Case Study – Harley Davidson

Case Study Harley Davidson Department of Marketing IV Prof.

Dr. Florian Kraus University of Mannheim Fall term 2011 By: Veilleux, Jacques-Olivier-1345802- jveilleu@rumms. uni-mannheim. de Vela Loira, Valentin -1346667-vvelaloi@mail. uni-mannheim.

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de Viscosi, Jennifer – 1344990- jviscosi@mail. uni-mannheim. de Wang, Yi – 1326001 – yiwana@mail. uni-mannheim. de Wijma, Ludwig – 1346338 – lwijma@rumms.

uni-mannheim. de Yip, Lu Yi – 1342949- luyiyip@gmail. com Mannheim, November 2011 Table of contents COMPANY BACKGROUND1 CASE STUDY HARLEY DAVIDSON3 Question 1) CUSTOMER RELATIONSHIP TOOLS3

Question 2) CENTRAL ADVANTAGES OF A STRONG BRAND COMMUNITY5 Question 3) WOULD YOU RECOMMEND HD TO IMPLEMENT A BONUS SYSTEM? 8 LIST OF REFERENCESIII AppendixIV AFFIDAVITVIII COMPANY BACKGROUND Harley Davidson was created in 1903 by William S. Harley and Arthur Davidson in Milwaukee, Wisconsin, when the first Harley-Davidson motorcycle became available to the public. Arthur’s brother’s Walter and William later joined Harley and Davidson’s efforts.

Four years later, on September 17, 1907, Harley Davidson was incorporated and the stock was split four ways between the four founders.

Staff had doubled from 1906 to eighteen employees and the factory size was also doubled. 1907 also marked the beginning of dealer recruitment, which was focused in New England. By 1920, Harley Davidson had become the largest motorcycle manufacturer in the word. (Harley Davidson 2011) At the time, the company was already selling their products at over 2 000 dealers in 67 different countries.

Nowadays, their products include motorcycles, parts and accessories as well as branded clothing. They also offer services such as a driving course and the possibility to test-drive any of their bikes.

The company is well known because of its unique V-twin engine and the great sound that it procures. Harley Davidson is also the only major U. S.

-based motorcycle manufacturer, which allows them to gain royalty since consumers may tend to “buy America”. Today, Harley Davidson has over 6 300 employees and is listed at the New York Stock Exchange. The company’s overall objective is to answer the needs of the recreational mobility market. (Harley Davidson 2011) The motorcycle market is quite big. In the USA alone the market is expected to reach 21 billion by the end of 2011.

This market is male dominated, with 90% of consumers being male and only 10% being female. Furthermore, 75% of the market is comprised of people between the ages of 31 and 60. (KNOL website 2011) As you can see on Figures 1,2,3,4 and 5 (See Appendix), Harley Davidson dominates every category of the market that it is focusing on. Harley Davidson’s market share is constantly growing. The market share for the core customer in the USA is 60. 8% for Harley Davidson.

Its nearest competitor’s market share is 10,1%. For the young adults segment, in 2010, Harley Davidson’s market share was 48,6%.

The nearest competitor’s market share was 11,4%. For women, the market share was 64,1% for Harley Davidson and the nearest competitor’s was 11,8%. Finally, for the diverse customer like African Americans or the Hispanic the market share was more than 50% for Harley Davidson and the nearest competitor occupied only 13,7% of the market.

It is important to note that Harley Davidson is currently executing a multi-generational and multi-cultural marketing strategy in the U. S. A. The core segment is to target men over 35 years old.

They are also targeting an outreached market:  young adults (men and women aged 18-34), women 35 years old and older and both African-American and Hispanic men and women aged 35 years and older. As you can see on Figure 6 (See Appendix), the average annual salary of a Harley Davidson buyer was 85 000 US dollars in 2010.

This figure allows us to conclude that Harley Davidson targets those who make above average salaries, or those who are willing to invest in this product, given that they are selling a premium product (a given motorcycle can be valued at over 50 000 US dollars).

As we can see, Harley Davidson targets a wide variety of consumers. It is therefore primordial that they have an excellent marketing strategy in order to be able to appeal to all their targeted groups. As you can see on Figure 7, (See Appendix) today the majority of the company’s sales are based in the USA however Harley Davidson believes that by 2014, 40% of their retail sales will occur outside the USA, making their international marketing strategy imperative. (Harley Davidson 2011)

Harley Davidson’s business mission is to have a deep connection with their customers and apply that connection in every market they serve to create a superior value for the stakeholders.

