Table of Contents

Introduction ............................................................................................................................................ 1 External analysis...................................................................................................................................... 2 Industry analysis ..................................................................................................................................... 3 Company analysis.................................................................................................................................... 4 Financial Performance ........................................................................................................................ 4 Market Performance ........................................................................................................................... 6 Business Strategies ............................................................................................................................. 7 Operation ............................................................................................................................................ 7 Marketing Strategies ........................................................................................................................... 8 Porter generic strategies......................................................................................................................... 9 SWOT Analysis....................................................................................................................................... 10 Critical success factor ............................................................................................................................ 11 Recommendation.................................................................................................................................. 12 Short term ......................................................................................................................................... 12 E-commerce .................................................................................................................................. 12 Expanding Distribution Network................................................................................................... 14 Medium-term.................................................................................................................................... 14 Customization of Bike ................................................................................................................... 14 Female market .............................................................................................................................. 15 Long-term.......................................................................................................................................... 16 Green Technology ......................................................................................................................... 16 Conclusion ............................................................................................................................................. 17 References ............................................................................................................................................ 18 Appendix ............................................................................................................................................... 20

Introduction

Ducati was acquired by Cagiva Group in 1983. The firm focused on the Sports bike segment under new management team. Then, a golden age of Ducati sports bike came with the effort of their strong R&D group. Although Cagiva found a way to solve its financial problems by unveiling a motorcycle that shocked the world-the Ducati Monster in 1993, which did work. Ducati have insufficient enough working capital for its payment to some major suppliers due to the liquidity problems in the mid 90s, which caused the delay in the production Cagiva sold Ducati to the Texas Pacific Group in 1996, when Ducati was just one step from going bankrupt. Ducatis R&D group is still strong, so based on the help of large amount of funding from new owner and the strategies form new management which was led by Federico Minoli, Ducati revived and had made significant growth after a turnaround program from 1996-2000.

BUSM 3255 Creating Strategy

Page 1

External analysis
Political Tariff protection could be an advantage in domestic market, but also a disadvantage to compete with local firms in foreign markets Indian Government regulation which cause the import of foreign motorcycle to become high cost Analysis: Government regulations and trade barriers cause Ducati more problems when they tried to venture into foreign markets. 1998 Asian Financial Crisis: affects Asian markets in terms of levels of consumption and reduce the sales of automobile in most countries. Crisis: results in reduced consumer spending and confidence Economic crisis aggravates the decline on the sales of motor industry Analysis: By the year 2000, most of Asian economy had recovered from the financial crisis in the 1998 which open the market even more to global trade and the European market are more open. Increasing in the culture of using recreational motorcycle. Forming of groups such as Ducati owner clubs and Harley Owner group in most country More female population interested in the recreational and sports motorcycles. Analysis: The increase in using motorcycles for recreational purpose and motorcycle are no longer a form of transportation only. Emerging female markets shows the opportunity for a new market. More powerful engines, more fashion designs. Technology is developing fast to achieve higher speed, safety and comfort Internet become a new platform for marketing and brings people together. Japanese motorcycle is producing more fuel efficient engines compared to Ducati & Harley Davidson Analysis: Ducati must stay ahead of the competitors in term of technology advancement if the company would to success in the market. Gentlemans Agreement between motorcycle manufacturers which limit the top speed and horsepower of the motorcycles. Increase in state regulations concerning public land use, allowable amounts of noise, age and other restrictions Deregulations and abolition of exchange control strengthen the global economy Analysis: Increasing regulation for public land vehicle will cause disadvantage to Ducati if there is a law limiting the speed of the motorcycles which is part of the competitive advantage for Ducati.

Economy

Social

Technology

Legal

Source: Coffman & Odlyzko, 1998., Forbes, 1989. Survey: the World Economy,1997 Crook, 1997., De Wit & Meyer, 2004.

BUSM 3255 Creating Strategy

Page 2

Industry analysis

Sources: Quelch & Bartlett, 2006.

