Harley Davidson Case Study Harvard Business School

Ducati made its mark in the motor sport industry through its reputation for quality engineering and effective insights to the demands of motorcycle enthusiasts. Its designs and engineering remain to be standards for the industry and in its heyday before the domination of Honda, was considered to be the Ferrari of motorcycles. However, by the early 1990’s, the brand had lost its position in the market and though remains to be one of the top brands, has had to deal with the threat of bankruptcy and deteriorating market equity.

The turnaround of the company has been credited to Federico Minoli for not just saving the company from this threat but for the development of the brand’s and the company’s global presence. Despite his success, Minoli recognizes that there are significant issues and concerns that still had to be dealt with. Based on the case, by the end of 2000, Ducati has been able to quadruple its revenues that flagged in 1980’s and early 1990’s under the leadership of Minoli and has gained advantage and competency in its current and future market.

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However, the company’s top management believed that there was a need for Ducati to extend its interest to new niches beyond its traditional ones, predominantly motorcycle sports and racing, and into the manufacturing of “cruisers” which has been the niche of Harley Davidson. This was in response to the previous experience that the company’s concentration on its traditional niche limited its growth, product diversity and market presence. According to Minoli, this did not imply that Ducati would cease to be sport and racing brand but is recognition of the potential of other niches in the market.

This decision required not only the engineering of a specific machine to represent the company’s perspective on the cruise motorcycle but also a definition of products, markets and strategies, a shift in the company’s scope and operational systems and a redevelopment of brand itself (Gavetti, 2002, p. 1). Expansion to a new niche, particularly for a brand such as Ducati who had become recognized for a particular one, is not to be taken lightly. However, the niche it has chosen for expansion is one that has proven itself to be steady in growth and potential.

And considering that in 2000, its recognized leader, Harley Davidson marked its fifteenth consecutive year of growth, and that the market had become one the industry’s prime markets, the company’s interest in the niche for motorcycle cruisers is justifiable. At the same time, these factors are the same reasons why Ducati can expect significant challenges for its expansion. Based on the Ducati’s 2000 cost structure and offering the bikes at the same price premium in 2001 against directly competing bikes with Harley Davidson, out of every batch production of 1000 bikes, breakeven is at 639 units or gross sales of US $ 9,639,280.

81 The potential of the industry and the seemingly lone leadership of Harley Davidson is attraction the industry’s biggest brands, among which have existing manufacturing capacity and experience for cruise motorcycles. Regardless, Ducati believes that the long-term statistics from industry and market studies are evidence enough for the feasibility of the expansion, data which has been supported by a number of independent researches citing a shift in markets towards alternative energy efficient vehicles.

One of the alternatives for this objective is to develop a Ducati cruiser, a four cylinder engine divergent from Ducati’s signature tradition twin system for motor sports and racing, to be a direct alternative or competition for Harley Davidson bikes. Another alternative for the company is to maintain the signature engine system but to customize the build of the bike as a cruiser. The company also looked into developing a partnership with an independent manufacturer to produce its version of a cruiser which it will market under its brand.

This requires the establishment of a comprehensive market entry strategy and development of the operational and organizational capacity to support the transition into a new market niche. Based on Mionoli’s discussion, he reflects that the criteria for the alternative should consider the existing competencies of the company to compete in a new market, the existing competition or rivalry between brands in the market, the balance of power between suppliers and buyers and most importantly, the product switching or substitution of clients.

The latter is particularly critical because it will be essentially the role taken by Ducati. Furthermore, it is critical for Ducati to assert its brand since to establish itself against Harley Davidson and to utilize its existing brand value and market position in its traditional niche. The support for the expansion initiatives in Ducati garnered support not only from its manager but the whole organization because of the Minoli’s leadership as well as the clarity and merits of his vision and mission.

His success in turning around the company significantly boosted confidence: the company as an organization as well as an enterprise saw little limitation to the potential of the company as well as its industry. One of the most critical realizations with the case is the need to identify industry and market potential and to develop the capacity and the required competencies to access their potential while at the same time maintaining one’s position in existing markets.

As seen in Ducati, the strengthening of its core competencies in its niche allowed it to extend itself into other niches maintaining its brand and market equity. In conclusion, the effectiveness of Ducati’s strategy within and beyond its traditional niche markets made effective use of its existing competencies and allowed for the development of it new line of bikes. This required the development of structural and organizational development that accommodated for expansion and growth.

More importantly, this entailed the admission of deficiencies in the Ducati’s organization and operations that previously left the company at the brink of bankruptcy and the subsequent commitment to correct and prevent future similar vulnerabilities. Considering that the breakeven for the company in launching the new line of bikes to compete with Hamlet is well below its prevailing sales turnover rate, Ducati is well on its way to become a significant player in the cruiser niche. Furthermore, since the niche is expanding, existing industry players have less control over the market and there is less resistance to new entrants.

Reference Gavetti, Giovanni (2002). Ducati. Harvard Business School Cases, 9-701-132. Boston: President and Fellows of Harvard College Appendix A. Breakeven Analysis Price of HD FLHR Road King 17,345. 00 SRP for Ducati Competing Bike 15,084. 95 Estimated Variable Cost 8,900. 12 Estimated Fixed Cost 3,952. 26 Estimate Total Cost 12,852. 37 Estimated Profit 2,232. 57 Estimated Breakeven Unit Sales 639. 00 Sales Gross 9,639,280. 81

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