In 2007, Harley Davidson was the world’s most profitable motorcycle company. They had just released great earnings and committed to achieve earnings per share growth of 11-17% for each of the next three years. Their CEO of 37 years, James Ziemer, knew this would be an extremely difficult task seeing Harley’s domestic market share recently top off at just under 50%. The domestic market was where Harley’s achieved the most growth over the past 20 years and with it leveling off, where was Harley going to get the 11-17% was the million dollar question.
Harley Davidson has built a brand that is more than just the spread eagle on a load rumbling motorcycle, but for those who purchase a Harley they are purchasing a lifestyle, an experience, or piece of American culture if you will. Due to this differentiating factor Harley has been able to charge a premium for its products and still be successful against its lower priced competition. Harley built upon this lifestyle when it created the Harley Owners’ Group (HOG). Harley would promote shows, rallies and rides through HOG in the US and even in other countries. This helped to build its coveted image into more of an exclusive club. In the 1990’s, Harley Davidson saw tremendous growth and looked for resolutions to its one problem of balancing production with its soaring demand. In 1996, Harley announced “Plan 2003”. “Plan 2003” was a huge undertaking to increase its production capacity, introduce several new models and increase international expansion. At the end of this planned expansionary period, Harley’s sales had grown tenfold over just 23 years. However in 2007, domestic demand was starting to slip, as several economical factors weighed on the American consumer, making it more difficult to buy luxury products.
In 2007, Harley Davidson finds itself in a battle with heavyweight contenders with deep pockets and a lot of engineering resources. Harley lacks the diversification in its products when compared to its competition. Harley only builds motorcycles, while its competition also builds cars, boats and several other types of engines or products. This diversification gives the competition bargaining power with its suppliers. This is a huge disadvantage for Harley financially when it comes to manufacturing costs.
In this given case, Harley faces three major problems, which if not resolved, will eminently result in the company missing its targeted growth. 1. The country is falling into a recessionary period where individuals will not be purchasing these leisure types of products. Causes for this major problem brewing in the US are many. In the US for the past few years, the savings rate of the average American family is actually negative. The negative rate indicates Americans are spending more than they are actually earning and the level of debt in the country is staggering. Home prices are falling at alarming rates, which also compounds an individual’s debt. With the lion’s share of Harley’s sales coming from within the US, a pending recession is bad news for the company. 2. Harley has made a concerted effort to sell more motorcycles into the European market by expanding production capacity in Europe and they are not selling as well as they would have hoped. Also, most of the successes they have achieved in the foreign market so far can mainly be contributed to a weak dollar, which may be only a temporary factor. Targeting the European market in itself is not a problem, but through marketing research you will find Harley’s products don’t fit the tastes of most Europeans, therefore making it a problem for Harley. Some of the causes to this problem are product related. Europeans like performance/sporty bikes compared to touring/cruiser bikes 70% to 30%. Harley’s main products are touring/cruiser bikes. In Europe, the roads and riding styles are vastly different than in the US. In Europe,...