan. The rest of Asia Pacific is managed through the U.S. operations. FINANCIAL SERVICES SEGMENT:- Harley believes that its Harley-Davidson Financial Services unit (HDES) provides sufficient financing to independent distributors, dealers, and retail custom-ers. HDFS provides financing to dealers and retail customers in the U.S. and Canada, but not in the EMEA, Asia-Pacific, and Latin America regions, although these regions do have access to financing through other finan- cial services companies. MAJOR COMPETITORS. 20 of 28 Q INTERNATIONAL GROWTH Any discussion of Harley-Davidson's future would not be complete without examining its expansion into India and China, the two BRIC economies with a strong history of motorcycle ownership and enough income growthto ensure viable target markets. After all, moving from Harley-Davidson's current position of 32 percent of revenue from international sales to its stated goal of 40 percent by 2014' will be challenging. Doing so will require a delicate balance in order to maintain the ethos of Harley-Davidson while simultaneously adapting to local customs and consumer preferences. Nevertheless, it could be argued that Harley-Davidson is already well on its way in this regard. For example, just four months after officially entering the Indian market in July 2010, Harley announced it would build an assembly plant in northern India in order to reduce import tariffs by as much as 80 percent. Previously, high tariffs resulted in its models costing twice as much as their U.S. equivalents. By only assem-bling the motorcycles in India, Harley-Davidson is able to satisfy the desire of its customers in India to purchase an "American" motorcycle by sourcing all the parts from the United States while significantly increasing its com-petitive position through lower pricing. Time will be required to see if Harley-Davidson's approach in India will achieve the success the firm seeks. Indeed, Harley-Davidson sold only about 1,000 bikes in India in its first 18 months of operations. This level of sales should be considered though within the context of the fact that Harley's local assembly plant in India has only been operational for the past 12 months. Accordingly, the Indian market has not been exposed to the lower pricing model for very long and may need some time to overcome the stigma associated with previously higher prices. For example a mid-level bike used to cost $27,000, prior to tariff reduction; now, the cost of this product is around $20,000. These prices, while still high by local standards, show that Harley- 16 Davidson is making a concerted effort to cater to the needs of cus- tomers located in developing countries. Such a strategy is essential for long-term viability given global growth trends and the inevitable shift of income away from Harley-Davidson's more traditional western markets. In response to such growth, it has even committed to open- ing dealerships in cities like Jaipur and Kochi cities outside the larger Indian metropolises. In this manner, Harley- Davidson will be able to appeal to India's rural landowners who would like to ride Harley- Davidsons in the countryside