The company’s quality mission is: a customer for life. The company really values the deep emotional connection that they create with their customers through the purchase of products, services and the overall Harley experience. Harley Davidson is fueled by brand loyalty and the great amount of trust that the consumer places in their premium quality brand.

In return, they offer a fulfilling lifetime ownership to all their customers. Harley Davidson exemplifies this commitment by embracing a culture of personal responsibility and stewardship for quality in all their products and services they offer to consumers.

(Harley Davidson, 2011) As previously mentioned, Harley Davidson continuously aims to strengthen customer loyalty. In 1983 they created the Harley Davidson Owners Group (HOG), a platform that allows the most avid Harley consumers to purchase a variety of other Harley Products such as branded clothing. The HOG mmediately became the largest factory-sponsored motorcycle club in the world. Today the HOG had over 850 000 members. Given that 55% of Harley Davidson’s current sales are to previous Harley customers we can see that the community Harley Davidson has created has established customer loyalty given that they have rebought a Harley.

The marketing strategy is therefore effective in creating a sense of belonging and of need for the consumers to incite them to keep purchasing the product. (Harley Davidson 2011) CASE STUDY HARLEY DAVIDSON Question 1) CUSTOMER RELATIONSHIP TOOLS

As per what we have been taught, we can establish that customer loyalty can be created using three approaches: Interaction, Bonus/Reward and Barriers to Switching. In the case of Harley Davidson, the company uses the Interaction approach, an approach in which a company attempts to strengthen customer loyalty using customer contact and therefore psychological reasons for loyalty in order to promote bonding between people and products in order to create a strong customer relationship. (Homburg, Kuester, and Krohmer 2009, p. 298).

To begin, the company is promoting customer loyalty through customer contact.

According to Harley Davidson, a strong customer orientation starts with their employees. Thus, all Harley Davidson employees are selling a product that they truly believe in. They are passionate about the product, which evidently comes across when they are trying to make a sale. Harley Davidson also created new standards for the recruitment and training of their employees. All employees must learn about the company philosophy and brand community in order to be able to transmit their knowledge to customers.

All employees are focused on the customer and on making their experience with Harley Davidson as pleasant as possible.

There is no doubt that they will go above and beyond what is expected in order to assure that the customer is satisfied with the product and service that they are offering. Openness and individual contribution are also key factors of the company culture, which has been created and allows for smooth orientation of all employees. Finally, with Harley Davidson’s H-D1 customization program, the consumer can receive factory customization for his bike, but also consultation services in order to create a specific bike with the help of a Harley Davidson expert.

Harley Davidson therefore focuses on customer interaction and responding to customer needs by involving the customer in the product development.

Harley Davidson also establishes psychological reasons for loyalty. When someone buys a Harley, they become part of a customer club known as the Harley Owners Group best customer program (HOG). The HOG is a Lifestyle-club with the objective of gaining customer loyalty and retaining customers with a strong focus on lifestyle. The target group of this particular customer club is customer segments with specific, often premium lifestyles.

Typical services include special services and offers for prestigious products. When a customer purchases a bike, his purchase includes a one-year membership into the HOG, which is one of the strongest brand communities known.

It allows its members to buy holidays, branded clothing, get special rates on insurance, attend special events and receive Harley magazines. The most important thing however that the HOG provides its members with is to become a part of a community of people that all share the same common values. A customer is not only buying a motorcycle, they are buying a lifestyle.

By offering the package of exclusive services for its members, Harley Davidson allows the buyer of a motorcycle to feel like he is part of a greater community, a community that values the experience of riding a Harley more than the bike itself, which in the end is a psychological reason for loyalty. By including the price of the membership in the price of the bike, Harley Davidson allows the buyer to get a taste of what the club is all about in hopes of being able to convince the buyer to purchase the club membership in the future.

This is an intelligent strategy because the company does not give the customer the option to purchase the membership; they are automatically enrolled when purchasing a bike and therefore will undoubtedly become familiar with the HOG.

The customer club is an efficient way to promote customer relationship management because it strengthens customer loyalty, it promotes word-of-mouth and it optimizes Harley Davidson’s marketing mix. The HOG also promotes cross-selling.

