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A Rare Tactical Mistake, an Ongoing Strategic Problem

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Harley-Davidson, whatever the company’s faults may be, have gotten one thing consistently right: Marketing.  They are a marketing powerhouse.  When you buy a Harley-Davidson, you don’t just buy a motorcycle.  You buy a ticket to the “Harley Lifestyle”.  The company’s marketing is ubiquitous and effective.  But not perfect…

H-D’s CEO, Keith Wandell, admitted in an interview with The Business Journal that the company flubbed their forecasts of the recession’s impact on their customers’ buying choices.

[T]he company mistakenly thought the recession would push consumers toward Harley’s Sportster and other less expensive motorcycles.

The company increased production of those types of bikes, but retail sales “didn’t materialize,” he said.

Harley dealers currently have a glut of the mid-priced V-Rod models.

Instead, many consumers who have been buying Harley-Davidson motorcycles have been buying more expensive custom and touring bikes, Wandell said.

“It left us with a bigger imbalance,” he said. “We have a lot of inventory.”

As a result, Harley-Davidson will shut down final assembly operations of the Sportster and V-Rod motorcycles and V-Rod motorcycle powertrain production in Kansas City, and production of Sportster motorcycle powertrains in Wauwatosa, for 14 weeks this year, including all of the fourth quarter.

Let me put on my MBA hat here.  (And yes, I do have one.  An MBA, I mean.  I don’t actually have the hat.  But, I’m thinking of getting one made.)

Harley’s real problem, however, is not the occasional tactical marketing error, but a more fundamental strategic error that the company keeps compounding.I’m kind of stunned that the MoCo would make such a mistake about the buying habits of their customers.  Sportsters certainly have their fans, but general, people buy a Sportster because they want a Sportster. I can see how someone wanting a Softtail might settle for a Dyna, but not a Sportie.  At least with the Dyna they still get the Big Twin engine.  Surely the company must know that the Sportster is called the “baby Harley” and “girls bike”.  They must have some inkling that salesmen at dealerships constantly advise prospective Sportster buyers that they’ll quickly outgrow the bike, and want a Dyna in a year or so, so why not buy a Dyna that you won’t outgrow instead?

People who want a Big Twin–and often they already have a Metric big twin they’re looking to trade off–aren’t interested in scaling down to a smaller motorcycle.  They want one of the big dogs.

And as for the V-Rod…well, I don’t know what they were thinking when they thought they’d see an increase in sales there.  It’s a nice bike but it certainly isn’t the company’s most popular product line.  Not by a long shot.

It’s strange to see the company make such an unusual tactical error, and now the employees are gonna pay for it, as the MoCo cuts production to align inventory with customer demand.

Harley’s real problem, however, is not the occasional tactical marketing error, but a more fundamental strategic error that the company keeps compounding.

The brand is an absolute icon for the baby boomers.  Among the Gen-X set and younger riders…well, not so much.  The MoCo has a serious strategic problem when it comes to marketing, in that younger riders just aren’t attracted by the Harley brand.  Harley obviously knows that their customers are aging, as evidenced by the fact that they’ve started producing factory trikes, so that their customers can keep riding long after the ability to hold up a 750 lb. hunk of steel fades away.

But Harley’s challenge isn’t to figure out how to keep an aging band of retirees buying their products, but rather how to entice younger riders to the brand.  It’s clear that, looking at the advancing average age of H-D customers, they haven’t figured it out.  Or rather, if they have, they’ve declined to implement the obvious solution.

To properly understand the problem, we need to look back at a bit of history.

If you were born in, say, 1980, Harley-Davidson has never been the Big Dog motorcycle.I was born in 1964, so that makes me the very last of the baby boomers.  When we were growing up a “superbike”–the term didn’t really exist back then–was a Norton Commando 800.  A Harley-Davidson was a massive motorcycle with an ungodly large 1200cc engine.  You started riding motorcycles with a Montgomery-Wards 125cc thumper, maybe graduated to a BSA 500cc, then you finally got the money to get one of the Big Dogs, a Harley.

In the 70s, that all started to change.  The Japanese began producing game-changing bikes like the Honda 750Four, and the Kawasaki Z-1.  Performance increased dramatically.  By 1984, when Yamaha introduced the frighteningly powerful (for the time) V-Max, real superbikes were available. The mid-80s explosion of Sportbikes, like the Kawasaki Ninja, raised the bar forever in terms of new motorcycle riders’ perceptions about what a powerful motorcycle was.

