Hog case study Essay Example for Free

Hog case study Essay Product Life Cycle: Late Growth / Early Maturity I. Uncertainties that may affect industry structure II. The plausible assumptions about each important causal factor The uncertainties that exist for the Motorcycle Industry are fluctuations in the following categories: government regulations, price of supplies, Fuel Cost, Global Demand for motorcycles, Product innovation, customer loyalty value (CLV), target market, and market share. The casual factors that drive these uncertainties are an important factor when forecasting the future of the Motorcycle Industry. The most likely scenario for government regulations will push the industry towards going â€Å"Green† and becoming more environmentally friendly by requiring lower emissions. They will require the industry to improve these emissions standards. Currently the average motorcycle averages 40 MPG (miles per gallon) in the city and 50 MPG on highway but they still emit smog into the environment. The industry will most likely use the fuel consumption statistics to their advantage by relating to the current price of gasoline and the fact that the average car gets 20 MPG and SUV’s get even less at about 16 MPG. Price will be a major uncertainty for the industry. The industry relies on other companies to provide them with materials so that they could assemble the bike. The increasing cost of transporting these materials from the manufacturers to the motorcycle assembly plants are going to increase and therefore lead to increase in the operating cost for the industry and lead to higher price for the finished product resulting in no value added. The price of the finished product is a very important factor for the industry because all the players in the industry are trying to attract the younger target market and are competing on price. The Japanese manufacturers have a mindset that they are willing to incur short-term loss so that they could gain market share. This strategy is bad for the industry because every company will try to reduce its prices and will eventually not be able to make significant profit. This fact needs to be carefully monitored so that no one player tries to influence the overall industry. Economic conditions in the U. S. significantly affect the firm’s performance from year to year. During an economic recession, Harley-Davidson will feel its effects since consumers tend to tighten up discretionary spending during rough times resulting in no value added to the company. This is what is currently happening in the economy. Global demand fluctuation also is an important factor to the overall success of the industry. The global demand for the heavy weight motorcycles grows at an average core rate of 7% to 9% per year and has averaged 8. 6% since 1991 for Harley Davidson. This trend will most likely continue because of the Baby-Boomers who previously purchased these bikes will continue to do so as they live more active and adventurous lives then previous generations. The baby boomers are more affluent then previous generations. The global demand will rise because of this fact. It will also rise because they are not only catering to the older consumers but also towards the younger generation and women. The industry is creating bikes that are cheaper and faster that appeal to the younger consumer. This trend will spread globally because of the Blue Ocean created by Harley Davidson because of the Rental Programs, and the Riders Edge programs that will be emulated by the other players in the industry. This will lead to the Red Ocean scenario again and companies will compete at the same level within the industry. We also believe that players in the industry will make strategic alliances with other industries to cross sell their products such as Harley currently produces clothing and accessories to increase and diversify its revenue sources. The industry will continue to compete on all aspects such as price, quality, and functionality. This intense competition will lead to a Red Ocean until a new innovator can emerge. The industry will most likely continue to invest in Research Development to improve the quality of their products, to try to innovate, to get a better product out to the market and even innovate the way they assemble and market their product to the consumer. Also, personalization and customization of motorcycles will increase as television programs such as American Choppers, and West Coast Choppers are glorifying them. All these factors will lead to an expansion of the Target market and more intense competition. Customer Loyalty Value will most likely rise for the industry because many of the individual producers have a wide variety of products that they can offer to their customers. The industry will most likely target previous customers more to get them to purchase a secondary bike. This trend will continue since the largest buyer group numbers are steady for the next several years, currently there are 41 million US men in the age group of 35 to 54 and that number increases to a little over 41 million in 2020. Also currently there are 80 million baby boomers of those the oldest ones are entering their late 50’s and the youngest boomers are just entering earlier part of their 40’s. These groups will be heavily targeted by the industry to either purchase their first motorcycle or 2nd motorcycle. III. Plausible