Cross-selling is when the company wants their customers to buy several products from the same company (Homburg, Kuester, and Krohmer 2009, p. 307). The HOG membership encourages the customer to purchase different Harley Davidson products sold, such as branded clothing at a preferred rate.

Not only does this strategy give the customer a stronger feeling of belonging to the brand however it allows Harley Davidson to sell further products and therefore increase their sales. There are some success factors that contribute to profitable cross- selling which can be seen in the Harley Davidson Company.

Basic factors for success are a wide range of products, HD sells many motorcycling and lifestyle products but they also offer financial and credit card services, and sufficient trust and satisfaction of customers, in the case of HD the trust and satisfaction is created by belonging to the HOG. There are also company internal factors for success, such as competency of employees, employees at HD are also HD riders and know exactly what it takes to drive a HD, and they can use this experience to passionately sell HD products.

The incentive system of HD is that they want to sell the lifestyle of a HD motorcycle rider; this includes the clothes and patches they sell at their stores.

The company’s information system also contributes successfully to cross-selling given the HD magazines, which are used to promote new accessories for the HD riders. Finally, in regards to customer complaints management Harley Davidson encourages customer feedback. All feedback is sent to the respective department to be processed. Various departments and contact information is listed on the website.

Harley Davidson’s customer complaints database’s main function is however not complaints themselves but idea submission in general.

It allows all customers to submit ideas and to be read by other HD enthusiasts. This allows consumers to feel like their opinion is relevant and valued by the company. All ideas are later processed and analyzed by HD employees. (Harley Davidson 2011) Question 2) CENTRAL ADVANTAGES OF A STRONG BRAND COMMUNITY The strong brand community that Harley Davidson has created has numerous advantages.

To begin, the company is able to better understand their customers and their specific preferences when it comes to making a purchase.

A company’s database includes reliable data about all its members, which is securely monitored in order to have the most accurate data possible. Given this information, customer segmentation can easily and effectively take place. The cost for this market research is less for the company than if they had to go through another company to get the data or to issue a separate survey themselves.

Furthermore, a strong brand community implies that there is word-of-mouth taking place, which allows for free advertisement (along with the image that is projected for example when a group of bikers in Harleys are seen on the side of the road). It also allows consumers to easily share their experiences with one another and with the company itself so that the company is able to target consumer needs and make the necessary improvements to its products/services from the feedback received. In Harley Davidson’s case, they have Harley Davidson Financial Services Inc.

, which is banking for its consumers.

HD Financial Services offers numerous financial shortcuts such as loans and warranties that allow the purchase of a motorcycle to be must easier. Only company’s with a strong brand community can do something like this and be reputable for it given the trust that needs to be put into a company when handling someone’s finances. Having such a strong brand community also allows a company to not only sell a product but a lifestyle as we can see with Harley Davidson. This particular lifestyle is easily acknowledged by the consumer and he knows that once he purchase a bike he is purchasing the lifestyle and image that comes along with it.

Once someone becomes part of this particular lifestyle he will most likely want it to continue which ends up being a customer loyalty and retention tool for Harley Davidson. This also allows Harley Davidson to have to provide low economical benefits to its consumers given that the emotional benefits are so strong. Furthermore, outsiders will now perceive the customer in a different way because he has become part of a community with a specific image of luxury independence and freedom. This specific perception enhances Harley Davidsons’s image and helps with its premium classification given that not everyone is part of this community.

Additionally, a strong brand community allows consumers to feel like they are part of something and enables them to share their ideas with others. This allows them to feel like their input is valued and that effort is being made to respond to their needs and preferences which allows higher customer satisfaction and more loyal customers.

HD also promotes biker events at the Laconia Motorcycle rally or the Daytona bike week to ensure a common companionship between customers by participating together on these diverse occasions.

To summarize what the central advantages of strong brand communities are we can say that it is the loyalty that the community has created. The Harley Davidson brand has become more than just a brand; it has become a lifestyle, a way of living. Thus, this strong brand community has become a customer retaining strategy given that the brand is elevated in comparison to a normal brand. Strong brand communities also lead to lower costs since the community communicates with itself faster than any marketing campaign ever could.

