William Harley and Arthur Davidson, both in their early twenties, built their first motorcycle in 1903. In their first year, the company’s total production was just one motorcycle; however, by 1910 the company had sold 3,200 of them. Films such as Easy Rider made Harleys a cultural icon and soon the company attracted people who liked its bad boy mystique, its power, its growling voice, its sound. distinctive roar and tenacity. It wasn’t like anything else on the road, and even Elvis Presley and Steve McQueen wanted to ride one.
The Harley-Davidson Motor Company had its ups and downs, and at times the downs seemed to end in bankruptcy. In the sixties, Honda, Kawasaki, and Yamaha invaded the American market, and when Harley-Davidson sales fell dramatically due to declining quality and increasing competition, the company began to seek buyers. and was eventually sold. However, new Harley Davidson owners had little idea how to restore profitability. The quality got so bad that dealers had to put cardboard under the bikes in the showroom to soak up the oil leaks.
Daniel Gross, in Forbes Greatest Business Stories of all Times, recounts how in 1981, with the help of Citibank, a team of former Harley-Davidson executives began negotiations to buy the company and save it from bankruptcy. Among those executives was William Davidson, the grandson of founder Arthur Davidson. In a classic leveraged buyout, they pooled $ 1 million in equity and borrowed $ 80 million from a consortium of banks led by Citibank.
The Harley Rescue Team, made up of loyal executives, knew that Japanese motorcycle makers were way ahead when it came to quality management, and they made the bold decision to visit a nearby Honda factory. 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, oddly enough, had been rejected by American manufacturers. As a result, they offered this approach to Japanese manufacturers keen to learn and implement it. Therefore, soon after their visit to the Honda factory, the Harley Davidson Motor Company decided to put this initially rejected approach into practice.
After implementing just-in-time inventory (JIT) and employee engagement, costs at Harley have dropped significantly; this meant that the company only needed to sell 35,000 bikes instead of 53,000 to break even. Their lobbying in Washington also helped, and import tariffs were temporarily increased from 4 to 40 percent on Japanese bikes. That extra breathing space 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 in their attempt to bring the company back to profitability and growth. . Another important strategic step was the company’s unique branding and marketing campaigns. Studies have shown that about 75% of Harley customers make repeat purchases, and executives quickly recognized a model that refocused the overall strategy of the company. Put simply, they had to find a way to appeal to the extraordinary customer loyalty, which they found in creating a community that valued the experience of riding a Harley more than the product itself.
Sponsorship of a “Harley Owners’ Group” has been one of the most creative and innovative strategies that have helped create the experience of this product. Without realizing it, Harley executives had launched a new paradigm that would be increasingly adopted by other industries in their quest to increase profitability by converting their product into an experience. The company began organizing gatherings to strengthen relationships among its members, dealers, and employees, while promoting the Harley experience to potential customers. Harley owner groups have become immensely popular; it made motorcycle owners feel like they were part of a big family. In 1987, there were 73,000 registered members, and Harley today boasts of having as many as 450,000 members.
In 1983, the company launched a marketing campaign called SuperRide, which authorized more than 600 dealers to invite people to try Harleys. Over 40,000 potential new customers accepted the invitation, and from that point on, many customers weren’t just buying a motorcycle when they bought a Harley; instead, they were buying the “Harley Experience”.
Harley-Davidson offered its customers a free one-year membership in a local riding group, motorcycle publications, private receptions at motorcycle events, insurance, roadside emergency service, vacation rental arrangements and a host of other member benefits. Branding of the experience, not just the product, has allowed the company to broaden the way it captures value, including a clothing line, parts and accessories business, and a map Harley-Davidson Visa.
If you were to go through the list of the companies that generated the best ROIs during the 90s, you would find Harley-Davidson. Only a few companies have succeeded in inventing entirely new business models or in fundamentally reinventing existing ones. Harley-Davidson has gone from supplying motorcycles to anti-social raiders to selling a lifestyle to aging bad boy aspirants caught up in their midlife crises. Traditionally, owners of Harley-Davidson motorcycles have come from the working and middle classes, but as the quality and prices of bad-boy motorcycles increased, and with vigorous marketing, the company quickly attracted another class of buyers. – currently a third of Harley. buyers are professionals or managers, and 60% are university graduates. Harley’s new customer segments are the Rolex Riders or the Rich Urban Bikers. Hell’s Angels no longer run in the same group. There are now groups of accountants, lawyers and doctors. Women are also a significant portion of new riders, and there are women-only rider clubs around the world.
The future looks bright for the American motorcycle manufacturer. According to The Economist, overall sales in the United States increased by more than 20% in 2000, and more than 650,000 new motorcycles were sold in the United States in the same year, compared to 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 set of lenses. The rules have changed as have the opportunities to maximize profitability and create value in the process. Nonetheless, the majority of businesses continue to follow 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 web pages.
Consumers are no longer ducks sitting around for advertisements; they are looking for new experiences. Whether it’s the bad boy aura of the Harley riding experience, the exquisite coffee experience at Starbucks cafes, or actively participating in Net communities, more and more businesses will need to follow these first pioneers of the brand. They will need to consider the dynamics of their relationships with customers and the nature of their interaction. They will need to ask themselves serious “out-of-the-box” questions if they are to move with the changing value that is a result of constantly changing market conditions.
The branding image has changed, as have the marketing and advertising campaigns. New variability, heterogeneity where there once was homogeneity, new emerging wealth stratifications, new preferences and new lifestyles are all characteristics of the 21st century customer who are here to stay. We better get used to it, at least until the next paradigm is discovered. Remember, businesses that create new wealth don’t just get better; they become different – in a mind blowing way!
Barker, Joël. Paradigms. Harper Business, 1993.
Bedbury, Scott. A New World of Branding: Eight Principles for Achieving Brand Leadership in the 21st Century, Viking Press, 2002.
Gross, Daniel: Forbes Greatest Business Stories of All Time, John Wiley & Sons, 1997.
Hamel, Gary. “Innovation Now”, in 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.