What does porters five forces reveal for harley devidson? Is harley devidson operatin in atractive industry?

Are there significant diference among the industries in varius regions?

Memo Subject: Harley Davidson and the International Market of Luxury Goods 1. Which of Porters generic strategy is Harley Davidson using? Will this strategy work for all the countries in the case? Harley Davidson adopts a focused, differentiation strategy. They have developed a product and brand of superior value than that of many competitors, surpassing customer expectations. Harley Davidsons products are classified as luxury products. To differentiate from competitors, Harley Davidson has implemented exceptional product quality, unique product features and high quality service. Harley Davidson has a narrow competitive scope; they focus on a limited product, the motorcycle. Many of Harley Davidsons competitors have achieved product diversity and offer a wide range of products. Harley Davidson, alternatively, has decided to focus on their primary product and improve and innovate their motorcycles. Additionally, it is arguable that they focus on a certain clientele demographic and geographical area. 80% of Harley Davidsons products are sold in the US, although it is a multinational country, this is a large emphasis on one area. Also, they have focused on a narrow end of the motorcycle market paying particular attention to the slightly older clientele with higher disposable income. In the United States of America this generic strategy has worked very well, however, alterations for this strategy may be needed for Harley Davidson to be successful in other countries. In the Europe, for example, the motorcycle market is very diverse. There are a lot of different types of terrains and climates and different motorcycle styles are offered in abundance, for example, cruisers, off road motorcycles, scooters, sport, super sports, touring, sports touring, choppers and traditional motorcycles are offered in the European market. Traditionally, although recent attempts of product diversity have been implemented in the Harley Davidson range, Harley Davidson offer touring, chopper and cruiser motorcycles which are already offered in this market. In the Indian motorcycle market this approach may not work due to the legislation and emission laws in the country concerning heavyweight motorcycles. Part of Harley Davidson integral differentiation strategy is the sound of their motorcycles engine. In India noise emissions cannot be over a certain volume which, at present, eliminates the majority of the Harley Davidson range. 2. What do Porters five forces reveal for Harley Davidson? Is Harley Davidson working in an attractive market? Degree of competition There is competition within the motorcycle and automobile industry for Harley Davidson. The market leader in motorcycle manufacturing, at present, is Honda. The motorcycle industry may be considered an oligopoly; this is when there are only a few organizations dominating the market. In this case there are seven

main organizations dominating the world motorcycle market, these organizations include Ducati, Yamaha, BMW, Kawasaki, Honda, Harley Davidson and Suzuki. Many of Harley Davidsons competitors have achieved globalised product diversity, something Harley Davidson has been slow to catch on to. By offering a wider range of products in a number of countries, the organizations gain a competitive advantage as they are becoming more widely known. A customer that bought a race kart engine from Yamaha is more likely to buy a motorcycle from them provided that customer was happy with the initial Yamaha purchase. Threat of new entrants The more organizations entering a market, the less profitable that market becomes leading to an intensity of competition. Organizations entering into the motorcycle industry would incur great start up costs for technology, supplies, marketing etc. thus being the largest barrier of entry. Other barriers of entry include: Advertising existing motorcycle manufacturers, such as Harley Davidson, could adopt a market power theory of advertising. This is when secure brands fund advertising heavily making it difficult for new competition to compete. Customer Loyalty Harley Davidson has been a motorcycle manufacturer since 1903; it has an iconic image and strong customer loyalty, something new brands will spend years and millions of dollars creating. Economies of sale Harley Davidson has a requirement with suppliers that they commit to annual cost reductions even when labor and material costs are rising. This rather extreme demand is possible due to the size and power of Harley Davidson. New businesses in the industry may not be able to demand such requirements. Network Effect Harley Davidson, in addition to the existing motorcycle brands, have captured significantly the motorcycle industrys customer base. Many of the organizations are globalised; therefore, each established organization has an existing strong customer base making it difficult to gain entry. Sunk costs sunk costs add to the existing risk of an organizations decision to enter a market. If a new motorcycle business entered the market, all cost incurred are potential sunk costs. If the new business cannot compete and is force to withdraw from the industry, all unrecovered costs are that organizations sunken costs. Threat of substitutes Harley Davidson is a heavyweight motorcycle. From 2000-05 it has outsold similar competitor products by over 20% resulting in Harley Davidson being the market leader in the US Heavyweight Motorcycle industry from 00-05. However, the threat of substitutes in the motorcycle industry is high. External factors such as weather and rising fuel prices discourage potential customers from purchasing a transportation vehicle as such. Potential customers have many different options available to them, for example, automobiles, public transport, shared transport, manual transport etc. Although Harley Davidson is considered a luxury item and one considering buying such an item is unlikely to substitute