Strong brand communities’ lead to a more certain, and profitable future than a normal brand. As you can see in Figure 8 (See Appendix), we have categorized the services Harley Davidson offers according to their Emotional Benefits and Economic Benefits. The club magazine offers only Emotional Benefits for the members, because it is solely based on stories from members. The HOG offers very high Emotional benefits and some Economic Benefits because members interact amongst themselves and share information about their HD’s, such as where to purchase cheap parts to properly maintain their bike.

Fly ;amp; Rent is not very economical beneficial because they ask for a premium in return for offering a HD at any participating dealer in the world.

However, customers want the option to ride a HD everywhere in the world, which is an Emotional Benefit that can most likely outweigh the economical aspect. The shops offer mostly Emotional Benefits because this is where Harley riders buy their clothes and accessories. From an economical point of view, it is without a doubt cheaper to buy from one store than from numerous.

The HD employees can also be categorized as a service since most of them are HD riders and fans and they want customers to have the same thrilling experience that they experience. Employees offer somewhat of an Economical Benefit since they know what it takes to buy and maintain a HD and they can therefore inform new customers first hand. Mostly, employees offer an Emotional Benefit because they are HD riders themselves and part of the HOG, which the customer wants to be a member of as well.

This establishes trust in the employees.

Financial Services have an Economic Benefit for the customers because all the finances are done internally by HD Financial Services, which gives the customer also a safe feeling, knowing that a company they trust handles the financial aspects. We can see that all the benefits are mostly emotional benefits. That is one the major characteristic of the Lifestyle Club. One final point is that people that buy Harley Davidson have a lot of money usually so they don’t really need to have an economic incentive to be loyal to the company.

This is why it’s an advantage for Harley Davidson to focus only on Emotional benefits.

Question 3) WOULD YOU RECOMMEND HD TO IMPLEMENT A BONUS SYSTEM? We would recommend Harley Davidson to implement a bonus system for loyal customers. A bonus system can procure numerous advantages for both HD and its consumers. “People like collecting miles, digits or points, so on the example of gas stations many drivers rather wait for the next Shell than to buy their petrol at the No-Name station around the corner, only to have the chance to earn enough points for a walkman or a sports bag, and many other customers are acting the same way without realizing it. ” (Kuhnle 2004, p.

) Having a bonus system incites people to purchase a certain brand/product over another one who may not necessarily have a bonus system. A bonus system is an excellent motivational tool for companies. However, we don’t recommend HD to implement a typical bonus system that is geared towards establishing economical loyalty factors. HD is well known as a premium brand and its product pricing is already relatively less expensive in terms of premium products. The customers of HD are willing to pay the price just because they enjoy the experience of riding an HD motorcycle.

Too many economical benefits may decrease the profit and even damage the brand itself.

Therefore, we recommend HD to focus more on establishing psychological loyalty factors when implementing a bonus system. They can still establish economical loyalty factors, but they should be careful not to give too much to avoid hurting the brand itself. Advantages of a bonus system In terms of benefits, first, it compensates loyal customers. Depending on the type of bonus system implemented, rewards are given to customers who have purchased a fixed sum in Harley Davidson products.

Rewards, for example, may include a rebate on their next purchase, bonus features, exclusive special offers or services, and exclusive access to certain events.

Not only does this encourage customers to purchase HD products, which helps boost the company sales, however it rewards them for being loyal and allows the consumer to see that their business is appreciated and valued by the company. This bonus system serves as a customer retention strategy by providing economical (rebates) and psychological (pride of belonging to this system) benefits for the customer.

Furthermore, by making the bonus system free for consumers to join, HD can create a community for all its consumers instead of those who are part of the HOG. They can now reach out to all their customers and not only a specific segment. This enhances customer loyalty towards the HD brand given that free rewards will without a doubt encourage customers to buy the specific brand.

Secondly, the bonus system allows a differentiation of loyal customers from normal customers. Customers show their loyalty to a brand by continuously purchasing their products and services.

Some customers just buy one motorcycle and never purchase any HD products again. The bonus system is aimed towards rewarding loyal customers. By doing this, loyal customers are differentiated from normal customers.

Loyal customers will be proud to be part of the HD community and glad to see that HD is a brand worth the money they invested. Thirdly, the bonus system provides inspirational images of loyal customers. While bonus system provides benefits for loyal customers, it also makes them aspirational role models for normal customers.

