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Market Impact of a Consumption Subculture: the Harley-Davidson Mystique

John W. Schouten, University of Portland, U.S.A. James H. McAlexander, Oregon State University, U.S.A.

[ to cite ]: John W. Schouten and James H. McAlexander (1993) ,"Market Impact of a Consumption Subculture: the Harley-Davidson Mystique", in E - European Advances in Consumer Research Volume 1, eds. W. Fred Van Raaij and Gary J. Bamossy, Provo, UT : Association for Consumer Research, Pages: 389-393.

[ direct url ]: http://acrwebsite.org/volumes/11476/volumes/e01/E-01

European Advances in Consumer Research Volume 1, 1993 Pages 389-393

MARKET IMPACT OF A CONSUMPTION SUBCULTURE: THE HARLEY-DAVIDSON MYSTIQUE

John W. Schouten, University of Portland, U.S.A.

James H. McAlexander, Oregon State University, U.S.A.

[We wish to thank the people of Harley-Davidson, Inc., especially Steve Piehl, Frank Cimermancic, Jim Paterson, and Willie G. Davidson, for their time and support in this project. We also respectfully note the financial support of The University of Portland, Oregon State University, and Iowa State University.]

ABSTRACT -

Subcultures of consumption are distinct, homogeneous groups of people united by a common commitment to a particular set of consumption items or activities. This paper discusses the market impact of one such subculture, i.e., Harley-Davidson motorcycle owners. In prolonged engagement with the subculture, the authors have utilized participant observation and depth interviews to investigate the marketing implications of the "Harley subculture." Four main phenomena are presented: Consumer-initiated new-product development, mass-marketed mystique, extraordinary brand identification, and transcendence of national and cultural boundaries. Existence of these phenomena in other subcultures of consumption is documented, and their implications are discussed.

Subcultures are intriguing social units for market research and segmentation (Zaltman 1965) due to their relative homogeneity of norms, values, and behaviors. Past studies of subcultural consumption patterns have focused on ethnic or other ascribed subcultures, such as African American, Hispanic, Italian, Jewish, and WASP (see, e.g., Hirschman 1981, 1985; Wallendorf and Reilly 1983) which, despite some general commonalities, often display such diversity of consumption preferences as to severely limit their potential as market segments (Deshpande, Hoyer, and Donthu 1986). This research examines instead subcultures that self-select on the basis of shared consumption interests (cf. Donnelly and Young 1988). United by commitment to particular careers, avocations, or lifestyles, certain non-ethnic subcultures, like surfers, skateboarders, hot rodders, and Deadheads, exhibit high degrees of homogeneity that not only carry over into consumer behaviors but actually become articulated as unique ideologies of consumption.

The homogeneous styles and activities of these subcultures of consumption make them significant to marketers as self-defining market segments that tend to transcend cultural contexts (Stratton 1985), demographic cohorts (Pearson 1987), and ethnicities (Klein 1985). Furthermore, their commitment and innovative behaviors carry their market impact far beyond the bounds of normal consumption. Hard-core or high status members of a consumption subculture act as innovators and opinion leaders (Fox 1987), imbuing certain products with meaning that ultimately is shared or consumed by a much larger market peripheral to the core. For example, hard-core punk rockers create styles which are copied faithfully by soft-core members of the subculture and are imitated more loosely by "pretenders" who are peripheral to the core subculture (Fox 1987).

A review of extant ethnography of consumption-oriented subcultures reveals the existence of apparently symbiotic relationships between such subcultures and the marketing institutions that supply the products and services that support the subculture's ideology of consumption. Our data reveal four interesting characteristics of relationships between marketers and consumption-oriented subcultures:

1) Consumer initiated new-product development

2) Mass-marketed mystique

3) Extraordinary brand identification

4) Transcendence of national and cultural boundaries

METHOD

This paper draws from both secondary and primary data. General theoretical and methodological guidance were gleaned from a review of extant ethnography of various non-ethnic subcultures (see, e.g., Fox 1987; Kinsey 1982; Klein 1985; Pearson 1987; Young 1988). Themes suggested within the literature were probed and developed in the context of the authors' ongoing ethnographic study of Harley-Davidson motorcycle ownership.

Ethnographic Work

The first author began ethnographic work as a non-participant observer at the 50th Black Hills Motor Classic in Sturgis South Dakota in August of 1990. Data consisted of field notes based on observation and brief interviews, and of photographs, taken not only at the rally but also along the road from the author's starting point in Ames, Iowa. During the week of the rally an estimated 300,000 motorcyclists, the majority on Harley-Davidsons, passed through the small town of Sturgis. Published accounts of the rally (e.g., Urseth 1990) served to triangulate the researcher's observations.

Rallies provided excellent opportunities to participate in and observe certain aspects of the subculture of motorcycle enthusiasts. In March of 1991 the second author observed retail preparations for Bike Week at Daytona, the nation's largest rally. The first author conducted participant observation at two motorcycle rallies in the company of key informants during June and July of 1991. The first was attended primarily by BMW owners, however other brands were represented including Harley-Davidsons and British bikes. The second, a "Freedom Rally" sponsored by ABATE (a national organization that lobbies for legislation affecting biker liberties, most notably helmet laws) of Iowa, was attended almost exclusively by Harley-Davidson owners, although a handful of European and Japanese bikes were observed. In August 1991, on motorcycles provided by Harley-Davidson from their test fleet in San Dimas, both authors participated in the Western Region Rally of the Harley Owners Group (HOG) in Santa Maria, California. HOG Rally participation was limited strictly to Harley owners. We rode in the company of a Los Angeles based chapter of the organization that took us in and treated us as fellow chapter members.

In addition to observation at rallies, we have also gathered extensive interview and observational data in other venues. We developed close research relationships with several key informants who provided interviews as well as access to various formal and informal settings with other motorcyclists. Interviews were conducted conversationally in naturalistic sites such as informants' homes (or more commonly garages), motorcycle swap meets, club meetings, rallies, rides, bars, and restaurants with field notes recorded afterward via microcassette recorder and subsequent transcription. Immersion in the subculture has also led to familiarity with publications targeted to various subgroups of bikers. Close reading of such magazines as Biker, Easyriders, American Iron, Supercycle, Enthusiast, and Hog Tales, as well as rally publications and newsletters, assisted in the interpretation of interview and observational data.

In order to gain a marketer's perspective of Harley ownership we conducted interviews at Harley-Davidson's corporate offices in Milwaukee with key members of the organization including the president of the motorcycle division, the vice-president of motorcycle styling, the public relations manager, and the director of business planning. In addition, we have conducted interviews with four Harley-Davidson dealers in Iowa and Oregon and with dozens of vendors of biker accessories, clothing, and paraphernalia at swap meets and rallies.

Sampling

Informants have been selected purposefully to represent different types of Harley owners identified in the course of ethnographic inquiry. For example, the first author attended meetings of one HOG chapter comprised almost exclusively of "Ma and Pa" bikers (semi-retired or retired, working-to-middle-class couples) with a preference for "dressers" (Electra Glides with hard saddle bags, trunks, fairings, and other amenities). In contrast, we rode to and from the Western Region HOG Rally with a HOG chapter comprised largely of "RUBs" (rich urban bikers), richly costumed in leather and riding customized "Low Riders" and "Softails" (bikes with more "chopped" appearances and laid back riding positions). Another group we have begun to access is a club which stages "runs" (organized rides), dons "colors" (uniforms of gang affiliation), and conducts business at a clubhouse in much the same fashion as is documented for outlaw clubs such as the Hell's Angels. One informant (who sees himself as an anti-yuppie) maintains no formal group affiliation; nevertheless, he frequently rides with an informal group of friends who recently also have become Harley owners. Yet another informant, a quintessential yuppie who rides primarily with enthusiasts of European cycles, traded his late model BMW for a new Harley Electra Glide Sport which, after a year of riding, he traded back in to reclaim his former BMW.

Purposive sampling (Lincoln and Guba 1985) proceeded in such a way as to provide coverage of and access to the wide variety of bikers identified in the course of the field work. The validity and scope of emerging interpretations were challenged by actively seeking limiting exceptions, and by triangulating data with multiple primary and secondary sources.

