Main Strengths And Weaknesses Of Harley Davidson example essay topic

Celebrating their 100th anniversary next year, Harley-Davidson is a true American success story. From their modest beginnings in Milwaukee, Wisconsin to one of the most recognized company names worldwide, they have been passionate about motorcycles. Harley offers an experience like none other with the one of a kind look, feel, and sound only available on a Harley. Besides their main business of building and selling motorcycles, they have began to offer financing and insurance through Harley-Davidson Financial Services, and they also offer a full line of accessories and apparel to make the Harley experience complete. Harley-Davidson, the corporation, has many things to brag about. On top of their financial success over the years, they have built a solid reputation as a fair, honest, and caring company.

In January 2002, Forbes magazine named Harley-Davidson its "Company of the Year for 2001 and in February, Fortune magazine selected them as one of the nation's "Most Admired Companies". Every employee at the company can be proud of these achievements because the corporate culture stresses the importance of all employees. While maintaining a level of success in these areas, they have managed to increase their revenues for the last sixteen years straight. Even in the economic downturn of the last year, Harley-Davidson posted record revenue and earnings. Harley-Davidson states their mission as "We fulfill dreams through the experiences of motorcycling by providing to motorcyclists and to the general public an expanding line of motorcycles, branded products and services in selected market segments". They have performed wonderfully over the past hundred years, and have not forgotten their mission or where they came from.

Over the years they have stuck with the things they know, and also expanded into related services and products. Out of the 151 motorcycle manufacturers, Harley-Davidson and Indian were the only two companies to survive the Great Depression. Harley-Davidson was the only one in America after Indian dropped out in 1953, but face Indian again now since they re-entered the market in 1999. Harley-Davidson owns a twenty percent market share followed closely by Honda, Yamaha, and Kawasaki. One thing they have had to overcome in the marketplace is the stereotypical image associated with motorcycle owners. It seems the public has overcame this mentality lately since one in three Harley buyers are professionals or managers, and the average household income of buyers is $78,000.

One weakness they have is the high prices of their models when compared to their Japanese counterparts. It seems that they could increase their market share if they could produce a less expensive model without compromising the quality of the model. A major strength they have is their name recognition and the activities available for Harley owners to interact with each other. Groups such as the Harley Owner's Group (HOG), and the Buell Riders Adventures Group (BRAG) often sponsor rallies for their members. In this paper we will perform a complete analysis of the Harley-Davidson Corporation including their corporate and business strategies, strengths and weaknesses, environmental opportunities, the five industry forces, and financial situation.

Harley-Davidson has many attributes, which will be apparent in the following analysis. The paper will attempt to define the different components of the analysis and put them all together in a way that seeks to explain the way that they contribute to the overall success of the company and its stakeholders. Harley Davidson has used many different types of strategies to become one of the most well-known and productive motorcycle companies in the world. The Business Level Strategy that they tend to use the most is the Integrated Cost Leadership / Differentiation. As far as their Corporate Level Strategy, they tend to favor the Related Diversification Strategy. Harley Davidson's use of the Cost Leadership / Differentiation as a Business Level Strategy has proven highly successful since they have been in business.

They have always tried to differentiate themselves from everyone else in the motorcycle industry, as well as trying to provide one of the best bikes in the business at the lowest possible cost. Harley Davidson has two different companies built into one. The first of the two companies produces motorcycles at competitive prices against their competitors. Harley Davidson demands high standards of quality and efficiency and demand lower costs, which will add to a higher quality less expensive motorcycle. These savings are in turn then passed on to their customers. They know that most customers cannot afford to have their motorcycles customized because this is a very expensive process.

Harley Davidson has done extensive research to find out information about their average customer. Most people tend to believe that the average motorcycle consumer is a leather clad tattooed man running the world, but Harley Davidson concluded that the average motorcycle consumer is a married, college educated, 38 year-old male earning $44,250 a year, and his average income is increasing. Research also shows that females represent 10% of the new purchasers. The second company that Harley Davidson implemented is the Costume Vehicle Operations or CVO. This company specializes and customizes the motorcycles to suit the individual owner. Harley Davidson also offers genuine parts and accessories so Harley owners can customize their own motorcycles.

