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This presentation illustrates the analysis of Harley-Davidson's competitive strategy. It is based on the case from Grant, R., 2010. Contemporary Strategy Analysis. 7th edition, pp. 636-654
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25th March 2014
Devendra BhandariSaliha SahinDavid HuckschlagAmani Alkaddah
The Analysis of Competitive Advantage
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Outline1. Harley–Davidson at a Glance
2. Harley–Davidson’s Strategy
3. Comparison of Harley-Davidson‘s and Honda‘s Resources and Capabilities
4. Establishing Competitive Advantage
5. Harley-Davidson’s Threats
6. Sustain & Enhance Competitive Advantage
7. Conclusion
8. References
3
Harley-Davidson at a Glance
Founded in 1903: William Harley & Davidson brothers
Represents a tradition of US engineering and manufacturing
Focus in Heavyweight motorcycle market
Harley-Davidson is a lifestyle people choose
We fulfill dreams inspired by the many roads of the world by providing extraordinary motorcycles and customer experiences. We fuel the passion for freedom in our customers to express their own individuality.
OUR VISION
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Harley Davidson’s Strategy
According to Porter’s Generic Strategies:
Harley Davidson’s has a Focus - Differentiation Strategy: differentiate within just one or a small number of target segments
Cost
Advantage
Differentiation
Focus
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Focus Strategy“Basically, we do not believe in the lightweight market.
We believe that motorcycles are sports vehicles, not transportation vehicles. Even if a man says he bought a motorcycle for transportation, it’s generally for leisure
time use. The lightweight motorcycle is only supplemental.”
William Davidson, President of Harley-Davidson
Cost Advantag
e
Differentiation
Focus
Focus on Heavyweight market with customers who consider their motorcycle a luxury product
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Differentiation Strategy Differentiation based on customers‘ social and
psychologial needs Harley-Davidson is in the business of selling
lifestyle, not transportation
Internal and external product integrity – critical factor in such differentiation: Ability of employees and customers to identify
with one another E.g management wearing biking leathers
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Cont. Differentiation advantage by careful examination of
activities customers undertake:
Creating customer value by providing: Test ride facilities Owner‘s club activities Various sponsored events for Harley riders
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Customer Value Chain
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Strategic Importance
Rela
tive S
trength
SUPERFLUOUS STRENGTH KEY STRENGTHS
ZONE OF IRRELEVANCE KEY WEAKNESSES
HARLEY-DAVIDSON‘S RESOURCES AND CAPABILITIES
• Brand & Customer Loyalty
• Distribution• MAN (Material As Needed)• Customized Design
• Manufacturing• R&D
• Product Development• International Exposure
• Public Relationship
Resources and Capabilities
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BRAND & CUSTOMER LOYALTY
greatest asset
“Harley Davidson had long recognized that it
was not selling motorcycles –
it was selling the Harley Experience.”
Brand of one of the world‘s oldest motorcycle companies
Appeal of the Harley Brand - associated with an entire lifestyle- Rider‘s emotional attachement to the brand
1983 Harley Owners’ Group (HOG) To increase involvement of customers’ riding experience Played a critical role in building brand image and customer loyalty
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DISTRIBUTION
Harley believed that the quality and
effectiveness of its dealer network was a
key determinant of the strong demand for its
products.
Dealership Network: 85% of Harley dealerships in the U.S. Far more than any other motorcycle manufacturer
High standard of pre- and after- sales service
New services to customers: Test ride facilities, rider instruction classes, motorcycle rental
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MAN (MATERIAL AS NEEDED)
“MAN“ (Materials as Needed): Just-in-time (JIT) system and production scheduling program
Reduce inventories & costsImprove quality control
Productivity gain from reorganizing around
team-based production and commitment to
continuous improvement
Cost Advantage
• However, difficulties to satisfy the surging demand for its products
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Wide range of customization opportunities Mutliple options for:
Seats barsPegsControlsPaint jobsRange of 7000 accessoires
CUSTOMIZED DESIGN
Every Harley rider would own a unique,
personalized motorcycle
Competitive Product Strategy
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Strategic Importance
Rela
tive S
trength
SUPERFLUOUS STRENGTH KEY STRENGTHS
ZONE OF IRRELEVANCE KEY WEAKNESSES
HONDA‘S RESOURCES AND CAPABILITIES
• Product Diversification (R&D)
• International Exposure• Manufacturing
• Product Development• Public Relationship
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Ability to share R&D across cars and bikes
Benefit from sharing technology, engineering capabilities, marketing and distribution know-how across different vehicle devisions
PRODUCT DIVERSIFICATION
- automobiles, motorcycles, power equipment, robots,
aircrafts etc.
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PRODUCT DEVELOPMENT
Honda offering V-twin cruisers styles closely along the lines of classic Harleys
At a lower priceWith more advanced technologies
Harley’s smaller corporate size and
inability to share R&D across cars and bikes (unlike Honda) limited its ability to invest in technology and new
products.
