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Issues/Challenges
Today, Ducati is one of the most successful motorcycle companies in the world with adramatic profit growth since 1996. Before its huge success, Ducati was one step away fromfacing bankruptcy. Ducati managed to overcome such an obstacle through strong innovation andculture. Today, Ducati is faced with another challenge that may bring fortune to the company if successfully managed. Ducati set a new goal, which is to sustain the explosive double-digit profitgrowth in the next decade and eventually reach Harley Davison’s profit level. Ducati isconsidering attacking Harley Davidson by entering the cruiser market, which is HarleyDavidson’s niche product and also a very profitable market segment in the industry. To do this,Ducati must invest 17 million Euro and cost of 26 million Euro. Based on this huge capitalrequirement, should Ducati enter the new market segment or should Ducati just concentrate onits current segment? If Ducati chooses to enter the cruiser market, what are other requirements besides the capital? Does Ducati have what it takes to succeed in the new market segment?The purpose of this memo is to help the executives of Ducati to make the optimumdecision for Ducati’s future success. This memo contains the industry analysis, as well as aninternal strategic analysis, company performance, and solutions and recommendations. Thisindustry is divided into 4 segments. Ducati’s dominating segment is the sport sector. Ducatimanaged to utilize its differentiation strategy by taking into account of the industry’s drivingforces. The cruiser segment is one sector that Ducati is very interested in entering. Unfortunately,Bert’s consulting concluded that this is not the best option through the feasibility analysis. Theanalysis contains the advantages and disadvantages of both options and the result was that thedisadvantages outweighed the advantages. Also, entering the cruiser market is not reallynecessary for Ducati based on its current performance level.
 
Industry analysis
Although the number of motorcycle manufacturers has declined by a large number over the last century, competition exists among companies from different continents. Currently, allmajor manufacturers are from Japan, The U.S., and Europe. The motorcycle industry issegmented into four categories: off-road, cruisers, touring and sport bikes, each of them withdifferent qualities and target customers.
 Industry forces
Economic condition is one of the major factors that drive the industry. This is animportant factor because depending on the condition of the economy buyers’ demand willchange. For example, when the economy stays strong, more people will buy the product whileless people will buy when there is an economic downturn. The reason for this is becausemotorcycles are products that are not really necessary to possess in life. In other words, they areluxury goods. During the economic downturns, people become price sensitive and they couldsimply choose not to buy the product or find a substitute such as public transportation or vehiclesthat can hold more passengers. Therefore, the threat of substitute is very high. Motorcycles, likeany type of automobiles, are a source of transportation, except they are luxury products.Companies in this industry compete with differentiation strategy rather than low cost strategy,meaning that companies focus on the quality of the product rather than low price. As long as theeconomy stays healthy, high income consumers will always buy the product no matter how muchit costs.Another key factor is to understand the target market. As mentioned earlier, themotorcycle industry can be segmented into 4 categories. “A wide variety of individuals, with
 
equally different tastes, bought and rode motorcycles” (Gavetti, pg 2). Each segment has certainqualities that attract different customers with different preferences. The riders can also becategorized into different types just as the motorcycles and they are “knee down”, “easy-riders”,“weekend riders”, and “highway riders.” Different qualities include performance, functionality,lifestyle, and comfort. Riders choose their motorcycle based on which qualities they are attractedto. Motorcycles are not standardized products. They are highly differentiated products and theyare not items that can be bought in large volume. For this reason, the power of buyers is relativelow. Also, since the majority of buyers are not price sensitive, switching to different vendors isfairly easy. Prices do not affect the buyers in this industry because the buyer heavily demandsquality over price. For example, if a new company comes up with a model with the best quality,the buyers will still switch to the new company no matter how expensive the new product is.This is the point where strong rivalry comes into play. All competitors have the same objective,which is to attract as many customers as they can by providing quality products. Although their objective is the same, each competitor follows their objective with their own unique strategies.Since customers can easily be attracted with innovative products, the rivalry in this industry isvery high.One of the most important drivers of the industry is strong innovation. Technologyadvancement is very critical in this industry. Companies heavily invest a large portion of their revenues into research and development to create innovative technologies that differentiatethemselves from competitors. This is very important in strengthening their name brands. Major companies used their early technology inventions as their foundation, and built up to an evenhigher level. Due to strong innovative thoughts, “motorcycles’ performance, comfort, reliability,and ease of maintenance had improved vastly” (Gavetti, pg 3). Due to very high capital
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