assumptions about each important casual factor The most important casual factors are the level of quality of the motorcycles, product innovation and marketing. These three factors are predetermined meaning that change is likely to happen  nd is largely predictable and they are constant meaning that these areas in the industry are unlikely to change. However, product innovation is uncertain meaning that product innovation depends on other irresolvable uncertainties in the industry. To begin with the first important casual factor the level of quality, we know that if the level of quality for motorcycles increase, it is likely to lead to an increase in other areas as well such as price, sales, market share and customer retention. (Cash flow, interrelationship, linkages and value added). The next important casual factor is product innovation. Similar to quality, if product innovation increases it is likely to lead to increases in other areas such as price, sales, market share, customer retention and gaining new customers. Lastly, marketing is another important casual factor. We know that if marketing is increased and if it becomes more innovative in ways there will be increases in other areas such as sales, market share, customer retention, new customers, advertising and promotion, branding and in relationship marketing resulting in value added. IV. Assumptions about individual factors into internally consistent scenarios. Scenario 1: If quality increases it is likely that performances in other areas are likely to increase as well. Improving quality is always beneficial and important to execute any strategic sequence successfully. The value curve, which is the basic component of the strategy canvas, depicts relative performance across the industry’s factors of competition. Creating a new value curve involves identifying which factors of the industry should be eliminated, reduced, raised well above and created or offered in regards to the industry. So let’s use Harley-Davidson as an example. Eliminate-Reduce-Raise-Create Grid: Harley-Davidson Eliminate Company staff positions Raise Tariff protection against global competitors Reduce Inventory levels Create JIT inventory practice Employee involvement Materials-As-Needed program When it came to improving the quality of the business Harley-Davidson eliminated the positions of senior vice president in marketing and operations because there was no value added. The style of leadership at the company was very effective because they were able to identify weak links in their operations and cut out the extra manpower that was muda. The company reduced inventory levels with the hope that it would make quality problems more apparent and force employees to take action. The tariff protection the company sought to gain time and protect itself from the Japanese inroads in the heavyweight segment was a leading factor that raised them above the industry standards. The company’s OWC that was created was the use of JIT inventory practices, employee involvement and the SOC (statistical operator control). Workers were required to participate in the newly formed circles that were made directly responsible for improving motorcycle quality. A Materials-As-Needed (MAN) program was implemented to free up, as much needed cash by reducing WIP inventory, which led to economies of scale and LC. These changes also led to increased quality. Productivity improvement went up by over 50%, WIP inventory was reduced by 75%, scrap and rework went down by 68%, U. S. revenues increased by over 80%, international revenues by 1. 7 times, operating profits increased by $59 million and market share in the heavyweight segment increased by 97%. Harley-Davidson’s net revenue increased from $1,350,466 in 1995 to $5,015,190 in 2004 in millions. Scenario 2: If product innovation increases it is likely that performances in other areas will increase as well. Product innovation is the new business imperative. It drives growth and future success for companies. Most companies are trapped competing in red oceans because they define their industry similarly, focus on the same buyer group, define the scope of the products and services offered by their industry similarly and they focus on the same point in time and often on current competitive threats in formulating strategies. However, Harley-Davidson has not followed these same guidelines, so they are not currently trapped in the red oceans. Harley-Davidson was selected as an outstanding corporate innovator by PDMA in 2003 (Product Development Management Association) because of its established brand, its strong connection with customers, and because of its continued commitment to product innovation. The company focuses on optimizing the â€Å"customer experience,† and as a company has grown from 40,000 units/year in 1998 to 264,000 units/year in 2002. Their use of multiple and novel venues to gather customer needs and preferences information to guide their new product efforts, while employing a formal Concurrent Product Process Delivery Methodology (CPPDM), has kept their new product engine running at peak efficiency. Several unique elements and concepts in their process such as â€Å"swirl,† â€Å"bins,† and â€Å"cadence,† ensure the degree of innovation, speed to market, match of development resources, and financial viability of individual projects as well as the entire new product