Analysis

Direct analysis of observational and photographic data was in part a function of interpreting symbols, especially those of widespread manifestation in modes of dress, grooming, and motorcycle customization. Analysis of the meanings of biker symbolism served two important functions: first, it proved revelatory of the underlying ethos of the subculture (including values both common and divergent among subgroups), and second, it allowed us to track the movement of embodied meaning through the subculture. Because of the public nature of biker display the meanings of biker signs and symbols were determined in the context not only of their use within the subculture of consumption but also of their broader use outside the subculture. Meanings attributed by the researchers to various symbols were derived and validated through interviews, member checks, and close readings of biker literature both scholarly and popular. Although most symbols allow for multiple interpretations, certain meanings make more sense than others when viewed in the context of an holistic pattern, system, or constellation of symbols taken together. By considering such constellations of symbols, subtle differences in the usages of individual symbols by different subgroups could be determined.

Data from interviews and observation field notes were coded, compared, collapsed to categories, and abstracted to yield interpretive themes. For example, the emergent theme of "grass-roots research and development" was derived as an abstraction of categories with such labels as "shade-tree mechanics" and "armchair design." These categories were created to encompass individual coded observations such as "Chrome-Magnon's custom controls" and "consumer-commercialized belt drive." Variations on this process of abstraction are described by McCracken (1988), Miles and Huberman (1984), and Glaser and Strauss (1967). A back and forth process of data analysis and literature review yielded the four themes that form the basis of this paper.

FINDINGS

There exists, centered in North America, a subculture formed about an ideology of consumption with the Harley-Davidson motorcycle as its principle icon. Perhaps the most obvious impact of the subculture is its existence as a tight cluster of market segments united by common thread: commitment to a particular product, its symbolism, and the values it represents. The structure and ethos of the subculture are discussed elsewhere (Schouten and McAlexander 1991); this paper deals with the marketing implications of the relationship between the subculture and the Harley-Davidson Motor Company. In doing so it draws parallels with other consumption-oriented subcultures and their symbioses with marketing institutions (Fox 1987; Klein 1985; Moorhouse 1986).

Consumer Initiated New-Product Development

One of the most interesting phenomena observed among Harley owners is their tendency to develop both technological and stylistic advancements in motorcycle equipment and clothing. Such "grass-roots r & d" is not unique to the biker subculture, but is in fact visible in many subcultures or groups that exhibit extraordinary commitment to a particular class of products or consumption activities. For example, many important technological advancements in skydiving equipment have been conceived and produced by skydivers themselves in cottage industries (Lyng and Snow 1986). A similar phenomenon is highly visible in the surfing subculture, the core members of which have typically been responsible for major advances in both surfboard and clothing design. The hot rod subculture, dedicated to technical and aesthetic modifications of American production automobiles made an indelible impression on the Detroit auto industry stimulating demand for production hot rods, accessories, and special interest magazines (Moorhouse 1986).

Harley-Davidson's heritage is one of responsiveness to grass-roots innovation. The company itself began as a backyard operation in 1903. In Harley's "modern age", Harley-Davidson continues to maintain an intimate relationship with riders through activities like corporate sponsorship of and participation (by top level executives, managers, staff, dealers, and assembly-line workers) in rallies. Consequently, the design of production motorcycles, accessories, and clothing continues to echo styles originated at the core of the biker subculture. Examples include slightly extended forks, highway foot pegs, pullback handlebars, sissy bars, and a proliferation of chrome and tooled leather, all engineered to create the look of the biker's custom "chopper." Official Harley-Davidson clothing is also suggestive of styles created by hard-core bikers. For example, the black leather vest with insignias that serves as the uniform for members of the Harley Owners Group bears a

striking resemblance in form and function to outlaw colors, i.e., the insignia laden, sleeveless jackets that identify members of various outlaw motorcycle clubs.

Despite Harley-Davidson's wide range of official accessories, field research suggests that a high level of consumer-initiated innovation still continues. For instance, a photocopied flyer posted in Oregon Harley dealerships advertises a belt drive "designed by an old Harley rider for Harley riders" that can be retrofitted to old Harleys. Another example comes from field notes from a HOG rally in Santa Maria, California. One key informant, whom friends jokingly have dubbed "Chrome-Magnon," has designed a full set of foot pegs, shifter, and brake pedal to provide a more comfortable, extended riding position while accommodating an oversized, side-mounted carburetor on his Harley Softail. This hardware has recently been given to production and distribution through a large Southern California accessories retailer. Casual conversation with rally participants also turned on occasion to ideas for other accessories such as chrome clocks mounted on gas caps or handlebars.

Mass Marketing the Mystique

Although many custom alterations to motorcycles and clothing may be interpreted as personal, expressive manifestations of product involvement as leisure behavior (cf. Bloch and Bruce 1984), certain cultural innovations, such as the raked profile of a "chopped" motorcycle, appear to emanate from the core of the subculture, ultimately to be adopted more broadly in some form. Certain designs or developments may even be coopted by marketing institutions, "sanitized" or softened, and promoted for mass consumption. For example, the commercialization of rap music has followed this pattern; a cultural form created by the hip-hop subculture of African Americans, rapping has become prevalent in pop music and even in advertising jingles for children's products (Blair and Hatala 1991). Competitive body building, a true subcultural phenomenon, through the promotion of its own icons and mystique to health conscious Americans, has helped establish a very lucrative industry in health clubs, special foods and clothing, exercise equipment, and special interest magazines (Klein 1985, 1986).

The cultural products of subcultures, especially of countercultural groups such as punks or outlaw bikers, may have strong stylistic appeal to certain segments of society while being regarded with fear, revulsion, or awe by others. When confronted with counterculture people may experience simultaneous positive and negative responses. In part at least it is the tension between the resonance and the dissonance with social norms that gives subcultural styles their mystique. Maintaining this tension is a managerial challenge for Harley-Davidson Inc. Their product draws totemic strength from its link with outlaw counterculture; yet a link that is too tight, i.e., that sullies the company image with the dark side of outlaw bikers, may alienate the upscale market that purchases new Harley-Davidsons.

Harley-Davidson, in its promotion of the HOG (Harley Owners Group) organization and product line, has successfully coopted, sanitized, and marketed the mystique of the "outlaw" motorcycle club. The company adroitly preserves many of the symbolic appurtenances of gang affiliation while, at the same time, distancing itself sufficiently from the negative side of gang membership to avoid alienating the relatively conservative and affluent purchasers of new Harley-Davidson motorcycles. Retained from the outlaw mystique are a sense of brotherhood and outsider status. These are reinforced symbolically by HOG's uniform vest

and insignias reminiscent of the outlaw's colors. The organization of a HOG "chapter" (this term parallels gang terminology) resembles that of an outlaw club chapter, especially on the road. The two-column formation adhered to on a run such as the ride to the West Coast HOG Rally mirrors a gang's road organization (McQuire 1986). The psyche of the HOG chapter on a run is a ganglike exhibition of machismo and (albeit mild) intimidation of other motorists achieved through the collective noise of the bikes, the movement through traffic in a solid phalanx, and the overall appearance of the black-leather clad group. However, just as notable as the similarities are the differences between a HOG chapter and an outlaw club. Grooming is more upscale and less intimidating among HOG members. Tattoos are less prevalent. The motorcycles and clothing are newer and more obviously used as costumery. The HOG sponsored rally exhibited none of the outrageous behavior (such as public nudity and sexual exhibitionism) found at Sturgis and ABATE rallies. Instead, activities at the HOG rally included lectures on motorcycle safety and maintenance, and a focus group that discussed HOG merchandise. HOG members appear to be able to partake of the outlaw mystique without ever really venturing into the realm of the outlaw biker.

