There five primary forces that influence the motor cycle industry in the US in general and individual producers like Hardley. First, there is the influence attributed to the suppliers bargaining power in the industry. The suppliers in this case refers to the companies that supply the manufacturers of the motor cycles with the inputs or spare parts that are used to manufacture or assemble the motor cycles. There is a concentration of suppliers in the industry. These are both from America and other parts of the world such as Japan. On the other hand there are only a few producers in the market. Thus the suppliers have a weak bargaining power. There is also very little differentiation on the input used to manufacture the motor cycles. This is because they are basically manufactured using the same material. T5his further weakens the bargaining power of the suppliers. A weak supplier bargaining power means that the manufacturers can obtain their suppliers at lower costs since the suppliers will tend to be price takers in the market. However, the inputs for a better part of the costs are involved in the manufacture of the motor cycles thus if the suppliers increase they prices then the price of the cycles will increase and this may result into low sales.
The second factor is the buyers’ bargaining power. The buyers in the US market are more price sensitive and are also concerned with style and quality. The 2008/ 2009 recession particularly reduced the purchasing power in the economy. The effects of the recession are still being felt by manufacturers a since the economy is yet to fully recover. The recession has made the buyers to be more sensitive to price will always resist price increases. The manufacturers and sellers of the cycles thus experience the effects of the recession in terms of low sales. The higher bargaining power among the buyers means that the manufacturers and sellers cannot increase the prices significantly to meet their revenue requirements.
The third force is the rivalry in the market. The motor cycle industry in the US market is characterized by high concentration ratio. This means that the merger corporations dominate the market with Hardley commanding near half percent of the market share. Thus such large companies do not experience rivalry associated with competition for the market. However, competition is felt in the form of price changes in which each firm is struggling to position its cycles as the cheapest in the market. Product differentiation also causes rivalry in the market as each firm tries to make its products more superior. This is through research and development initiatives that are adopted by nearly all firms in the market. The level of rivalry in the, market can be said to be intense. This is because of increasing fixed costs in the industry thus each firm is aiming at producing at near capacity and this leads to large outputs. Consequently they fight for the market share as each firm struggle to sell all its stock. The slow growth of the market after the recession ahs also intensified rivalry in the industry as firms compete for the few clients with the purchasing power. Finally, new entrants in the markets especially from Asian economies in the market have contributed to high level of rivalry.
The threat of substitute products is another factor that impact on the industry. Completion form the automobile industry has made it difficult for firms to maintain high level of sales in the market. There is shift from motor cycles to sport cars. This means that the demand for the motor cycles has declined. Besides the costs of cars are generally becoming cheaper thus consumers prefer to buy cars to motor cycles. The last force is the threat of new entries in the market. The huge capital required to enter the motor cycle industry has discouraged many potential firms to invest in the industry. Consequently the incumbent firms have been saved the competition and rivalry that they would encounter if more firms were to join the industry.
Driving forces in the industry and their impacts
There are four main forces that drive the motor cycle industry in the US. First, the sales of motor cycles are informed by the culture of the American people. Motor riding is a way of life that leads to experience that most American identify with. The culture of individualism promotes riding of motor cycles. Due to individualism many Americans prefer riding or travelling on their own rather than in the company of others in a car. The Americans also value their freedom and motor cycle riding give them the perfect opportunity to enjoy their freedom. The citizens also like adventure in their community. Motor cycles facilitate adventure since it offers more off road functions than cars. Besides, these are easy and cheaper to operate as compared to cars. These factors make the motor cycle the perfect choice for the Americans. This translates to higher sales in the industry.
The second force that drives the industry is technological advances. The users of motor cycles are mainly young people who prefer high quality at relatively lower costs. Thus the manufacturers have to develop new technologies that will enable them to produce superior motor cycles that are of high quality at relatively low costs. This factor will favour the industry since the manufacturers are able to develop new production technologies through research and development. Thus the companies will be able to increase their profits by simply reducing their marginal costs. As the prices become lower due to reduced costs of production, the firms sale units in the market increases. The result is a larger market share and high profitability.