portfolio. Scenario 3: If marketing increases performances in other areas is likely to increase as well. Marketing for any company in any industry is extremely important. How well a product/company is marketed leads to the success of that product/company. Blue oceans are defined by untapped market space, demand creation and the opportunity for highly profitable growth. In order to execute a blue ocean strategy market boundaries must be reconstructed and must reach beyond existing demand. This is in fact what Harley-Davidson did to create a blue ocean for itself and increase the brand name and company revenues simultaneously. The company’s three strategic constants: passion, sense of purpose and operational excellence are the cornerstone of their blue ocean strategy. There is no competition, as seen by being the only U. S. manufacturer for 46 years, and petition to end protective tariffs. All bikes are customizable, and some say that they are made to be tinkered with (not as hands-off as can be, therefore redefining premium brand). The company has a huge fan club and a phenomenally powerful brand and its quintessential strong emotional connection keeps them in the leadership position. Undoubtedly, Harley-Davidsons greatest marketing asset is the Harley Owners Group, with one million member’s world wide making it the largest motorcycle-sponsored club in the world. Harley-Davidson is continuing to improve value innovation by still focusing on beating the competition, making it irrelevant by creating a leap in value for buyers and their company by opening up a new and uncontested market space. They have done this with the implementation of their Rider’s Edge and Rental Programs. The rental program was implemented to hook customers and entice them to buy a Harley. This program is offered by 250 dealers and is available in 52 countries. Survey shows that 32% bought a bike or placed an order and another 37% planed to buy within one year. The Rider’s Edge Program offers riding lessons that last for four days and cost students $350. Approximately 70% of students in the program purchase a motorcycle within 18 months and about 40% of the students are women and 30% are under the age of 35. This buyer learning relationship created by Harley-Davidson has increased sales, new customers and targets the untapped market of women highly. This value innovation has led to LC for people who have learned to ride the motorcycles through the program and also to the instructors teaching the students. It has led to increased sales and revenues from the 70% of students that buy within 18 of completing the lessons. This continues to be a huge win for Harley-Davidson. V. Analyzing the industry structure that would prevail under each scenario McKinsey Model INDUSTRY ATTRACTIVENESS Competitor Profile WeightRateTotal Market Growth Rate. 102. 20 Marketing Size. 103. 30 Competitive Structure. 203. 60 Seasonal/Cyclical. 103. 30 Industry Profit. 102. 30 Tech Demand. 204. 80 Eco of Scale. 102. 20 Unique Social. 102. 20 TOTAL12. 90 Competitor Profile WeightRateTotal Market Share. 204. 80 Tech Strength. 203. 60 Marketing Skill. 203. 60 Company Profit. 102. 20 Management Skill. 102. 20 Ability to compete on price quality. 203. 60 TOTAL13. 00 9 Cell Matrix for Motorcycle Industry 2004 Competitor Profile Strong Average Weak HiIIE MedIE HOGD LowEDD HiMedLow I= Invest E= Evaluate D= Disinvest The next step in scenario planning is to analyze the implications of each scenario for competition. We will determine the future industry structure, implications for industry structural attractiveness and the sources of competitive advantage. The future growth is largely dependent upon its ability to develop and successfully introduce new, innovative and compliant products. In addition, it must comply with governmental laws and regulations that are subject to change and involve significant costs. Worldwide demand for motorcycles is forecasted to advance to 5. 2% annually to more than 35% million units in 2007, valued at $46 billion. Driven by increased income levels in emerging markets such as India, China, and Southeast Asia, demand for scooters, mopeds and light motorcycles will remain relatively strong, providing continued growth opportunities for motorcycle OEMs and suppliers. The market for large motorcycles will also remain strong, although some concerns regarding future demand have emerged due to the aging customer base and rising insurance costs, especially in the US and Europe. While growth prospects remain solid, especially when compared to the 2% annual growth experienced by the light vehicle industry, the industry will likely go through a restructuring phase in the future. Many of the small competitors will begin to exit the market. The intense focus on price in the Asia/Pacific region has caused Japanese OEMs to begin to abandon Japan as a production base in favor of lower cost hubs like China or Thailand. In China, for example, the largest motorcycle market and producer in unit terms, is rapidly transitioning away from motorcycle toward cars, and in the process overflowing the world market with motorcycle exports. In contrast, rising fuel prices and increasing restrictions on car uses are favoring motorcycles in developed markets. Two separate motorcycle markets exist. The first is centered in the industrialized Triad (US, Japan, Europe), where consumers who already have