The CVO tries to use the differentiation strategy to beat out its competitors. The customization of a motorcycle can prove to be very expensive and time consuming, but Harley Davidson knows that what good is a bike if you cannot show people who you really are. The customers are willing to wait an average of 1 year after placing their order to receive their customized motorcycle. Every other motorcycle manufacturer is trying to imitate Harley and their products.

Harley has the top of the industry manufacturing process with large state of the art factories, and distribution, with many small and personalized, to market dealers, who sell their products. Integrated Cost Leadership / Differentiation Strategy is the primary Business Level Strategy that Harley Davidson incorporates. Harley Davidson's Corporate Level Strategy tends to favor the Related Diversification Strategy. Their two primary businesses are related to each other in some manner or another.

The two divisions, CVO and the Competitive Price Division, are related by using the same suppliers. Although the two divisions serve two totally different responsibilities to the consumers, they are truly related in their strengths to differentiate themselves from all the other competition. Harley Davidson does not do much promotion at the corporate level. Primarily, the local dealers do their promotion. Harley Davidson uses many different types of strategies to help them become on of the most dominant motorcycle producers in the world. Their Business Level Strategy is primarily the Integrated Cost Leadership / Differentiation Strategy, and the Corporate Level Strategy favors the Related Diversification Strategy.

Harley-Davidson has many strengths and weaknesses that should be addressed. Harley is a market leader that has the invaluable brand recognition and really does not need a lot of advertisement since word of mouth is the best advertisement. Everybody in the market for a motorcycle knows about Harley-Davidson. First let's discuss the strengths of Harley-Davidson and then discus the weaknesses. For strengths, the first and most important is name recognition.

Harley-Davidson is synonymous with the ultimate motorcycle. Anybody that rides motorcycles knows about Harley-Davidson. The second strength is biker rallies, these are rallies where everybody shows off their motorcycles, and the most popular motorcycles are the Harleys. It is also a great chance for vendors to show off their products. Another strength is that Forbes magazine ranked them in their top 100 best companies to work for. A fourth strength is that Harleys are made in the U.S.A., which is unlike most of their competitors.

This reason alone is one of their biggest strengths because a lot of people like to support their country. Harley also has implemented a program that teaches people how to safely ride their motorcycles. This program is called "Riders Edge". Contributions from influential people also do not hurt. Harley has also kept up with technology in having a very useful website that has good content for people who are just looking to people wanting jobs.

To top it off 2003 is Harley-Davidson 100th year anniversary which they are making special editions to signify the achievement. Now I will discuss the weaknesses of Harley. Harley's weaknesses are few but big weaknesses that need to be addressed. Harley-Davidson has mainly only high priced models when compared to the rest of the market.

This makes for selected customers. Also Harley is geared more for males than females. This also reduces the market for Harley. Harley's average rider is a 45-year-old male that is more than likely college educated. Since the main emphasis on males there are also few women in management positions. Another weakness is that the 2001-02 models had faulty electrical systems that hurt sales.

The final weakness is the customer hotline lacks in personal touch, as it is hard to get in touch with an actual person. These are the main strengths and weaknesses of Harley-Davidson. Harley has some major strengths that help keep them at the forefront of the competition but a few weaknesses that help keep the competitors in the hunt. Harley-Davidson has had several environmental opportunities that have helped them become the company with such a respectable name.

For instance, new laws in Japan make obtaining a heavyweight motorcycles driver's license easier to get. Also more motorcycles training schools are opening which will enhance the sales for the motorcycles. Another approach that Harley-Davidson is taking is they are looking at the baby-boomers. These are people that were born between 1945 and 1960; they are hitting the target market for people that purchase Harley's. The target market for purchasing a Harley is somewhere around the age 45. The growing capabilities for computer aided design (CAD), has help Harley remain at the top of there market.

