Harley Davidson: Preparing for the Next Century

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Harley Davidson (HD) sales have endured a roller-coaster history of growth and decline since its start in 1903. From extreme growth in its initial years, to declines during WWII, HD made its come back with larger, more powerful bikes and its image of “raw power” and enjoyed a 60% market share. Its popularity soared to iconic level in the 1950’s and became a lifestyle with unique brand loyalty. New, Japanese competitors, in particular Honda moved the market towards a smaller, quieter, less expensive bike; and by 1965, Honda represented half of all bike sales.

HD employed every technique to raise capital from going public in 1965, to selling to AMF, to selling back to the employee group, and to once again going public. In doing so, they toured their competitor, Honda, and decided to make changes to take advantage of the manufacturing efficiencies that they observed at Honda. HD increased inventory turnover and productivity, decreased problems in products, increased revenue and operating profits, and, finally, increased its market share.

They continued to innovate programs such as HOG (HD owner’s group), and developed their market strategy on two main stages, one, to reach younger customers and, two, to maintain growth in its traditional market segments. The HD customer base was aging, and although there were repeat customers, new, younger customers were few. In order for HD to compete with Japanese competitors, it had to reach the youth. In 2001, HD released a high performance motorcycle for the first time, the V-rod, to target both the young, hip American and the Europeans.

HD knew that while its established customer base was aging, baby-boomers were staying active longer which extended the demographic of HD’s market, projecting a steady base until 2020. Continuing to target new segments, HD re-designed the Sportster family of entry-level, lower priced bikes for new, young, and female riders. HD discovered that rather than alienate its traditional customer, it had created an opportunity for customers to purchase a second, Sportster Harley. To further its strategy, HD also enacted a rental program and program giving riding lessons. Both programs led to sales of accessories and bikes that HD may not have made otherwise.

HD revised projections in 2005, decreasing the number of expected sales by 10,000 units (in 300,000) and decreasing its earnings. Investors responded and the stock price dropped dramatically. Regardless, HD had not changed and did not expect to change its long range goal of 400,000 sales by 2007 and earnings growth in the mid-teens. HD did not publicize that global demand for motorcycles was projected to continue to grow. Analysts were skeptical on three areas – if HD could meet its long range goal given the slowdown in its traditional market segment; if it could meet its projected annual growth; and if it could attract more, young riders and females in the performance segment.

Moving forward, HD must determine whether to continue to target customers in the performance segment and whether it would be able to maintain its growth in its traditional market segment. They must decide whether or not to continue with its current strategy given its revised projections and the market’s reaction.

With its current strategy, HD has grown its key factors. To continue to grow, HD will have to keep pushing innovation and efficiency in its processes. Analysts questioned HD’s long range, 2007 goal due to an interpreted lag in its traditional market segment; but there is information to show that HD’s traditional market segment, while aging, will remain active and steady until 2020, and HD’s traditional market segment remains loyal to the brand, rather than becoming alienated, through HD’s transformation. Further, the traditional segment is purchasing Sportster bikes as a second motorcycle. What’s more, there is a projected...
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