Harley Davidson PESTLE Analysis

This section of the report is concerned with understanding the strategic position of Harley Davidson Inc. in an attempt to formulate strategic options for the company. It identifies three areas:

First the changes that is occurring in the environment and how these changes affects H-D and its business activities.

Second the resource strength and capabilities of H-D.

Finally the expectations and influences of H-D’s stakeholders.

THE ENVIRONMENT

In order to understand the environment which H-D operates in the following frameworks are used with the aim of helping to identify key issues and challenges and ways of coping with complexity and change.

PESTLE ANALYSIS

In 2009 H-D stood to gain from the Economic Stimulus Package, passed into legislation by the Barack Obama Administration. “The federal stimulus package gives taxpayers breaks if they purchase a new car, light truck, RV, or motorcycle.”(Wachter, 2009). In addition, Coachman industries also a manufacturer of leisure vehicles, and a competitor of H-D was eliminated from the New York Stock Exchange.

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According to the Datamonitor report “the Motorcycle Industry segment has had economic growth for the past three years, and has only recently been experiencing decline. In 2007 it declined 2.3%, yet is forecasted to recover 4.3% by 2012. An economic factor in favor of H-D, despite this decline, is that the U.S. industry generated total revenues of $10.2 billion in 2007, of which 98.8% were of motorcycles (not scooters, minibikes, etc.). Furthermore, within the U.S. economy H-D holds the majority of motorcycle sales. Therefore, even while industry growth is declining, H-D sales and other motorcycle sales are still continuing to increase.” (DataMonitor 2007). Figure 1 shows motorcycle industry growth versus sales.

The Motorcycly Industry Council (MIC) discloses that leisure product industries are facing steep decline however the motorcycle segment though declining ,is not doing so at a steep rate. Tim Buche, President of the MIC says ” Overall motorcycle sales were down 7.2%, not nearly as sharp a decline as many other consumer products in today’s economy/” (Wasef, 2009).

Socially H-D has a competitive edge which is owed to its customer base, strong brand loyalty and demographic trends such as the increse in female operators. “This loyalty is indicated in the average age of H-D consumers. H-D average consumer buying age is 42 years old and increasing (Gauvin 2005). H-D aspires to increse it consumer demographics, howevr “…although the younger generation below 35 years of age has posted the largest gains in owernship, the generation that is on the edge of the baby boomer segment will be the main catalyst of growth for the industry” (Koncept 2007).

One social factor that may negatively affect the sale of H-D motocycles is the stigma that has been attached to these leisure vehicles. Alot of people believe that motorcycles are dangerous and this belief is strengthened due to the high rate of fatalities and crashes. H-D stands the chance of escaping this stigmatisation if the public views their bikes as “cruisers” and not “speed bikes”.

Technologically H-D can take advantage of antilock brake systems. Antilock brakes cold help riders avoid fatal crases according to a study done by the insurance industry.

2.1.2 PORTER’S FIVE FORCES MODEL

Rivalry

“H-D operates within the Recreational Vehicles industry along with five other major competitors: Winnebago, Polaris, Thor, Arctic Cat and Marine Products. The top performers within the industry and hold 92% of the market share by volume with a market capitalization of 64.653 Billion of a total Industry of 7 Billion” (Yahoo Finance, 2009). “Other firms in different industries that are direct product rivals include Honda Motor Company Limited, Yamaha Motor Co, Ltd., and Suzuki Motor Corporation” (Datamonitor, 2007).

“The presence of these large multinational corporations with exceptionally high assets boosts the degree of rivalry within the industry. Because of the small number of material rivals, the market’s revenue is shared between fewer firms and enhances the degree of rivalry for bottom line profit. This rivalry forces most competitors to try and diversify their business models through geographical expansion or vertical expansion, leading to interests and investments in a variety of other segments such as the automobile, watercraft, industrial and farming equipment areas.” (Datamonitor, 2004).

Threat of Substitutes

“The Recreational Vehicle industry faces threats from the Automobile Industry, from public transportation options and from Bicycles. The threat is largely dependent on the indispensability of motorcycles and other lifestyle products to the end user “(Datamonitor, 2008).

