Harley?DavidsonCase Study Essay

This essay has a total of 4659 words and 23 pages.

Harley?DavidsonCase Study

case teaching note
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Harley¬Davidson*

Overview
Harley-Davidson's management had much to be proud of as the company wrapped up its Open
Road Tour centennial celebration that began in July 2002 in Atlanta, Georgia, and ended on
the 2003 Memorial Day Weekend in Harley's hometown of Milwaukee, Wisconsin. The 14-month
Open Road Tour drew large crowds of Harley owners in each of its five stops in North
America and additional stops in Australia, Japan, Spain, and Germany. Also during its 2003
centennial year, Harley-Davidson was named to Fortune's list of "100 Best Companies to
Work For" and was judged third in automotive quality behind Rolls-Royce and Mercedes-Benz
by Harris Interactive, a worldwide market research and consulting firm best known for the
Harris Poll. The company's revenues had grown at a compounded annual rate of 16.6% since
1994 to reach $4.6 billion in 2003—marking its 18th consecutive year of record revenues
and earnings. In 2003, the company sold more than 290,000 motorcycles, giving it a
commanding share of the 651 cc motorcycle market in the U.S. and the leading share of the
market in the Asia/Pacific region. The consistent growth had allowed Harley-Davidson's
share price to appreciate by more than 15,000% since the company's initial public offering
in 1986.

In January 2004 the company's CEO, Jeffrey Bleustein, stated that Harley-Davidson's
earnings growth rate should fall in the mid-teens for the foreseeable further and the
company expected to increase unit sales to 400,000 units by 2007. However, not everyone
was as bullish

*This teaching note reflects the thinking, insight, and analysis of case authors,
Professor John E. Gamble and Diplom-Betriebswirt Roger Schafer, both of the University of
South Alabama.

on Harley-Davidson's future, with analysts pointing out that the company's plans for
growth were too dependent on aging baby boomers. The company had achieved its record
growth during the 1990s and early-2000s primarily through the appeal of its image with
baby boomers in the U.S. There was some question how much longer boomers would choose to
spend recreational time touring the country by motorcycle and attending motorcycle
rallies. The company had yet to develop a motorcycle that appealed in large numbers to
motorcycle riders in their 20s or cyclists in Europe who both preferred performance
oriented bikes rather than cruisers or touring motorcycles. Another concern of analysts
watching the company was Harley-Davidson's short-term oversupply of certain models brought
about by the 14-month production run for its 100th anniversary models. The effect of the
extended production period shortened the waiting list for most models from over a year to
a few months and left some models on showroom floors for immediate purchase. The combined
effects of a market focus on a narrow demographic group, the difficulty experienced in
gaining market share in Europe, and short-term forecasting problems led to a sell off of
Harley-Davidson shares going into 2004.


Suggestions for Using the Case
Students should find the case interesting because of Harley-Davidson's role in creating
and shaping the motorcycle industry and culture over the company's 100-year history and
because of Harley-Davidson's recent financial and market performance. Even though the
company is histor¬ically important to the motorcycle industry, its performance during the
late-1990s and early-2000s has been outstanding with revenues and earnings increasing at
annual rates of 16.6% and 24.5 %, respectively, between 1994 and 2003. In 2003 Harley
commanded approximately 50% of the heavyweight motorcycle market in the U.S. and more than
25% of the heavyweight motorcycle market in Asia/Pacific—making it the market share
leader in the region.

The Harley-Davidson case examines the appeal of Harley-Davidson's outlaw image and quality
touring and custom motorcycles with baby boomers in the U.S., Asia, and Europe and its
success competing in the heavyweight segment of the motorcycle industry in various
international markets. The case has linkage to concepts discussed in Chapters 3 and 5 and
is well-suited to illustrate such concepts presented in Chapter 6 as cross-country
differences, strategy options for entering and competing in international markets, and
multi-country versus global competition. The case also provides an opportunity to examine
offensive and defensive strategies presented in Chapter 8 that have been executed by
Harley-Davidson in building market share in the U.S. and in international markets. The
case includes extensive data on the economic and regulatory features of the motorcycle
industry in the U.S. and Europe and includes market share data for the world's leading
sellers of heavyweight motorcycles in the U.S., Europe, and Asia. Students will be able to
assess characteristics of the global motorcycle industry and focus on cross country
differences in cultural, demographic, and market conditions in the heavyweight segment of
the industry. Considerable differences exist in preferences of European and U.S.
motorcyclists, which is reflected in Harley-Davidson's poor showing in Europe relative to
low-cost Japanese motorcycle producers and BMW, which enjoys considerable regional
loyalties.

