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Prof. Dr. John Oliver Bournemouth University 1/9/2023 Harley-Davidson: a lifestyle brand at the crossroads? This case is intended to be used as the basis for illustrating theoretical concepts and student learning, rather than to illustrate either effective or ineffective handling of a business context. Certain assumptions have also been made in relation to some of the data presented in this case.

Harley-Davidson: a lifestyle brand at the crossroads? “Harley-Davidson has a tremendous opportunity to build a unique global lifestyle brand rooted in moto-culture. The iconic “bar and shield” is one of the most recognized logos in the world, and, unlike any of our competitors we have the opportunity to evolve our lifestyle brand to new heights if we rigorously pursue and execute on our strategy in the coming years”. Jochen Zeitz, Chairman, President and CEO (2023) Synopsis This case is about the strategic challenges facing US-based motorcycle maker, Harley-Davidson Inc. The company is the world's leading designer and manufacturer of heavyweight motorcycles with 51% market share in the US and their success has been attributed to its loyal customer base which basically comprises of middle-aged men. The case discusses the changing macro and micro-environment and the different strategies that the company has used over time and identifies two key problems facing the company. Firstly, the aging demographics of its customers, whose average age has risen from 35 years in 1987 to 48 years in 2023. Their core customers, the baby boomers, are aging and fast approaching their peak spending years. Secondly, shifting demographics means that the company are faced with the challenge of appealing to a broader range of customers including young adults, women, and ethnically diverse adults. In many ways, Harley-Davidson is at a strategic crossroads and the case presents an interesting dilemma for the company, that is, how do they adapt to the changing marketplace and attract new customer groups, without alienating their traditional customer base and diluting the brand. Background As the only major American player in the global motorcycle industry, Harley- Davidson, have developed a distinct brand identity and image and have dominated the motorcycle industry for many decades. The company was founded in Milwaukee (USA) in 1903 by William S. Harley and Arthur Davidson and incorporated in 1907 under the name Harley-Davidson Motor Company. The same year, they produced 150 motorcycles and sold them to the police department. The company grew and during World War I, more than 20,000 motorcycles were produced for the US military; whilst during World War II, the company produced over 90,000 motorcycles for the US Army. Harley was awarded two Army, Navy “E” awards for ‘Excellence in production’ for its war efforts. In the post war years, Harley-Davidson enjoyed a market leading position in the USA until the early 1980s when Japanese manufacturers flooded the market with high quality and low priced bikes and that nearly destroyed the firm. As a result, the company went through a major restructuring exercise, and adopted a new marketing 2 | P a g e

philosophy centred around selling ‘community and lifestyle’ with motorcycling experience events, rides, and rallies sponsored by Harley Owners Group (HOG). In 2003 Harley-Davidson celebrated its 100th anniversary and enjoyed a 50% share of the US heavyweight motorcycle market. However, the company has always been exposed to the effects of economic weakness and recession as customers tend not to spend on expensive luxury products. This issue was illustrated during the global economic downturn of 2007-09 which resulted in a net loss of US$55mn in 2009.To push sales, the firm rolled out the ‘We Ride Free’ campaign which allowed customers to buy a new Harley model and receive the full manufacturer’s suggested retail price if they decided to trade up to a bigger model later. Experts said this ‘trade in, trade up’ marketing strategy helped the company push sales in a weak economy. In 2009, the company launched an aggressive restructuring strategy for managing the economic downturn by investing in the brand, cost-cutting, cutting back motorcycle production, and closing down plants. Harley also concentrated more on international market expansion and demographic outreach as economic growth in the US was slow. Fast forward to 2022 and Harley-Davidson are restructuring their operations once again in order to focus the company’s strategy on dealing with the effects of inflation, the cost of living crisis, supply chain issues following the COVID19 pandemic, the Ukraine-Russia War and the threat of a global recession which has increased the levels of uncertainty for the firm’s products and services. This restructuring means that the company now operates in three segments: Harley- Davidson Motor Company (HDMC) which manufactures and sells at wholesale heavyweight Harley-Davidson motorcycles as well as a line of motorcycle parts, accessories, general merchandise and related services; LiveWire which is an all- electric motorcycle brand with a focus on rapidly growing electric motorcycles market, and electric balance bikes for kids, parts and accessories; and Harley- Davidson Financial Services (HDFS) which provides wholesale and retail financing and insurance-related services primarily to Harley-Davidson dealers and their retail customers. A Challenging Macro Environment The world has never been more unpredictable according to the International Monetary Fund’s World Uncertainty Index (2023). Indeed, the index indicates unprecedented levels of uncertainty with the Russia-Ukraine War compounding already elevated measures as a result of a number of macro factors which include US-China trade tensions, US Presidential elections, Brexit and the threat of global economic recession. Furthermore, Harley-Davidson is also facing some long-range challenges such as adapting to changing demographics which includes a decline in their prime ‘Baby Boomer’ market and how to attract Generation X and Generation Y customers who are more interested in commuting than they are on interstate travel on costly motorcycles. 3 | P a g e

