Harley Davidson Case

Q1. How would you characterize HD's core challenge as of the end of 2005? Is there decision criteria?

Harley Davidson core challenge relates to an aging customer group, a strong association with boomers making the brand harder to sell to the younger generation. In general the stronger the brand is with the older generation, the weaker it is with the younger generation. Harley will need to take measure to reach its younger customers while maintaining growth in its traditional segments. As a result sales forecast has been adjusted and stock price declined 17% despite the quarterly increase of sales and profits.

Q2. Deconstruct HD's world with PEST, PORTER and CRACK. Quantitatively how healthy is Harley Davidson? (3%)

SOCIETY TRENDS PEST

1. Technological - Newer more fuel efficient and environmental friendly engines technology is available. However Harley's unique patented V-engine configuration with a unique sound is what the conventional generation customer wants. Noise pollution and emissions however might not be up to standard for European market. Harley Davidson has access to innovative engine technology through Buell.

2. Political - US People are considering Harley-Davidson as an American icon. Opportunities are emerging in India and China, however these are uncertain operating circumstances. Europe is also a growing market opportunity for Harley with only an 11% market share in 2004. Environmental concerns are rising and becoming more and more a political issue.

3. Economy - Confidence in economy is directly proportional to the purchasing of consumer items. Repeat business is strong as 42% of customers have owned a Harley previously. The industry is highly competitive with Japanese brands like Kawasaki, Honda and Yamaha. Interest rates are at an all-time low and fuel prices are moderately affordable. 31% of the Harley customers owned a competitive motorcycle before and 27% of its customers are new to motorcycling.

4. Social - Average purchaser of a U.S Harley-Davidson is a married male in his mid-forties and has a household income of $80,900. Only about 10% of Harley's US retail motorcycles are sold to women. The stronger the brand is with the older generation, the weaker it is with the younger generation. Younger generation wants something different while Boomers are aging. Also younger generation is more concerned about the environment. Lighter fuel efficient pollution reducing technology is of higher importance in this market segment. Harley is one of the most admired and recognized companies in the world. 60% of motorcycle riders are between 35 and 54 years old.

INDUSTRY TRENDS PORTER

1. Competitors - Three major competitors of Harley are targeting on the same heavyweight segment (Suzuki, Honda and Yamaha). These Japanese competitors are more diversified in other markets and therefore have access to more funds and resources (technology). However barrier to entry in this segment is high due to capital investment required. The industry is mature so it is likely HD will compete with only 3 other manufacturers. Product innovation is key to drive product development to stay ahead on the competition. Overall trend is the design stronger, faster, more fuel efficient and pollution reducing engines.

2. Clients - Clients of Harley are the end consumers (B2C), individual customers and therefore the financial risk per customers is low. Production is based on JIT scheduling and therefore Harley Davidson bikes are made to order. The number of dealers is controlled by Harley so the impact on the financial position by the customers is relatively controllable.

3. Value-equation - Harley Davidson customers are very loyal to the brand. Price is high, quality has been improved significantly and service experience is excellent. Degree of innovation is moderate but has potential with Buell technology. Net Income consistently growing YOY, Sales Revenue doubled between 1999 and 2004 while Share Holders Equity tripled during same time.

4. Suppliers - Harley Davidson has multiple suppliers to keep control over quality & pricing. Therefore Harley is flexible and independent as Harley could easily switch suppliers without major impact on production.

COMPANY TRENDS CRACK

1. Relevance Window - European market for Harley is a large international market opportunity. Also the international heavy weight market is growing and is larger than the overall heavyweight market in the US. Also the US market shows an increasing demand for motorcycles with women and young riders showing interest. Basically the Time to Market is now.

2. Action for Growth - Buell technology will need to be leveraged to attract younger buyers and for market diversification. Harley's average buyer is aging and therefore Harley will need to develop a product designed to the needs of its younger customer segment (light weight, low cost and sporty). A second opportunity is the European market, however standards for noise reduction and prevention of environmental pollution are much higher. For this market improvements are required. Rider's Edge and Rental programs show exponential growth between 2000 and 2004.

3. Competitive Angle - Harley Owners Group has internationally 9M members and is the largest company sponsored motorcycle enthusiast organization. Customization with accessories is Harley's major profit margin contribution. Harley Davidson is an expert on branding in marketing through customer events, magazines, advertising and dealer promotions.

4. Clarity of Vision - Harley Davidson is industry leader with a very strong brand name in the heavyweight motorcycles with patented V-engine configuration. Harley operates in motorcycles segment and Harley Davidson Financial Services (financing 'your Harley').

5. Market Opportunity - Harley has a 48% market in the US. However in Japan and Australia only 26.8% and in Europe 9%. Growth opportunity is large for in Europe, since the total heavy weight market volume is 336,223 units for 2004 (that is 65% of the total volume in the US!)

6. Window of Opportunity - Harley has a window of 5 to 7 years before it reaches crisis/limited options. Currently Harley is positioned at the peak of emerging on the Bell curve reaching significant scope of challenge. The boomers market is a mature segment, however younger buyers, females and Europe are hardly developed and is therefore a new market opportunity.

HD COMPANY 2004 FINANCIAL RATIO'S

1. Current Ratio (liquidity) = Current Assets / Current Liabilities = 3300 / 495 = 6.7