The case also includes adequate financial information to allow students to assess the
company's overall growth and profitability and examine financial performance by geographic
region and product line. The decision focus of the case is how Harley-Davidson management
might better prepare for market maturity in the U.S. and improve its appeal with
price-sensitive motorcyclists in the U.S. and performance-oriented riders in Europe.

The comprehensive and global nature of this case makes it best used in the second half of
your business strategy module. You may also want to consider teaching the Harley-Davidson
and Hero Honda cases back-to-back, since these two companies are in the same industry. But
either case can readily be used as a stand-alone case.

There is a video accompanying the Harley-Davidson case. We suggest showing it at the
beginning of the class discussion—it should help set the mood and tone for a spirited
and interesting discussion.

In addition, there is a case preparation exercise on CASE-TUTOR for the Harley-Davidson
case. It is framed around the assignment questions presented below and is designed to push
students to do the analysis and number-crunching to arrive at sound action
recommendations. We believe having the class members complete the exercise prior to class
and asking them to bring printouts of their work to class to use in buttressing their
arguments is always going to improve the caliber of the discussion and the learning that
takes place.

Because of the extensive number-crunching possibilities and the case's emphasis on action
recommendations, the Harley-Davidson case is an excellent choice for oral team
presentations or a written case assignment. Our suggested assignment questions are:

 Harley-Davidson CEO Jeffrey Bleustein has heard of your emerging skills of
analysis and has asked that you perform review of the company's performance in the U.S.
and in international markets. Your review should examine the characteristics of the major
international markets for heavyweight motorcycles, assess Harley-Davidson's strategy and
performance in the U.S. and abroad, and identify obstacles to achieving its objective of
manufacturing and selling 400,000 motorcycles annually by 2007. Your report should also
include a 2-3 page executive summary of recommendations necessary to achieve the company's
2007 sales objective of 400,000 units. Please attach whatever tables, figures, or other
exhibits you believe necessary to support your conclusions.

 Harley-Davidson has employed you as an analyst in its European distribution
division based in the United Kingdom. Your first assignment is to prepare a review of the
company's performance in the U.S. and in international markets. Your review should examine
the characteristics of the major international markets for heavyweight motorcycles, assess
Harley-Davidson's strategy and performance in the U.S. and in Europe, and identify
obstacles to achieving market share gains in Europe and its strategic objective of selling
400,000 motorcycles in 2007. Your 5-6 page report should include a strategic action plan
to increase market share in Europe and allow the company to achieve its 2007 sales
objective of 400,000 units. The report should also include whatever tables, figures,
and/or other exhibits you believe necessary to support the items in your action plan.


Assignment Questions
1. 1. What are the dominant business and economic characteristics of the global
motorcycle industry? What is the industry like?

2. 2. What cross country differences in cultural, demographic, and market
conditions exist in the global motorcycle industry?

3. 3. What are the key elements of Harley-Davidson's competitive strategy? How has
the company utilized offensive and defensive moves to secure its position as the leader of
the heavyweight motorcycle segment? Does it appear that Harley-Davidson's strategy is
working? Is its performance acceptable?

4. 4. How strongly is Harley-Davidson positioned in international markets? How
does the com-pany's performance in international markets compare to its performance in the
United States? How would you characterize Harley-Davidson's approach to international
competition?

5. 5. What recommendations would you make to Harley-Davidson's executive
management to improve performance both domestically and in international markets? What
should the company do to improve its appeal with younger riders in the U.S. and Europe?
How might the company better cope with the aging of the baby boomer generation? Does it
appear the company will be able to increase sales to 400,000 units by 2007 as suggested by
Jeffrey Bleustein?



Teaching Outline and Analyis
1. What are the dominant business and economic characteristics of the global
motorcycle industry? What is the industry like?