Extraordinary Brand Identification

Our findings indicate a strong sense of brand identification among Harley owners that translates to extraordinary brand loyalty. Furthermore, we find that very strong brand identification often precedes the purchase of the first Harley, sometimes by years, manifesting as a desire or longing that results in highly motivated brand preference. When discussing their first Harley purchases informants commonly report always having wanted one. Some report memories of their fathers or grandfathers on Harley-Davidsons, and intergenerational and family-centered Harley ownership are featured regularly in publications like Enthusiast and Hog Tales. Other informants are unable to pinpoint the genesis of their loyalty to the idea of Harley ownership, only the general sense that until they owned a Harley any other motorcycle was just a stop-gap. Still others begin riding motorcycles without any particular brand loyalty and eventually develop a specific interest in owning a Harley that may or may not develop into a driving passion. One thing is certain: among Harley owners a sizable share is fiercely loyal. One key informant categorizes loyalty to Harley-Davidsons in the following manner: "There are two types of Harley riders, those who if Harley-Davidsons were no longer available would just stop riding altogether, and those who are devoted to motorcycles first, and who happen to like Harleys."

The most Harley-loyal group appears to be those people closest to the core of the traditional biker subculture, i.e., those who most closely approximate the look created by outlaw clubs. Signs of their loyalty frequently include Harley-Davidson related tattoos, bumper stickers on their other vehicles, and the frequent wearing of Harley-licensed apparel, even at work or other non-motorcycling activities. Informants from this group tend to have long (even lifelong) histories of Harley ownership. A common pattern is to have begun with a "basket case" (a bike in need of extensive repair) and to have traded up several times to newer or more desirable models. Their predominantly blue-collar status often precludes the purchase of a new Harley; however, their tendency to customize their bikes makes them a good segment for after-market parts and service. Although many perform their own mechanical work, many do not. Mechanical work among this group will sometimes fall to an authorized Harley dealer, but much of it is also done by private shops or by individuals who are themselves Harley owners and who perform mechanical work as favors or for extra income.

An ironic twist to Harley loyalty is that much of the customization of Harley-Davidsons involves the removal of stock Harley parts and their replacement with other, non-Harley parts that are perceived to deliver higher performance. For example, according to several informants (and born out by observation at rallies) it is standard procedure for Harley enthusiasts to replace the stock Harley exhaust pipes for noisier custom pipes.

Lavish spending on custom accessories is also typical of RUBs, or upscale, baby-boomer enthusiasts. Having come lately to Harley ownership, however, their longevity as owners cannot be determined. Similar to the "preppie punks" described by Fox (1987), RUBs tend to dress and play at the role of biker on weekend rides, at rallies, or for other special riding occasions, but they return to their suits and imported cars the rest of the time. Such signs of peripheral affiliation with the biker subculture would seem to suggest a passing infatuation indulged by relatively high discretionary incomes. If Harley ownership were to pass out of vogue, maintaining the loyalty of such owners might present a significant challenge. On the other hand, certain signs of high commitment (e.g., owner-initiated innovation) among the RUBs may also indicate the formation of a separate subculture with a life and longevity of its own. Longitudinal research with a group of such owners could prove extremely valuable to anticipating the needs and behaviors of this lucrative market.

The subgroup of retired or semi-retired "Ma and Pa" bikers presents a different picture of brand loyalty. Motivated in their motorcycling by travel and comfort they tend to choose fully dressed bikes with features such as radios, intercoms, heated handgrips, floorboards, and full, protective fairings. The same needs that steer them toward Harley dressers also place them squarely in the target market for the very successful Honda Interstate and similar bikes from other Japanese manufacturers. Several informants have owned both Harleys and Hondas, and some profess no particular loyalty. Those that are Harley loyal tend to point to Harley's American heritage and manufacture as their main reasons; they also identify the Harley's unique sound and feel as important. Those who are non-loyal cite performance, features, and overall value as their decision criteria. If Honda becomes successful in positioning the Interstate as an American-made motorcycle for American riders (as current advertising is clearly aimed to do), Harley-Davidson's "Ma and Pa" segment might suffer attrition.

Crossing Cultural Boundaries

Subcultures that form around unique ideologies of consumption possess a uniformity that may transcend racial, ethnic, or national differences. For instance, Klein (1985) found that in the bodybuilding subculture racial and gender differences virtually disappear as members identify themselves foremost as bodybuilders. Stratton (1985) determined that consumption-oriented youth subcultures are prone to cross national boundaries and cultural contexts. Outlaw motorcycle clubs forming outside the U.S. (see, e.g., Harris 1985; Wolf 1991) utilize the same organizational structure, perform the same kinds of activities, and display the same symbols as U.S.-based clubs (cf. Hopper and Moore 1983, 1990; Quinn 1983; Reynolds 1967; Thompson 1966; Watson 1990). At the Black Hills Motor Classic the first author observed rally participants with license plates representing several Canadian provinces, Sweden, and Australia. A group of enthusiasts in Russia, having gone to great lengths to preserve WWII military-imported Harleys, has recently extended a hand of fellowship to other bikers through a letter to the editor of Biker. In an equally surprising

development, Swedish composer Jan Sandstrom has created a "Motorbike Concerto" wherein Swedish trombonist Christian Lindberg imitates the sounds of various Harley-Davidson motorcycles as part of a musical production touring Europe, Japan, and the United States (The Oregonian 1992). To what extent certain aspects of the American biker ethos (e.g., American patriotism) carry over may be suspect, but given the implications for marketing Harley-Davidsons internationally, the phenomenon merits further investigation.

CONCLUSION AND LIMITATIONS

An ethnographic study of Harley-Davidson motorcycle ownership has begun to reveal important marketing implications associated with consumption-oriented subcultures. Seeing owners as part of a subculture provides a theoretical foundation upon which to base understanding and perhaps even prediction of important behaviors. The knowledge, for example, that highly committed consumers, in modifying existing products to meet their personal needs, also tend to become involved in the development of new products may be of real value to a company that monitors such activity through appropriate consumer research.

For firms that sell a mystique as well as a hard product, understanding and managing the mystique may be critical to long-term profitability. Likely, the management of mystique has direct implications for issues such as licensing, brand equity and promotion. For example, the marketer must consider trade-offs between short-term gains through brand extensions, and the potential dilution or debilitation of the mystique associated with the core brand or product (Aaker 1992). Harley-Davidson as a marketer to a subculture may be in a special position to benefit from brand extension to products like apparel. An important component of the Harley mystique is the creation of envy among non-Harley owners (Schouten and McAlexander 1991). For Harley owners, the donning of Harley licensed apparel by non-owners serves as a visible symbol of envy, strenghtening the mystique and providing an additional hedonic benefit. Another trade-off to be considered lies between identification with and renunciation of deviant aspects of the core subculture. Harley-Davidson has successfully borrowed from outlaw biker symbolism while balancing the deviance inherent in that association with such wholesome activities as rider safety seminars and family and children's activities at company sponsored rallies.

One manifestation of the Harley mystique that has important implications for merchandising is extraordinary brand identification to the Harley-Davidson name among motorcycle owners and non-owners alike. For motorcycle owners, Harley licensed products provide a means to include Harley Davidson symbols in non-riding facets of their lives, serving as reminders to themselves and others that they are part of the Harley brotherhood. For one informant, a physician in an upscale clinic, a Harley-Davidson tie tack serves to elicit conversation with patients and peers relating to Harley ownership. Again, pride and the creation of envy appear to be strong motivators, but the conversations he remembers most are those that have introduced him to other Harley riders and led to the sharing of experiences and a sense of brotherhood. Harley-Davidson licensed products facilitate such linkages to the community of Harley owners. For non-owners, Harley licensed products, especially apparel, demonstrate an allegiance to the Harley concept and aspirations to become Harley owners. Although they currently may not be able to afford a Harley-Davidson motorcycle, they can

through symbolic identification share in the mystique keep and the dream of ownership alive.

The full cross-cultural implications of a subculture of Harley-Davidson owners are not yet known. However, two factors appear to indicate significant international opportunities for marketing Harley-Davidson motorcycles and accessories, apparel, and other branded products: first, the general tendency of consumption-oriented subcultures to transcend cultural, national, and generational boundaries; and second, the proliferation of American popular culture abroad, evidenced by the ubiquity of American youth fashions, music, and fast foods, and crowned by the recent opening of Euro Disneyland. We have encountered direct evidence of the internationalization of the Harley-Davidson subculture; however, additional research is needed to determine the nature, reach, and longevity of the Harley mystique in non-U.S. Cultures. Furthermore, it is important to learn how the basic symbols of the subculture are used, altered, or reinterpreted when overlain on a non-U.S. cultural background.