This has helped them maintain safe and good-looking bikes. This also has helped to reduce the recall that has been issued to Harley owners. Rapid growth of the Internet has helped many businesses blossom, and Harley was one of those businesses. Allowing them to runaway with there market. Another opportunity that has help Harley-Davidson, is when owning a motorcycle gives people a sense of family among riders. This allows people to feel a part of something.

Because most of the riders seem to have something in common, and that is owning and riding with other Harley owners. And finally, many states have been repealing helmet laws. Allowing more people to want to ride motorcycles, so they have a sense of feeling free. Harley-Davidson really does not have that many threats, being Harley is the Cadillac of motorcycles. The producer threats are Indian, Honda, and Yamaha. Indian was a main competitor before the Internet came around, and soon went out of business.

But, in 1999 Indian re-entered the market. They are the only American motorcycle company that directly competes with Harley-Davidson. As for Honda and Yamaha they produce jet skies and ATV's as well as motorcycles. But, there motorcycles are not the quality of Harley-Davidson and Indian.

Being the economy is doing so poorly, Yamaha has offered a 0% financing charge on all purchases. A way Harley-Davidson can compete with Yamaha is offer low financing on the 100th Anniversary bikes. Another threat is that Harley out sources all of its distribution, allowing Harley not to have any control on the price of delivering. Which cuts back on when and how much they can produce.

If they were to take over distribution, this would decrease the cost of the bikes. Motorcycles are usually secondary vehicles therefore owners must pay two insurance premiums. Harley could advertise insurance deals to help the sells of their produces. The last threat would be that motorcycles are eighteen times more likely to be in fatal accidents. They were involved in 7% of all traffic fatalities in 2000. Harley-Davidson could promote motorcycle safety and accident prevention to keep this questions answered.

In order to determine how appealing the motorcycle industry is, we focused on Porter's Five Forces Model to determine the bargaining power of suppliers and buyers, threat of substitute products, the threat of new entrants, and how the intensity of rivalry against competitors impacted Harley Davidson. Harley Davidson's renowned brand image and established name is an obvious advantage in terms of supplier power. Suppliers are aware of the fact that Harley sells its product at a premium price and would be willing to buy parts at a fair price. To insure customer satisfaction, Harley-Davidson is willing to pay a fair price in order to obtain a supply of reliable parts. Therefore, Harley-Davidson holds power over its suppliers by maintaining a favorable status and a willingness to do business with the company.

Harley-Davidson is the nation's dominant seller in heavyweight motorcycles. Harley has a great deal of command over the distribution of its motorcycles and has control within the industries buyer power. The fact that a Harley-Davidson dealership is considered a prestige franchise provides Harley with a tremendous selling advantage in the industry. Harley also possesses a certain amount of power over its customers because its motorcycle is considered a status symbol in America. Many customers feel there is no substitute for a Harley. It's difficult to determine a direct substitute for a motorcycle.

Most Harley owners see the Harley-Davidson as a means of pleasure rather than a means of transportation. However, looking at the automotive industry, there are other small-engine vehicles that could be considered as indirect substitutes. Four-wheelers and personal watercraft could be considered indirect substitute, all of which provide leisure and transportation. The entry barrier into the motorcycle industry is extremely high. Recent entrants into the cruiser segment like BMW, Polaris, and Yamaha have found it almost impossible to compete with established brands like Harley-Davidson. Potential entrants must be concerned with having to compete with strongly established manufactures, like Harley-Davidson, within the industry.

The motorcycle industry is not a sound industry for new entrants, however, for established manufactures, like Harley-Davidson, the motorcycle industry appears profitable and attractive. Competitive rivalry does exist within the industry. The most notable manufacturers in the industry are BMW, Polaris, Honda, Yamaha, Kawasaki, and Harley-Davidson. In recent years, Harley-Davidson was considered to exist in a league of their own primarily for the reason that Harley possessed a strong brand name and a sense of brand equity. However, recently companies have accepted Harley-Davidson's stronghold on the cruiser market and have begun to increase marketing and branding activity in other areas of the motorcycle market. Harley-Davidson also began to seek out a niche in other areas of the motorcycle sector by launching its Buell sport bikes, which are targeted at a younger audience.