In most developed countries, motorcycles, jetski’s and other recreational vehicles are leisure items that lack necessity and are therefore largely dispensable or substitutable by more “practical” items such as cars or more “cost effective” means of transportation such as bicycles. This lack of necessity increases the threat of substitutes and illustrates why the external market goes into decline during economic recession.

However, even though there is a lack of necessity, when a consumer owns a motorcycle or other product, switching costs to a substitute can range from low to high. Switching to public transportation can be cheap, but switching to a luxury vehicle involves a high cost factor.

Because switching costs vary depending on the alternative means of transportation chosen, the overall threat of substitutes within this industry is moderate.

Buyer Power

“Buyer power is weakened by a high level of product differentiation and customer loyalty to dominating brands (Datamonitor, 2008). Because customer loyalty with respect to dealers is high, as is the demand for specific and/or customized products, buyers’ power is weakened since the consumers rely on companies to produce their preferred product. This high demand allows companies to increase their price due to high product differentiation and low standardization.

Relatively large numbers of buyers within the US, coupled with a high level of product differentiation weakens buyer power. This gives Recreational Vehicle manufacturers a competitive edge in the industry because they can produce a product based on customer demand.

An increasing factor of buyer power is the fact that over half of recreational vehicles sold in the U.S. are sold and bought through non-retail channels. This provides consumers with an option for cheaper purchasing, and becomes a major threat to the industry if they cannot move their new products. Fortunately for the large competitors, who rely on product differentiation, their customers desire customized products that aren’t available on the second-hand market.

Overall, buyer power is low due to sustainable competitive advantage of product differentiation which is impossible for other brand competitors to match.

Supplier Power

Competitors within the Recreational Vehicle industry rely mostly on commodities such as metals. There is a highly stressed importance on the quality of these raw materials which enhances supplier power. Also, as global prices of primary raw materials (ie: steel, aluminum) increase, pressure is put on the manufacturers’ to increase their margins. Furthermore, the increasing consolidation of the steel industry has the potential to lead to even higher raw material costs and product differentiation. The competitors often deal with this high power of suppliers by signing contracts with manufacturers to ensure the delivery of quality raw materials at a set market price.

Power of suppliers is decreased by the competitor’s large size and the fact that manufacturers account for only a small portion of the suppliers’ revenues. Large multinational corporations such as Harley-Davidson and others can receive materials from many different international suppliers and face low switching costs due to minimal product differentiation. This presence within the international market boosts Industry leaders’ power. (Competitive Landscape, 2009)

Overall, supplier power is moderate.

Threat of New Entrants

The industry faces moderate threats of new entrants because of moderate industry growth levels and high barriers to entry. The Recreational Vehicle industry is continuing to grow, especially in America, as consumers are traveling shorter distances and on weekends with less planning. New entrants are lured by good market growth, especially in the budget or low-cost areas due to consumer, ownership and demographic trends towards convenient travel patterns. (RVIA.org, 2009)

Barriers to entry include large capital requirements and high fixed costs for set-up of new production and provider facilities, an exceptionally high level of brand recognition and customer loyalty. Modes of entry include starting a new company, diversifying and existing company’s operations into motorcycle or other vehicle manufacturing, and beginning to export into the host country. Another barrier is the global tightening of emission standards that further ramps up costs as motorcycle and other recreational vehicle redesigns are required, increasing research and development costs. (Competitive landscape, 2009)

Along with the tightening of emissions standards is an increase in the global costs of raw materials such as steel. As standards and product costs increase, barriers to entry become larger hurdles for new entrants. In order to be profitable, new entrants must pass on large capital requirement, R&D costs and raw material costs to their customers and reflect these in the costs of the finished product. In the current economic recession, this becomes problematic because average consumers and not willing to spend their small disposable income on leisure items.

Since sales are sensitive to price, another mode of entry is possible in the sale of budget vehicles. However, these companies would still be subject to the large capital requirements and high fixed costs, resulting in a business that would not be sustainable and therefore becomes undesirable.

Overall, this threat is moderate.