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HARLEY DAVIDSON

HARLEY DAVIDSON Introduction. Harley-Davidson produces motorhomes, other recre-ational vehicles, and certain components for defense contracts. But by far the largest part of its production is devoted to mo-torcycles, from which it derives its fame. In 1990, motorcy-cles contributed 69% of sales (which were $865 million), and 96% of profits, which were $38.3 million. There are 5,000 employees [S3, p. 1097D]. Target Market. Harley-Davidson, which since 1954 has been the only manufacturer of motorcy-cles in the United States [G1, p. 8], specializes in large, heavy machines, 850 cc or larger [S3, p. 1097D]. Indeed, when the Japanese entered the American motorcy-cle market in 1959 with lightweight, inexpensive machines, they discov-ered that firms such as Harley and BMW and Triumph (Europe-an competitors) had been ignoring this segment in favor of heavier motorbikes. Such lightweight machines, thought the established firms, were merely toys [K2, p. 98]. Unfortunately for them, Japanese imports soon took over much of the U.S. market. Having established a foothold in lightweight bikes, they began to introduce heavier models. However, this did not happen overnight; Honda had been in the U.S. motorcycle market for ten years before it introduced a heavyweight bike to compete against Harley [K2, p. 128]. Before long Harley's formerly secure market was a shambles. Yamaha came into the U.S. market with bikes that were little more than copies of Harley models, and which even had similar mechanical features [G1, p. 9]. From enviable 90%-plus figures it had maintained in the 1960s and 1970s, Harley's market share slipped to only 23% by 1983 [W1, p. 26 By this time, Honda, another leading Japanese maker of cars and motorcycles, had taken 44.3% of the U.S. motorcy-cle market, almost twice the share held by Harley [C1, p. 50]. Harley appealed to the International Trade Commission, and President Reagan imposed a tariff on Japa-nese imports in 1983 [G1, p. 9; H2, p. 38]. In addition, the company changed its management style, adopting Japanese methods such as Just-In-Time inventory and employee involvement, as well as improved quality control [C1, p. 51; G1, pp. 10-11]. The results were impressive. Harley's market share moved up to almost 40% by 1988 [C1, p. 50]; to 46% by 1989 [H2, p. 38]; and to over 60% by 1990 [H1, p. 48]. Essentially, Harley's target market has al-ways been the knowledgeable biking enthusiast, for whom price or economy are not the critical buying motives. Unfortunately, this has become stereotyped into an image of icono-clastic ma-rauders who travel in gangs, but most Harley custom-ers are law-abiding. In fact, nearly a third of all Harley custom-ers are classified as "white-collar"--managerial or profes-sional types--and this is not new for the compa-ny [W1, p. 27]. Motorcyclists, however, are very dissimilar to other consum-er markets. These have be-come increasingly fragmented, and many formerly secure, lucrative consumer goods areas have splintered into niche markets [S1, p. 55]. Brand loyalty is also crumbling, as demonstrated by the ever-increasing numbers of consumers who rush to buy off-brands, imports, and generic goods just to save money [L1, p. 16]. But cyclists are remarkably homogeneous, despite the fact that some of them have what might be called non-traditional lifestyles. They are united by their devotion to the sport and to their machines. Product Strategy. It appears that Harley did make an attempt to offer lighter-weight models to compete with Japanese imports, but without success. In the mid-1970s, in the low-priced under-125 cc market, three models were introduced, as well as two models for the under-350 cc market [K2, p. 107]. Now, however, only three engine designs are used, with displacements of 883 cc, 1200 cc, and 1340 cc [S3, p. 1097D]. Harley's recent success in recapturing its old market reflects a product strategy that gave up the previous effort to compete head-to-head against the lightweight imports. There are two reasons why this previous strategy failed. First, Harley's entry into the lightweight market jeop-ardized its market image as a manufacturer of prestige machines. This is critically impor-tant for the firm, because according to Hackney, its business is "style and image" [H1, p. 48]. While Harley machines perform well and can reach high speeds, speed and handling are not the important selling points for its products. One source Hackney quoted said that "Harley is in the image busi-ness" [H1, p. 48]. Willie G. Davidson, grandson of the firm's founder, asserted that a Harley's engines must have a special sound and what he calls the LOOK [W1, p. 27]. Second, it would have been nearly impossible for the company to make and sell small motorbikes as profitably as the Japanese firms could. The U.S. automobile industry has been forced to attempt this, but with very limited success. Without import quotas it would be in worse shape still, just as Harley might be defunct if not for the tariff on Japanese heavyweight bikes. It is impor-tant also to point out that the lightweight bikes the Japanese first imported did not di-rectly compete with Harley [G1, p. 8]. Price. The three under-125 cc models mentioned above that Harley had introduced sold in the $495-749 price range. At the time, Honda had four models in this range, selling between $304 and $899. In the under-350 cc market, Harley's models sold for $930 to $1,130, while Honda's were selling for $897 to $1,175 [K2, p. 107]. 