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MANUFACTURING
HARLEY-DAVIDSONLow production volume relative to HONDA
Significant scale & cost disadvantage
Key cost disadvantage: purchasing componentsHARLEY lacked the buying power of HONDA
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INTERNATIONAL EXPOSURE
Honda attracting younger customers
International Market Share
European motorcycle market differed significantly from the American market – differences in style preferences
Harley needed to fight to take market share from the established leaders in the heavy
bike segment in Europe(like Honda)
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Establishing Competitive Advantage
Harley-Davidson lacks in their resources and capabilities to have cost advantage over Honda low economies of scale and learning curve due to low production
Differentiation advantage is obtained through brand recognition and the Harley experience providing the customers a unique motorcycle
However, Harley’s international exposure as a key weakness demonstrates the inefficient sales in order to sustain their other resources such as R&D and product diversification
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Harley-Davidson’s Threats
Threats faced by Harley-Davidson creating a barrier to sustain competitive advantage:
1. Brand Recognition
2. Customers
3. International Exposure
4. Intellectual Property
5. Lack of Diversification
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1. Brand Recognition“Everyone lost interest in the brand as HOG didn’t feel like an exclusive club for loyal customers anymore.”
– Anthony Gikas, senior research analyst at Piper Jaffray
Increase in demand and sales led to loss of exclusivity
Losing appeal loss of their strongest asset
Risk of changing consumer preferences (increasing interest in sport models)
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2. Customers Harley-Davidson highly focused on American traditional
style for higher-class customers
In 1987, 50% of buyers are under 35 and now less than 15%
Generation threat Current customers are ageing
More focus on younger middle-class customers
“To grow and thrive, they must create a deep emotional connection with younger consumers.”
– Gregory Carpenter, a marketing professor at the Kellogg School of Management at Northwestern
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3. International Exposure EU and Asia prefer lightweight, high technology,
sportive and low-priced motorcycles
Falling back on innovation and technology
High cost due to low production high prices for above average profit
Acquired Buell in order to gain market share outside America tried offering same experience as Harley-Davidson Unsuccessful
Low market-share in Europe and Asia
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4. Intellectual PropertyCompany # Patents Level of Secured
Innovation
Harley-Davidson 90 Very Low
Honda 3971 Very High
Yamaha 2057 High
Kawasaki 502 Medium
Suzuki 247 Low
Offering average or similar product price will play the final role
Company Average Retail Price ($)
Harley-Davidson 14.549
Honda 10.565
Suzuki 10.765
Kawasaki 9.299
Yamaha 9.340
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5. Lack of Diversification Portfolio consisted mainly Cruiser Motorcycles
However, competitors imitated Harley-Davidson loss of competitive advantage
Touring Motorcycles not up to customers’ requirements low on technology
No market of Performance Motorcycles most demanded by consumers
Harley-Davidson maintains on a vision of traditional heavyweight motorcycles lowers the potential of diversification
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Sustain & Enhance Competitive Advantage
Grant (2010) identified that superior Economic and Financial performance is viewed as evidence of competitive advantage:
As identified, Harley-Davidson falls behind its competitors and therefore needs to sustain and enhance its competitive position
In 2008 Harley-Davidson
Honda
Income after tax $655 million $5,135 million
Operating Cash Flow
-$685 million $11,382 million
R&D Expenditure $164 million $5,703 million
Return On Equity 19.50% 11.19%
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Measuring sustainability:VRIO Framework
Valuable? Rare? Costly to imitate?
Exploited by organizations?
Competitive implications
No No No No Disadvantage
Yes No No No Parity
Yes Yes No No Temporary Advantage
Yes Yes Yes Yes Sustained advantageHarley Davidson Temporary Advantage
However: • Brand is losing perceived customer value• Faces threat of losing exclusivity• Not costly to imitate
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Cont. According to Grant (2010), sustainability can be
achieved through price-based strategies, differentiation, and lock in.
1. Price-based strategy
2. Differentiation 3. Lock-in
Accept reduced margin
Create difficulties for imitation
Achieve size/market dominance
Win a price war Achieve imperfect mobility of resources/competencies
First-mover advantage
Reduce costs Reduce margin Reinforcement
Focus on specific segments
Rigorous enforcement
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1. Price-based strategies Harley-Davidson?
Potential cost reduction throughout value chain
Improvement in price transparency
Increase of sales in European and Asian market leading to economies of scale
Increase production volume to lower cost per unit
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2. Differentiation Strategy
Harley-Davidson?
Roberts (1999): “Sustainable advantage comes from …innovation, pure and simple.”
Separate department for R&D in order to realize and obtain consumer preferences
Sustain intellectual property make imitation difficult
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3. Lock-in Harley-Davidson?
Sustain dominance in American market
Aim to achieve higher market share in Europe and Asia through lightweight motorcycles
Economies of scale through price-based strategy
Reinforce intellectual property rights such as more patents difficult to imitate
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Conclusion Harley-Davidson remains to be among the market
leaders in America
Many threats regarding losing competitive advantage
Trends of heavyweight is going down
Temporary advantage needs to be retained with proactive strategies
International exposure is essential as it will open many new sources of cash flow for the company
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References Barney, J. (1991). Firm resources and sustained
competitive advantage. Journal of management, 17(1), 99-120.
Grant, R., 2010. Contemporary Strategy Analysis: Text and Case. 7th Edition, Sussex: John Wiley & Sons Ltd.
Porter, M. E. (2008). Competitive advantage: Creating and sustaining superior performance. Simon and Schuster.
Pugliese, M. J., & Cagan, J. (2002). Capturing a rebel: modeling the Harley-Davidson brand through a motorcycle shape grammar. Research in Engineering Design, 13(3), 139-156.