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

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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.