BUSM 3255 Creating Strategy

Page 3

Company analysis

Financial Performance

Ducatis financial performance has a great improvement from 1997 to 2001. It has a rapidly revenue growth from 196 million in 1997 to 422 million in 2001 (Figure 1-2). It also has kept EBITDA margin around 20% from 1997 to 2001 (Figure 3).

Ducati Total Revenues (Euro millions)

500 400 300 200 100 0 1997 1998 1999 2000 2001 195.63 294.5 240.05 379.5 422.1

Figure 1 Ducati total revenues: 1997-2001 (source: De Wit & Meyer 2004)

Ducati Sales Growth (%)

35

30
25 20 15

29

23

23

11

10
5 0 1998 1999 2000 2001

Figure 2 Ducati sales growth: 1998-2001 (source: De Wit & Meyer 2004) BUSM 3255 Creating Strategy Page 4

Figure 3 Ducati EBITDA margin: 1997-2001 (source: De Wit & Meyer 2004) There were three factors that increased Ducatis total revenues: I. Ducati entered the Sport-Touring segment, which targeted the new customer base, and introduced new models into each category; II. III. Ducati started the business in accessories; and The brand reputation and the brand loyalty of Ducatis customers increased due the advertising and events (De Wit & Meyer 2004).

On other hand, Ducati implemented an aggressive outsourcing policy to minimizing fixed asset investments and cost of goods sold. Ducati kept increasing the outsourcing rate since 1996. It even planned to push to 90%, which was much higher than the average outsourcing rate within the industry, in 2001 (De Wit & Meyer 2004). Hence it was able to maintain EBITDA margin around 20%.

BUSM 3255 Creating Strategy

Page 5

Market Performance
Although the Ducati relevant market, sport niche, was dominated by the Japanese companies, Ducatis performed reasonably well. Ducatis market share was generally increasing from 3.9% in 1996 to 6.7% in 2000 worldwide and from 4.3% in 1996 to 7.0% in 2000 (Figure 4).

Ducati's Market Share in its Relevant Market (%)

8 7 6 5 4 3 2 1 0 6.2 6.5
5.1 5.2 6 6.4

6.7 7

3.9

4.3
World Europe

1996

1997

1998

1999

2000

Figure 4 Ducatis market share in its relevant market: 1996-2000 (source: De Wit & Meyer 2004)

Ducati has established a unique position in the reference market due to the sporting vocation of the brand, against a background of clear product specialization by other manufacturers (Ducati Motor Holding 2009).

Figure 5 Ducatis competitive positioning in reference market (Ducati Motor Holding 2009; Hostetler 2002)

BUSM 3255 Creating Strategy

Page 6

Business Strategies
The turnaround program was aimed to increase Ducatis sales and profitability at the beginning (De Wit & Meyer 2004). In order to attain these goals, Ducati broadened its product portfolio, restructured and strengthened its distribution network, focused on developing the brand name, and tried to raise production efficiency (Bohl 2008).

The program also aimed to fulfill customers demands and to strengthen the brand name (De Wit & Meyer 2004). To attain these goals, Ducatis motorcycle features were critical in distinguishing Ducati from other products, and hence attracted customers and built loyalty. Besides introducing new models, Ducati kept upgrading its existing motorcycles through design and technical innovations (Bohl 2008).

In order to maximizing retail sales and getting closer to the customers, Ducati products were selling worldwide via independent privately owned dealers as a global brand. Ducati stores were exclusive Ducati outlets that selling motorcycles, spare parts, accessories, and apparel. They offered a customized retail environment with an increased level of service and technical support. If the market is not big enough to justify setting up an exclusive Ducati store, a Ducati corner would be set up in a large multi-branded dealer outlet (Bohl 2008).

Operation
Most of the motorcycle company will invest heavily to automated their production lines and worked with the supplies to improve the quality of the parts and the efficiency of their supply chain. However, Ducati outsource most of their production lines which is 80% in the year 1996 and increase to 87% in the year 2001. Ducati only keep the important activities of the production lines which is the core competency of the company such as the R&D, design, quality control and building their own crank BUSM 3255 Creating Strategy Page 7

cases and cylinder head. Ducati keeps a web of small and medium specialized manufacturer for their motorcycles which reduces the cost of inventory and enable the use of the Just-in-Time inventory system. The suppliers are granted with short term contracts which enable the company to have more control over the quality of the parts they received from their suppliers. Ducati also had a joint venture with company such as Ferrari and Maserati in the Engine Technology District (ETD) for the R&D, purchasing, suppliers quality control and employees training.

