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Harley Davidson 2008

Competitive forces impacting Harley Davidson

Structural analysis of an industry is a valuable tool that can be used as a primary determinant
of a firm's long-term profitability. Understanding the dynamics of competitive forces can
provide insight into the attractiveness of an industry and the potential for returns on capital.
Michael Porter, a Harvard Business School professor, has developed a framework for
understanding an industry's structure. Porter's analysis is widely taught in business schools
and commonly used by analysts. Porter's book, Competitive Strategy, provides an excellent,
readable resource for understanding the impact of competitive forces on an industry.
According to Porter, the five competitive forces affecting an industry are: threat of entry,
competitive rivalry, bargaining power of suppliers, threat of substitutes, and the bargaining
power of buyers. Let's use the airline industry as an example of how an analyst may interpret
the competitive forces that affect an industry.

Threat of Entry

The threat of new entrants presents the possibility that new firms will enter the industry and
diminish industry returns by passing along value to buyers in the form of lower prices and
raising the cost of competition. Factors that determine the threat of entry include capital
requirements, economies of scale, switching costs, and brand value. In the airline industry,
access to capital is plentiful. Banks extend credit to airline carriers, and the debt and equity
markets provide alternatives for raising funds. Because it's relatively easy for weaker airlines
to obtain credit, the industry has become saturated.

Brand identity is important in the airline industry, and benefits larger airlines. Major carriers
allocate considerable resources to marketing efforts. Frequent flier programs and other
incentives have been successful in enticing travelers to fly with certain carriers. The frequent
flyer incentive can often be strong enough to cause a customer to choose one carrier over
another -- even...

the key problem facing Harley-Davidson (HD) is the potential loss in customer base as the result of changing market demographics. As its current

baby-boomer base demographic transitions away from motorcycles to

 retirement HD's primary market base will disappear and it is yet to be determined who will fill this void. Currently younger generations are
preferential to sport-bike style motorcycles that are primarily dominated by Japanese manufacturers rather than the "heavy-iron" American style
cruisers produced by HD. Furthermore attempts made to infiltrate the European market have resulted in patchy performance despite significant
efforts in marketing and developing distribution networks.[v] Thus, in order to not only retain its current position, but to grow beyond, Harley-
Davidson must find a means to replace its key customer demographic. To do so HD must focus on its key strengths in order to differentiate itself
in the markets and to maintain its sustainable competitive advantage (SCA). However, will enhanced product differentiation translate into
increased sales in its new target markets including Asia, Europe, and younger Americans? Further will increased market share dilute the brand
and its image thus resulting in perception of product commoditization? Finally, will HD still be able to command a premium for its products based
on product differentiation and the "Harley Experience?"

Analysis:

Analysis of Harley-Davidson's future position is wrought with many and often significant unknowns. However, while this may be the absolute case
the ability to project future market position must be done and to do so an analysis of HD's differentiation, its advantage and its sustainable
competitive advantages is done. To start an analysis of HD's SCA is done based on the four criteria that the company's product base must have;
these are
Reviewing the strengths of HD's product integrity perhaps the most notable and immediately apparent fact is that HD's core product, its

motorcycles have not changed, to any significant degree, in style or major

 mechanicals attributes for many generations. Thus, the product offered today easily resembles the product of "yester-year" and it is this classic

styling that rests at the root of HD's product integrity. The lack of significant design alterations by HD over the years is in significant contrast to its

competitors. Honda, Suzuki, BMW, Yamaha and others consistently alter the look and feel of their bikes and/or imitate market leaders in order to

stay in alignment with current market demands. In contrast, HD has made few significant design changes to its product lines and has, over the

years, continued to offer products with similar design and feel to their predecessors thus continuing to uphold the company's traditions. However,

while such consistency in product integrity has helped to produce demand in today's market; will it provide the same for future markets? Although

it is not absolutely certain, HD's commitment to product integrity should help to bolster future product demand. Additionally the introduction of new

products more in-tune with younger markets and under a separate name such as Buell sport-bikes and the continued promotion of consumer

classes will help to foster in a new generation of enthusiasts as well as help to build offshore market bases; for as younger generations age, and

new markets become more affluent, the desire to own a classic cruiser will develop and the same desires felt by today's baby-boomers, to obtain

an individualistic American icon, will occur.

