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Navigating Global Competition and Shifting Customer Base
International competition originating from Japan (Honda, Kawasaki, Suzuki, and Yamaha) and Europe (BMW and Ducati) had started to hurt Harley-Davidson in the 1960s, and these motorcycle makers were continuing to compete for riders. In March 2016, Mintel Group Ltd., a global market research company, surveyed 500 18-year-old motorcycle owners on the brand of motorcycle they would be most likely to purchase next. In key results, while Harley-Davidson was the top brand those surveyed would consider buying, the brand came second in a ranking based on the current percentage of ownership (see Exhibit 2). The Mintel report noted:
Where Harley’s cache surrounds relatively expensive cruisers, the four Japanese manufacturers have built their reputations on smaller, reasonably priced models, including sports bikes and also off-road bikes. These brands also produce large cruisers, often at prices more competitive than those sold by Harley-Davidson. In a hypothetical match-up in which bikes were stripped of all identifying brand elements, and judged solely on their build and price, there is a reasonable likelihood that the share belonging to the four Japanese brands would be higher; BMW and Ducati bikes, along with those from Harley, tend to sell at a premium. Even as it stands, in Mintel’s survey, Honda already competes with Harley to be the most commonly owned motorcycle brand.
Even with a 53.1 percent share of the market for motorcycles with engines of at least 601 cc,28 Harley-Davidson was under increasing pressure in the form of significant price discounts from Polaris Industries, which sold motorcycles under its Indian brand. However, Levatich had refused to engage in a price war and expected more sales, even while his industry was becoming more competitive and his loyal customer base was shifting.
For generations, particularly in Hollywood movies and TV commercials, the typical Harley-Davidson customer had been a rebel—the unshaven “bad guy,” outlaw, and irresistible villain. “While no other motorcycle manufacturer enjoys the instant name recognition of Harley-Davidson, it’s also true that the recession hit Harley harder than it did any other motorcycle brand,” one article noted.29 However, since the 2008 financial crisis, sales to typical Harley-Davidson customers (e.g., white males) had been declining. The Interbrand agency, which had measured brand value or equity for more than 20 years and attributed values to brands based on financial statements, associated market dynamics, and forecasted future earnings, reported the following disturbing statistic in 2009: “According to Interbrand, Harley-Davidson experienced the biggest drop in value. The ‘legend’s’ value dropped by 43 per cent to $4.34 billion, which is most likely connected to the 66 per cent drop in the company profits in two quarters of the last year.”30
Since 2009, Harley-Davidson had been forced to shift toward a new (younger) generation of riders, since the “real riders” who made up the company’s traditional customer base (i.e., white males, 45 years old or older) were aging and declining in numbers. That shift had happened over decades. In 1987, the median age of Harley-Davidson customers was 35, and had risen to 47 by 2007. A full 60 per cent of the company’s customers were baby boomers born between 1946 and 1964.31 In 2015, the number of U.S. baby boomers was 74.9 million, down from its 1999 peak of 78.8 million; this generation was expected to number 16.6 million by 2050.32 Harley-Davidson had been trying to build a more diversified customer base in the United States by attracting more women, African American, and Hispanic customers. As such, it had started to court women as riders through garage parties, a marketing effort that was showing some positive results.33
However, millennials tended to prefer experiences rather than possessions such as motorcycles. They sought differentiation and customization, associated the Harley-Davidson brand with their grandparents, and could not afford luxurious motorcycles.34 Based on this information, Harley-Davidson changed its product mix, selling 6.4 per cent fewer Touring motorcycles, which emphasized comfort and load capacity, and instead selling 4.7 per cent more Cruiser motorcycles, which emphasized styling and customization. It maintained the existing percentage of Sportsters, which emphasized performance; worldwide retail sales for this product declined by 1.6 per cent between 2015 and 2016.35
In 2016, 62 percent of Harley-Davidson’s retail sales were generated in the United States compared with 38 percent in international markets,36 an increase of 22 percent over the previous decade.37 This trend was clearly confirmed between 2006 and 2016 in terms of domestic motorcycle shipments decreasing from 273,212 to 170,688, whereas international motorcycle shipments increased from 75,984 to 95,694 for the same period (see Exhibit 3).
Harley-Davidson motorcycles and related products exported from plants in Pennsylvania, Missouri, and Wisconsin were distributed in 97 countries. While international retail sales of new Harley-Davidson motorcycles in 2016 increased by 2.3 percent over 2015, this increase was offset by a 3.9 percent decrease in U.S. retail sales in 2016 as compared to 2015.38 In the U.S. and international markets combined, Harley-Davidson’s retail sales were down 1.6 percent (see Exhibit 4).
The new U.S. president was pushing an America First foreign policy agenda, and the company was experiencing lackluster quarterly results, including decreases in revenue (down 14.28 percent), net income (down 25.58 percent), and earnings per share (down 22.08 percent) compared with the same period in 2016. Harley-Davidson’s CEO needed to address a pressing dilemma: to expand internationally or not. It was decision time.
Navigating Global Competition and Shifting Customer Base