Marketing Strategies

To strengthen its brand name, Ducati created the core branding strategy called The World of Ducati (Figure 6). The motorcycles, accessories, and apparel were the center of this system which complemented by six categories (De Wit & Meyer 2004). Each category contains several subcategories. Each category was interconnected and was part of other categories. For example, racing was a category on its own but also acted as part of advertising (Bohl 2008).

Figure 6 Ducati core branding strategy: The World of Ducati (source: De Wit & Meyer 2004) BUSM 3255 Creating Strategy Page 8

Except the physical marketing strategies, Ducati also introduced the virtual marketing strategies. Ducati.com was using the internet to promote and to sell only limited editions of its motorbikes rather than all of its product lines (De Wit & Meyer 2004). However, the Ducati.com was not aiming at taking business away from the dealers, but rather at attracting new customers and helping bring more business to the dealers (Bohl 2008).

Porter generic strategies

Based on the porters generic strategy, Ducati and Harley Davidson are using differentiation strategy where the price of the product is not much of the concern to the marketer. Ducati is emphasis on the technology advancement on their product and selling their brand name rather than selling their product at a lower price for competitive advantage. Same goes for Harley Davidson which emphasis on the product quality and the culture of riding Harley Davidson Bike (Richard et.al, 1998). In the segment both Ducati and Harley choose and attributes that many buyers perceive as important, and uniquely positions it to meet those needs (de Wit & Meyer 2004).

BUSM 3255 Creating Strategy

Page 9

SWOT Analysis Ducati Swot Analysis

Source: De Wit & Meyer (2004)

Harley Davidson SWOT Analysis

Source: Hopkins. H.D (1999)

BUSM 3255 Creating Strategy

Page 10

Critical success factor

Technology and R&D Efficient Production Lines and Supply chain Strong Brand Image

Critical success factor is the term for an element which is necessary for an organization or project to achieve its mission. These factors are the critical factors or activities required for ensuring the success of the business (Cooper et al, 1995) For Ducati, the companys main critical success factor (CSF) is the strong brand image from their racing team. As a champion for many years, the customers perception is that Ducati motorcycle is up to quality as a racing motorcycle. Customers will tend to think that Ducatis product as a racing associated motorcycle which will then choose to buy a Ducati. Ducati used the brand name as the vehicle to deliver a corporate image to its audience which will then help the corporation to success in their selling of product to the customers (Hartley, 1998) Beside brand, the Ducatis effort in the technology research and development also works as one of their CSF. By investing heavily on the R&D, Ducati will be able to exploit the distinctive elements of the motorcycles and ahead of their competitor in term of technological levels, style and performances for their motor cycles (De Wit & Meyer, 2004). The development of the networking capital through an improvement of the suppliers relationship management and the creation of a new distribution channels - the Ducati Stores had bring a drastic improvement in the efficiency of the Ducatis supply chain and their distribution network (Wacker, 2007) These had increase the flow of the product to the customers and reduce the cost of operations (Coughlan et. al., 2005)

BUSM 3255 Creating Strategy

Page 11

Recommendation Short term

E-commerce
It is recommended that Ducati should hire extra staffs such as e-commerce and internet professionals to strengthen the e-commence business by improving Ducati.com. Ducati should enhance the three categories, B-2-C, B-2-B, and C-2-C, of its e-commerce applications (Laudon & Traver 2001; Leenen 2000). B-2-C Ducati should aim at selling services, accessories, apparel, and spare parts through the internet. Products sold online should be different from those offered at dealer outlets, in order to avoid competition. Other services may include selling race tickets, betting races, booking tours in Ducati museum, and booking courses in Ducatis school (Laudon & Traver 2001; Leenen 2000). B-2-B Similar to B-2-C, website provides services including the sales of motorcycles, spare parts, accessories, and merchandising. Financial services in the form of investment aids will be offered to the retail system. (Laudon & Traver 2001; Leenen 2000). C-2-C The website will consist of selling memorabilia and trading second-hand items such as used motorcycles, spare parts, apparel, and merchandising (Laudon & Traver 2001; Leenen 2000).

