Harley-Davidson: Preparing for the Next Century

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manufacture.

Hence, the significant elements of the transformation process are new product development, upgraded manufacturing technology, capacity and processes, a modernized and strengthened dealer network, and ‘close to the customer’ marketing.

3. What are the challenges facing Harley‐Davidson as it enters the 21stcentury ? What are its current strategy? What is your evaluation of their current strategy? Do you have any specific recommendations for Jeff Bleustein? Short‐term? Long‐term? (12 marks)

One of the challenges for Harley is whether it could maintain an impressive track record in the 21st century.

The company believes that global demand for heavyweight motorcycles grows at an average core rate of 7% to 9% per year, having averaged 8.6% since 1991. However, we believe that core growth may be somewhat below that figure (5% to 8%). For 2005 we estimate total wholesale shipment growth (excluding Buell units) of just 3.4%. This (slowing) trend suggests that the market for Harley-Davidson’s products may be maturing.

Second, but related to the first, a few analysts were concerned that baby boomers, who formed a majority of Harley’s customer base, were aging. The median age of the Harley customer, which was 35 years in 1987, was now closer to 47 (see Exhibit 3). Reports indicated that over 60% of motorcycle riders were between the ages of 35 and 54.

According to Donald Brown, a consultant to the industry, the prime age for motorcycle customers was 35 to 44. Since Harley can’t replace all its boomer customers from a limited pool of boomers, it must reach deeper than before into the youth market. Harley will have to compete more head on with the Japanese. (it becomes increasingly important for Harley to address shifting demographics)

Customers who bought Japanese bikes tended to be younger and favor sleek, high-revving sports bikes. For instance, the median age of customers who bought Sukuzi’s sports bikes was 33. Also, sports bikes with smaller engines typically sold for under $10,000, while most Harleys, which were priced higher ($14,000 to $18,000), were beyond the reach of younger riders.

Strategy – taking measures to reach younger customers, as well as finding new ways to maintain its growth in its traditional segments.

Buell Acquisition

The VR-1000 motorcycles that Buell produced had successfully competed on the international racing circuit. Buell motorcycles such as the Blast 500-cc model started at $4,595, but prices for the larger models could reach $10,000. These bikes catered to younger buyers with smaller budgets.

Inspired by the VR-1000 racing motorcycles, in 2001 Harley-Davidson introduced the V-Rod, the company’s first motorcycle to combine fuel injection, overhead cams, and liquid cooling. The V-Rod represented Harley’s try at high-performance motorcycles. The V-Rod was a 600-pound motorcycle made of chrome and brushed aluminum and cost over $17,000. It boasted 110 horsepower, nearly twice the muscle of a typical hog. The V-Rod’s water-cooled engine is a big departure from Harley’s traditional air-cooled one, and the company teamed up with Porsche to build a liquid-cooled engine. Liquid cooling allows riders to rev a little higher and hotter in each gear, boosting acceleration. They risk alienating current customers.

In early 2005, Harley launched a second bike as part of the V-Rod family, which it named the “Street-Rod”. The company also redesigned its sportster family of entry-level, lower-priced bikes in 2004 to appeal to younger riders and women riders. With prices starting at $6,500, the company was attempting to position the new sportster within the grasp of a younger group of riders it hoped would grow loyal to the Harley-Davidson brand. The line also targeted women riders, who now accounted for 10% of total Harley sales in 2004, up from 2% a decade earlier.

In terms of marketing, Harley-Davidson continues to target events and media that are of interest to the key constituents in its emerging customer segments. For example, in 2004 the company held two events for leading national women’s media, an event for journalists representing African-American media, and an event for key Hispanic media. The company

also hosted its first-ever new motorcycle launch dedicated solely to female motor-journalists

and continued its support of various bike rallies focused on minorities.

The Rider’s Edge and Rental Programs

In 1999, Harley launched a rental program to hook customers and entice them to buy a Harley.

Harley claimed that its survey of rental customers showed that 32% bought a bike or placed an order and another 37% planned to buy one within a year. Also, 50% of the renters spent over $100 on accessories. While most analysts following the company believed that this program helped sales, they were unclear about the magnitude of its impact.

In 2000 Harley initiated the Rider’s Edge program through a few participating dealers. This program offered motorcycle-riding lessons that lasted for four days and cost students $350. Approximately 70% of Rider’s Edge participants purchase a motorcycle within 18 months. However, only 96 of Harley’s 700 dealers have agreed to offer the program because of licensing restrictions in some states and the hefty costs of operating the program.