Post by Crossbones Dennis on Mar 22, 2010 18:03:45 GMT -6
It's no secret that business has been down across the industry, but especially among new heavyweights. But Harley-Davidson’s woes run deeper than just the recent recession, according to Richard D'Aveni, professor of strategic management at the Tuck School of Business at Dartmouth College and author of Beating the Commodity Trap. In an article for Forbes magazine, D’Aveni says the company could have seen at least part of its troubles coming.
“The long straight highway has had a few hidden potholes, and in those potholes commoditization has lurked in the guise of both cheaper Japanese competitors like Honda and sexy upstarts at the top end like Big Dog,” he writes.
D’Aveni says H-D ran into two of three forces that have led to commoditization in more than 30 industries he’s studied. They are: Deterioration – cheap competition eating your market share
Proliferation – “when companies develop new combinations of price and unique benefits to attack part of an existing market”
Escalation – when competitors like Victory offer similar or better benefits at a better price.
D’Aveni posits that H-D opened the door for Japanese competitors in the ‘70s by resting on its laurels. After a management buyout in 1981, the company turned around by markeing its rebel image.
“This made the Japanese rivals' advantage in reliability less important as an inducement to purchase and value motorcycles. Rebels care more for role models than reliability,” he writes.
He found that “in 2002 Harley customers were willing to pay on average 38% more for a Harley-Davidson motorcycle than for a similarly equipped bike from one of the big four Japanese companies.”
But about that time, it crashed into proliferation, with competition from Victory, and smaller (albeit now struggling or even defunct) brands like Big Dog and American Ironhorse. At the same time, women were more likely to choose smaller, less intimidating and less expensive Japanese bikes.
“Harley was leaving money on the table compared with its American rivals because its service, level of customization and image weren't as good as theirs,” he writes, and by 2003, “Harley still had the largest share of the market (just under 50%), but the fact that Harley dealers were discounting to maintain their sales disguised the bigger problem. They were, in essence, buying market share with lower prices.”
“The long straight highway has had a few hidden potholes, and in those potholes commoditization has lurked in the guise of both cheaper Japanese competitors like Honda and sexy upstarts at the top end like Big Dog,” he writes.
D’Aveni says H-D ran into two of three forces that have led to commoditization in more than 30 industries he’s studied. They are: Deterioration – cheap competition eating your market share
Proliferation – “when companies develop new combinations of price and unique benefits to attack part of an existing market”
Escalation – when competitors like Victory offer similar or better benefits at a better price.
D’Aveni posits that H-D opened the door for Japanese competitors in the ‘70s by resting on its laurels. After a management buyout in 1981, the company turned around by markeing its rebel image.
“This made the Japanese rivals' advantage in reliability less important as an inducement to purchase and value motorcycles. Rebels care more for role models than reliability,” he writes.
He found that “in 2002 Harley customers were willing to pay on average 38% more for a Harley-Davidson motorcycle than for a similarly equipped bike from one of the big four Japanese companies.”
But about that time, it crashed into proliferation, with competition from Victory, and smaller (albeit now struggling or even defunct) brands like Big Dog and American Ironhorse. At the same time, women were more likely to choose smaller, less intimidating and less expensive Japanese bikes.
“Harley was leaving money on the table compared with its American rivals because its service, level of customization and image weren't as good as theirs,” he writes, and by 2003, “Harley still had the largest share of the market (just under 50%), but the fact that Harley dealers were discounting to maintain their sales disguised the bigger problem. They were, in essence, buying market share with lower prices.”