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A major challenge confronting the company is its aging customer base. Reports indicated that over 60% of Harley motorcycle riders were baby boomers aged between 45 and 64 with an average age of 48 worldwide. Experts said that as baby boomers reached their prime riding age, they were less likely to ride a motorcycle due to physical constraints. They added that the company’s sales would be affected as baby boomers were fast approaching their peak spending years. Climate change, caused by increased levels of greenhouse gases, creates risks to for everyone on the planet. Many firms are now committed to achieving net zero carbon emissions by 2050 by improving fuel economy, reducing emissions for combustion products, using less energy and increasing the mix of renewable energies in manufacturing and service operations to support sustainability and resilience. In addition, climate change-related legislation and regulation will impact many firms, although the precise implications of these actions are uncertain. Changing Industry Dynamics Competition in the motorcycle industry is based upon a number of factors including product capabilities and features (styling, price, quality, reliability, warranty, availability of financing), and quality of the dealer networks that sell the products. Consumers are faced with a significant range of competitive choices from Yamaha, Bombardier Recreational Products, Polaris Inc., Thor Industries and Winnebago Industries. Furthermore, Harley-Davidson face the potential threat of new competition from electric motorcycle entrants. Harley-Davidson uses ‘focus-differentiation’ (unique styling, customization, innovative design) as a Generic Strategy to compete in the industry which allows them to command a premium price relative to competitors’ motorcycles. In addition, the availability of its line of motorcycle parts and accessories, apparel, financing through HDFS and its global network of dealers underpins their competitive advantages. Many competitors have worked hard to establish long-term, mutually beneficial and collaborative relationships with their suppliers. The strength of these relationships has proven highly valuable as the industry is currently facing significant supply chain disruption and increased costs related to the global supply of raw materials in a post pandemic environment. Market development, strategy and segmentation The Harley-Davidson brand, products and consumer experiences are marketed to riders and enthusiasts worldwide. Creating awareness, interest and advocacy of the Harley-Davidson brand, motorcycles, parts and accessories, apparel, financial offerings and experiences occurs primarily through consumer events, digital marketing and social media as well as more traditional promotional and advertising activities. Additionally, Harley-Davidson dealers within HDMC's global network engage in a wide range of local marketing and events which tends to be seasonal as retail sales made by dealers track closely with regional riding seasons. 4 | P a g e

From the beginning, Harley-Davidson motorcycles were known for their distinctive design and heavy customization. Over the years, Harley established a strong brand image which was characterized by freedom, adventure, Americana and cool which has resulted in deep personal relationships with a loyal customer base. Their customers are so devoted to the brand that they have tattooed the Harley logo on their bodies and travelled for days to attend bike rallies sponsored by the company. Generally, Harley’s bikes are more expensive than those of competitors. Harley developed a strategy of ‘value over price’ through the development of mini niches and by offering heavy customization options for their motorcycles. The company’s motorcycles are marketed to a core customer base who are men over the age of 45 years and non-core customers including young adults (aged between 18 and 34), women, and ethnically diverse adults through promotions, word of mouth, customer events, and advertising through national television, print, radio, and direct mailings Harley, Honda and Yamaha identified the women’s market as a fast growing segment and designed special bikes especially for women. These bikes were lower to the ground and easier to manoeuvre and resulted in a significant jump in the sales of Harley motorcycles to women from 2% in 1985 to 23% in 2017 (see Appendix 1). To appeal to female riders, Harley launched a group called ‘The Ladies of Harley’ to generate interest among young women motorcyclists. Harley dealers also organized garage parties wherein women riders could learn the fundamentals of motorcycling, know which models of Harley suited them, and various customization options. To reach out to more women riders, the company published advertisements with real riders in women‘s magazine and launched an exclusive website for women riders (see Appendix 2). Experiences that build community and connect people with the Harley-Davidson brand with one another are at the centre of much of HDMC's marketing efforts. Indeed, the sheer number of followers that Harley-Davidson has on Instagram is a testament to the brand’s popularity and reach. It’s a clear indication that they have a strong presence in the social media world, and that its message is resonating with a large audience. To develop, engage and retain committed riders, HDMC also participates in and sponsors motorcycle rallies, tours, racing activities, music festivals and other special events, including programmes that build new riders like the Harley-Davidson Riding Academy. There are also events sponsored by the ‘Harley Owners Group’ to build community and connect Harley-Davidson motorcycle riders everywhere. These activities help inspire interest in riding, foster motorcycle culture and build a passionate community of riders around the world. Harley-Davidson launched its global expansion strategy in 2009 with mixed results. As the US market matured the company launched into India, an untapped market with huge potential. Even though the Indian market for bikes was huge and saw more than 17 million sales of bikes annually, it was not a conducive market for the big heavyweight bikes that Harley manufactured. For the Indian customer, the 5 | P a g e