Harley’s response was, and continues to be, incremental increases in engine displacement from 1200cc air cooled twins to 1600cc air-cooled twins, along with incremental improvements to frames, suspension, and, thus handling.  But the styling and riding characteristics of the company’s products remained mainly stuck in the 1950s-1960s.

1965 Harley Davidson FLH1200

1965 Harley Davidson FLH1200

Don’t believe me?  OK.  Compare and contrast the two bikes shown here.

Can you think of any other product where so little styling has changed in the past 44 years?

So, if you were born in, say, 1980, Harley-Davidson has never been the Big Dog motorcycle.  It’s been a manufacturer of heavy, slow, low-performance cruisers.  You’ve grown up in a world of 150+HP superbikes–a world that did not exist when the boomers were young.  Younger riders have an entirely different mental impression of how the motorcycling world is put together.

To thrive as a company Harley needs a product that is connected to the modern era, as well as the past.  That doesn’t mean that Harley should jettison its classic styling completely.  There’ll always be a market for that, because it has a definite appeal to some riders.  But to grab younger riders Harley-Davidson–as a company, not a specific brand–has to have something else.  It has to have a line of motorcycles that appeals to those younger people who want more sport than cruiser.

And, interestingly enough, Harley already has that with Buell motorcycles.  And does almost nothing with them.

2009 Harley Davidson Road King

2009 Harley Davidson Road King

First, until last year, the entire Buell line–except for the now-defunct Blast–was limited to cast-off Sportster Evolution engines.  Erik Buell’s division tweaked them as well as they could be tweaked, but the XB series of bikes has never–and can never, from a technical point of view–compete with 600cc sportbikes like the Yamaha R6.  And I simply can’t believe that an old privateer racer like Erik Buell is satisfied with the performance of the products he’s been allowed to put out by his masters in Milwaukee.

And, to make matters worse, Buell doesn’t even have its own dealership network.  Instead, Buells are relegated to the dark corner of Harley-Davidson dealerships, and the sales staffs often know little about the brand…and care even less.  I’ve personally had sales people intentionally steer me away from Buells, to point me in the direction of a Softtail or Road King.

H-D needs to move beyond the cruiser world if it wants to compete in the future. And that means letting Buell have some more leeway to operate beyond the Harley-Davidson cruiser world.

Companies survive by making products the public wishes to purchase.  They don’t survive on tradition.  They don’t survive on selling lifestyles.They need to break into the younger markets by producing bikes that can compete with the Gixxers and Ninjas. That means giving Buell the go-ahead to dump the Thunderstorm engine in favor of water-cooled twins and V-4 or I-4 engines.  Buell has some fascinating design ideas for sportbikes, but one of the reasons they’ve never been accepted is that, performance-wise, Buells suck compared to the Japanese brands. Buell needs a powerplant to mate with their technical innovations.  The 1125 is a good start.  Now, they need to make the next step.

They need to liberate Buell from the H-D dealership network, and open up dealerships where Buell enthusiasts work.  It doesn’t matter how good the bikes are if their sales network doesn’t want to sell them.  Making the customers force the dealer to sell them a Buell is silly, and it needs to stop.

Harley also has MV Agusta, the venerable maker of Italian sportbikes, including the F4 312RR, the most powerful production motorcycle in the world, as well as its parent company, Cagiva.  Maybe figuring out how to get those Italian brands over here would be helpful as well.

Companies survive by making products the public wishes to purchase.  They don’t survive on tradition.  They don’t survive on selling lifestyles.  The reason the MoCo’s customer base is aging and shrinking is because they aren’t making products the younger generation wants to buy.

But Harley owns the brands, and has the capability to make the bikes that will attract the younger generation of buyers.  It only remains to be seen if Harley will continue to rest on the laurels of the brand’s prestige, or if it will become determined to compete in the new markets that the Japanese currently own.

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2 Responses to A Rare Tactical Mistake, an Ongoing Strategic Problem

  • Dale – Once again, you are right on the money with your analysis.  Harley-Davidson has failed to evolve, and is now a moribund shell of a bike bought only by aging shells of bikers.  The critical 18 to 25 year old male doesn’t even think of a Harley when considering the purchase of a motorcycle.  I think Erik Buell has seen that, and is trying his darndest to ensure the bikes that bear his name don’t suffer the same fate.

    The quicker that Buells can be more widely perceived as their own brand instead of HD stepchildren, the better for Buell and Buell riders like myself.

    I hope Buell can stick with the ideals of “Ruthless Engineering.”  When I’m ready to trade in my 1125R, I want my next Buell to have the force of brass knuckles, and the finesse of a scalpel.  Here’s crossing my fingers.

    Keep up the great writing!

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