The results presented here are drawn from an on-going and emergent study. As a result, there are questions raised in the analysis that cannot yet be answered. For example, the longevity and degree of commitment to the subculture on the part of new, upscale bikers are issues that can only be resolved with more prolonged engagement and longitudinal observations. Additionally, regional and international differences that have suggested themselves in our ethnography need further exploration. Additional research will help us better understand these variations in the interpretation and expression of the Harley-Davidson subculture, its symbols and its mystique.

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I. Executive Summary

Harley-Davidson is the largest market share holder of motorcycles over 750 in

the United States. After the expansion of our production and distribution

capacity, we will be in the position to meet the increasing demand for our

motorcycles and other products, including a new line of clothing specially design

for women. Growth potential appears very good especially in the overseas

market and the young and mature women and younger market. Gaining a larger

market share in this area may require a further increase in production and

distribution capacities.

II.

III. We must plan for expansion and build new strategies how to target the woman,

younger market, as well as the already HD owners and continue to grow as a company.

II. The Challenge

HD has chosen the strategic direction of targeting women and the younger market that is

technologically conscious in order to increase its share in the first time motorcycle owner

market space. With the introduction of the new VRSC’S, and the new lowered sporster 833 L

and the 1200 L, design for small riders who want more power, also promoting the already

existing HD motorcycle owners to step forward and purchasing a bigger model. HD is in a

position of attaining a sizeable share in the first time motorcycle owners, the young males,

and females’ marketplace. To target the women and the young market with the new product

line, the company has adopted the following marketing objectives: to expand its current

market (market expansion), diversify its product line (product diversification), and modify its

marketing mix to target women and the younger demographic.

III. Situation Analysis

Company Analysis

During the 1970's, HD was facing a decline in market share due to increased competition

with Japanese companies. By phasing out weak models, becoming more selective, and

limiting sales and promotions, HD was able to carve out a niche in the marketplace which it

enjoys today. Now again faced with a period of decline, HD is relying on its newly adopted

marketing objectives. First, HD needs to expand its potential customer base to include

enthusiasts and non-enthusiasts young males, and females into buying HD motorcycles over

any other competitor. This thought is accomplished through the introduction of the VRSC’S,

and the lower and narrow Sportsters, Dyna’s, Softail’s and positioning them in the market to

a younger demographic. Secondly, HD needs to position the VRSC’S, Sporster, Dyna and

Softail to also appeal to first time buyers of motorcycles. HD's strong brand identity can help

pull in new clients. Third, HD has to set an appropriate marketing mix that will help attract a

younger consumer base. By using the low-end approach, which involves attracting a young

audience to a brand name product with a low price tag (similar to what Jaguar and BMW

have done), HD can expand its popularity to the domestic and international market.

Harley-Davidson's (HD) positioning strategy can best be defined by its mission statement:

"We fulfill dreams through the experience of motorcycling- by providing to motorcyclists and

to the general public an expanding line of motorcycles, and branded products and services in

selected market segments." Now in its 105th year, the ideal of owning an 'American Icon'

has slowly dwindled out of the public's mind, due mostly to the competition from Japanese

manufacturers like Honda and Yamaha, HD is aiming to change this, bringing back the true

American pride and sense of freedom and liberty. HD's strength's of its powerful brand

image, maintaining good customer relationships, strong financial position, and superiority of

technology and design are hindered by its weaknesses related to product capacity and

unfulfilled demand for their products.

Customer Analysis

Approximately 51 percent of the population is women (Health Resources and Services

Administration

U.S. Department of Health and Human Services), and about 12 percent of all Harley

motorcycle sales are to women, roughly 32,000 new bikes in 2006, compared with 4 percent

in 1990, 9 percent in 1998 and 10.6 percent in 2003. Women will spend about $300 million

on Harley bikes this year in the United States, not including accessories, riding gear and

clothes. (MIC)

According to the Motorcycle Industry Council, the number of women in the country

operating motorcycles increased 34 percent to 4.3 million in 2003, from 3.2 million 1998.

The number for men rose a little more than 20 percent in that period.

Today American women are the fastest-growing part of the motorcycle business, buying

more than 100,000 of them a year. Even though aging baby-boomer men, with money to

spend and time on their hands, have played a big role in expanding the market in recent

years, motorcycle companies are trying hard to win women buyers.

Competitor Analysis

For all of Harley-Davidson’s new marketing efforts, it lags slightly behind its competitors

Kawasaki and Suzuki in percentage of motorcycle sales to women in large part because the

Japanese companies offer a wider range of smaller bikes that are less intimidating to many

novice female riders. Suzuki last year introduced a new line of clothes called Suzuki Girl with

tight-fitting riding jackets in pink and baby blue. Few companies, though, are doing more

than Harley in reaching out to this group. Its dealers hold frequent garage parties for

women, to let them learn about bikes, including the best way to stand up a 750-pound

motorcycle that has tipped over (crouch down, with the small of your back against the seat,

and push up and back while holding onto the bike).

IV. Market Segmentation

Description

HD is producing more motorcycles that are low to the ground — so women and short people

can plant their feet firmly at rest — with narrower seats and softer clutches, and adjusting

handlebars and windshields to make bikes more comfortable for smaller riders, also HD is

selling more clothes, too, in bright colors and with rhinestones, rather than the standard-

issue black and orange leather jackets. Even the skull motif that appears on some clothing

sold at Harley outlets has undergone a friendly makeover to include wings and flowers.

Introducing to the public entire clothing lines especially design for women.

Percentage of sales

American women are the fastest-growing part of the motorcycle business, buying more than

100,000 of them a year. Approximately 51 percent of the population is women (Health

Resources and Services Administration U.S. Department of Health and Human Services), and

about 12 percent of all Harley motorcycle sales are to women, roughly 32,000 new bikes in

2006, compared with 4 percent in 1990, 9 percent in 1998 and 10.6 percent in 2003. Women

will spend about $300 million on Harley bikes this year in the United States, not including

accessories, riding gear and clothes. (MIC)

According to the Motorcycle Industry Council, the number of women in the country

operating motorcycles increased 34 percent to 4.3 million in 2003, from 3.2 million 1998.

The number for men rose a little more than 20 percent in that period.

Collaborators

Harley Davidson North America (Canada, USA, Mexico), Europe (over 16 countries), Asia

(China, Japan), and Oceania (Australia and New Zeland).

Selected Marketing Strategy

Harley-Davidson has begun a new Web site aimed at women (harley-

davidson.com/womenriders), with more products for women, more fit sizes for small and

tall and XL women riders who like to still maintain their feminity. Also HD is advertising in

women’s magazines with a striking black-and-white image of a rider using the chrome

plating on a bike as a makeup mirror. For years, women bought the Harley Sportster 883

Hugger because it was low to the ground, but many found the ride a bit rough. The company

put rubber engine mounts on all of the Sportster models for the 2004 model year to reduce

vibration and then replaced the Hugger with the Sportster 883 L the next year. Today the

Sportster 883 L has become a favorite among beginner women riders looking for a low seat

and a smooth ride. The company lowered the Sportster 883 L even more and also introduced

the Sportster 1200 L, a low bike for smaller riders who want more power and plus a new line

of clothing and accessories just for women. Before women start considering which model to

buy, Harley-Davidson has to stoke their dreams and eliminate their fears. That is what its

garage parties are all about.

Garage parties is where not just women but new riders learned the fundamentals about

motorcycling riding and which motorcycle is best for you. At the end of the each party, they

will feel more comfortable and ready to take lessons. “I want to get away from the fear,”

said Leticia Andrade, a 40-year-old business systems analyst who wore a V-neck Harley-

Davidson T-shirt festooned with roses and a butterfly. “My kids are grown and gone, I’m a

grandma now, and it’s time for me.” HD is trying to inject vitality and sense of adventure to

middle age people as well, by giving them the opportunity of fulfilling their dreams, with

affordable motorcycles and giving them the privilege of becoming part of the true American

legend. It is relevant to say that more than 31% of already HD owners are college grads. The

profile of the typical Harley owner has steadily gone up during the past decade, in both age

and household income (from 32 to 44 years and from $30,000 to $72,000), as more white-

collar baby boomers have bought the bikes to fulfill a lifelong dream.

