William Harley and Arthur Davidson, both in their early twenties, built their first motorcycle in 1903. During their first year, the company’s total production was just one motorcycle; however, by 1910, the company had sold 3,200. Movies like Easy Rider made Harleys a cultural icon, and soon the company attracted people who loved their bad-boy mystique, power, booming voice, distinctive roar and its hardness. It was unlike anything on the road, and even Elvis Presley and Steve McQueen wanted to ride one.
Harley-Davidson Motor Company has had its ups and downs, and at times it looked like the downs would end in bankruptcy. In the 1960s, Honda, Kawasaki, and Yamaha invaded the American market, and when Harley-Davidson sales plummeted due to declining quality and increased competition, the company began looking for buyers and was eventually sold. However, new Harley Davidson owners knew little about how to restore profitability. The quality became so poor that dealers had to put cardboard under the bikes in the showroom to absorb the leaking oil.
Daniel Gross, in Forbes Greatest Business Stories of all Times, tells how in 1981, with the help of Citibank, a team of former Harley-Davidson executives began negotiations to reacquire the company and rescue it from bankruptcy. Among these executives was William Davidson, grandson of founder Arthur Davidson. In a classic leveraged buyout, they raised $1 million in capital and borrowed $80 million from a consortium of banks led by Citibank.
Harley’s rescue team of loyal executives knew that Japanese motorcycle manufacturers were way ahead when it came to quality management, and they made the bold decision to visit a nearby Honda plant. Paradoxically, the Japanese had learned total quality management from the Americans, Edwards Deming and Joseph Juran. The new business concept outlined by these two pioneers was a new management approach that, curiously, had been rejected by American manufacturers. As a result, they offered this approach to Japanese manufacturers who were eager to learn and implement it. Therefore, shortly after its tour of the Honda plant, Harley Davidson Motor Company decided to implement this originally rejected approach.
After implementing just-in-time (JIT) inventory and employee involvement, costs at Harley dropped significantly; this meant that the company only needed to sell 35,000 bikes instead of 53,000 to break even. His lobbying in Washington also helped, and import tariffs were temporarily raised from 4 percent to 40 percent on Japanese bikes. This extra breather was something the American motorcycle company desperately needed for its recovery.
The combination of visiting a Japanese motorcycle manufacturing plant and lobbying Washington for import tariffs was a bold move by Harley executives as they seek to return the company to profitability and growth. Another important strategic move was the company’s unique marketing and branding campaigns. Studies showed that about 75% of Harley customers made repeat purchases, and executives quickly recognized a pattern that refocused the company’s overall strategy. In short, they needed to find a way to attract the extraordinary loyalty of customers, which they found by creating a community that valued the experience of riding a Harley more than the product itself.
Sponsoring a “Harley Owners Group” has been one of the most creative and innovative strategies that has helped create the Harley experience. Inadvertently, Harley executives had pioneered a new paradigm that other industries would increasingly embrace in their quest to increase profitability by turning their product into an experience. The company began hosting rallies to strengthen the relationship between its members, dealers, and employees, while also promoting the Harley experience to potential customers. Harley owner groups became immensely popular; it allowed motorcycle owners to feel as if they belonged to a big family. In 1987 there were 73,000 registered members and Harley now boasts no less than 450,000 members.
In 1983, the company launched a marketing campaign called SuperRide, which authorized more than 600 dealers to invite people to test drive Harleys. Over 40,000 new potential customers accepted the invitation, and from then on, many customers didn’t just buy a motorcycle when they bought a Harley; instead, they were buying “the Harley Experience.”
Harley-Davidson offered its customers a free one-year membership to a local motorcycle group, motorcycle publications, private receptions at motorcycle events, insurance, emergency roadside service, vacation rental deals, and a host of other member benefits. Branding the experience, not just the product, has allowed the company to expand how it captures value, including a clothing line, a parts and accessories business and the Harley-Davidson Visa card.
If you were to look at the list of companies that generated the highest returns on investment during the 1990s, you would discover Harley-Davidson. Only a few companies have managed to invent entirely new business models or profoundly reinvent existing ones. Harley-Davidson went from supplying motorcycles to antisocial muggers to selling a lifestyle to aging bad boy wannabes caught up in midlife crisis. Traditionally, owners of Harley-Davidson motorcycles came from the working and middle classes, but as the quality and prices of bad boy motorcycles increased, and with aggressive marketing, the company soon attracted a different class of buyers. ; Currently, a third of Harley buyers are professionals or managers, and 60% are college graduates. The new customer segments for Harley are the Rolex Riders or the Rich Urban Bikers. Hell’s Angels no longer run in the same group. Now there are groups of accountants, lawyers and doctors. Women also make up a significant portion of new cyclists, and there are women-only cycling clubs that are spread all over the world.
The future looks promising for the American motorcycle company. According to The Economist, overall US sales increased more than 20% in 2000, and more than 650,000 new motorcycles were sold in the US in the same year, up from 539,000 the previous year. Bicycle buyers spent an estimated $5.45 billion on new bikes in 2000.
Stay alert and get it early. The new branding paradigm is about selling a lifestyle, a personality and it is also about appealing to the emotions of your customers. More and more, it will be more and more about creating an experience around the product. Brand managers and executives will need a new pair of glasses. The rules have changed, as have the opportunities to maximize profitability and create value in the process. However, most companies continue with traditional advertising campaigns and seem to ignore the fact that the media has fragmented into hundreds of cable channels, thousands of magazine titles and millions of Internet pages.
Consumers are no longer easy prey for commercials; They are looking for new experiences. Whether it’s the bad boy aura of the Harley riding experience, the exquisite coffee experience in Starbucks cafes, or active participation in Internet communities, more and more companies will need to follow these new brand pioneers. They will need to analyze the dynamics of their relationships with customers and the nature of their interaction. They will have to ask themselves some serious “out of the box” questions if they want to move with the changing value that is a result of ever-changing market conditions.
The brand has changed and so have the marketing and advertising campaigns. New variability, heterogeneity where before there was homogeneity, new emerging wealth stratifications, new preferences and new lifestyles are characteristics of the 21st century customer that are here to stay. We’d better get used to it, at least until the next paradigm is discovered. Remember, the companies that are creating new wealth are not just getting better; they are becoming different, overwhelmingly different!
Bibliography:
Barker, Joel. Paradigms. Harper’s Businesses, 1993.
Bedbury, Scott. A New World of Branding: Eight Principles for Achieving Brand Leadership in the 21st Century, Viking Press, 2002.
Gross, Daniel: Forbes Best Business Stories of All Time, John Wiley & Sons, 1997.
Hamel, Gary. “Innovation Now”, at Fast Company
(http://www.fastcompany.com/online/65/innovation.html), December 2002
Kotter, John P., Leading Change, Harvard Business School Press, 1996, pp. 4 – 14.
Teerlink, Rich, and Ozley, Lee: More Than a Motorcycle: The Leadership Journey at Harley-Davidson, Harvard Business School Press, 2000.
Young, James Webb. Technique for generating ideas, McGraw-Hill, p. 14