BUSM 3255 Creating Strategy

Page 12

Figure 7 Ducati recommended website structure

BUSM 3255 Creating Strategy

Page 13

Expanding Distribution Network

Currently Ducatis distribution network is more concentrated on the US and the European market. Ducati should expand their distribution network and the market target towards Asian market. Ducati should expand their market share in their current market as well as expanding their market to Asian market such as Japan, China, India and others. Asia had large population countries such as China and India which indicated that there is a large market potential there for Ducati. By establishing Ducati stores there, Ducati will be able to capture more market share in the Asian market which will increase the sales of Ducati rather than depending on the US and the European market which had a lot of competitors such as Harley Davidson.

Medium-term
Customization of Bike

One of the recommendations for Ducati is that the company should start on proving a customization service for the bike the company sell. By leveraging the companys website Ducati.com, the company can add a new feature into their website which allows the customers to customize the bike that they wanted to buy (MacQuarrie, 2005). As Ducati had a good relationship with the suppliers it is possible for the company to allow the customer to customize their bike online. By providing a customization features to the customers, Ducati will be able to venture into a new market where the customer prefer to set or customize the motorcycle based on what the customer needs and wants on their motorcycle. For example, Ducati can sell a bike with basic accessories which allows the customers to change the parts that they want such as changing the brakes of the motorcycle from the standard Brembo brakes

BUSM 3255 Creating Strategy

Page 14

to ceramic brakes for better braking for the motorcycle. The customers also can change the appearance of their motorcycle such as colour, and other accessories available for the motorcycle. By providing such service to the customers, Ducati will be able to attract new customers and also differentiate themselves from the competitors. There will be also more value added into the product because the customers are directly involved in making their product (Aaker et.al, 2005). This a medium recommendation because time is required to set up proper facilities to comply to the demand and also to set up a more extensive distribution channel to deliver the motorcycle to the customers

Female market

Ducati should create and shape female market segment and hence managing to attract additional demand. Ducati may set up or sponsor a womens driving school, whose courses are designed for different female riders. For beginners, the course may introduce the basics of motorcycles and riding technique. For advanced riders, the course may provide students the chance to try different types of motorcycle and meet Ducati World Superbike riders and celebrities (Hostetler 2002). Ducati may start new female production lines, such as smaller bikes and apparel, due to the difficultly for female riders to find bikes, jackets, pants, or even gloves for riding in sizes that fit (Kresnak 2008). Most manufacturers only produce male protective gear and apparel, but even the smallest male sizes are too big for female (Hostetler 2002).

BUSM 3255 Creating Strategy

Page 15

Ducati may add a female rider forum in its website where female riders can meet other female riders in the world to discuss their bikes, riding experience, and technical issues (Kresnak 2008; Thompson 2000). This would encourage more female riders and hence increase the sales.

Long-term

Green Technology

Due to the climate change and global warming, the public environmental consciousness is raising rapidly (Joos et al 2001). Ducati should start researches on green technology in motorcycle and decrease exhaust emission. This makes Ducati an environmental friendly company. It will advance Ducatis brand image and reputation, and even attract more green customers (Davis 1993).

BUSM 3255 Creating Strategy

Page 16

Conclusion

Analysis of external environment suggests that economic and technological key factors to be critical to motorcycle industry, due to the potentially negative effects to Ducatis future profitability. Industry analysis reveals that it is an attractive industry for Ducati; however increasing competition can become a challenge. Corporate and business strategy analysis shows that setting up a global brand is critical for Ducati to increase its sales and profitability while SWOT analysis on Ducati and Harley Davison provides a clue to why these two firms use differentiation strategy for marketing.