V. Alternative Marketing Stratergy

Product: Sportster Line, Dyna, Softail, VRSC, Touring. (Ads, TV commercial, show HD as a

permanent promoter of current hot music bands)

Price: Sportsters from $6,695 to $8,895.

Dynas: from $11,995 to $17,620

Softails: from $15,895 to $19,495

$99 per month, applies to models under $17,620 makes you one step closer of owning a true

American legend.

Distribution: Locations nationwide and online shopping special pricing. Overseas: HD

locations and easy shipping around the globe.

Promotion: special internet pricing/ incentive to previous HD owners. With the purchase of

your new HD, all the ladies walk out with an authentic HD helmet, previous owners get a

free HD gift up to $200.

VI. Short & Long-term Projections

Increase in sales, doubling sales each year including motorcycles, accessories and clothing.

Increase in recognition. Implementing and maintaining actual HD strategies and customer

relations with HD owners and future owners

Becoming one the fasters and largest growing motorcycle business chosen by women and

younger crowd nationally and internationally.

VII. Conclusion

HD's strength's of its powerful brand image, maintaining good customer

relationships, strong financial position, and superiority of technology and

design.

Increase in recognition. Implementing and maintaining actual HD strategies and customer

relations with HD owners and future owners.

Harley-Davidson has stoke their dreams and eliminated women’s fears with more products

for women, including more fit motorcycles, unbeatable pricing and financing, more fit

clothing sizes for small, tall and XL to women riders who like to be less like everybody else,

women’s who like to taste their liberty and experiment their wild side and still maintain their

feminity

Last but not least HD will become one the fasters and largest growing motorcycle business

chosen by women and younger crowd nationally and internationally.

How Harley Davidson Revs Its Brand

Harley-Davidson has been able to build a community of enthusiasts around its brand that

includes members from very diverse groups, and with almost no advertising. How does the

king of heavyweight motorcycling keep its fans so loyal? It gives them a reason to

"belong."

by Glenn Rifkin

In the pantheon of powerful American brands, most, like Coca-Cola, Tide, McDonald's, Levi's and Nike, have reached icon status through long-term, high-visibility campaigns marked by a

consistent trumpeting of a simple message. Theirs is a story of deep pockets and relentless promotion.

Occasionally, however, a brand emerges without the panoply of wall-to-wall advertising and in-your-face marketing. Instead, recognition comes from a quiet, behind-the-scenes effort to sell a product more directly on its merits, in its own time and in its own way. And the brand's idiosyncratic path to success becomes a rich field for marketing gurus and academics to mine, offering lessons not only for other offbeat efforts but also for those seeking to better the odds of mainstream campaigns.

Perhaps no product exemplifies this non-traditional route to brand excellence more than America's freewheeling symbol of the road, the Harley-Davidson motorcycle. Twice at the brink of bankruptcy since the 1960's, the Harley-Davidson Motor Company and its parent, Harley-Davidson Inc., have undergone a stunning metamorphosis in the past decade, fueling a level of demand that is the goal of corporate chieftains everywhere.

The change has not only enhanced Harley's standing in the highly competitive and lucrative market for big motorcycles, where it had been pummeled for years by waves of aggressive Japanese imports, but it has also extended the brand's reach to previously untapped businesses as far afield from two-wheel behemoths as fashion and food. Having largely reinvented itself, as both a company and a brand, the Milwaukee-based motorcycle maker is now reaping the benefits of a hip, with-it image even as it prepares to celebrate its 95th birthday next year.

With its feet firmly planted in both the present and the past, Harley offers traditional -- many say retro -- styles and the best, most-refined 1940's technology around. That approach -- marked by ample bulk (some models weigh almost 800 pounds, about twice that of otherwise comparable BMW machines), twin cylinders and a throaty growl -- has been derided by high-tech motorcycling enthusiasts as an inefficient relic of a bygone era. But to Harley's customers, the motorcycles are lovingly crafted works of art. And many genuine artists agree. In a recent exhibit of global design held at London's Victoria and Albert Museum, the object chosen to represent America's design sense was a Harley-Davidson.

How Harley came back from death's door to reach this enviable state is a story of marketing and brand enhancement that can apply as much to tools and furniture as to motorcycles. In large part, the revival stems from a hard-eyed comparison of the competition's strengths (in particular, the ability to quickly turn out new products studded with high-tech innovations) with its own (a unique tradition and a powerful mystique).

The company's conclusion, said Clyde Fessler, vice president for business development, "was to turn left when they turn right. 'Let's be the alternative and do the things they can't do.' And that became our strategy in everything we did and still do."

That meant hitching a clearly defined marketing plan to the goal of capitalizing on the company's special place in American pop culture, including its retro look. By finding new ways to reach out to three core constituencies -- customers, employees and dealers -- Harley managers fanned a lingering loyalty for their products into a revived passion, one powerful

enough to prove contagious to many thousands of new buyers. Along the way, the company reversed a painful decline in quality that caused some of its old customers to cross the street to the foreign competition. (See box on page 38.) And it softened its outlaw image just enough to entice a new generation of clean-cut buyers to join a club that had long been synonymous with the Hell's Angels -- yet without taking away the frisson of excitement that came from being a member.

Indeed, membership now doesn't even require a driver's license. Shoppers dropped $100 million last year on Harley-Davidson Motorclothes and an unknown amount on hamburgers and other fare at the Harley-Davidson Cafe in midtown Manhattan. Even kids can join, with toys for the boys and leather-clad Harley Barbie dolls for the girls. (See box on page 34.)

The company accomplished all this by spending very little on advertising -- in fact, by running no ads at all last year. This year, it plans to spend a minuscule $1 million on advertising out of a total marketing budget of just $20 million.

Harley's return has almost been too successful for its own good.

Sales have grown at a compound annual rate of 16.2 percent since 1987, with profits up even more, soaring at a comparable rate of 29.2 percent. Last year, the company reported net income of $166 million on sales of $1.53 billion. To get to those numbers, it moved a lot of metal, posting worldwide sales of 118,000 big bikes -- those with engines of 650 cubic centimeters or more -- up from 55,000 in 1989. This year, the company plans to sell 130,000.

But that will not be enough to satisfy demand. The appetite for Harley motorcycles is now so strong that it can take a year or two to get one, even if a customer is willing to pay the thousands of extra dollars that some dealers are tacking onto the usual list price of $15,000 or more.

To catch up, the company has committed $200 million to expand production capacity to 200,000 units by 2003, its centennial year. In the meantime, the inability to meet demand is decidedly a mixed blessing.

On the plus side, Harley enjoys some of the production economies that have made direct computer sellers like Dell and Gateway 2000 such spectacular successes. Every motorcycle that Harley makes has already been sold; in effect, the company is now building to order. That means no steep inventory costs for the big bikes relating to storage, financing and other expenses. (The company is reducing inventory costs for spare parts and accessories in another way: through a sophisticated intranet system that connects its nearly 1,000 dealers worldwide to a central customer data base. See article on strategic uses of information technology, page 80.)

The downside to not keeping up with demand, of course, is the loss of business to the competition. Just how much of a loss is not clear. Harley's share of the heavyweight motorcycle market in the United States was 48.2 percent in 1996, virtually unchanged from the 48.5 percent share it held in 1991, according to R.L. Polk & Company, a market research firm based in Detroit. Harley managed to hold its own during that period even as the overall big-bike market in the United States nearly doubled, to 166,000 units. But some Harley dealers say they could easily sell twice as many bikes as they now get.

Whatever the actual number of lost sales, Harley's gap between supply and demand represents an opportunity for Japanese and other importers to exploit, giving them that much more of a perch from which to build their own brand loyalty.

