Harley-Davidson:

Preparing for the Next

Century

English 3345 - Business Team #4:

Natalie Martell

Martha Martinez

Virginia Lopez

Myles Melendez
 History, development, & growth:

The birth of the Harley-Davidson legend began around the 1900’s, in a small shed in the

Davidson family backyard in Milwaukee. What started out as an ambition for Walter Davidson,

to be the best bicycle rider, turned out to be a step into a multimillion dollar business. William

D., Walter, and Arthur Davidson, along with their long time friend William S. Harley, built their

first motorcycle using the best available tools, which were their hands and brains. The Harley –

Davidson Motor Company was put into motion in 1903 when they built three of the first model

motorcycles, and so began its 100 year journey. In 1907, they had one full-time employee, and

they sold 50 motorcycles, so they filed for incorporation of the company. The Davidson’s and

Harley were always trying out new innovations to make their motorcycles better and faster. In

1908 the reputation of the company was raised a level higher through the winning victory race

of Walter’s Harley motorcycle with the V-twin engine which they designed themselves. This

race was one of many that Walter would go on to win with his Harley, and eventually

transformed the company into the world's leading producer of motorcycles. They were always

looking to improve and make the best machine there could be, and by 1918 Harley-Davidson

became the world's largest motorcycle company by producing 28,000 motorcycles. (Nolan &

Kotha, 2007).

With a sagging economy in 1920, they started investing in research and development.

They experimented on the famous V-twin design, built a new four-cylinder engine, and focused
on improving the reliability of its machines by adding an electric starter, balloon tires, and

standardized parts. The V-twin engine's simple design allowed owners to tinker with their

engines since motor cycle mechanics did not exist at that time. The Harley motorcycle not only

looked different, it sounded different. The growl of the Harley engine was, and still is, described

as "a voice: a bassoprofundo thump that makes other motorcycles sound like sewing machines. (P.

Reid, p. 5). By introducing larger and more powerful motorcycles, Harley- Davidson managed

to remain profitable even though sales declined before World War II.

By the mid-1950s, Harley-Davidson became the undisputed leader of the motorcycle

market. Its motorcycles were advertised in "biker" magazines and promoted mainly by word of

mouth. Harley motorcycles were used by the U.S. military, highway patrol officers, the Hell's

Angels, and Hollywood rebels, including actors James Dean and Marlon Brando. In the late

1950s, this roster expanded to include young "Elvis types" attracting dates with their Harley

motorcycles. Given this customer base, the firm's advertisements often depicted leather-clad

riders, military dispatch riders, or police officers on motorcycles. These advertisements

cultivated an image of Harley motorcycles as tough because they were often associated with

people who were willing to break the traditional mold or willing to live on the edge. The image

reflected rugged individuality and the frontier spirit of the United States. Over time, the Harley

motorcycle became a part of American iconography and was associated with the U.S. flag and

the bald eagle, America's national symbol. This association resulted in unprecedented brand

loyalty, especially among U.S. customers, that continues to this day. (Dutton &Kotha, 1996).
 In 1965, in order to expand production and raise capital for new products, the firm

went public after 60 years of private ownership. But unable to attract enough capital, and facing

severe pressures from other competitors, Harley-Davidson was acquired in a friendly

takeover by AMF, a heavy-industrial conglomerate looking to diversify into leisure products.

(Dutton &Kotha, 1996). Between 1970 and 1980, Harley-Davidson's share declined by over 80%.

Other Japanese firms, Yamaha, Suzuki, and Kawasaki, soon followed. Honda, they marketed

smaller, quieter, and more fuel-efficient motorcycles that required little or no maintenance and

were easier to handle compared to Harley bikes (Harley motorcycles weighed between 450 and

800 pounds). These characteristics attracted younger riders, women, and older riders; riders

who could not afford the more expensive Harley motorcycles; bikers who did not want to tinker

with the motorcycles; and those who could not muscle them around steep curves. ( P. Reid, p. 6).

