Harley-Davidson's aging customer base and loss of younger market share

¶ … Generation Alternatives 1-2 pages Important Section Recommendation 1-2 paragraphs This a Grad level strategic management class.

Harley-Davidson: Preparing for the Next Century

Harley-Davidson is not only a motorcycle manufacturer, but an emblem of the American society. Today nevertheless, the company faces the specific problem of an icon -- that of no longer being up-to-date, trendy and desired by the customers.

Harley-Davidson continues to generate strong financial results, but fact is that the incidence of sales has decreased. It would as such appear that the company is in need of a new strategic approach to help it reshape and reposition itself within the industry in a means which generates customer demand.

At a deeper level, the problem is manifested by the fact that the Harley-Davidson sales are based on history, tradition and sentimentalism. And the sales are attached to the target market of the manufacturer, which has nevertheless aged from 35 to 47. These consumers are as such unable to generate sustainable sales and revenues. The younger consumers, while appreciative of the Harley-Davidson brand, seem to prefer lighter versions, such as those manufactured by Honda, Yamaha, Suzuki or Kawasaki.

3. Root causes of problem

The main problem faced by Harley-Davidson refers to a steep decrease in their sales volumes, and adjacently, sales revenues. The root causes of the situation can be pin pointed to the following:

The failure of Harley-Davidson to recognize the changing needs of the customer base

The emphasis of Harley-Davidson on tradition and historic resonance in the detriment of niche segments and specific needs

The threat from the external environment linked to the increasing popularity and presence of Japanese makers in the United States

The operational inefficiencies at Harley-Davidson, especially as opposed to the operational processes at Honda. "The [Honda] assembly line was neat and uncluttered -- unlike our operation, where the line was always littered with parts and material. There was minimum paperwork and things flowed very smoothly."8

In the Honda plant, inventory was controlled through a just-in-time (JIT) system that used no computers or automation. Moreover, motorcycles were built to order rather than for inventory" (Noland and Kotha, 2007).

4. Generation of alternatives

Within the presented context, a question is being raised regarding the future of Harley-Davidson. In the generation and selection of the most adequate course of action, it is first essential for the firm to identify its objectives. If it would, for instance, be focused on preserving its heritage, it would strive to implement a market penetration strategy or a market development strategy, through which it would sell the same products. If, on the other hand, it would hope to innovate and re-launch itself within the market, it would consider either of product development or diversification (Tutor2U).

4.1. Market penetration

The market penetration alternative sees that Harley-Davidson would focus on selling the existent bikes within the existent consumer markets. This strategy would specifically imply more aggressive marketing through which more members of the selected target base are convinced to purchase the products. In essence, Harley-Davidson would hope to achieve the following:

Consolidate or even increase the market share of the current products

Ensure dominance within the United States market

Enhance competitive strength by reducing the competitive position of the Japanese makers.

Despite the advantages of such an approach, fact remains that the existent customer base of the company is irreversibly aging, and focusing on them exclusively would be inefficient from a business standpoint.

4.2. Market development

Within the market development alternative, Harley-Davidson would focus on promoting its existent products onto new markets. Specifically, it would emphasize on selling the bikes to younger consumers. Such a strategy would however be ineffective as the consumers outside the Harley-Davidson target market are interested in lighter, cheaper and more easily to operate and maintain bikes. In such a context then, this alternative is not feasible as it would only deepen the already existent problems at Harley-Davidson.

4.3. Product development

This third alternative is characterized by the fact that Harley-Davidson would be selling newly created products onto the same markets. Specifically, it would create more accessible versions of the bikes and retail them to the current customers.

"The oldest of the estimated 80 million Baby Boomers are now entering their late 50s while the youngest Boomers are just entering the earlier part of their 40s. As a generation, Boomers are more affluent and active than any American generation preceding them. . . .We believe that as Boomers age, they are likely to continue riding (indeed, as they retire they may very well ride more)" (Noland and Kotha, 2007).

Such an approach is feasible in the context of the aging consumers, who reveal changing needs, such as the increased ease of usage.

4.4. Diversification

Finally, the last alternative sees that Harley-Davidson would create new products and sell them to new customer segments (Tutor2U). This would specifically imply that the firm would distance itself from the heavy bikes, as well as from the tradition associated with them. But the company could still capitalize on the benefits of brand and heritage as it could integrate them into new products, which serve new needs and are desirable by the younger consumers. This strategy, however likely to generate numerous positive outcomes, is also the riskiest one as it implies the most risks and investments.

5. Recommendation

A business recommendation is always specific and tailored to the particularities of the situation, such as the features of the target market, the size and history of the company or the social and industry climate. In the context of the Harley-Davidson scenario, the recommendation constructed based on the situation specifics revolves around a combination of product development and diversification. Through this approach, the company would be able to better serve the needs of its current customers, as well as attract new customers. Ultimately, this recommendation is supported by the ever-changing features of the micro and macroenvironments, and the realization that evolution is the sole means of remaining competitive.

References:

Nolan, R.L., Kotha, S., Harvey-Davidson: Preparing for the Next Century, Harvard Business School, 2007

Ansoff's Product / Market Matrix,Tutor2U, http://tutor2u.net/business/strategy/ansoff_matrix.htm last accessed on April 18, 2011