one or more vehicles see motorcycles as pleasure vehicles. These motorcycles tend to be larger, more powerful machines, which cost on average about $5,000 to $6,500. The other much larger market in unit terms is found in the emerging economies of the Asia/Pacific, where motorcycles are seen as primary family and work vehicles. These vehicles are cheaper, smaller and less powerful than Triad motorcycles. Motorcycles everywhere is being fractured down from, stricter emissions controls to noise limits, from land closures to exclusions from HOV lanes. The motorcycle industry has spent the last 10 years of convincing the public that motorcycles are a form of entertainment and not a form of transportation. The world has been changing with new issues and now advertising is geared toward qualities like dependability, practicality, technology, safety and environmental friendliness. Women control 85% of all the discretionary dollars spent in the US. Ten years ago women represented about 3% of the motorcycle owners. In 2004, they ramped up to 12% in motorcycles. Utilizing learning curve, dealers are beginning to understand their sales people can no longer talk down to a woman. Some have started to hire women as salespeople. Once only men staffed dealerships, women are showing up as techs, service writers, parts counter, and unit salespeople. The behavior has changed. The Motorcycle Safety Foundation conducts training for new motorcyclists. In 2003, they reported that 40% of those signing up for new classes are women. In the case of Harley-Davidson, the Harley rider is now 45 (10 years ago it was 37) and 20% of Harley riders are over 55. Despite the company’s success in the past 18 years, it has difficult time attracting younger consumers, who tend, to go for sporty, fast, technologically-savvy racing bikes produced by its competitors. Harley has been investing in its product to attract a younger buyer. It continues to revamp its affordable Sportster line and its higher-tech V-Rod family with liquid-cooled revolution engines continues to appeal to more youthful market. In addition, its sports bike subsidiary, Buell, is to lure in the Generation Y market. Growth in year-to-year sales was slow, but with the economic downturn in the market, sales in this market segment may increase due to the lower price point. These marketing challenges will force the company to examine their manufacturing, marketing, pricing and every other part of the business. For consumers, this will means better pricing, more value and greater service to attract their more discerning and selective purchase. The industries never stand still. Operations improve, markets expand and players enter and exit. VI. Determining the sources of competitive advantage under the most likely scenario The driving force behind Harley-Davidson’s competitive advantage is its quality, marketing and product innovation so we will determine the sources of competitive advantage in these forms. Quality Harley Davidson’s source of competitive advantage in regards to quality will most likely be its continued use of the productivity triad. Harley’s productivity triad involves employee involvement, use of JIT inventory practices (which Harley renamed MAN – Materials As Needed) and statistical operation control. Quality drives productivity and increased productivity is a source of greater revenue. This can be seen as under Harley’s new system inventory turn increased to 17 and productivity improvement went up by over 50%. This new system allowed Harley to free up cash by reducing its work in process inventory by 75%. This system proves that improved quality does not always mean increased cost because its costs decreased while its U.S. revenues increased by over 80%, international revenues by 1. 7 times, and operating profits increased by $59 million. Their market share under this new system had also increased by 97%. Quality is defined entirely by the customer and end user and based upon that person(s) evaluation of his or her entire customer experience. Through the use of the productivity triad, customer retention will increase as Harley Davidson continues to improve its entire customer experience from how their bikes are sold (utilizing women sales people to make women customers more comfortable), to how the bikes perform. The increased customer retention and productivity triad will result in a differentiation advantage over its competitors thus creating superior value to its customers and superior profits for itself. Harley was able to create a blue ocean by driving costs down while simultaneously driving value up for its consumers. Marketing Harley Davidson’s source of competitive advantage in regards to marketing will most likely be the continued use of its programs such as the Ladies of Harley, the Riders Edge and Rental Program. The Ladies of Harley group cultivates and will most likely continue to cultivate the interest of women riders. This group was sponsored by HOG to support women motorcycle enthusiasts, and to encourage women to become more active within the group. The Riders Edge program offers motorcycle-riding lessons that last for four days and cost students $350. Surveys show that 70% of Rider’s Edge participants purchase a motorcycle within 18 months. This program helps to target the women market (who makes up 40% of participants) and younger riders (30% of participants who were