Intra-Industry Analysis of Automobile Manufacturers Essay

  • Length: 5 pages
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  • Subject: Business
  • Type: Essay
  • Paper: #94802249

Excerpt from Essay :

Industry Analysis Automobile and Motorcycle Manufacturers

A select few companies throughout the history of American capitalism have become iconic figures that are synonymous with the products they sell, and the Harley-Davidson Motor Company has successfully accomplished this rare feat, engraining the moniker "Harley" in the global lexicon as the emblem of premium motorcycles. While today's generation may consider Harley-Davidson to be a monolith without legitimate competition from domestic motorcycle manufacturers, a careful study of the company's history demonstrates the wide array of difficulties which were encountered over more than a century of operation. Harley-Davidson emerged from the Great Depression as one of only two American motorcycle manufactures to maintain operations, despite experiencing significant struggles during this era of forced fiscal restraint. After weathering the first of several intra-industry storms and surviving the Great Depression, in under two decades Harley-Davidson had become the largest motorcycle manufacturer in the world, producing more than 28,189 vehicles and maintaining dealerships in 67 countries around the world. While it is true that Harley-Davidson dominated the motorcycle manufacturing market throughout the first half of the 20th century, an influx of cheap competition in the 1960s from Japanese companies like Suzuki, Honda and Yamaha threatened to push their American rival to the brink of bankruptcy. Only through a revolutionary adjustment to the company's business model -- premised on an internal design strategy based on direct customer feedback and the innovative use of test drives to entice potential buyers into making a final purchase -- did Harley-Davidson reclaim its position of preeminence within the fiercely competitive motorcycle manufacturing industry.

By applying the Five Forces of Analysis model first pioneered by Harvard economist Michael Porter, who distinguished similar products from substitute products within his study of external market forces, to the case of Harley-Davidson, it is possible to illustrate in real-world terms how the company's current market situation directly affects its ability to deliver the enhanced value propositions contained in its vision statement. The most effective vision statements used by successful companies typically consist of a clear, direct single-sentence statement of operational goals, a template encapsulated by Harley-Davidson's vision statement: "Our key goal is to fulfill dreams through the experiences of motorcycling" (2013). By manufacturing affordable, high-quality motorcycles using American parts and labor, Harley-Davidson is also able to take advantage of the dominant value set of its core consumer demographic, as middle-aged males typically prefer their high-dollar purchases to be of products that are domestic in origin. The company also harnessed the power of nostalgia and patriotism, designing their motorcycles with an inherently "retro" and "American" appeal (Wagner, 2003) which aligned with its previously established industry as the quintessential domestic automobile manufacturer. The company immediately recognized the importance of so-called "do-it-yourself" consumers, and Harley-Davidson placed advertisements in the Automobile and Cycle Trade Journal to sell bare motors to enthusiasts. As early as 1907, Harley-Davidson recognized the importance of modern marketing techniques like product placement and branding, and the company equipped local police departments and the U.S. Army with Harleys for transportation in the field (2013).

As a pioneer in the emerging industry known as "car-sharing," Zipcar is a company founded on the premise of combining technological innovation with environmental sustainability. By offering a viable "substitute for car ownership, especially for those who can commute to work and shopping by taking transit, walking or bicycling," car-sharing has become an increasingly popular option for residents of urban areas and others who utilize automobiles at rate lower than the average. According to a car-sharing case study published by the Harvard Business Review, "Zipcar launched its first 10 locations in Boston in 2000 & #8230; (and) since 2004, Zipcar has experienced 100-percent-plus growth annually in its membership base," (Hart, Roberts & Stevens, 2003), and this accelerated rate of growth is astounding for a company that was essentially proving that demand existed within this relatively new market. By demonstrating the viability of car-sharing, Zipcar quickly became "the world's leading car sharing network with more than 750,000 members and more than 11,000 vehicles in urban areas and college campuses throughout the United States, Canada and the United Kingdom," (Hart, Roberts & Stevens, 2003) attracting the attention of major transportation firms like Hertz, Enterprise, U-Haul and Daimler, all of which have recently entered the lucrative car-sharing market. By maintaining an aggressive strategy of sustainable growth, while also working in tandem with transit services and infrastructure providers, Zipcar was eventually acquired by Avis in a deal exceeding over $500 million.