requirements were for a bike that was convenient for city commute, was easy to maintain, was cheap, and gave good mileage. Harley’s nearest competitor was Royal Enfield and the company was not able to make a dent in the market segment of its competitor which had bikes cheaper than that of Harley. Faced with mounting losses and low sales of its bikes, Harley-Davidson announced in September 2020 that it was exiting the Indian market and closing down its manufacturing and incurring US$75 million in restructuring costs. The decision to exit was part of the five-year ‘rewire’ strategy to focus more on select markets such as Europe, North America, and some countries in Asia. The Harley Owners Group (HOG) Central to Harley’s marketing strategy was the focus on building a strong bond with the customer, maintaining a close relationship, and providing them with an engaging and interactive brand experience. To keep Harley riders more actively involved in the sport of motor cycling, the HOG was established in 1983. Considered to be the industry‘s largest company-sponsored motorcycle enthusiast organization, the group sponsored motorcycle events, including rallies and riding events, for Harley enthusiasts at local, regional, national, and international levels. The rallies featured live music, food booths, games, prizes, and vendor stalls. During the rallies, potential customers were given demonstration rides and they could even register their bikes and buy merchandise. Harley employees and senior executives also took part in the rallies as such events strengthened the community and gave Harley owners a sense of belonging. The most famous among these rallies is the Black Hills rallies in South Dakota and Daytona which serve as a product development centre. Harley see thousands of bikes and what our customers are doing to them. They get new ideas through discussions and the riders take demo rides on new models and give feedback. The Dealers The company’s products are retailed through an independent dealer network, of which the majority sells Harley-Davidson motorcycles exclusively. The company’s independent dealerships stock and sell; the company’s motorcycles, parts and accessories, general merchandise, licensed products, and servicing. As of 2022, Harley distributed its motorcycles through 1,298 dealers worldwide (see Appendices 3 and 4). The company offers various services to its independent dealers including service and business management training programmes and customized dealer software packages. The company also offers motorcycle rental and tour programmes through its dealers to promote the Harley lifestyle experience and the dealership stores are modelled in a way that not only displays motorcycles, but also have a separate area for Harley‘s line of Motor-Clothes, complete with dressing rooms. The stores also feature customer lounges and meeting rooms with pinball machines, antique bikes, and videos of rallies. 6 | P a g e

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Harley-Davidson’s Market Segmentation In 2010 Harley decided to adopt a multi-generational and multi-cultural marketing strategy in order to increase sales to non-core customers such as women, young men and ethnically diverse adults. The company wanted to change its marketing approach from a one size fits all marketing approach to a consumer led model. The company planned to capture a more diverse set of riders, especially women. For this purpose, Harley develop new bike model designs and new riding gear specifically for women. Experts said, going forward, the biggest challenge for the company would be to market traditional cruisers and touring motorcycles to young riders who preferred sports bikes and dual-purpose motorcycles to the heavyweight models. They said smaller bikes were one of the fastest growing segments of the US motorcycle market and even Harley’s competitors like Honda, Suzuki, and Yamaha sold mainly sports bikes. Moreover, some analysts felt that Harley’s close association with baby boomers could make the brand difficult to sell to younger customers. Harley-Davidson is so embedded in people’s minds as the brand for old fat guys in black leather. Harley-Davidson have now recognized that core customers were not monolithic and that they needed to segmentation the market in order to is identifying and understand customer needs as this process can provide insights that can deliver differentiated marketing campaigns that results in competitive advantage and superior business performance. Harley-Davidson: Strategic Business Units As mentioned previously, the company operates in three segments: Harley- Davidson Motor Company (HDMC), LiveWire (electric motorcycles) and Harley- Davidson Financial Services (HDFS). However, the HDMC segment can be further divided into the following strategic business units: Harley-Davidson Motor Company (HDMC) Heavyweight Motorcycles : provides the mainstay of the company’s operations with 78% of the company’s revenue coming from the sale of motorcycles. It has a 1.58X market leading share, however, this is a mature market with an annual growth rate of just 1.5%. Parts and Accessories : these products comprise of motor replacement parts and cosmetic motor accessories which produce 15% of Harley-Davidsons revenues. This is a mature market where the firm has a marketing leading share of 1.10x in a market with just 0.5% annual growth. Apparel and Licensing : includes branded clothing to its customers and the non-riding public by licensing the name “Harley-Davidson” and other trademarks owned by the company for use on a range of products. This business unit accounts for 5.5% of the 7 | P a g e