under 35). The future strategy of Harley is to gain market share in the younger rider segment, so it is likely to continue this program. Harley will most likely continue the use of its rental program, which is used to â€Å"hook† customers and entice them to buy a motorcycle. It is said that 32% of participants bought a bike or placed an order and another 37% planned to buy one within a year after renting a Harley. The company will most likely increase the number of dealerships the program is offered in, as it has demonstrated great success. This is a value added to the consumer who gets to experience the feel of a Harley before making an actual purchase, and a value added to the company because it almost guarantees future earnings. These programs will result in a differentiation advantage over its competitors. Product Innovation In regards to production innovation, Harley-Davidson will most likely continue with new product development and upgraded manufacturing technology. With many concerns with environmental health issues, Harley will most likely manufacture a Hybrid or economically friendly motorcycle to entice sales of future consumers who are concerned with environmental conservation and to appeal to current eco friendly consumers. Harley-Davidson’s resources and capabilities together form its distinctive competencies. These competencies enable innovation, efficiency, quality and customer retention, all of which could be leveraged to create a cost or differentiation advantage for the firm and thus creating value for its customers and profits for itself. Harley-Davidson has created a strong differentiation strategy setting itself apart from the crowd and making its brand identity legendary. On the next page, you will find a competitive analysis of Harley-Davidson to one of its existing competitors, Honda. Competitive Analysis HARLEY DAVIDSON HONDA Future Goals? Produce and sale high quality motorcycles. ?Maintain market share. ?Replace some of aging boomer customers by tapping into the youth market. ?Address shifting demographics. ?To make cycles more popular. ?Strengthen themselves as a manufacturing company. ?Strengthen focus on initiatives, quality and technology. Current Strategy? Maintain current growth in traditional segments while taking measures to reach younger customers. ?Keep up with trends and customer needs. ?Increase product line of accessory and apparel. ?Provide motorcycles accessories and services to selected niches? Maintain global viewpoint. ?Supplying products with high quality at a reasonable price. ?To create new technology that offers new possibilities in mobility. Assumptions ?Harley would not be able to maintain ?Market for Harley-Davidson products may be maturing. ?Baby-boomers were aging and may not want to ride motorcycles anymore. ?Boomers will ride into their late 60 and 70’s. ?Manufacturers are more skilled at mass-producing motorcycles efficiently. ?Will continue to be more technically advanced in the industry. CapabilitiesStrengths ?Renewed RD expenditure.? Strong brand identity and loyalty. ?Boomers are living more of an active lifestyle. ?Productivity triad. Weakness ?Some bikes are too expensive for younger consumers. ?Close association with baby boomers. Strengths ?Strong technical advances. ?Have a stronger brand with the younger generation. ?Caters to younger buyers with smaller budgets. Weakness ?Does not have an association with baby boomers who are expected to ride longer. Market Share Harley Davidson maintains a large margin in its dominance in the U. S. Heavyweight Motorcycle market as compared to its major competitors. 2003 2007 US Heavyweight Market ShareUS Market Share 2007 2006 2005 2004 2003 Harley-Davidson 49. 4% 50% 49. 6% 50. 2% 50. 3% Honda 14. 2 15. 1 16. 6 18. 7 18. 4 Suzuki 12. 5 12. 9 12. 4 10. 2 9. 8 Yamaha 9. 2 8. 6 8. 9 8. 7 8. 5 Kawasaki 7. 2 6. 8 6. 5 6. 4 6. 7 However, Harley’s international market share is slightly smaller. For instance, the company has a 38. 4% Canadian market share and a 10. 2% market share in Europe as of 2006. Notably, both of those markets are substantially smaller than the US market. Nonetheless, Harley has a dominant worldwide market share of 33% in what is a growing industry. Operating Metrics Several operating metrics are useful in understanding the company’s position vis-a-vis its largest competitor. Honda’s figures are for its motorcycle business only. Please see chart on next page. 2006 Operating MetricsOperating Metrics Harley-Davidson Honda Units Sold 361 103 Units Sold per Employee 35. 4 3. 6 Revenue per Employee (USD) 637,881 356,746 Operating Margin(%) 27. 5 9. 2 CapEx as % of Sales 3. 8% 4. 2% While the company’s competitors, notably Honda Motor Company (HMC) and Suzuki, do not have as dominant a market position, they often have greater financial resources. This is largely because companies like Honda have more diverse product lines (like cars), and are greater in size than Harley-Davidson, a far more specialized company. For example, motorcycle sales at the company’s largest competitor, Honda, hover around 12% of total revenue. Revenue by Region While around 80% of the Harley Davidson’s sales still occur in the United States, its international segments are growing quickly, and the company is pursuing opportunities for gaining market share abroad resulting in value added. This can prove important to the company, as market share has begun to stabilize in the US due to saturation of this market. 