1.
How did Ducati become the second most profitable motorcycle make in the world despite
its small scale? Your answer must be based on an assessment of the industry and its
drivers, Ducati’s strategy and value proposition, and the activities underlying that
strategy.
Competitive Position: Focused (Narrow) Differentiator: Sport segment of the large
displacement (>500CC) in the motorcycle industry: Hyper-Sport, Super-Sport and Naked.
Value Proposition: Higher performance sports motorcycles with attractive appearance and
grater quality and reliability than Japanese competitors.
Core Competencies: Unique and Beautiful performance motorcycle, Top-notch engineers and
designers in both R&D and racing division with the passion for speed, performance and
innovation, high brand loyalty from customers, Sales - Marketing and Distribution network
Strategy: Fast Innovative design with an emphasis on product design and R&D while
outsourcing all the production. Develop a global brand with selling: a dream, passion and piece
of history while keeping a motorcycle at its core – “Move from Mechanical to Entertainment”
means performance with attractiveness. Convince the customers, not only “extreme” riders but
also a broader spectrum of customers, that Ducati is more than a motorcycle.
Process / Activities:
R&D and Production: Entered in the Sport-Touring segment of motorcycle, identified
the uniqueness - “Desmodromic Valve Distribution System”, L-Twin Engine, tubular
trestle frame, Italian Style and Ducati’s unique sound - “The Desmo System”.
Developed longer lifespan than Japanese competitors because of higher reliability and
quality of the product.
o Implemented platform production process so that they can focus on R&D and
Design. Developed joint ventures with external firms to create advanced engine
technology.
o Invested heavily in design and R&D – R&D investments went up from 3.2 million
Euro in 1997 to 12.9 million Euro in 2001 by moving all the R&D and Design
activities in-house to take the control of R&D design activities that resulted in a
huge reduction in “Time to market” for new products compare to its competitors.
Moreover, developed greater coordination with the R&D, Marketing and Design
team to translate the user needs into the new product efficiently.
Distribution and Outsourcing: Implemented strict selection and quality control
policies for suppliers and developed short-term contracts with suppliers (except for the
small number of long-term contracts) which increased the scarcity among suppliers for
losing the renewal if high-quality parts are not provided frequently to Ducati.
o Created a chain of “Ducati Stores” with the unique retail environment with
“History Wall” and “Engineering Wall” which convinces the customers that
they not only buy motorcycles but also a great heritage as well as developed
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“Ducati Performance” area inside the stores for accessories and apparels which
enabled them to sell their performance gears.
o Outsourced more than 87% of the production of spare parts, accessories, and
apparel to its suppliers compare to its competitors who manufactured the
majority of the parts in-house. As a result, they can focus on R&D and design.
Because of the greater availability of parts, the improved distribution system
and revised pricing policy increase the contribution of this segment in total
revenue.
Marketing: “World of Ducatis:”
o Racing: Attract more customers from the participation in “Superbike
Competition”, generates more revenue from sponsors, separate R&D facility
for racing.
o Advertising: Only in specialized magazine and co-marketing activities with
major international brands which creates value and brand credibility.
o Museum: Attract tourist to whom Ducati show their rich heritage, superior
quality and technical achievements which enable them to advertise their product
to a larger pool of potential customers. Owner Club and Events also added
value in its marketing efforts.
o [Link]: Utilization of internet enabled them to interface with potential
customers globally and to understand their needs and psychology by online
polls and market surveys.
2. Can it sustain its position? Why or why not? Be explicit about the source of its threats
and why other manufacturers cannot stop its growth in this segment.
Five Force Analysis to evaluate the Ducati’s competitive position:
Bargaining Power of Supplier: Identified atleast two suppliers for the same parts
which reduced the dependency on the supplier and promote low switching cost – this
forced suppliers to deliver the high-quality product to sustain their contract with Ducati
and this enabled Ducati to manufacture the parts with high quality and reliability.
Answer: (LOW)
Bargaining Power of Buyer: Buyers: (Multi-franchise retail dealers and independent
distributors / Forward Integration and Direct Customers): Took control over sales and
marketing by developing totally owned sales and marketing subsidiaries, Improved the
average quality of dealer rather increasing geographical reach to provide competent
sales force, technical assistance and space for apparel and accessories. Moreover, direct
customers did not have the alternative for Beautiful High Performance with great
quality and reliability in the sport segment of the motorcycle. Answer: (LOW)
Threat of New Entrants: High capital costs requirements – R&D and Design
technology investment and facilities; Distribution capabilities; Reputation and Brand;
Patents/proprietary technologies. Hence, Barriers to entry are very high. Answer:
(LOW)
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Threat of substitutes: There is a possibility that “sports bike” customers would switch
to “cruiser” or “off-road” bikes due to some unforeseen circumstances as there is a very
low switching cost. However, it’s very rare. Answer: (Moderate)
Rivalry: In the sports segment of the motorcycle industry, the rivalry among
competitors such as Ducati, BMW, Triumph and all the Japanese companies – Honda,
Suzuki, Yamaha and Kawasaki are very high. They all utilize their resource and
capabilities to dominate in this segment. Moreover, Harley-Davidson already entered
the sport bike market by acquiring Buell Motorcycles in 1998. Answer: (High)
Answer: Hence, overall rating is Moderate which means that Ducati can sustain its
competitive position until its rivals can successfully imitate or develop a new strategy in the
sport bike segment of the motorcycle industry.
3. Based on the above arguments, what strategic change would you recommend for Ducati
in 2001? Why?
I would recommend Ducati to explore the other segment of the motorcycle industry
such as “Cruisers” or “Off-road”. As Harley-Davidson has already entered the
sportbikes segment by acquiring Buell Motorcycles in 1998 besides dominating in
the “Cruisers” segment and there are all the Japanese competitors who can
challenge Ducati’s competitive position in the market in near future.
Even though it will require a huge capital investment initially, it will be worth it for
the upcoming decade. Hence, I would recommend Ducati to leverage its existing
resources and capabilities such as R&D, Design and engine performance to develop
the motorcycle for other segments of the industry. For example, a cruiser fits
Ducati’s current core competencies of the Desmodromic L-twin engine.
Thus, Ducati should reposition itself as a “Portfolio” company rather than
dominating in only one segment of the motorcycle industry.
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