Harley Davidson Case Study

case teaching note

| 21

Harley¬Davidson*

Overview

Harley-Davidson's management had much to be proud of as the company wrapped up its Open Road Tour centennial celebration that began in July 2002 in Atlanta, Georgia, and ended on the 2003 Memorial Day Weekend in Harley's hometown of Milwaukee, Wisconsin. The 14-month Open Road Tour drew large crowds of Harley owners in each of its five stops in North America and additional stops in Australia, Japan, Spain, and Germany. Also during its 2003 centennial year, Harley-Davidson was named to Fortune's list of "100 Best Companies to Work For" and was judged third in automotive quality behind Rolls-Royce and Mercedes-Benz by Harris Interactive, a worldwide market research and consulting firm best known for the Harris Poll. The company's revenues had grown at a compounded annual rate of 16.6% since 1994 to reach $4.6 billion in 2003--marking its 18th consecutive year of record revenues and earnings. In 2003, the company sold more than 290,000 motorcycles, giving it a commanding share of the 651+cc motorcycle market in the U.S. and the leading share of the market in the Asia/Pacific region. The consistent growth had allowed Harley-Davidson's share price to appreciate by more than 15,000% since the company's initial public offering in 1986.

In January 2004 the company's CEO, Jeffrey Bleustein, stated that Harley-Davidson's earnings growth rate should fall in the mid-teens for the foreseeable further and the company expected to increase unit sales to 400,000 units by 2007. However, not everyone was as bullish

*This teaching note reflects the thinking, insight, and analysis of case authors, Professor John E. Gamble and Diplom-Betriebswirt Roger SchÐ'fer, both of the University of South Alabama.

on Harley-Davidson's future, with analysts pointing out that the company's plans for growth were too dependent on aging baby boomers. The company had achieved its record growth during the 1990s and early-2000s primarily through the appeal of its image with baby boomers in the U.S. There was some question how much longer boomers would choose to spend recreational time touring the country by motorcycle and attending motorcycle rallies. The company had yet to develop a motorcycle that appealed in large numbers to motorcycle riders in their 20s or cyclists in Europe who both preferred performance oriented bikes rather than cruisers or touring motorcycles. Another concern of analysts watching the company was Harley-Davidson's short-term oversupply of certain models brought about by the 14-month production run for its 100th anniversary models. The effect of the extended production period shortened the waiting list for most models from over a year to a few months and left some models on showroom floors for immediate purchase. The combined effects of a market focus on a narrow demographic group, the difficulty experienced in gaining market share in Europe, and short-term forecasting problems led to a sell off of Harley-Davidson shares going into 2004.

Suggestions for Using the Case

Students should find the case interesting because of Harley-Davidson's role in creating and shaping the motorcycle industry and culture over the company's 100-year history and because of Harley-Davidson's recent financial and market performance. Even though the company is histor¬ically important to the motorcycle industry, its performance during the late-1990s and early-2000s has been outstanding with revenues and earnings increasing at annual rates of 16.6% and 24.5 %, respectively, between 1994 and 2003. In 2003 Harley commanded approximately 50% of the heavyweight motorcycle market in the U.S. and more than 25% of the heavyweight motorcycle market in Asia/Pacific--making it the market share leader in the region.

The Harley-Davidson case examines the appeal of Harley-Davidson's outlaw image and quality touring and custom motorcycles with baby boomers in the U.S., Asia, and Europe and its success competing in the heavyweight segment of the motorcycle industry in various international markets. The case has linkage to concepts discussed in Chapters 3 and 5 and is well-suited to illustrate such concepts presented in Chapter 6 as cross-country differences, strategy options for entering and competing in international markets, and multi-country versus global competition. The case also provides an opportunity to examine offensive and defensive strategies presented in Chapter 8 that have been executed by Harley-Davidson in building market share in the U.S. and in international markets. The case includes extensive data on the economic and regulatory features of the motorcycle industry in the U.S. and Europe and includes market share data for the world's leading sellers of heavyweight motorcycles in the U.S., Europe, and Asia. Students will be able to assess characteristics of the global motorcycle industry and focus on cross country differences in cultural, demographic, and market conditions in the heavyweight segment of the industry. Considerable differences exist in preferences of European and U.S. motorcyclists, which is reflected in Harley-Davidson's poor showing in Europe relative to low-cost Japanese motorcycle producers and BMW, which enjoys considerable regional loyalties.

The case also includes adequate financial information to allow students to assess the company's overall growth and profitability and examine financial performance by geographic region and product line. The decision focus of the case is how Harley-Davidson management might better prepare for market maturity in the U.S. and improve its appeal with price-sensitive motorcyclists in the U.S. and performance-oriented riders in Europe.

The comprehensive and global nature of this case makes it best used in the second half of your business strategy module. You may also want to consider teaching the Harley-Davidson and Hero Honda cases back-to-back, since these two companies are in the same industry. But either case can readily be used as a stand-alone case.

There is a video accompanying the Harley-Davidson case. We suggest showing it at the beginning of the class discussion--it should help set the mood and tone for a spirited and interesting discussion.

In addition, there is a case preparation exercise on CASE-TUTOR for the Harley-Davidson case. It is framed around the assignment questions presented below and is designed to push students to do the analysis and number-crunching to arrive at sound action recommendations. We believe having the class members complete the exercise prior to class and asking them to bring printouts