12 Month Harley-Davidson Stock Analysis The chart above shows that it has definitely been a tough 12 months for Harley-Davidson stock and it is undoubtedly being affected by the economy. VII. Predicting competitor behavior under each scenario Introduction of competitor behavior In 2007, Sales in the motorcycle industry failed to increase after 14 consecutive years of gains and were lower than in 2006. For Harley-Davidson, revenues declined 1. 3% and earnings declined 4. 3% 2007. In preparation for the affects of a slowing American economy, the firms largest market, Harley cut production and shipment of its motorcycles in the 3rd and 4th quarters of 2007. However, on the up side, the motorcycle industry sales in 2007 were over the 1 million mark for the 5th straight year. Battery and tire sales indicate that ridership and enthusiasm for the sport remain high. Quality The competition will continue to manufacturer new models and invest in quality improvement; however, they will focus on supplying products with high quality at a reasonable price. In addition, they will strive to further improve JIT inventory practices and statistical operation control. Quality drives productivity and increased productivity is a source of greater revenue. Marketing The competition will market their brand with the younger generation. It will cater to younger buyers with smaller budgets. The aim to attract the younger target market and compete on price. Furthermore, create bikes that are cheaper and faster that appeal to this market. In addition, the current success that Harley has had with the rental’s, and the rider’s edge program will most likely be emulated by the players in the industry. Product Innovation The competition will continue to invest in product innovation that will appeal to the younger generation in design and price points. They will continue to create new technology that will offer new possibilities in mobility. Conclusion: Harley-Davidson has developed a blue ocean strategy by fulfilling dreams through the experience of motorcycling. All bikes are customizable and have developed a huge fan club and a phenomenally powerful brand with emotional connection and loyalty. This loyalty will be crucial to the company’s success going forward, and Harley will depend upon duplicating this success  internationally to fuel growth. Despite the fact that due to economic issues, in the motorcycle industry sales have been down and cost up, we expect that Harley-Davidson will continue to invest in quality improvement, marketing strategy and product innovation in order to remain competitive in the industry and achieve economies of scale. Harley-Davidson will continue to manufacturer new models and invest in quality improvement however; they will do it with increasing cost pressures. The dollar has lost 26% of its value against the euro and 11% of its value against the yen since March 2003. Escalating cost for the metals, plastics and other commodities used to manufacture motorcycles and the fuel needed to transport foreign models to the U. S. market, has resulted in price pressures for the European and Japanese manufacturers in particular. Harley will need to look to further cut manufacturing costs, (lean manufacturing) rather than raise retail prices for consumers who, in the U. S. , are continuing to tighten their belts. Harley-Davidson will continue to invest in marketing. Through marketing efforts the company will look to increase its current loyalty program but also duplicate this success internationally to fuel growth. The company’s customers tend to be fiercely loyal to the brand, which has helped to drive consistent growth over the past 20 years while making the company the premier name in its industry. In addition, since the company’s core consumer group is aging, it will target women and the younger generation of motorcycle enthusiasts. In order to appeal to this group, the company will continue to use the HOG and riders edge program. Furthermore, the company will continue to revamp its affordable Sportster line and its higher-tech V-Rod family with liquid-cooled revolution engines and its subsidiary, Buell, in order to lure in the Generation Y market. However, it should be noted that in marketing to this new segment, it will lead to the red ocean scenario again and companies will compete at the same level within the industry. The company will also have an opportunity to increase marketing in the international markets. While around 80% of the Harley Davidson’s sales still occur in the United States, its international segments are growing quickly, and the company will have an opportunity to market to these segments in order to gain market share abroad resulting in value added. This can prove important to the company, as market share has begun to stabilize in the US due to saturation of this market. Harley-Davidson will also continue to invest in product innovation. In order to increase its customer base, the company will focus more on fuel efficiency transportation oriented models in the coming years. With many concerns with environmental health issues, the company will most likely manufacture a Hybrid or an economically friendly motorcycle to entice sales of future consumers who are concerned with environmental conservation and to appeal to current eco friendly consumers.