Students should be able to identify the following dominant industry characteristics.
 28 million motorcycles were in operation worldwide in 2003
 950,000 motorcycles were sold in the U.S. during 2003
 The industry was expected to grow by approximately 5% annually through 2007
 The industry was segmented by engine size (125 cc, 651 cc) and style (enduro,
cruiser, custom, performance, standard)

 Light motorcycles, mopeds and scooters were expected to grow at a faster rate
than 125 cc motorcycles between 2003 and 2007

 Industry-wide demand increased by 10% in the U.S. during 2002, while demand
for 651 cc motorcycles grew by 17%

 Europe was the world's largest market for motorcycles with 1.1 million
registrations of 125 cc motorcycles in 2002

 The U.S. was the world's largest market for heavyweight motorcycles (651 cc)
with 461,200 registrations in 2003

 Europe was the world's second largest market for heavyweight motorcycles with 323,100 registrations in 2003
 The motorcycle industry was regulated by various governmental agencies in
countries where motorcycles were operated. For example, in the U.S. motorcycles were
regulated by the Environmental Protection Agency (EPA), National Highway Traffic Safety
Administration, and state environmental agencies. Policies implemented by insurance
companies also resulted in standards that affected motorcycle producers and owners.


2. What cross country differences in cultural, demographic, and market con¬ditions
exist in the global motorcycle industry?

Students should be able to note that heavyweight motorcycles are more highly demanded in
developed markets in North America, Europe, and Asia, whereas consumers in emerging
markets preferred mopeds, scooters and other light motorcycles. Consumers in emerging
markets tended to purchase small motorcycles for inexpensive primary transportation, while
consumers in developed markets most frequently used motorcycles for recreation and
preferred larger motorcycles with greater performance.

Students will also note that typical motorcyclists in the U.S. enjoyed leisurely cruises
on large comfortable bikes with an upright riding position, while typical European riders
(and young American riders) liked performance bikes with quick acceleration, high top-end
speeds, and a forward riding position. Case Exhibit 6 presents a regional comparison of
the 651 cc motorcycle market by segment. Typical European riders also rode shorter
distances on motorcycles than typical riders in the U.S. Students that examine the case
exhibit will note that in 2002 more than 60% of motorcycles sold in the U.S. were in the
custom category, whereas more than 60% of bikes sold in Europe fell into the performance
category.

Also, motorcyclists in Europe and younger riders in the U.S. were attracted to the lower
prices offered by Japanese motorcycle producers. Examination of case Exhibit 7 discloses
that consumers in Germany were quite loyal to the BMW brand, but Japanese motorcycles
accounted for 61.7% of registrations occurring between January and November 2003. BMW held
an 18.8% market share in Germany during the first 11 months of 2003. KTM was the only
other European brand to capture 3.0% or greater market share. Analysis of case Exhibit 8
also indicates that European riders preferred performance or lower-priced motorcycles to
custom or touring bikes with 7 of the top 10 best-selling motorcycles in Germany retailing
for under $10,000. BMW and Suzuki each sold four of the top 10 best-selling motorcycles in
Germany during 2003, with Yamaha and Kawasaki each producing one of the top-10 models in
Germany.

Students should also note that government regulations varied by country and had an effect
on motorcycle demand and design. The European Parliament and the European Council required
motorcycles and scooters manufacturers to reduce exhaust pollutants by 60% on all new
cycles produced after April 2003 and called for an additional 60% reduction for bikes
produced after January 2006. Motorcycles that produced excessive noise were also under
attack in most European countries. In the U.S., the EPA and state agencies such as the
California Air Resources Board (CARB) developed similar noise and emission standards for
motorcycles.

Restrictive licensing requirements in western European countries such as Austria and
France limited sales of motorcycles in those countries since motorcycle ownership was
restricted to those who had previously held an automobile driver's license for some period
of time. The conversion to the Euro also affected demand in countries such as Germany
where consumer purchasing power was diminished after the currency conversion.

Case Exhibit 5 presents registrations of 125 cc motorcycles in major European markets
between 1998 and 2002. Students who perform calculations similar to what are shown in
Table 1 should comment that even though Germany is the largest market for 125 cc
motorcycles in Europe, it has been in decline since 1999 and might soon fall second to
Italy as Europe's largest motorcycle market.

Table 1 Compound Annual Growth Rates for Major European Markets, 1998¬2002
CAGR Country (1998-2002) Germany -4.7% Italy 13.0% France 6.5% Great Britain 2.6% Spain -0.2%
Source: Calculated from Case Exhibit 5.

3. What are the key elements of Harley¬Davidson's competitive strategy? How has the
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