To sustain the increasing growth of Ducati in future, Ducati should further strengthen the ecommence business by improving Ducati.com as well as other physical distribution channel. Ducati should also start providing a customization service for the bike to the customers. In addition, female market is another critical target segment which has high potential for growth. As there increasing concern on environmental protection, Ducati should start researching on green
technology and fuel efficient engine should be adopted into Ducatis long term plan.

BUSM 3255 Creating Strategy

Page 17

References
Aaker, D. and Mills, M. 2005, Strategic Market Management, 6th Ed., John Wiley & Sons, Milton. Bohl, O 2008, Virtual Organizations Case Study: Ducati, University of Kassel, Deutschland. Cooper. R. G, & Kleinschmidt. E. J( 1995), Benchmarking the firm's critical success factors in new product development, The Journal of Product Innovation Management, Vol.12, No.5, PP.374 391
Coffman, K.G. and Odlyzko, A.M. (1998) , The Size and Growth of the Internet, AT&T Labs, Accessed on 22nd of September 2009, http://www.dtc.umn.edu/~odlyzko/doc/internet.size.pdf. 1997.

Crook, C. (1997), Survey of World Economy 1997, The Economist, 20th of September

Coughlan, A.T., Anderson, E., Stern, L.W., El-Ansary, A I., (2006) Marketing Channels, 7th Edition, Pearson Prentice Hall, Inc. Upper Saddle River,. Davis, JJ (1993), Strategies for environmental advertising, Journal of Consumer Marketing, Vol.10, No.2, pp. 19-36. De Wit, B & Meyer, R (2004), Strategy: Process, content, context, South-Western Cengage Learning, Australia. Ducati Motor Holding (2009) Forbes, P.M. (1997), Consumer Trends of the 1990s (Marketing Management), NP News, 1st of January 1997. Gentlemen's agreement < http://www.statemaster.com/encyclopedia/Gentlemen%27sagreement> Assessed on 22nd September 2009 Hartley, R(1998), Marketing Mistakes and Successes, John Wiley & Son, New York: Hopkins.H.D (1999), Using history for strategic problem-solving: The Harley-Davidson effect, Business Horizons, Vol.42, No. 2, pp. 52-60 Hostetler, JS (2002), Women and Motorcycles: A study of social and ergonomic characteristics of the female motorcyclist and the relationship with company and market performance, University of Colorado, Boulder Joos, F, Prentice, IC, Sitch, S, Meyer, R, Hooss, G, Plattner, GK, Gerber, S & Hasselmann, K (200), Global warming feedbacks on terrestrial carbon uptake under the Intergovernmental

BUSM 3255 Creating Strategy

Page 18

Panel on Climate Change emission scenarios, Global Biogeochemiccal Cycles, Vol. 15, No. 4, pp. 891-907. Kresnak, B (2008), Motorcycling for Dummies, Wiley Publishing, Inc., Canada. Laudon, KC & Traver, CG (2001), E-commerce: Business, technology, society, AddisonWesley Longman Publishing Co., Inc., Boston. Leenen, S (2000), Ducati Motorcycle (Italy): Riding traditional business channels or racing through the internet, INSEAD, Fontainebleau, France. MacQuarrie.M, (2005), Content Ducati: An investigation of the space of interface and the design of the user experience, New School University, New York,
Quelch, J. and Bartlett, C. 2006, Global Marketing Management: A Casebook, 5th Ed., Thomsom South Western, Australia.

Richards, L., Foster, D. and Morgan, R. (1998) Brand Knowledge Management: Growing Brand Equity, Journal of Knowledge Management, 2 (1), 47-54.

Thompson, SL (2000), The arts of the motorcycle: Biology, culture, and aesthetics in technological choice, Technology and Culture, Vol. 41, No. 1, pp.99-115. Wacker.J.G, (2007), A Theoretical Model of Manufacturing Lead Times and Their Relationship to a Manufacturing Goal Hierarchy, Journal of Decision Sciences, Vol.27, No.3, pp.483 517

BUSM 3255 Creating Strategy

Page 19

Appendix

LOW

HIGH HIGH

LOW

LOW

BUSM 3255 Creating Strategy

Page 20