doing so in preference to public transport, with rising fuel prices one may be forced to do so. In locations such as Alaska, where many of the states towns are not accessible via road, Harley Davidson products would be easily substituted. Adaptations to the existing Harley Davidson products range, if feasible, could be beneficial to allow the motorcycles to be useable in such extreme weather conditions thus increasing Harley Davidsons potential customer base. Bargaining power of the customer Harley Davidson is a luxury item, many customers purchasing Harley Davidson products are not sensitive to price. However, many of Harley Davidsons customers will only purchase one Harley Davidson product; therefore, the bargaining power of customer is limited as few customers will purchase such products in high quantities. However, the potential buyer of a Harley Davidson product has the power to switch manufacturers if wanted. Therefore, in this regard, bargaining power of the customer is high. Bargaining power of the supplier Suppliers for Harley Davidson have very little bargaining power. The probability of such suppliers relying heavily on business with Harley Davidson to secure business of that supplier in general is extremely high. The level of bargaining power for Harley Davidsons suppliers is evident by Harley Davidson demanding annual cost reductions regardless of labor or material rises in costs. A supplier accepting such a proposal identifies the low level of supplier bargaining power. The US motorcycle industry presents a very attractive market for Harley Davidson to operate in. for many years, Harley Davidson monopolized the industry until the early 1970s. at present the industry may be consider an oligopoly, this is where a few organizations dominate the industry, in the case of the worlds motorcycle industry there are seven main competitors dominating success. Harley Davidson is the leading competitor in market with sustainable market percentage reaching the high 40s for a number of years. Recent attempts by Harley Davidson to diverse their products range allowing products to be more accessible and comfortable to female riders have improved their competitive advantage further. Harley Davidson, however, has little product diversity. There produce luxury heavyweight motorcycles offering little to the remainder of the motorcycle industry. Many competitors such as Honda or Kawasaki (organizations who also offer heavyweight motorcycles) produce a range of products including performance motorcycles, off-road motorcycles, dirt bikes etc. The motorcycle industry has identified an increased desire for diversity which many organizations are catering to. Harley Davidson, on the other hand, show little capability of proposing diversity within their range, resulting in the majority of the motorcycle industrys customers to find alternate organizations selling the products that they want. In conclusion, whilst the motorcycle industry remains an attractive industry to operate within, Harley Davidson needs to produce a range of products to