Through his famed Five Forces of Analysis technique used to quantify industry and business practices, Porter differentiated between similar products and substitute products. Porter refers to substitute products as "those products that are available in other industries that meet an identical or similar need for the end user," (2008) while a competitor's similar products are simply different versions of the same merchandise. To analyze the presence of external forces like competition encountered by Zipcar, it would be informative to apply Porter's Five Forces of Analysis model, because this framework is essential for reconciling the risks posed by external market conditions and internal strategic alignment. In 2000, when Zipcar was launched, the economic climate in America was at an all-time peak, gasoline prices were extremely affordable, and most families indulged in the culture of ownership by purchasing an additional vehicle, but despite the presence of these adverse external forces, the company managed to prove the concept of car-sharing was viable. Thirteen years later, after a devastating recession crippled the domestic economy, fuel costs have become prohibitive and many families cannot even afford to maintain a single vehicle. When the economic circumstances are combined with the environmental issues associated with fossil-fuel use, the external forces have shifted decidedly in favor of the car-sharing industry. Considering the favorable shift in external market forces described above, it stands to reason the car-sharing experiment will only continue to develop a foothold within the overall transportation industry. Americans have become increasingly budget-conscious, and with gas prices seemingly higher by the day, choosing to forego car ownership in favor of a more sustainable car-sharing program like Zipcar's partnership with Avis provides has become an option worth considering. The potential challenges standing in the way of Zipcar's dominance of the car-sharing market come from the presence of firms which consider Avis to be a chief rival, because these rental car titans can quickly and easily mount an effective effort at competitive balance.

Price elasticity of demand is a formula used to measure the relative increase or decrease in the quantity demanded of a product as it relates to changes in the price of the product, provided the remaining variables in the demand function are held constant. Establishing the most profitable price point for a product is central to assuring the economic viability of its continued production. The fact that "the price elasticity of demand measures the responsiveness of quantity demanded to changes in the price of the product itself, holding constant the values of all other variables in the demand function" (Hirschey, 2009) makes this a valuable predictive tool for financial analysts and executive management. Another interesting aspect of this crucial managerial economics concept is that the price elasticity of demand associated with a given commodity is dependent chiefly on the availability of substitutes, and also on the duration that the quantity response to the price change is calculated (Salvatore, 2012). Expanding the parameters of the demand curve can produce accurate calculations of the point price elasticity of demand across any range of time that financial records have been compiled. There is a wealth of evidence to suggest that the price elasticity of demand becomes a larger negative figure when a product's price is increased, because the price sensitivity exerted by consumers typically grows when prices rise (Elci, 2012), which is why companies like Harley-Davidson and Zipcar must carefully consider the cost/benefit ratios of any potential change in established product price points. Even the most well designed and cleverly marketed product can be rejected by the market if an unsustainable price point is implemented, resulting in a wildly volatile price elasticity of demand. Conversely, when a strong sense of brand loyalty is firmly established among a subset of consumers -- as is the case with Harley-Davidson riders -- even the presence of several available substitutes will not alter this inelastic demand (Salvatore, 2006).

Because it is true that "in standard microeconomic theory, the concept used for assessing the strength of substitutes and complements is the cross elasticity of demand" (Hill & Jones, 2010), the availability of substitute and complementary products within the market exerts a strong affect on the elasticity of demand. The presence of comparable alternatives to an existing good provides consumers with alternatives in terms of pricing, which means an increased availability of alternatives results in a highly elastic market, one in which minor changes in relative pricing between competitors can produce drastic shifts in demand on the part of consumers (Baye, 2010). An example of this relationship would be the diverse market…

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