Brand

The Harley-Davidson brand is perhaps the most important and valuable aspect to the firms SCA. The brand is heavily used and widely

recognized; all told the HD brand was ranked as the 41 st most valuable brand in 2003.[vii] Further the brand has been described as "self-

reinforcing" thus representing that customers, both past and present often return for additional purchases (accessories, customization, and

services) or to trade-up into a new bike.[viii] Heavily linked to the social and psychological factors of the consumer experience the HD brand

produces high levels of emotion for its customers; so much so that the brand will most likely live strong well after the company has ceased to

operate.

Thus in their current format HD's product integrity and brand have met the four criteria for SCA:

Value- is gained from a consistent, classic, and independently notable feel and style to the bike

Rarity- occurs from market-relative low production volumes and high levels of customization

Not substitutable product- a Harley-Davidson is an HD, there is no substitute in the consumers minds- the Harley-Experience can only occur on a

classic Harley-Davidson

Costly to imitate- product and culture is impossible to imitate, cultural heritage, tradition and lifestyles developed along with the brand

itselfDifferentiation Advantage

Reviewing the strengths of HD's product integrity perhaps the most notable and immediately apparent fact is that HD's core product, its

motorcycles have not changed, to any significant degree, in style or major


 mechanicals attributes for many generations. Thus, the product offered today easily resembles the product of "yester-year" and it is this classic

styling that rests at the root of HD's product integrity. The lack of significant design alterations by HD over the years is in significant contrast to its

competitors. Honda, Suzuki, BMW, Yamaha and others consistently alter the look and feel of their bikes and/or imitate market leaders in order to

stay in alignment with current market demands. In contrast, HD has made few significant design changes to its product lines and has, over the

years, continued to offer products with similar design and feel to their predecessors thus continuing to uphold the company's traditions. However,

while such consistency in product integrity has helped to produce demand in today's market; will it provide the same for future markets? Although

it is not absolutely certain, HD's commitment to product integrity should help to bolster future product demand. Additionally the introduction of new

products more in-tune with younger markets and under a separate name such as Buell sport-bikes and the continued promotion of consumer

classes will help to foster in a new generation of enthusiasts as well as help to build offshore market bases; for as younger generations age, and

new markets become more affluent, the desire to own a classic cruiser will develop and the same desires felt by today's baby-boomers, to obtain

an individualistic American icon, will occur.

Brand

The Harley-Davidson brand is perhaps the most important and valuable aspect to the firms SCA. The brand is heavily used and widely

recognized; all told the HD brand was ranked as the 41 st most valuable brand in 2003.[vii] Further the brand has been described as "self-

reinforcing" thus representing that customers, both past and present often return for additional purchases (accessories, customization, and

services) or to trade-up into a new bike.[viii] Heavily linked to the social and psychological factors of the consumer experience the HD brand

produces high levels of emotion for its customers; so much so that the brand will most likely live strong well after the company has ceased to

operate.

Thus in their current format HD's product integrity and brand have met the four criteria for SCA:

Value- is gained from a consistent, classic, and independently notable feel and style to the bike

Rarity- occurs from market-relative low production volumes and high levels of customization

Not substitutable product- a Harley-Davidson is an HD, there is no substitute in the consumers minds- the Harley-Experience can only occur on a

classic Harley-Davidson

Costly to imitate- product and culture is impossible to imitate, cultural heritage, tradition and lifestyles developed along with the brand

itselfDifferentiation Advantage

Further analysis of HD's brand strength leads to a review of its differentiation advantage. It is from here that the full strength of the brand's

importance in the SCA is seen, per Grant, "Brand names and the

 advertising that supports them are especially important as signals of quality and consistency....for many consumer goods...; their brand is their
most important asset."[ix] Coincidently Harley-Davidson is "...a premium product and a premium brand...we're going to continue to run the
business to protect the value of the brand..."[x] Thus, the utilization of the brand is highly instilled during HD's marketing campaigns and other
corporate activities. Through the protection and exploitation of the brand the organization is able to play to and support its customers, "The
Harley-Davidson image and the loyalty it engendered among its customers were its greatest assets."[xi] By the utilization of product
differentiation, low production numbers, above average costs and the non-tangible factors of sociological and lifestyle facets HD fulfills its current
target markets desire for status, exclusivity, individuality, and emotional attachment and needs. It is these key aspects that allow differentiation;
and thus how the firm competes and offers uniqueness to its customers.[xii]

