Harley-Davidson: Preparing for the Next Century

1. Historically, how did Harley‐Davidson manage to dominate the US market? How did it do so and what were its sources of competitive advantage? (4 Marks)

1) As the market leader of the US heavyweight motorcycle industry, Harley-Davidson had built up a number of sources of competitive advantage over its competitors by offering consumers greater value, providing greater benefits and services in 3 different areas which are listed below.

• Product differentiation: During the early years, Harley focused on product innovation, developed the V-twin design and focused on improving the reliability and quality of its machines. The V-twin engine’s simple design allowed owners to tinker with their engines. Harley also offered a complete line of motorcycle parts, accessories, riding gear and apparel, and general merchandise.

• Service differentiation: Customers were able to choose from a wide array of new colours, decals, and stylized designs to personalize their motorcycles. This option built a closer customer relationship in meeting their needs and wants. In the late 1930s, Harley adopted an “image and lifestyle” approach to marketing. Its motorcycles were advertised in “biker” magazines and promoted mainly by word of mouth.

• Image differentiation: Harley established an image of “raw power” which became its major selling point and differentiated itself from competitors. It gave owners a unique riding experience with a sense of confidence and power. Its brand image reflected rugged and tough individuality. Harley motorcycle is part of American iconography and is associated with US flag and the bald eagle. This strong sense of nationalism connected to Harley motorcycles resulted in brand recognition and loyalty that continues to this day. This competitive advantage enabled them to sell the motorcycle at higher price. Harley motorcycles were also used by the U.S. military, highway patrol officers, the Hell’s Angels and Hollywood rebels.

2. And starting in the 1970s Harley‐Davidson got into trouble, what changed? Internally? Externally? What is your evaluation of the transformation process that Harley‐Davidson went through? According to you what are the significant elements of the transformation process?

(9 Marks)

2) Harley-Davidson got into trouble in the 1970s due to stiff foreign competition (external factor) and its inefficient production and marketing strategy (internal factor). This could be summarised using Porter’s Five Forces Model of Industry Competition2.

• Threat of new entrants - In 1959, the Japanese competitors discovered a large untapped customer base of older males and younger women — a segment not well suited to the “tough”. Harley motorcycles. Barrier to entry is relatively low until the introduction of tariff.

• Threat of substitutes - These entry-level Japanese bikes, with a ‘family-oriented” marketing positioning, posed to be a strong alternative to Harley. They marketed cheaper, smaller, faster, quieter, and more fuel-efficient motorcycles that required little or no maintenance and were easier to handle compared to Harley bikes. Switching cost is low to moderate.

• Power of suppliers - The Japanese manufacturers were also skilled at mass-producing motorcycles efficiently as compared to Harley-Davidson. They constantly improved and re-designed their products to counter potential market threats, and they reduced the time it took to introduce newer models. Harley’s production system was flawed with high inventory upkeep and many overlooked production quality issues due to less-skilled workers.

• Power of buyers - The Harley’s customer base had grayed considerably since the early 1990s, and their average age rose from 35 to 47 years in the past decade. Younger Americans, who did not want to tinker with the motorcycles, preferred smaller and cheaper Japanese bikes due to low purchasing power. Japanese companies also provided high level of product differentiation to enhance customer loyalty.

• Rivalry among existing firms – There was fierce and competitive rivalry due to specific market and targeted groups. The Japanese companies were also high with existing assets. Harley suffered insufficient capital, severe pressures and was then acquired in a takeover by AMF.

In 1980, Harley went through a transformation and had a new goal - survival. My evaluation of the transformation process at Harley-Davidson will be shown using the SWOT analysis.

Strengths - Harley implemented (a) employee involvement, (b) use of JIT inventory practices, and (c) statistical operator control (SOC). Line workers were involved in the quality circles that were made directly responsible for improving motorcycle quality. A materials-as-needed (MAN) program was implemented to free up much-needed cash by reducing WIP inventory. Employees were taught to see how quality problems developed and how they could be traced and corrected during the production process. The company emphasized organizational and individual learning at all levels. A create-demand team and a product-support team were set up. This saves time as they no longer needed to go up the different level of bosses for approval and decision making. There were new rewards and incentive systems introduced, as well as pay for performance. Harley also made substantial changes in worker job descriptions, responsibilities, and production process to increase job enrichment and worker empowerment.

Weaknesses - Harley Davidson is struggling in targeting the younger audience. The generations of baby boomers have contributed hugely to the gross sales but once they get older, Harley Davidson is faced with major conflicts in the future.

Opportunities - Harley visited Honda’s production plant and learnt a just-in-time (JIT) system for inventory control. The workers were responsible for quality rather than quantity, unlike in Harley. In 1983, to gain time and protect itself from the Japanese inroads in the heavyweight segment, Harley-Davidson sought tariff protection from the U.S. government. It was granted a five-year, self-liquidating tariff. The company also introduced numerous innovations in manufacturing - “hybrid” lines. This approach increased line productivity and the reliability of the bikes produced. The Harley-Davidson Owners Group (HOG) was formed in 1983 to encourage active involvement in motorcycling and social events. There was also a "The Ladies of Harley" group catering to the increase interest in young women motorcyclists.

Threats - In 1975, Honda introduced the Goldwing motorcycle which was technologically sophisticated to compete in the heavyweight motorcycle market with Harley. The younger generation is looking more for slimmer sports like bikes which Harley Davidson does not