Why the shortfall? Harley executives say they have been reluctant to expand too fast for fear of compromising their renewed commitment to quality. But there is a "Depression mentality" at work as well, said Christopher Hart, a management consultant in Boston who has worked with the company. Having gone to the edge of bankruptcy twice before, Harley's top brass are in no hurry to tempt the fates again.

The bottom line, then, is rich in irony: the senior managers of one of the most recognized symbols of American excess -- the chrome-laden, ultraheavy Harley is known affectionately as "the hog," after all -- turn out to be conservative keepers of the flame.

And therein lies still another lesson for managers in other industries who wouldn't know a Harley from a Ducati: fashions change. If the hog fell out of favor before, it might fall out of favor again. But by guaranteeing quality, rather than pushing for every last sale, the company can count on a core group of customers to remain loyal. And by extending the brand's good name in different directions, Harley is finding new customers who don't necessarily want to own a motorcycle at all. In both ways, Harley's managers are tapping into a more stable revenue stream that should help to keep the company afloat during whatever bad times lie ahead.

The Lifestyle Hook

What kept Harley going in its darkest days, and what is driving it now in high gear, is the plain fact that the motorcycle it makes is not just a product but rather the centerpiece of a lifestyle -- even for its managers.

The Harley management team, in fact, has a visceral connection to the brand and to its customers that is difficult to match in most corporate boardrooms. The senior executives own the motorcycles and ride with their customers. Indeed, they are customers, journeying to Harley rallies and taking their places on the same waiting lists to get new bikes.

"We are committed to motorcycling," Richard F. Teerlink, Harley's chairman and former chief executive, said in a recent interview. "It's not hardware; it is a lifestyle, an emotional attachment. That's what we have to keep marketing to."

As an American icon, Harley has come to symbolize freedom, rugged individualism, excitement and a sense of "bad boy rebellion."

"Harley reflects many things Americans dream about," said Benson P. Shapiro, a consultant and a marketing professor at the Harvard Business School. "They're a little bit naughty, a little bit nice, which is a very attractive brand image to have."

Significantly, Harley benefited from its unsought association with outlaw bikers and films like "The Wild Ones" and "Easy Rider." Harley riders like the awe the bikes inspire at stoplights or when groups ride into small towns. Many Harley owners and employees (at least of the old school) feel such a bond to their bikes that they have a weakness for tattoos of the company's logo.

Rather than quietly observe this strange cultural phenomenon, Harley executives publicly boast about it. In the 1996 annual report, Mr. Teerlink wrote: "Most people can't understand what would drive someone to profess his or her loyalty for our brand by tattooing our logo onto his or her body -- or heart. My fellow employees and I understand completely. We also understand very clearly that this indescribable passion is a big part of what has driven and will continue to drive our growth."

Harley has marketed this emotion across a broad consumer population, from blue-collar craftsmen and bearded, beer-bellied "motorheads" to a growing legion of chief executives, investment bankers and high-profile entertainers, including Arnold Schwarzenegger, Jay Leno and Billy Joel. The profile of the typical Harley owner has steadily gone up during the past decade, in both age and household income (from 32 to 44 years and from $30,000 to $72,000), as more white-collar baby boomers have bought the bikes to fulfill a lifelong dream. How many boomers are holding the handlebars? One rough measure: 31 percent of all Harley owners are college grads.

Yet while catering to this new upscale market, Harley has managed to avoid alienating its traditional customer base, the hard-core Harley lovers, whom Mr. Teerlink referred to as "the enthusiasts." "It's an honor to be a status symbol," he said, "but status symbols go away. We want to be part of your life."

To keep that role, Harley-Davidson has become adept at fostering "customer intimacy" -- and even extending the concept to dealers and employees. Harley's 5,500 employees, for example, vie with each other to attend rallies and other company-sponsored events during the year. Being a Harley employee at a rally is a "badge of honor," said Joanne M. Bischmann, the company's marketing vice president.

Indeed, it would be difficult, said Mr. Hart, the Boston-based consultant, to find a management team that stays as close to its customer base. "I don't know of any company, and I've worked with all sorts of companies," he said, "where the senior executive team goes out to the Four Corners and spends over a week riding with a group of customers to an event celebrating the product."

And Harleys, without question, are celebrated products, functional works of art to their owners, much like a Rolex watch, a Bang & Olufsen stereo, a Wurlitzer jukebox.

George Conrades, the chief executive of BBN, a software company in Cambridge, Mass., owns six motorcycles, three of them Harleys. "They are Barbie dolls for grownups," he said, explaining the propensity of many Harley owners to spend thousands of dollars adding customized parts and accessories to their machines.

Mr. Conrades, a former senior vice president for marketing at I.B.M., chatted rationally about Harley-Davidson's marketing challenges -- including the need to take more advantage of the customization craze, which the company has largely ceded to third-party vendors. But

his eyes lit up -- and emotion took over -- when he mentioned a new Harley model. "Have you seen that Heritage Springer?" he asked. "You don't know whether to ride it or put it in your living room. It's just gorgeous."

That kind of passion explains how Harley has been able to cross so many socioeconomic boundaries. Its owners are buying much more than a mode of transportation. What bonds them to the bikes -- and ultimately to each other, at rallies and other events -- is a mutual appreciation of the look, feel and sound of the machines.

The Japanese competitors, such as Honda, Kawasaki, Suzuki and Yamaha, along with German giants like BMW, have taken straight aim at the heavyweight or so-called cruiser market, which accounts for about 45 percent of total motorcycle sales in the United States. And while they have captured a bit more than half of that market -- producing high-quality machines that look and sound something like Harleys, while costing less -- they have been unable to match the Harley mystique, at least so the Harley camp says.

"The people buying the other bikes are new to the cruiser market and don't know any better," said Mark O'Neil, the marketing manager at Cycle-Craft, a 38-year-old Harley-Davidson dealership in Everett, Mass. "But to those who already own a Harley, they just laugh and say, 'Good try, bad result.' Harley's heritage evolved over a long time. You can't just come in and say, 'We have that, too.' "

The Bumps In The Road

But for many years, from the 60's to the early 80's, it was far from clear that Harley's heritage would continue to be a living one. Time and again, the company seemed to be heading into a wall.

By the mid-1960's, Harley was the last of more than 200 American motorcycle makers to survive. But poor family management, a decline in quality and the sudden onslaught of Japanese motorcycles were all pushing it to the brink of bankruptcy. A rescue came in 1969, when the American Machine and Foundry Company purchased Harley for $21 million.

But A.M.F. saved Harley only to run it back into the ground. To its credit, A.M.F. started by pouring millions into the company. By 1973, Harley was turning out 37,000 motorcycles a year and pulling in $122 million in sales. A.M.F. forced the company into overproduction, however, further compromising quality. Harleys, which already had a reputation for leaky engines and creaky temperaments, were now almost untouchable.

In the mid-70's, A.M.F. went too far when it replaced the Harley name with its own. Apparently unaware of the magnitude of that marketing blunder, which sent sales plummeting, A.M.F. soon began looking to unload the troubled company. In 1981, Vaughn Beals, Harley's chief executive at the time, pulled together a dozen other company officers who found outside financing and became the new owners.

Saddled with $70 million in debt from the buyout amid a terrible recession and a continued push by Japanese competitors, Harley-Davidson was a company on life support for several

years. It lost more than $50 million in 1981 and 1982 and by 1983 was facing bankruptcy again.

In desperation, management publicly railed against the Japanese for allegedly "dumping" their bikes on the American market below cost in a bid to capture a bigger slice of the business. Harley squawked loud enough to persuade President Ronald Reagan to impose a stiff tariff on the Japanese imports, gaining the American company some breathing room. Ironically, at the same time, Harley executives were touring Japan and bringing back such vaunted production methods as just-in-time inventory control and quality circles.

Mr. Beals later acknowledged to The New York Times that after years of blaming the Japanese, Harley finally admitted that its troubles were internal. "We realized the problem was us, not them," he said.

With a complete make-over of its manufacturing processes focused on quality, Harley commenced its rebirth. Desperately needing cash to finance the revival, the company went public in 1986 and quickly became a darling on Wall Street.