When a normal customer sees the satisfaction and pride of loyal customers, he might want to be a part of this group by trying the bonus system. Therefore, more customers are attracted by the bonus system and will probably also become life-long members of the HOG. Fourthly, the bonus system serves as an informational function for the company.

In order to become part of the bonus system, customers have to register and provide certain demographic and socioeconomic information to HD. Although the HOG already provides information about its members, not all HD customers are part of the HOG.

Therefore, this bonus system could complete customer data in addition to the information provided by the HOG. The information that is collected can be used for marketing research and to segment the groups that HD should target. This could also identify the cross-selling potential of other HD products.

Finally, we believe that the costs to implement the bonus system would be quite low and have a big return for the company. The advertisement costs will also be extremely low given that all advertising could be done through the already established HD networks such as the dealers, the shops, the HOG, the magazines and HD events.

How can Harley Davidson possibly implement a bonus system? One possible way is for the company to introduce the Harley Davidson Card in order to let members earn and redeem bonus points after purchasing HD products. This card system would be separated in three different categories: Harley Davidson Card, Harley Davidson Card (Premium), Harley Davidson Card (Prestige). For every HD customer, they are eligible to get a free Harley Davidson Card.

After one’s accumulated expenditure exceeds a predetermined amount, the card will be upgraded to Premium card and then to a Prestige card.

The function of the three card categories should be slightly differentiated. For instance, some services, rewards or gifts may only be obtained via the Harley Davidson Card (Prestige). We hope to create incentives for new customers to continuously purchase more HD products in order to move to the next category, therefore establish the loyalty towards the brand and increase the sales of the company. At the same time, HD will be creating special privileges to the old loyal customers and keep them loyal to HD.

Possible rewards for the bonus system

Besides allowing the customer to use the bonus points for a rebate on HD product, HD should create some special rewards/gifts/services that customers can trade his bonus points in for. Two possible examples of rewards that HD can provide its consumers with are the HD Graving Service and Annual HD pin. The HD Graving Service would allow customers to grave their names or whatever they want on numerous HD products such as motorcycles and motorcycles headgear they purchased. Other than graving on the metal or hard surface of a product, the company can also offer to sew a customer’s name on the HD clothing.

This service also reinforces the “individualism” strategy of the company.

An annual HD pin would be a pin that is newly designed every year by the company. The design may not need to be totally different from the previous pins. The company could simply adjust or alter parts of the pin or create a slightly different design to establish coherence with the previous pins. This would turn the annual HD pins into collection items. Similar to stamp collection or coins collection, we believe this might attract a considerable number of customers that are interested in collecting HD pins over a long period of time.

This would therefore encourage customers to continuously buy HD products and remain loyal.

In addition, HD can also design limited edition pins during special events such as Christmas pins or Olympics pins. LIST OF REFERENCES Harley Davidson 2011 (accessed November 1, 2011), [available at http://www. harley-davidson. com/en_US/Content/Pages/home. html? locale=en_US&bmLocale=en_US] Homburg C. , Kuester S.

& Krohmer H. (2009), Marketing Management; A Contemporary Perspective. Berkshire: McGraw-Hill Education. Knol 2011 (accessed November 1, 2011), [available at http://knol. oogle.

com/k/the-u-s-motorcycle-market#] Appendix Figure 1. U. S market share core customers Figure 2. U. S market share young adults Figure 3 U.

S Market share women Figure 4 U. S market share African American Figure 5 U. S market share Hispanic Figure 6 U. S purchasers median income Figure 7. Motorcycles sales Figure 8.

Emotional benefits vs. economic benefits in the strong brand community AFFIDAVIT “I hereby declare that I have developed and written the enclosed Case Study entirely on my own and have not used outside sources without declaration in the text.

Any concepts or quotations applicable to these sources are clearly attributed to them. This Case Study has not been submitted in the same or substantially similar version, not even in part, to any other authority for grading and has not been published elsewhere. I am aware of the fact that a misstatement may have serious legal consequences.

Mannheim, November 8, 2011 ____________________ Veilleux, Jacques-Olivier ____________________ Vela Loira, Valentin ____________________ Viscosi, Jennifer ____________________ Wang, Yi ____________________ Wijma, Ludwig ____________________ Yip, Lu Yi