Harley-Davidson Inc. Consolidated Statement of income For the Year Ended December 31, 2001 (in Thousands) Net Sales $3,363,414 Cost of Goods Sold (2,183,409) Gross Profit 1,180,005 Financial Services Income 181,545 Financial Services Interest and Operating Expenses (120,272) Operating Income from Financial Services 61,273 Selling, Administrative, and Engineering Expenses (578,777) Income from Operations 662,501 Interest Income 17,478 Other Income, Net (6,524) Income Before Tax 673,455 Income Tax (235,709) Net Income 437,746 Harley-Davidson Inc. Consolidated Balance Sheet December 31, 2001 (in thousands) ASSETS Current Assets $1,665,264 Finance Receivables, Net 379,335 Property, Plant and Equipment 891,820 Goodwill, Net 49,711 Other Assets 132,365 Total Assets 3,118,495 LIABILITIES AND STOCKHOLDER'S EQUITY Total Current Liabilities 716,110 Finance Debt 380,000 Other Long-term Liabilities 158,374 Post-Retirement health care benefits 89,912 Deferred Income Tax 17,816 Stockholder's Equity Common Stock 3,242 Additional Paid-in-Capital 395,165 Retained Earnings 1,833,335 Acc. Other Comprehensive Income (loss) (13,728) 2,182,014 LESS: Treasury Stock (425,546) Unearned Compensation (185) Total Shareholder's Equity 1,756,283 Total Liabilities and Shareholder's Equity 3,118,495 Harley-Davidson Inc. Consolidated Statement of Cash Flows For the Year Ending December 31, 2001 (in thousands) Net Income $437,746 Cash Flow Operating Activities: Depreciation 153,061 Adjustments to net Income 88,695 Changes in Operating Activities Changes in Accounts Receivable (20,532) Changes in Liabilities 92,698 Changes in Inventories 10,816 Changes in Other Operating Activities 5,221 Cash Flow From Operating Activities 757,263 Cash Flow Investing Activities: Capital Expenditures (292,254) Investments (471,765) Other Cash flows From Investing Activities (7,943) Cash Flows From Investing Activities (771,962) Cash Flow Financing Activities Dividends Paid (35,428) Sale Purchase of Stock (82,713) Net Borrowings 152,542 Cash Flows From Financing Activities 34,401 Change in Cash and Equivalents 19,702 Selected Financial Ratios Harley Industry Indication Liquidity: Current Ratio 2.27 2.21 Good Liquidity Quick Ratio 1.90 1.52 Liquidity without inventories Profitability: Gross Margin 35.61% 39.48% Gross Profit per Sales Net Profit Margin 13.17% 8.96% Net Profit per Sales Return on Assets 15.76% 10.9% Return on total Investment Leverage: L-T Debt to Equity.

19.37 Leverage used by firm Tot. Debt to Equity. 27.46 Amount Borrowed / Equity Activity: Inventory Turnover 12.98 7.87 Move inventory quickly Asset Turnover 1.20 1.26 Effective utilization of assets Receivables Turnover 4.91 6.71 Collection of receivables / year Net Inc. / Employee 57,157 28,241 Utilization of people Breakeven Analysis: Assumptions: 1) Total Variable Costs are 60% of Total Costs; While the other 40% are from fixed costs. 2) All units cost the same to produce and sell for the same price. Breakeven Point: Total Revenue (TR) = $3, 363414000 Total Variable Cost (TVC) = $1,310,045,400 Total Fixed Costs (TFC) = $873,363,600 Total Cost (TC) = $2,183,409,000 Average Variable Cost (AVC) = $5,587.48 per unit Quantity Produced (Q) = 234,461 Profit ( ) = 1,180,005,000 Price (P) = $14,345.30 per unit 99,723.83 = 99,724 units Required Profit Analysis: Assume required profit is equal to selling, general and administrative expenses so after expenses they will breakeven.

Required profit = $578,777,000165,810.74 = 165,811 units.