continue competing. Their recent motorcycles series (the V-ROD and the VRSC) are a newly developed series aimed at the performance caf-racer. This shows attempts by Harley Davidson to attract more customers in addition to the admitted realization of diversity within the industry. 3. What are some of the key success factors for Harley Davidson? How does Harley Davidson compare to competitors? Marketing Image Honda has an organization image of being safe and reliable, a trusted company, however these are not the traits one looks for when buying a luxury item. Instead they want excitement, freedom, prestige, Harley Davidson create the following imagery: i. Iconic - the image of Harley Davidson is iconic. They present more than just an average motorbike. The use of the eagle and American flag in the early Harley Davidson design represent freedom to American consumers, a concept that is recognized globally. ii. Nostalgia/prestige - The image of a Harley Davidson presents comfort and prestige, two aspects, until recently, werent highly correlated. The concept of Harley Davidson offering freedom bring nostalgic enterprises in consumer behavior as many may purchase a Harley Davidson motorcycle to relive or reexperience a particular time or memory, for example, ones youth. Promotion Harley Davidson have been very cleaver with the promotion of their products. Instead of relying direct advertising, in TV commercials for example, Harley create conversation surrounding them, they create positive word of mouth and interest. This is achieved by: i. HOG - the greatest promotional advantage for Harley Davidson is the HOG activities. HOG is an acronym for Harley Owners Group. They hold many activities whereby owners of Harley Davidson motorcycles congregate for a common cause and to show their passion and pride for the brand. ii. Fashion - the Harley Davidson logo appears on clothes sold in stores such as Bloomingdales and J.C. Penny making the brand fashionable to people who wouldnt necessarily consider Harley Davidson. iii. Correct use of media - Harley Davidson motorcycles have appeared in numerous blockbuster films and magazines viewed by the general public again bring fashion to the brand and reaching a wider audience. iv. Harley Davidson cafs- these have been set up around the US, many hold a Harley Davidson showroom with the objective of attracting people to look at their range. One Harley Davidson caf in NY has won awards such as the Restaurant and Institutions Interior Design Awards for its American appearance. v. Eaglemark this is the wholly owned subsidiary company of Harley Davidson. Eaglemark promote the sale of Harley Davidson products by offering financial services to Harley Davidson customers. vi. Rental programs Harley Davidson has Authorized Rental and Tour Programs whereby customers can rent a Harley Davidson motorcycle and/or participate in a guided tour exercise riding the bike. Product - Many competitors have strong motorcycle designs, however, none are as clearly correlated or as strongly connected as the Harley Davidson design

to Harley Davidson and the organizations image and culture. Successful key factors for Harley Davidson in terms of product include: i. Design the Harley Davidson design is strongly associated with comfort and prestige. Harley Davidson riders are often stereotyped as being successful and wealth when seen with a Harley Davidson. ii. Customizing Harley Davidson allows the consumer to completely customize their bike with hundreds of variables in color and features. Manufacturing Just-in-time Harley Davidson operate a Just-in-time production system. Different parts on the production line are made when the previous related part is made. Thus reducing inefficient and waste produce. Limited US Competition Harley Davidson has a direct relationship with America and American citizens. When one thinks of Harley Davidson they know immediately it is an American manufacturer. This may be the result of little other US competition in the past. Management Employee Involvement employees are encouraged to participate in all decisions and goal setting. Communication many methods of communication are implemented at Harley Davidson. Unions - Prides itself on having open communication links with employee unions. Unions play a heavy part in decision making at all levels and areas of the Harley Davidson organization. 4. Should Harley Davidson expand more aggressively internationally? The probability of Harley Davidson remaining the market leader in the US heavyweight motorcycle sector is very favorable. However, Harley Davidson may be neglecting a very profitable venture in globalization. Europe At present, Harley Davidson has a 10% stake in Europes motorcycle industry. This isnt an unattractive percentage, however, when you consider that Honda has over double this percentage stake (22% share) there is significant room for improvement. The question of whether Harley Davidson should expand more aggressively in the European market depends entirely on Harleys ability and willingness to diverse their products. The European motorcycle market comprised mainly of performance bikes which HD are not competitive in. the new series of Harley Davidsons collection, however, may improve their share of this market. The new V-Rod and VRSC are part of the series of Harley Davidson bikes aimed at the performance caf-rider. Unlike America, regional tastes in motorcycles differ greatly in Europe. This is a disadvantage for Harley Davidson due to their lack of diversity. The new series again might help this disadvantage. The series have Porsche designed engines; this may allow Europeans to connect with the strong American brand. European luxury goods market range from 25-40% of the worlds luxury goods market, this shows that Harley Davidson will not be unsuccessful on account of their product status e.g. too expensive. The problem Harley Davidson needs to