1988's prices for Harley models ranged between $4,000 and $13,000 [H2, p. 38]. By 1991 the price range was $4,400 to $14,300 [S3, p. 1097D]. Because of the prestigious nature of its reputation, the firm can charge high prices. While nearly every product has some price elasticity, customers expect to pay more for a Harley, and do so willingly, not being deterred by its premium price. For such products, a high price can be an indica-tor of quality [K1, p. 395]. It is true that if not for the tariff, much business would be lost to lower-priced Japa-nese imports of compara-tive machines, but not all the market would re-act in this way. Place. One of the fastest-growing sales areas for Harleys has been overseas, particularly Japan [ W1, p. 27]. In 1989, 22% of sales were to foreign markets, and this figure increased to 30% in 1990 [S3, p. 1097D]. The actual number of bikes exported in 1990 was 15,000, giving the com-pany 15% of the world market for heavyweight motorcycles. The export figure for 1991 was estimat-ed at 25,000, or 35% of the firm's total sales [H1, p. 48]. It is in the domestic market, however, that Harley's distri-bu-tion excels. There are 650 U.S. dealerships [S2, p. 109]. Howev-er, although adding many more dealerships would pre-sumably further increase sales--particularly because it would allow greater cover-age of rural ar-eas where motorcycling is a common pastime--this is not possible, for quality reasons which will be explained below. In 1969, Harley merged with the American Machine and Foundry Co. (AMF). This firm took over leadership and proceeded to triple Harley's production, apparently on the idea that this would increase profits by a similar proportion. But as might have been expected, quality suf-fered greatly, and this was a major cause of the company's severe slump [H3, p. 155; G1, p. 8]. Harley executives bought back the company in 1981. If the firm would produce 500 bikes per day, it could sell them all, for as one analyst put it, "'Dealers are starved for prod-uct.'" In 1989, 265 bikes per day were made, and the 1990 goal was 285 [H1, p. 48]. This would amount to about 85,000 annually, assuming a 300-day work year. While this is still far short of demand, the company adamantly refuses to compromise quality, fearing a repeti-tion of the crisis it underwent before. In the early 1980s, the com-pany increased its sales force by 50%, but this was mainly to give the sales force more time to train the dealers, who often were inadequate at selling. In 1986, a store renovation program for dealers was instituted [G1, p. 12]. Still, dealers do not have all the bikes they have demanded, and Harley dealers are far from ubiquitous. Conse-quently, the "place" factor remains a Harley weakness; one simply cannot buy a Harley-Davidson any-where. However, in the U.S. as a whole, there are over 4� million registered motor-cy-cles, as of 1988 [U1, p. 611, Table 1041]. Promotion. Unlike other (and much larger) manufacturers of motor vehicles, Harley does not advertise extensively, relying more on image and word-of-mouth. But a firm with a legend of this type can do well without frequent use of the typical advertising vehicles. As previously dis-cussed, motorcyclists are a homoge-neous market, with much camaraderie. Enthusiasts often at-tend races, exhibits, and similar events, and in such situations, almost every person reached by a promotional effort targeted at such a group will be a likely customer. These are the promotional activities Harley emphasizes. The Harley Owners' Group (HOG)* was founded by the firm in 1983, and remains the only factory-sponsored motorcycle club in the world. "I think it's one of the most important things we do," claims Willie Davidson. "The customers appreciate our being there with them, sitting in the saddle and enjoying the sport [W1, p. 27]." One of the goals was to get senior executives socially involved with customers. Suggestions and recommendations from custom-ers are actively solicited and promptly forwarded to the appro-priate departments for consideration. Mr. Davidson, somewhat of a celebrity among bikers, fre-quently attends meetings and ral-lies, and the hope of meeting and speak-ing with him undoubtedly attracts many enthusiasts. When Sales & Marketing Management