VISION, MISSION, & GOALS

By 1980, with Harley's profitability down, AMF began looking for a buyer. Vaughn

Beals, the then CEO and a small group of Harley-Davidson managers were able to come up with

a fraction of the $81 million buyback price, and took the rest as debt. This debt forced Harley's

new owners to pare down costs and cut back motorcycle production. Their goal was simple:

survival (Fortune, 2002). After touring the Honda plant in Ohio, they realized that Harley-

Davidson’s production system was basically flawed because they gave the worker

responsibility for quantity, not quality. Beals and his management team realized that Harley's

entire manufacturing system needed to be modified, and fast. Using Japanese production

methods as a blueprint, top management teams formulated and implemented what they termed

the productivity triad. This new approach involved employee involvement, use of JIT inventory
practices, and statistical operator control (SOC) (Industry Week, 1993). During this time, Willie G.

Davidson, the grandson of one of the founders, was responsible for product design and for

keeping the company's loyal and hard-core customers informed about the struggles, challenges,

and changes at the company. (Dutton &Kotha, 2007).

In 1989, Teerlink, the firm's CFO for six years, became CEO and chairman. Under

Teerlink's leadership, the company began to transform itself from an informal to a formal

organization, and Harley differentiated itself from its Japanese manufacturers by offering

support to various enthusiast and social groups. The Harley-Davidson Owners Group

(HOG), which was formed in 1983, encouraged Harley-Davidson owners to become more

actively involved in the sport of motorcycling, and was gradually became the industry's

largest company-sponsored motorcycle enthusiast organization. The HOG worldwide

membership had grown to 900,000 at the end of 2004. (J. V. Moran, p.5).

By breaking from 65 years of tradition, and creating the V-Rod, which was its first

small, cheap bike in more than 20 years, a new generation of “Hogheads” was born; grabbing

riders from rival brands and abroad with a radical new motorcycle. Harley-Davidson was

accomplishing what it set out to do. In 2003 Harley-Davidson, under the leadership of Jeffery

Bluestein, celebrated its 100th birthday. The company, which almost went bankrupt in 1970, had

successfully shed its product and marketing doldrums and was once again the market leader of

the U.S. heavyweight motorcycle industry. (Business Week, p. 58).

 In early 2005, Harley launched a second bike as part of the V-Rod family, which it

named the "Street-Rod. The company also redesigned its sportster family of entry-level, lower-

priced bikes in 2004 to appeal to younger riders and women riders. With prices starting at

$6,500, the company was attempting to position the new sportster within the grasp of a

younger group of riders, and women whom it hoped would grow loyal to the Harley-Davidson

brand. ("A n O dd D uck from H arley-D avidson," 2005).

COMMUNICATION STRATEGY

During the 1950’s, Harley-Davidson’s had a tremendous amount of market share in the

motorcycle business. Their machines were used by almost every U.S. police department and

they had a loyal, “tough looking” customer base. However, foreign companies such as Honda

began penetrating the market, producing lightweight, more fuel efficient motorcycles. These

companies approached a new type of customer, leaving Harley-Davidson with little or no

market share for this new customer segment. Moreover, the quality of Harley-Davidson

motorcycles became a question on the mind of many consumers.

Harley-Davidson was forced to reconsider their overall strategy. Vaughan Beals, vice

president of motorcycle sales, along with Willie G. Davidson, grandson of the company’s

founder, led Harley-Davidson to a resurrection. Specifically, quality was the key to their

strategy. These two leaders drove to Harley-Davidson rallies to meet their customers, and learn

of complaints or concerns they had with their machines. Furthermore, they promised to change

and become a dominant motorcycle once again. The HOGs (Harley Owners Group), which

were their loyal followers, were the forefront leaders of this movement and spoke of great
things to come. As a result, Harley-Davidson raised its standards to meet product

improvements. Between 1981 and 1988, inventory reduced by 67%, productivity increased by

50%, scrap and rework went down by two-thirds, and defects per unit reduced 70%. Once

again, this company was gaining huge market share (Hartley, 2009).