Mr. Beals and Mr. Teerlink were clear with investors from the outset that the company's main asset was its brand, which had managed somehow to survive all the corporate miscues. The company certainly was in need of a jump-start in the marketplace, they conceded. But, they quickly added, once it got moving again, Harley knew where it wanted to go.

A road map had already been drawn by Mr. Fessler, now the company's vice president for business development. Mr. Fessler joined Harley in 1977 as the advertising and sales promotion manager and became part of the marketing strategy team in the early 1980's, with a mandate to put a new face on the company's tarnished image.

He recently recalled a four-day strategy meeting he held back then with Harley's new ad agency, Car-michael Lynch of Minneapolis.

"On a big piece of paper, we drew up a list of comparisons between the Japanese bikes and ourselves," he said. "We put down all the strengths and all the weaknesses. The Japanese were global, into long-term strategic planning, did a lot of advertising and had great diversity in their global markets. They could take a concept from idea to product in 18 to 24 months.

"As for Harley, we had heritage, tradition, mystique. How were we going to compete against these giants? We looked at where they had been the previous five years and were able to project where they were going in the next five -- new engines, new frames, new suspensions, very high-tech. So we decided to be the alternative."

Out of that decision came a number of key concepts that determined Harley's fate:

Back To The Future: Harley made a clear choice to stay with its traditional styling, a classic 1940's and 50's design that aficionados believe motorcycles were meant to have. In Willie G. Davidson, the grandson of one of the founders, the company had a vital link to its design heritage. Dressed in black leather and beret, Mr. Davidson, now the 64-year-old head of the design department, took to the road and met with Harley customers, listening to their comments. Voicing disdain for the slick Japanese machines, they expressed nostalgia for old Harley models and the outlaw touches that had turned Harleys into "choppers." Willie G.

designed new lines like the Softtail to mimic the beauty and elegance of 40's classics like the Hydra Glide.

"We experimented with radical designs inside," Mr. Fessler said. "But every time we did that, we found out the customers didn't want it and we had to fall back."

Build A Community: In 1983, at the urging of Mr. Beals, Mr. Fessler set out to create a company-sponsored club for Harley riders. The Harley Owners Group, or H.O.G., was started as an organization that would sponsor rallies, offer special promotions and keep Harley owners in close contact with the company and each other. For as long as anyone could remember, Harleys had been called hogs, but the connotation was a negative one, of outlaw bikers like Hell's Angels. "My thought was to turn a negative into a positive," Mr. Fessler said. For many Americans, the sight and sound of an entourage of Harleys roaring into town meant a nasty motorcycle gang had arrived. So Mr. Fessler pushed hard to get H.O.G. associated with the Muscular Dystrophy Foundation. Under the club's banner, groups would ride for charity. Slowly, the perception began to change. Today, H.O.G. members constitute the fourth-largest contributing group to the Jerry Lewis Telethon each September.

Give Them A Reason To Belong: At the first H.O.G. rally in 1984 in California, 28 people showed up. Today, H.O.G. has 365,000 members in 940 chapters throughout the world. The organization sponsors hundreds of rallies around the country each year, including massive gatherings in Daytona Beach, Fla., and Sturgis, S.D. With the Fly and Ride program, H.O.G. members who are on vacation or traveling on business can call ahead and rent Harleys through local chapters. And every five years, the company and H.O.G. sponsor anniversary reunions in Milwaukee. More than 100,000 riders are scheduled to converge next year to mark the company's 95th birthday. Already, there are no hotel rooms available for that weekend within 100 miles of Milwaukee.

Extend The Brand: Mr. Fessler realized that legions of Harley riders in black leather jackets and black T-shirts also hurt the company's image. Unfortunately, that is what the company sold them. So in 1986, he launched Harley-Davidson Motorclothes, which offered shirts with collars, denim blue jeans, baby clothes and bright-colored fashion items for women.

At the same time, Harley began to license its popular shield-and-bars logo for hundreds of products, from train sets to Christmas ornaments to the special edition Barbie. In Europe, L'Oreal licensed the name for a line of cologne. Mr. Fessler insisted that the merchandise had to be durable and high quality. The logo was licensed to a Zippo lighter, for example, rather than a Bic disposable.

Each decision to go upscale in ancillary products led to another. Realizing that most of its dealers were ill-equipped to sell fashion items, Harley began to require them to remodel their stores (at their own expense) to showcase the merchandise. Despite grumbling from a few of the 600 domestic dealers, the clothes operation has become a big success, helping to boost sales of Harley parts and accessories, which now account for $210 million a year in revenues.

Meanwhile, the Harley-licensed restaurant in Manhattan, modeled after the Hard Rock Cafe, will soon be joined by another, in Las Vegas. And Harley-Davidson stores selling clothes and other paraphernalia have become familiar tenants in malls around the country.

Mr. Fessler acknowledged some bad decisions -- like licensing the Harley name to a line of cigarettes -- and the company's licensing department now has strict operating guidelines. The idea is to give people access to the Harley experience, whether they own a bike or not. "We always ask, 'Does it somehow lead back to the motorcycle?' " said Ms. Bischmann, the marketing vice president.

She added that Harley toys, built by the likes of Mattel and Kenner, are an excellent way to extend the passion for Harleys to a younger audience, and with an aging customer base, this is a key marketing challenge. "What better way is there to get a 3-year-old to feel the Harley motorcycle experience?" Ms. Bischmann asked.

Critics suggest that Harley is "selling out" and diluting its brand by putting its logo on so many products. But Harvard's Professor Shapiro disagreed. "As long as they don't get distracted from their core business, this helps build the mystique," he said. "If you don't continually change and extend the brand, you die. If you change too much, you also die. But I don't believe Harley has come close to burning out."

Extend The Enterprise: Even through its bleakest period, Harley has maintained close ties to its dealers. Of the 600 domestic dealers, most have been with Harley for decades; many dealerships have been in the same family's hands for three generations, with one family tracing its ownership back to 1914. The company holds quarterly meetings with an elected 10-member dealer advisory council. In July, every senior Harley manager is expected to attend the annual dealer meeting, where new models are previewed and problems get aired. Six years ago, the company opened Harley-Davidson University, where dealers can take three-day courses in such topics as "How to Manage Your Business" or "How to Create a Succession Plan."

Harley, said Mr. Hart, the consultant, is cognizant of the fact that it was the dealers who came to the rescue as the company went through its rebirth during the mid-1980's. During the first years following the management buyout, "the quality of the bikes was terrible and Harley counted on the dealers to fix them," Mr. Hart said. "They went through the war together and the dealers didn't charge the company back for any of this."

Of course, the dealers make more money from service and the sales of parts and accessories than from sales of the motorcycles, so few are complaining. The relationships are long, deep and symbiotic. Harley understands that the dealer is the customer's conduit to the company. Indeed, for many Harley owners, the local dealership is a second home, a gathering place. "I can set my watch by certain people coming in every day," said Mr. O'Neil of Cycle-Craft.

Add Value: Like Mercedes and Porsche, a Harley holds its value to an astonishing degree, and the company has taken advantage of that fact. In the late 1980's, Mr. Fessler created a marketing campaign called Ride Free, designed to move owners up to bigger, more expensive motorcycles. The company promised owners who bought new Harley Sportsters,

the entry-level bike which sold at the time for $3,395, that they could trade them in a year later for a bigger Harley and get the full $3,395 credited toward the price of the new bike.

There is also a huge aftermarket for Harley parts and customizing kits, which Harley shares with legions of independent third-party "chop shops." Personalizing a Harley by innovative paint jobs, scads of new chrome and pricey saddlebags has become its own time-honored Harley tradition. In fact, industry watchers agree with Mr. Conrades that Harley could get a big boost in sales by focusing on this market more than it does.

Not surprisingly, as production shortfalls over the past six or seven years have led to waits of up to two years for new bikes, the value of used Harleys has skyrocketed and owners can often sell their machines for more than they originally paid.

Sometimes they don't have to wait very long at all to make a profit. John Atwood, owner of Cycle-Craft, recalled the day, some four years ago, when he sold a new Harley Road King to a customer who then walked out the door and resold it to someone else in the parking lot for $2,000 more. "He didn't even have the decency to leave my lot," Mr. Atwood said. "I felt like I had a big 'stupid' sticker on my forehead."