made him its Marketer of the Month in April 1991, the photo showed not a man in a business suit (with whom most bikers would probably not identify), but a man who looked like them, sporting a beard and sunglasses. HOG is open to all Harley owners and has over 100,000 members, with 400 local chap-ters. Customers, by virtue of HOG membership, are given a "reason to ride" and "membership in a social group whose main activities revolve around [Harley's] products [G1, p. 11]." If it were possible to measure the dollar sales generated by this brilliant marketing stratagem, we may speculate that the result would probably be in the mil-lions. Such activities were also extremely valuable in dissuading the public from the negative image that Harley had picked up in the late 1970s, when quality control virtually fell apart. A test ride program called Demo Ride was created. Fleets of new machines were taken to motor-cycle events and rallies, and anyone with a valid motorcycle license was encouraged to ride them. This program was highly successful, and ever since, test rides have been standard in the industry [G1, p. 11]. In 1984, the company committed $3 million to an unprecedent-ed demonstration program named SuperRide: . . .A series of TV commercials invited bikers to come to any of the company's 600-plus dealers for a ride on a new Harley. Over three weekends, the company gave 90,000 rides to 40,000 people, half of whom owned other brands. The ven-ture didn't sell enough bikes to cover its cost, but it made the point nonetheless. Many who rode the demonstrators came back to buy a year or two later when they were ready for new motorcycles. Today SuperRide is the only such consistent program in the industry, and so successful that Harley has a fleet of demo bikes that it takes to motorcycle rallies [H3, p. 162]. The company has also used another shrewd promotional tactic. Following its resurgence, as soon as the first year came along that would look like a genuine milestone, a gala company birthday party was held. This was in 1988, its 85th anniversary. Every motorcyclist was invited, even those driving other makes of cycles. To qualify, they needed only to contribute $10 to the company's favorite charity, the Muscular Dystrophy Association. More than 40,000 bikers did so. Groups of cyclists from all over the country began to converge on Milwaukee, where the firm is located, and each group was led by a Harley corporate executive. Along the way, com-pany memorabilia were auctioned off to raise more money for the philanthropic organization, which received over half a million dollars from this event. Even some of the less reputable types of bikers participated--the "Sinners" and the "Saracens"--but the proceed-ings were peaceful, and there were many games and races for entertainment [H3, p. 164]. Such publicity could not be equalled by millions of dollars' worth of media advertising. Conclusion. It is impossible to judge the extent to which Harley's rebound was due to the pro-tective tariff or its own efforts. Certainly each contributed to it. However, it seems that even if the tariff were lifted, the loss of market share the company would suffer due to imports of cheaper but otherwise comparable bikes might be serious, but not fatal. Honda and Yamaha are well-known and their bikes are well-made, but they simply do not have, and could never build, the kind of reputation that Harley enjoys. Its customers do not buy a mere conveyance, they buy into an image and for some, a way of life. The company knows this and has marketed it, with great success. Bibliography: BIBLIOGRAPHY C1. Cayer, Shirley. "Harley's Manager-Owners Put Purchasing Out Front." Purchasing, Vol. 105, No. 5, October 13, 1988. G1. Gelb, Thomas. "Overhauling Corporate Engine Drives Winning Strategy." The Journal of Business Strategy, Vol. 10, No. 6, November/December 1989. H1. Hackney, Holt. "Easy Rider." Financial World, Vol. 159, No. 18, September 4, 1990. H2. "Hogs with Wheels." Fortune, Vol. 119, No. 8, April 10, 1989. H3. "How Harley Beat Back the Japanese." Fortune, Vol. 120, No. 7, September 25, 1989. K1. Kotler, Philip. Principles of Marketing. Englewood Cliffs, N.J.: Prentice-Hall, Inc., 3rd edition, 1986. K2. Kotler, Philip, Liam Fahey, and S. Jatusripitak. The New Competition. Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1985. L1. Liesse, Julie. "Brands in Trouble." Advertising Age, December 2, 1991. S1. Schiller, Zachary. "Stalking the New Consumer." Business Week, August 28, 1989. S2. Schlax, Julie. "Ode to A Hog." Forbes, Vol. 146, No. 14, December 24, 1990. S3. Standard & Poor's Corp. Standard N.Y.S.E. Stock Reports. December 3, 1991. U1. U.S. Dep't. of Commerce. Statistical Abstract of the United States 1991. 111th edition. W1. "Willie G. Davidson: Born to Ride." Sales & Marketing Management, Vol. 143, No. 4, April 1991.

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