Harley Davidson started in 1903 with two friends William S. Harvey, age 23, and Arthur Davidson, age 22. In a small shed in Milwaukee, Wisconsin they assembled their first production motorcycle, and the next year opened their first Harley-Davidson dealership in Chicago. Their first factory opened in 1906 in Milwaukee, and subsequently, their company became incorporated in 1907 as Harley-Davidson Motor Co. Over the years, the company steadily grew to become one of the most recognizable brands in America, but today they are facing issues, despite the retail sales increase of 2014. Harley-Davidson, Inc. consists of two separate companies. The first is Harley-Davidson Motor Company. This company produces motorcycles and offer parts, accessories, gear, and other merchandise. The second is Harley-Davidson Financial Services. This branch is focused on providing wholesale and retail financing, as well as insurance to dealers and riders. The mission statement of the company is: “We fulfill dreams through the experience of motorcycling, by providing to motorcyclists and the general public an expanding line of motorcycles and branded products and services in selected market segments.” The vision of the company is: “We preserve and renew the freedom to ride.”
Threat of New Entrants
- Harley-Davidson, Inc. is the incumbent in the motorcycle market;
- Harley-Davidson, Inc. has the most Brand equity in the industry, making it harder for unknown companies to compete;
- Harley-Davidson, Inc. does not produce electric motorcycles, making this a possible angle that a new entrant on the market can exploit due to the speculated tenfold increase in the electric bike sales by the year 2018;
- Customers are extremely loyal to Harley-Davidson, Inc. due to their continued engagement with the customer base and long history of operation;
- The cost of design, manufacturing, and production is very high, creating a high barrier of entry and high risk of failure;
- Harley-Davidson, Inc. works with hundreds of retailers, this should not directly affect new entrants, but it means that their product could receive less attention due to bigger companies sharing the retail space;
- The network effect is likely to not be a factor due to the high loyalty of Harley-Davidson, Inc. customers.
Bargaining Power of Buyers
- Buyers are highly dependent on the existing channels of distribution;
- Buyers do not hold leverage over Harley-Davidson, Inc. due to the strong loyalty programs implemented by the company;
- Buyer’s switching costs are relatively low in comparison to the firm’s due to close competitors holding a similar brand equity;
- Buyer information is available;
- Substitute products are available from competing firms;
- Buyers are not sensitive to high prices due to high prices being expected;
- Harley-Davidson, Inc. provides unique motorcycles with a specific engine noise that is valued by their customers;
- Customers are highly valued by Harley-Davidson, Inc. due to their continued purchase of replacement parts, insurance, and merchandise.
Bargaining Power of Suppliers
- Suppliers would not want to switch due to the high cost of switching from the top company in the business;
- Suppliers work with many different aspects of the company, with more than 300 suppliers working with Harley-Davidson, Inc.;
- Suppliers have a strong impact on costs by reducing the costs of Research and Development;
- Suppliers provide differentiation to the company’s line of products;
- Substitute companies are available if the management of Harley-Davidson, Inc needs to make a change of supplier;
- Distribution channels are strong;
- There are more suppliers than firms on the market.
- Rival companies can compete through innovation, such as bikes using electric motors;
- Advertising expense is high due to the use of non-traditional advertising channels;
- Harley-Davidson, Inc. and Polaris Industries especially have a strong competition due to powerful competitive strategies based on their brand equity and loyalty of their customers;
- Firm concentration is small, with less than ten firms holding the majority of the market share;
- The degree of transparency is relatively high due to companies working with a lot of different suppliers.
The Threat of Substitutes
- Buyers are not likely to switch to a substitute due to brand equity;
- Substitutes provide similar prices;
- Buyer’s switching costs can be high due to the amount of gear and accessories that do not fit the substitute bikes;
- There exist about 5-8 companies producing motorcycles in large volume, but only Polaris Industries hold a similar type of brand;
- Companies engaged in the electric motorcycle development are providing a higher level of product differentiation than Harley-Davidson, Inc.;
- Ease of substitution is low due to the band name being one of the main factors in purchasing the product;
- Competitors provide a similar quality of product;
- A close substitute is available in the “Indian” line of Polaris Industries motorcycles.
Main Issues and Possible Solutions
- The brand is popular among the core demographic but is struggling to expand into the outlier market despite the recent advances;
This issue could be addressed by utilizing more traditional forms of advertising with a focus on the outlier demographics. The image of the company is associated with male Caucasian bikers, making it unlikely to attract women or people of other racial backgrounds.
- The company is falling behind in product differentiation;
By sticking to traditional gas-powered motorcycle designs, the company is failing to capitalize off the upcoming electric motorcycle boom. A new electric motorcycle is in production by the company and is already gathering a lot of outside interest. This issue could be solved if this motorcycle proves to be popular and competitive. By working with suppliers and partners, the company should be able to create a line of electric motorcycles that would compete in 2018.