While the current differentiation advantage is strong it must be sustainable in order for long term competitiveness. Traditional strategy analysis
often emphasizes cost advantage as the principle means for establishing competitive advantage. However, lower costs offer a reduced security
basis for competitive advantage compared to differentiation.[xiii] While it is important for HD to control costs the focus should be on the term
control and not be confused with reduce costs in order to reduce product pricing. For, should the pricing of HD's core products become to low in
relation to its market, product demand will escalate, short-term minded investors will demand that production demands be met, and the market
may very well be saturated with products thus decreasing many of HD's long-standing advantages. Thus it is probably better that HD focus on
maintaining a price spread as an average percent rate higher than comparative market benchmarks from other producers.

Recommended Solutions:

In order to best ensure the sustained growth of the Harley-Davidson Motorcycle Company the following is recommended:

First, Continue to develop and market the brand in all markets with an additional emphasis in the Asian markets (dominantly China)

Second, Continue to utilize differentiation as a basis for long term strategy

Third, Further expand marketing of the "Harley Experience" and other lifestyle factors. Utilize new media such as movies, music videos and other
outlets to provide brand exposure through placement into outlets frequented by younger generations.

Fourth, Retain current pricing structure and market pricing position- significant decreases in price will reduce product differentiation, thus reducing

product value.A continuous emphasis on the further development of

 the brand in both domestic and foreign markets will only help to achieve the long term strategic goals of the company. I suggest that a significant
increase in efforts in the Chinese markets occur, even if through the reduction in efforts in other regions. This is suggested because the Chinese
markets are still new to large foreign motorcycles especially those with highly differentiated products. Further the ideals of the "Harley
Experience," along with its products intangible differentiation such as uniqueness, status and exclusivity of ownership can potentially be a more
powerful consumer motivator in previously heavily controlled and closed societies. Combined with rapidly increasing consumer wealth, the market
opportunities in China appear to be exceptional. Further, the future of the domestic markets is most likely equally as opportunistic. While it is true
that the current demographic of the baby-boomers is rapidly dissipating, it is projected that there is still 10-15 years left in this demographics run.
This is a significant amount of time for younger generations to mature and accrue both the lifestyle desires and the funding necessary to become
part of the elite Harley-Davidson family. However, such projected certainties should not be left to chance. Rather, active marketing to this
demographic must occur through age specific outlets such as product placement in popular movies (similar to how BWM placed vehicles in the
James Bond series, and how HD's and "Chopper" counterparts were utilized in the movie Easy Rider), as well as in music videos and other visual
media outlets. Such actions will begin the development of a new culture in-tune with the "Harley Experience" and its corresponding products.
Finally, HD must ensure that it's pricing structure remain at the same percent above its competitors. By no means should HD make significant
reductions in its product price or develop motorcycles that are viewed as inexpensive or "cheep". Such activities will cause negative impact to the
brand and its ability to differentiate by reducing factors such as exclusivity, uniqueness and others.

Business Impact:

The implementation of the recommendations presented in this paper will help to ensure brand strength and product differentiation; thus supporting
SCA. Further, by supporting these factors the ability to further develop existing as well as potential future markets is greatly enhanced. To follow
the recommendations in this paper will ultimately help to provide a competitive advantage in the market and help to achieve current growth
objectives. In contrast, failure to follow the recommendations presented in this paper could lead to a significant loss in brand strength through the
loss of product differentiation. The result of which can ultimately lead to significant, if not catastrophic market loss in both domestic and foreign
markets- thus leading to the potential failure of the Harley-Davidson Motorcycle Company.

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