Looking Ahead

Harley is quite sensitive to the production shortfall. A new plant, scheduled to open next year, should ease the wait considerably. In the meantime, management watches nervously as some dealers take advantage of the situation by adding $5,000 or more to the suggested retail prices, inevitably turning some would-be customers off for good. Dealers like Mr. Atwood, who have held the line on prices, believe Harley will solve the backlog by 1999. "When Harley gets the bugs worked out with expanded production, things will explode," he said.

Company executives agree that the backlog is far too long. "Our mystique has never been about being hard to get," Ms. Bischmann said. "We don't want the waits; our dealers don't want the waits. This is just an obstacle we have to overcome."

Customers like Mr. Conrades worry that in a society of instant gratification, the supply shortfall "gives people a reason to go elsewhere and explore the other options."

That is Harley's worry, too, of course. The big fear is that significant numbers of motorcycle enthusiasts will opt for the Japanese competition, form their own groups, gain their own cachet and, perhaps, even become accepted by hard-core Harley riders. To prevent this, consultants say, Harley must drive its brand deeper and deeper into the culture, yet without cheapening its image.

Mr. Teerlink agrees, but he says customers will be patient as long as Harley makes it clear that the wait is because "we want to guarantee the same level of quality."

Beyond that, Harley can always count on the staying power of its brand, and on customers like Mr. Conrades. "If I had only one bike," he will tell you, making a vow that sounds unshakeable, "it would be a Harley."

Leveraging The Brand

How powerful is the Harley-David-son brand? The tangible evidence is compelling:

In 1996, Harley spent not a single penny on advertising. It didn't have to. Madison Avenue thinks the company's bikes are so cool that it puts them in ads for countless other products, giving Harley millions of dollars' worth of free exposure. While companies paid $1 million for each 30-second spot during the 1997 Super Bowl, 100 Harleys were on the field as part of the half-time show, again at no cost to the company. Harley's marketing vice president, Joanne M. Bischmann, reports that she is constantly barraged by requests from celebrities to serve as the company's official pitchman. Since Harley has no national television advertising and only a small print campaign , Ms. Bischmann politely declines all requests.

With or without paid advertising, Harley motorcycles -- there are four basic categories, with about 20 different models -- are in such demand that dealers consistently report waiting lists of a year or longer. Even the wife of Harley's chairman, Richard F. Teerlink, had to order a new bike nearly a year in advance to get it in time for his birthday.

The company now regularly reports record sales and earnings each year -- $1.53 billion and $166 million, respectively, in 1996. Harley has quadrupled production in the past decade, to about 130,000 this year, but still can't keep up with all the orders.

Nearly out of business in 1985 because of its own mistakes and stiff Japanese competition, Harley now has such cachet that its name adorns everything from a popular Manhattan restaurant to L'Oreal cologne to a limited-edition Barbie doll.

Harley-Davidson Motorclothes -- mixing black leather jackets with French-cut women's underwear and fashions for tots -- is now a $100 million-a-year business. To sell the merchandise, most of Harley's 1,000 dealers around the world have transformed their greasy showrooms into airy boutiques.

Competitors are so intent on grabbing market share in the lucrative heavyweight class that they sometimes try to copy Harley's styling and even its sound. Accordingly, Harley has filed papers with the U.S. Patent and Trademark Office to protect its tailpipe rumble.

Harley employees, like those in every great marketing company, take personal responsibility for maintaining the luster of the brand. That was so much the case at Harley that the company shut down its branding department in 1995. "We didn't need it," Ms. Bischmann said. "We're all brand managers." Harley employees model in the company's Motorclothes catalogue, attend rallies and act as tour guides at the manufacturing plants. Last year, more than 60,000 visitors toured the biggest plant, in York, Pa., where the bikes are assembled.

All this has fueled shareholder value: $100 invested in Harley stock in 1986, when the then-beleaguered company went public, was worth $3,488 a decade later.

Quality As A Survival Tool

"Buy a Harley, buy the best --ride a mile and walk the rest!"

In the 1970's, when Harley-Davidson was owned by the American Machine and Foundry Company, the reputation of its motorcycles sank so low that sarcastic ditties about the legendary bikes made the rounds of the riding community. Under A.M.F., Harley-Davidson ramped up production sharply at the expense of quality. It almost drove the company to ruin.

During that decade, Japanese motorcycles, known for their reliability and lower prices, took over the heavyweight market and left the leaky and temperamental Harleys in their dust, a relic of biker glory past.

Even Harley's cachet would not have been enough to save the day if 13 Harley executives had not bought the motorcycle maker from A.M.F. in 1981 and turned the company around on quality.

"Quality became our method of survival," said Ken Sutton, vice president and general manager of Harley's engine plant in Milwaukee.

Indeed, quality has driven the Harley turnaround story more than any other factor. By re-engineering its production process, redesigning its engines and instituting a raft of Japanese-style manufacturing and quality-control methods, Harley coupled its survivor's mentality with an aggressive revitalization of its brand.

After the 1981 buyout, Harley instituted a policy of building bikes strictly on advance orders from dealers, rather than anticipated market demand. Every motorcycle has a dealer invoice number on it before it leaves the

factory. This policy, followed later with such tremendous success in the personal computer market, allowed Harley to do away with vast stocks of parts awaiting assembly by adopting the Japanese just-in-time methodology. A continuous flow of quality parts into Harley's factories not only reduces money tied up in inventory but drives quality throughout the manufacturing process.

Harley employees take 80 hours of courses each year in such subjects as statistical process control, learning techniques to enhance quality and productivity. Harley has also instituted self-directed work teams throughout the company, from line workers to senior management. And a continuous open dialogue with management is not only encouraged but rewarded.

"When we invite the president to our meetings, he comes," Mr. Sutton said. "People openly ask for better tools, processes and systems to allow them to make better products."

Harley's salaried staff, for example, receives bonuses not only for financial performance but for warranty performance. The fewer bikes that are returned, the better the bonuses.

Reprint No. 97403

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 4

5. 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 5

Cost Advantage Differentiation Focus Focus on Heavyweight market with customers who consider their motorcycle a luxury product

6. 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 6

7. 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 Information gathering(e.g. price,fuelprice) DealerNetwork visit Selecting Purchasing Customization Maintaining Customer Value Chain 7

8. Strategic Importance RelativeStrength 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 8

9. 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 9

10. 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 10

11. MAN (MATERIAL AS NEEDED) “MAN“ (Materials as Needed): Just-in-time (JIT)

system and production scheduling program Reduce inventories & costs Improve quality control Productivity gain from reorganizing around team- based production and

commitment to continuous improvement Cost Advantage 11• However, difficulties to satisfy the surging demand for its products

12. Wide range of customization opportunities Mutliple options for: Seats bars Pegs

Controls Paint jobs Range of 7000 accessoires CUSTOMIZED DESIGN Every

Harley rider would own a unique, personalized motorcycle Competitive Product Strategy 12

13. Strategic Importance RelativeStrength 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 13

14. 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. 14

15. PRODUCT DEVELOPMENT Honda offering V-twin cruisers styles closely along the

lines of classic Harleys At a lower price With 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. 15

16. MANUFACTURING HARLEY-DAVIDSON Low production volume relative to HONDA

Significant scale & cost disadvantage Key cost disadvantage: purchasing components

HARLEY lacked the buying power of HONDA 16

17. INTERNATIONAL EXPOSURE Honda attracting younger customers International

Market Share European motorcycle market differed significantly from the American market – differences in style preferences 17 Harley needed to fight to take market share from the established leaders in the heavy bike segment in Europe (like Honda)

18. 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 18

19. 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 19

20. 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) 20

21. 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 21

22. 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 22

23. 4. Intellectual Property Company # 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 23

24. 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 24

25. 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% 25

26. 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

advantage Harley Davidson Temporary Advantage However: • Brand is losing perceived customer value • Faces threat of losing exclusivity • Not costly to imitate 26

27. 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 27

28. 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 28

29. 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 29

30. 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 30

31. 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 31