Although Harley-Davidson was successful in repositioning itself, the company

constantly faced an image problem. HOGs were stereotyped as “pot-smoking, beer-drinking,

woman-chasing, tattoo-covered, leather-clad bikers,” (Hartley, 2009). Furthermore, Harley-

Davidson faced threats from imitators and bootleggers who began tarnishing their brand image

on poor-quality products. Therefore, the company began licensing its name and logo on an

array of products. From leather jackets, to sheets and towels, Harley-Davidson began attracting

a new customer segment, otherwise known as Rubbies (Rich urban bikers). These riders helped

bring back Harley-Davidson into market dominance. Research in the Wall Street Journal stated

“One in three of today’s Harley-Davidson buyers are professionals or managers. About 60

percent have attended college […], [and] their median age is 35.

SWOT ANALYSIS

Harley Davidson’s history and success has thrived, and is growing bigger each decade.

The company should analyze changes in order to communicate with its younger generation. Even

though the company needs no help in bringing in revenue, it wouldn’t hurt to gain more attention

from the younger audience.

Strengths – Harley Davidson is known by the quality and new developments of their

products. Its current operations provide the consumers with different styles and mechanical

options to choose from. The biggest strength in this company is the name and reputation this

company has built and constructed for over 100 years. The company doesn’t only provide a

product but at the same time provides financing their products for the good of the company and a

benefit to their consumers. The company has created varieties of method of purchasing their

products. Their products vary from leather boots to build-your-own-motorcycles. With their

complex and vivid internet official site you can read feedbacks and stories from loyal customers.

Weaknesses – Harley Davidson is a huge company that struggles in targeting the younger

audience. The median age of an actual Harley Davidson rider ranges from 42 to 49 and they’re

not getting any younger. The generations of baby boomers have contributed hugely to the gross

sales but once they get older, Harley Davidson is faced with major conflicts in the future. Baby

boomers have already past their midlife crisis and big expenditures are past their objectives at

this point.

Opportunities – Harley Davidson has developed an image only related to the baby boomer

generation. They either need to make products that can create more attention to the company

from the younger audience or fail in doing so and watch the company collapse in trying to sell

their bikes. The opportunities they are facing now and in the future have to be chosen wisely

because their sales are dropping as their majority of their audience are getting older.
Threats – The decrease demand in purchases of bikes is threatening this company in

continuing to be a traditional loyal brand of motorcycles. The company has to change in ways in

communicating with the younger audience if it wants to continue for another 100 years. Harley

Davidson is anticipating traditions to take place in audiences of ages 20-30 in ten years from now

to choose Harley Davidson, but the choice and selection that this generation has shown is far

from the Buell look in motorcycles. This generation is looking more for slimmer sports like bikes

which Harley Davidson doesn’t manufacture. These threats are crucial for the company to

analyze and implement in their present and future operation decisions.

PROBLEMS HARLEY-DAVIDSON FACES

Harley is a highly respected brand in the motorcycle industry; however, with companies

like Yamaha, Suzuki, and Honda creating cheaper, sleeker and faster bikes, their sales are

declining. Basically, the Motor Company is having a communication problem. Marketing

Consultant Al Ries states:

“Harley's close association with boomers could make the brand harder to sell to younger

customers when they have cash to splurge. Kids want something different. . . . It's almost

universal that the younger generation rebels against the older generation, whether its music,

fashion or the toys they buy. . . . The stronger the brand is with the older generation, the

weaker it is with the younger generation.” (Nolan & Kotha, 2007).

Harley isn’t taking this advice to heart. This is evident with the recent shut down of its Buell

motorcycle line, which was acquired by Harley in 2003 and the Sale of its MV Augusta brands.

