Harley-Davidson: Riding Into The Sunset?

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Harley-Davidson is one of the most iconic brands in American history, holding a hallowed place in American culture and cinema. Can you picture it? The open road in front of you, wind-swept hair, and a black leather studded jacket that exudes the "bad-ass" persona. Yes, Harley has dominated the motorcycle landscape for decades. Yet, in recent years, it seems like the brand has run out of gas - and that's not just because of its push toward electric motorcycles either! Jenny Rae, ex-Bain consultant, breaks down the Harley-Davidson business model to see if the brand can still compete in the 21st century - along with action steps it should start taking today.

Harley-Davidson

Harley-Davidson YouTube Transcription:

Can Harley-Davidson rejuvenate their sales? This is Jenny Rae Le Roux with Management Consulted. I'm an ex-Bain consultant who loves to think about businesses. And I'm a numbers person, so I like to break it down to how the numbers work inside the business and figure out whether applied to strategy, makes sense to what they're doing.

Harley-Davidson: The Iconic Brand

Harley-Davidson for those of you who don't know make amazing motorcycles. They are decorative, collectors pieces, they're communities of them one, of their most famous motorcycles of all time is a Harley-Davidson sportster. And they have multiple different ranges, models, and Harley-Davidson is a community, it's an experience. And because of that, Harley-Davidson has done exactly what they should have done over the last number of years. Which is that they have a brand presence which drives a price premium, because they are a variable cost product.

Harley As A Variable Cost Business

So variable cost products have two choices for how they can optimize. First they can maintain maximum price, so they have a great differential in the profitability over their cost. Or, they can produce at a lower cost. And of course every business needs and wants volume. But without those two things you can't compensate in volume, what you're lacking on a per unit basis. So Harley-Davidson has done an incredible job from a branding and a community perspective historically, and making sure that everyone knows when you want to buy a motorcycle the good ones are Harley's.

Harley's Problem

Here's the problem. In the last couple of years Harley has begun to recognize that their population is the baby boomer population. And they are not transitioning younger buyers sufficiently to compensate for the baby boomers that are phasing out of the market. In addition, they have launched internationally and while they're getting good traction, about 42% of their sales were international last year, international is complicated. It's much harder from a supply chain perspective. It's much harder to sustain and to maintain, and so maybe a couple of markets are going to really make sense for Harley overseas, but ultimately, they cannot let their U.S. market go.

This aging demographic is a problem, that they can't just let happen to them. And so my argument is that Harley is unfocused, undisciplined, and unclear about what they even are as a business, and what they should be doing. If they have two choices, higher price premiums, they should be launching Harley's that are multiple, multiple, collector items. So they're super premium Harley's, that are hundreds of thousands of dollars. That people will hold and collect for a long time. And why? Because when they do that they're rebuilding the brand and building it as an elite opportunity. They need to be focusing on driving influencers, make Harley cool again. Make sure that younger people know Harley's, ride Harley's, buy Harley's, want Harley's. How do they do that? There are all kinds of ways and brands have been doing it for hundreds of years, but it's really essential that Harley doesn't leave that behind.

Harley-Davidson's Strategy

What has Harley done instead? They focus on launching electronic motorcycles. Electronic and electric and the you know, hybrid motorcycles, what in the world? Okay, there are scooters and other things that are low emission. There are other opportunities if you want a little toot-toot vehicle, but if what you want is power and distance, electric doesn't give it to you. Electric is 120-140 miles. That's not even a two hour round trip to the hills. It's not anything that's going to give you that substantial Harley experience. And where are the charging stations? At Harley dealerships! There is one in the city that you just left but there's nothing where you're going.

So just an incomplete network and a very like, incomplete thought. And what they're doing is they're trying to drive the price down and the costs, they're not at scale for the production. Yes, it's expensive there's challenges, so they're not really driving their costs down sufficiently. They're not maintaining the price premium, they're not maintaining the contribution margin that they need to.

Recommendation To Harley

So my recommendation if I were on the board at Harley, would be, "You need to focus on driving sales where you have lost them." Sure go to different demographics but focus on your current fixed cost network, which isn't huge, but focus on where your dealerships are and make Harley's cool again. Do whatever you need to do, in order to figure that out. Focus on super premium products and if possible, you can focus a little bit on optimizing production. But overall, I think that Harley is making poor strategic choices, based on not really understanding what kind of business it is. And look, volume is important, international is great, but ultimately I think there are other issues that Harley could solve by being a little bit more simplified in their strategy.

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