Moving out of Milwaukee would damage Harley’s brand

What does Harley-Davidson have in common with the Republican and Democratic Parties? Core customers have kept all three locked into business models that will fail as the baby boomers age.

“Harley appeals only to the older buyer and they are moving to walkers and RVs, not motorcycles. The young buyers would not buy the overweight and outdated bikes Harley Davidson makes,” stated Skip on the motorcycle blog, “Hell for Leather.”

Skip’s right. Us baby boomers love Harley-Davidson, driving up the company’s revenue, earnings and stock price steadily from 1980 through 2007. By 2009, Harley controlled over half of the market for high-margin heavy touring bikes.

Sounds terrific until you realize that “the average Harley customer is a 47-year-old white male getting older at a rate of six months every year for the last 20 years.” (Wikinvest) Efforts to attract the younger riders via the racing bike Buell and a lighter Italian bike MV Agusta gained little traction and are being divested.

Harley is not the first American brand in a demographic mess. Remember Hamm’s Beer and Pontiac?

Savvy business model strategy

After buying back the company from AMF in 1981, the leadership team fixed quality problems that had all but diehards exiting the brand. A Harley ad featured five very ugly bikers covered in tattoos and chains, all with unshaven faces. The tag line? “With customers like these, wouldn’t you fix your quality issues?”

Harley’s business model innovation was to expand its business definition from motorcycles to motorcycle experiences, positioning Harley as a lifestyle company. Harley’s offering expanded to include clothing, household furnishings, rallies, a museum and vacation experiences. By 2009, general merchandise comprised 6.6 percent of revenue. Harley’s HOGs community is more than 1 million people strong.

Revenue as the driver

In many ways, Harley fell into the Starbuck’s trap, so focused on growing revenue that its uniqueness eroded. While Harley focused on expanding internationally, penetrating the female market and increasing revenue per customer, competitors at the top end such as Big Dog Motorcycles built a totally customizable high-end bike with more power, while other competitors copied Harley’s look and used price to win share.

By expanding sales without fundamentally altering its bikes year after year, Harley also created a formidable competitor – used Harley’s that erode the historic investment value of a Harley.

International sales might be enough to keep Harley humming (anticipated to grow from 33 to 40 percent of sales from ’09 to ’14), but that’s risky. Securing position #3 in a market is easy. Knocking off leaders in Europe and other markets? Much harder. And, with the baby boomers only aging, international growth may not replace declines in U.S. sales.

Improving the business model

So, how can Harley accelerate new customer acquisition without confusing or alienating older riders who cover the overhead?

They have three options as far as I can see, one tactical and two strategic. First the tactical:

Turn Gen X and Gen Y famous people into Harley fans.

Steve Forbes rode a Harley on weekends, giving baby boomers permission to follow. Gen X and Y are performance more than brand focused, however, making this tactic risky. They value competitors’ speedier, more aerodynamic and some say more technologically advanced cycles. Honda is well-positioned to dominate in the future. They’ll follow their many Gen X and Y fans the way they followed baby boomers with an evolving line of cars.

Will Harley’s first truly new bike over the last 50 years, the VRod, aimed at younger riders work? Will they see it as truly new or just another Harley with some changes in line and sound? Oldsmobile had a great ad campaign, “Not your father’s Olds.” But it was, to the brand’s demise.

Redefine the business beyond motorcycle experiences, leveraging Harley’s brand.

Swiss Army leveraged its utility knife brand – known for precision design, ruggedness and durability – into luggage, briefcases, watches and other high-end accessories. So can Harley by broadening its target market and adding new channels.

High-end extension: Leverage Harley’s leather design competency into professional clothing and accessories that speak to the guts, courage and free spirit of the Harley brand. Handbags, briefcases, leather coats, women’s suits, boots, desk sets, even under garments. I’d love to be the designer. Expensive price points that make a statement.

Mass-market extension: Rich boomers created financial success for Harley, but the heart of the brand is a deep belief in the American spirit – an independent, can-do, rugged spirit as epitomized by the trades and other blue collar work. At an economic time when blue-collar workers are an endangered species, there’s an opportunity to tap into their spirit, skills and pride. This move (likely involving acquisitions) would take Harley into work clothing, hand tools, measuring instruments, on-line “real-man” hobby content and home auto-repair among other categories. Harley’s Milwaukee workers could easily build a parallel to HOGS that involved blue-collar workers advocating for a national manufacturing and infrastructure strategy to create more good-paying blue-collar manufacturing and construction jobs. Starting membership would likely exceed 500,000.

Rethink the motorcycle.

Baby boomers initially bought motorcycles as a cheap form of transportation from which one graduated into a VW Bug. What’s the equivalent for Gen X and Y that captures some combination of Harley’s brand attributes: rebellion, guts, character and a free spirit?

Harley’s leaders should assign a team of Gen X and Y rising stars from across functions and locations, asking them to reinvent inexpensive, flexible-in-traffic, fun transportation for 2020 and beyond consistent with Harley’s brand character. Whirlpool did a parallel exercise, creating a new business: garage solutions.

What not to do

Harley management undoubtedly thinks they have a fourth option: reinvent the value chain by moving more production overseas and to another state whose workers and government offer a more attractive deal.

This move would be penny-wise and pound-foolish. Why? Because this move would show a lack of guts and courage, the opposite of the Harley brand.

The United States needs the rebel who stands up to Wall Street and price-shopping buyers and says, “This is our business. This is how we want to run it. Come ride with us for the long haul, because, like Ford, we are on the next wave of our reinvention. Buy Harley. Support America.”

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