Both of these were used at the hopes of entering the sport bike and standard bike market.

Unfortunately, the lack of acceptance by the company's dealer network; lack of funding in
building the brand name; and creating a buzz with younger consumers kept Buell from getting

any real foothold in the already established markets that Harley had hoped to break into. MV

Augusta, it can be assumed that Harley just didn’t know what to do with it. These brands could

have done great things for Harley, had it taken the time to find out what exactly younger

consumers were looking for in a sports bike, what features sold them, what designs drew them

in. Instead they are going to incur a 125 million dollar loss because of a lack of research and

investment.

If top management and marketing departments aren’t taking this information seriously

and not there to listen or gather the feedback, then how can they stress to the Harley Davidson

Motor Company President that changes need to be put in place. They need to encourage

innovation and creativity in order to have an advantage over their competitors or at least be seen

as a potential threat. The President needs to understand that the "biker guys" aka “the baby

boomers” aren't the only ones who like bikes. There are many different riders and the company

needs to communicate to the younger generation how versatile they can be. They have created a

narrow identity for themselves and it is proving difficult to shift it in another direction.

PROPOSED SOLUTION

Focus Groups and Market Analysis

Focus groups can give Harley that insight that it needs to improve its motorcycles. By

going and getting the information from their younger consumer target market themselves, they

can gain valuable information about their needs. Investing in focus groups at different locations

across the country, a good look at trends and opinions; they will be able get a good sense of what
the majority wants. They can pass out surveys and conduct interviews in the sense of getting

information on: why younger consumers aren’t purchasing Harley bikes; what features draw

them to other brands; their view of Harley, and what would get them to purchase a Harley

motorcycle. Conducting a thorough in depth market analysis will help Harley to get to know

younger consumers. They can segment the market by age brackets and get information on what

each bracket likes and dislikes. What gets these consumers to purchase a product? Are we

assuming the wrong things about these consumers? What do they really want out of a product? A

good market analysis will give Harley plenty of information about how to go about drawing in

younger consumers.

Marketing

Harley has positioned itself as a “bikers” motorcycle. By doing this they are alienating a

large segment of people who buy motorcycles that do not fit this image. A new marketing

campaign that shows Harley as a bike for anyone could be very helpful in pulling in new

consumers. Even hiring a younger, fresh faced marketing team could bring in new ideas for

innovation and creativity marketing wise.

Price

Motorcycle brands such as Honda offer cheaper motorcycles, but they also offer quality.

A drawback to Harley is that their prices are higher than other motorcycles. Harley needs to find

a way to make a cheaper bike with high quality. Harley has a good amount of loyal followers,

but imagine how much more profitable they can be if they start creating brand loyalty a younger

age. They can start to create greater revenues in the long run, by attracting consumers at a

younger age.

Works cited

“A n O dd D uck from H arley-D avidson,"

T he New York Tim es,
June 26, 2005.

Barlow, T. (2009, October 15). Harley-Davidson to shut down Buell, MV Augusta brands,

Finally. www.dailyfinance.com, Retrieved from

http://www.dailyfinance.com/2009/10/15/harley-davidson-to-shut-down-buell-mv-

augusta-brands-finally/

Business Week, August 9, 2005, p. 58.

Hartley, R. F. (2009). Marketing Mistakes & Successes. Hoboken: John Wiley & Sons.

Industry Week, August 2, 1993.

J. V. Moran, "Hog Heaven," investment report by Ryan Beck & Co, May 17, 2005, p.5.
Nolan, R.L., & Kotha, S. (2007). Harley Davidson: Preparing for the Next Century. Harvard

Business School.

P. Reid, Well Made in America (New York: McGraw-Hill, 1990), p. 5-7.

"Transformation at Harley-Davidson" by Professors Suresh Kotha and John Dutton, Stern School

of Business, New York University, 1996.

"W ill H arley-D avidson hit the w all?"

F ortune,A ugust 12, 2002, p. 124.