In: Business and Management
Q1. I wanted you to begin by recognising that this was a turnaround situation, with Ducati in 1996 close to bankruptcy. A new management team led by Minoli changed strategy with clear objectives of aggressive growth within a niche of the sports segment and competing as a focussed differentiator. The logic of the turnaround can be conceptualised as follows (a) Ducati reduced costs without affecting the WTP for the physical product (i.e. the quality and reliability of the product has increased despite reduced costs). Major reductions were in motorcycle material costs (from 68.2% to 59% of unit costs, exhibit 12) and can be attributed to the following factors: (1) rationalised suppliers from 200 to 130 with the effect of increasing the quality of suppliers and Ducati’s bargaining power (2)Ducati increased its outsourcing from 80% to 90% and thus tapped more the potential of the Emilian mechanical district (3) Ducati further increased its bargaining leverage by instituting dual sourcing for the major components of the motorcycle and adopted short-term contracts (4) Ducati enjoyed economies of scale by increasing output from 12000 bikes in 1996 to 39000 in 2000 (5) Ducati increased the standardisation of its products (parts) and thus increased the bikes produced per worker from 76 to 87 in 200 (14% increase) (exhibit 13). (b) Ducati increased costs to boost WTP for the product’s intangible aspects (i.e. sport character, community, design, exclusivity, Italianess, tradition etc). The essence of the turnaround was the decision to focus on the intangible attributes while not compromising the physical ones. (1) Ducati increased fixed sales costs by creating the ‘world of Ducati’ and investing in Ducati owners clubs (increased sense of community), the museum (emphasised the sport character and tradition), targeted advertising and co-marketing initiatives that reinforced its identity and link to its core customer target group.(2) Ducati radically changed its distribution strategy to ensure it is aligned to the WTP attributes by (a) ensuring dealers pay closer attention to their customers by carefully selecting dealers and reducing the number of dealers but increasing the number of registrations per dealer (from 14 to 150 registrations per dealer on average) (b) by building a network of mono-franchise dealers and own stores and thus ensuring that the stores had a consistent message of its new positioning. (3) Ducati increased R&D fourfold by establishing an internal design and thus getting full control of the quality of its design activities and reducing dramatically the time to market for new product launches. 1
(c) Aggressive growth strategy: students would have got even higher marks if they had noted that Ducati’s average price premium went down over the period despite an increase in WTP as a ploy to increase market share. Secondly, Ducati broadened their customer base (from the core extreme) by attracting relatively inexperienced bikers (with the ‘naked’ motorcycles at a lower premium but made money from them by selling expensive apparel to them). Q2.I wanted you to communicate conceptually how the combination of trade-offs and fit can protect a company from imitators. A company like Honda might be tempted to enter Ducati’s niche of the sport segment. However, incompatibilities between Honda’s activities and the activities required to attack Ducati will likely arise to make this attempt challenging. This problem is exacerbated by the possible incompatibilities between Honda’s image and reputation and that of Ducati’s. Having raised these points, explain how Ducati’s positioning is that much more pronounced relative to Honda’s in terms of its lifestyle and performance attributes and its associated tightly interlocked activities. Then develop an argument that clearly states that the incompatibilities wrt intangibles between Honda and Ducati are so severe that if...