tackle is their diversity. Europe has similar demographics to the US and with the US market being Harley Davidsons most successful market; this may prove a key research area to the sustainability and success of expansion in Europe. Europe also has double the population of seniors who populate the majority of wealth. Harley Davidson typically target older clientele, thus providing another advantage for Harley Davidson. I believe that, whilst there is potential for expansion in Europe, other countries and regions provide Harley Davidson with much more attractive propositions. Unless Harley Davidson is willing and able to achieve to level of product diversity that many of its competitors such as Honda and Kawasaki are doing, I dont think Harley Davidson will be successful in the long term in Europe. Japan Japan is a market Harley Davidson could be very successful in. in 2005 Harley Davidson sold over 11,400 motorcycles through 81 dealers in Japan. The motorcycle industry in Japan has had better times, there was an industry peak in the mid 1980s before the motorcycle ownership began to decline. The declination, however, was mainly limited to bikes under 2350cc, Harley Davidson produce heavyweight bikes, which can be defined as having more than 650cc of engine displacement. This shows that whilst the motorcycle industry as a whole is declining in Japan, it could be due to the lower end of the product range meaning the desire for heavyweight bikes is still in existence. In term of luxury goods, Japan is one of the worlds leaders. Retailers in luxury goods report annual growths of 10-15% and many Japanese luxury goods retailers often charge 40% more than the European market. Luis Vuitton, a world renowned luxury fashion brand, has it largest outlet in Japan and it is reported that 94% of Japanese women have something from the Luis Vuitton range. This example is used to put into perspective the bargaining power of consumers in Japan. Luxury and prestigious items are highly sought of; external signs of wealth are consciously placed to portray status. By building the company image and products in this market, Harley Davidson could do extremely well in this market, relying heavily on the prestigious image of the product/company. China China portrays new wealth. China is soon expected to surpass Japan by becoming the largest purchasers of luxury items by 2015, by this time it is expected China will account for 29% of the worlds luxury goods sales. At present 40% of Chinas consumer spending is on luxury goods compared to just 4% of the worlds average. 60% of young urbanities state they are prone to high end consumer goods. Much like Japan, external signs of wealth are obvious in China. Consumers are described as being status conscious and with wealth increasing many more consumers are concerned about brands and brand image. I believe China will be Harley Davidsons most promising option for aggressive international expansion. China is extremely status conscious; success and wealth are obviously visible. In addition to this, China is becoming much more Americanized with the successful expansion of other American countries into

China such as McDonalds, IBM, Marriott etc. I believe China is willing to accept American brands more so than other nationalities due to previous success and Harley Davidson would be successful here. India India is another portrayal of new wealth with the highest wage growth in the whole of Asia. With new wealth comes eagerness for new more prestigious items. As new wealth enters the country, social status begin to change which results in a shift of mentality. In Indias case they have shift from very much a saving mentality to spending. It is estimated that in India 1.6m households spend an average of $9000 on luxury items. This may be driven by the increase in multiincome households and international exposure. India has also seen an influx of successful American businesses in recent times. This could give Harley Davidson an advantage as initially the company will be trusted. India, like China, currently consumes approximately 6m new motorcycles per year; this is largely due to motorcycles meeting the general transportation needs of many households, families and businesses. With the luxury good market reporting sustainable increases of 20% year and consumers wanting the latest brands and designs, Harley Davidson could be very profitable in India. In the past five years, the luxury goods industry has tripled, this shows the demand for new products and the socio-transition. Whilst India presents some favorable expansion reasons, it also has its drawbacks. Import tariffs in India range well over 90% for heavyweight motorcycles and without a guaranteed acceptance this risk may not pay off. Also emission standards in India are very rigorous and presently exclude Harley Davidsons current range. Although talks with the Indian government are in progress, in it unlikely they will reconsider. The noise emissions created by Harley Davidson are an integral part of the overall product, therefore by having to reduce this volume Harley Davidson are putting their product in a compromised position. Russia Again, Russia is part of the golden triangle, including China and India, of new wealth. Russia has witnessed a 5% increase in the luxury goods market and it may prove to be the single fastest growing market for luxury goods, surpassing growth speeds set by China. Although the luxury goods market is strengthening impressively as time goes on, the market is not yet saturate and many spending occurs abroad. This means that expanding into Russia may not be beneficial to Harley Davidson, however, an option for them may be to research where many Russians travel to annual and expand into those areas. In conclusion, I believe China presents Harley Davidson with the most promising return of aggressive international expansion. Whilst I believe expansion is all the other countries listed show potential, slow, integral expansion may be preferred.