company revenues and in a mature market that is growing at 7.5% annually - it has a 1.05x market share. Patents and Trademarks: HDMC strategically manages its portfolio of patents, copyrights, trademarks and other intellectual property that account for 0.8% of annual revenues. This is a mature market where the company has a market share of 0.25x in a market that has an annual growth rate of just 4%. LiveWire This is an all-electric motorcycle brand with a focus on the rapidly growing two-wheel electric motorcycle space. LiveWire sells electric motorcycles (light, medium and heavy weight motorcycles), electric balance bikes for kids, parts and accessories and apparel in the United States and certain international markets. Harley- Davidson’s market share is 0.75x and an annual growth rate of 14%. Harley-Davidson Financial Services (HDFS) This business unit provides wholesale and retail financing and insurance-related services primarily to Harley-Davidson dealers and their retail customers. Once again, this is a mature market where the firm have market share is 0.60x in a market with annual growth of 6%. A new direction and a new corporate strategy Harley-Davidson’s Global Expansion Strategy (2009) appeared to be the right strategic recipe for a world emerging from the Global Financial Crisis of 2007-09. The strategy focused on selling smaller, less expensive bikes turning away from the core customer base who loved the big, heavy, more costly machines. However, with sales in long-term decline, shareholders argued that the strategy of chasing new customers and markets ignored the core customer and added manufacturing complexity to Harley’s operations. In 2020 Harley-Davidson introduced their new strategy called ‘The Rewire’ (2021-25) which aimed to refocus the company's mission and vision and transform the business whilst enhancing its position as the most ‘desirable’ motorcycle brand in the world. The strategy targets 50 global markets with a priority given to United States, DACH (Germany, Austria, and Switzerland), Japan, China, Canada, France, United Kingdom, Italy, Australia, and New Zealand. To drive desirability they will: • Design, engineer and advance the most desirable motorcycles in the world - reflected in quality, innovation, and craftsmanship • Build a lifestyle brand valued for the emotion reflected in every product and experience for riders and non-riders alike • Focus on customers, delivering adventure and freedom for the soul. 8 | P a g e

Furthermore, the company aim to be a market leader in the electric motorcycle market and expand complementary businesses by engaging consumers with products, services and experiences that inspire its customers to discover adventure, find freedom for the soul and live the Harley-Davidson lifestyle. The Outlook Harley-Davidson face number of challenges posed by the macro-environment, not least an aging demographic. The challenge of attracting younger consumers and the transition from petrol engines to electric motorcycles at a time of economic uncertainty, higher interest rates and the tightening of credit are likely to have an impact on the sales of motorcycles. The firm built its market leadership position in the heavyweight motorcycle market by developing core competencies in Product Design Management, Brand Management and Market Development Management. However, its track record of introducing new technologies and innovative products is poor and they recognise that they need to develop new competencies that will deliver new products, services and experiences that generate sales and financial returns in order to secure the company’s future. It also needs to further embrace the digital world by creating innovative digital and physical retail formats to create an experience tailored to local markets in order to beat the competition. There is no doubt that the company’s success depends upon the continued strength of Harley-Davidson as a lifestyle brand. However, the use of social media by environmental consumer activists could negatively impact the brand via the use of disinformation and collective actions such as boycotts and other brand-damaging behaviours. Whilst Harley’s corporate financial performance has improved recently, there are still concerns that their long-term performance will be uncertain. The company’s share price demonstrates this uncertainty amongst investors since their relative performance has lagged behind the leading FTSE100 global index (see Appendices 5 and 6). 9 | P a g e

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Appendix 1: Harley-Davidson Demographic Profile Year Male (%) Female (%) Average Age (yrs) 1987 98 2 34 1997 93 7 44 2007 88 12 47 2017 77 23 48 Appendix 2: Examples of Harley-Davidson Advertisements Appendix 3: Independent Dealer Distribution by Geographic Region Appendix 2: Independent Dealer Distribution by Geographic Region Appendix 5: Independent Dealer Distribution by Geographic Region Appendix 4: Retail Sales by Geographic Region 10 | P a g e

Appendix 5: Financial Overview (2018-22) Appendix 6: Share Price Performance (2014-23) 11 | P a g e FTSE Global 100 Harley Davidson

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