The third force that drives the market is the consumer preferences and changing lifestyles. The rapidly changing tastes and preferences in the industry have guided the production of manufacturers. This is because the users of motor cycles are shifting their attention from the ordinary motor cycles to those ones that meet their specific needs. For example there are those who need the motor cycles for transportation while others use them for sports and other leisure activities. The changing tastes and preferences has presented a challenge to the manufacturers in the short term in that they cannot increase their output in response to the rising demands on a particular model of motor cycle. However, in the long term they are able to increase their output in response to the new demand level. This has both positive and negative impacts in the industry. It is a benefit in that the firms are able to increase their sales by launching the products that meet the expectations of the customers. However, investments in research and technology in the short term in order to produce the new models of motor cycles involves high costs which can destabilize the financial position of the firms.
Finally, the industry is driven by innovation and product innovation. The users of motor cycles are always interested in the new features added on the various motor cycle products. They are particularly concerned with the speed, power of the engine and the cost effectiveness of operating the motor cycle. This has encouraged innovation in the industry. It has particularly led to the development of a variety of models that meets the lifestyles of the potential users. Innovation has also led to the development of products that meet every possible budgets of the prospective buyers. For example, Harley has always made it its priority to ensure that every one should be able to afford and acquire a motor cycle. However, high levels of product differentiation among firms will always lead to intense competition in the industry. This means that firms that are not able to develop new technologies for innovating their products risks losing their, market shares. In some case the firms can even close down if they cannot compete effectively.
Strategy employed by Harley Davidson
Currently the company has employed three strategies as a way of enhancing competitiveness and profitability in the industry. First, the company is focusing on research and development. This is meant to help the firm to develop new products that meet the expectations of its customers. Thus the company has since doubled its product development centre and created a prototype lab to assist with the design and manufacture of new motor cycles. The development of new products will help the company to maintain its market share and improve its profitability through higher revenue attributed to the new products.
Second, the company is focusing on cost reduction. This involves reducing the costs of production with the aim of producing highly affordable products. It also involves the development of improved methods or technologies of production that will facilitate cost reduction. The purpose of cost reduction is to make the final product as cheap as possible. Consequently the company can sell them at lower prices in the market. This leads to higher sales since the demand will be higher at lower prices. Finally the company is focussing on consolidating its market share. This is in response to completion from its competitors especially in the overseas markets in Asia and even in Europe.
The company’s strategic plan follows the integrated cost leadership and differentiation. This strategy combines both cost leadership and product differentiation. It thus leads to greater growth as it focuses on profitability and consolidation of the market share. The cost leadership strategy is reflected in the company’s efforts to reduce the prices of its products through lower costs of productions as discussed above. This policy is suitable for the company on the ground that it has the required capital that is needed to fund the research and development of new production technologies. Second, the company has focused its production on efficiency and high quality. This enables it to lower cost. Third, the company has an efficient distribution channel that will enable it to effectively and efficiently distribute its products. This is necessitated by the fact that the firm anticipates higher sales and production by implementing cost reduction production technologies.
The differentiation strategy is reflected in the firm’s initiatives to produce new products in response to the customers’ needs. This policy is also suitable for the firm due to the fact that it has the technology for innovation and production of new motor cycles. By using these two strategies, the company is able to improve its profitability and also increase its market share. As the lowest producer in the industry, the firm will be able to make more profits than its competitors by selling its products at the average price level min the industry. The company can still sell at below the average price level in the industry and make profits. Thus it can use this strategy to penetrate the markets where it is experiencing greater competition with the aim of increasing its market share.
Harley Davidson has achieved a competitive advantage over its competitors in the industry. This occurs as a result of three reasons. First, the company has the largest market share of about 50%. Thus it enjoys over half of the industry’s revenue. Consequently the company has the financial muscle to maintain its profitability. This is an advantage that its competitors cannot easily achieve. Second, the company has an established brand that everyone identifies with. This means that the company enjoys high level of customer loyalty and this translates to higher sales and greater market share. Finally, the company has the ability to develop and to use advanced technologies in production. This is a challenge especially to new entrants in the market due to their limited knowledge of customer needs. Harleys has been in the industry for over a decade and thus fully understands the needs of the customers.
Harleys boosts of four main success factors that have helped it to remain competitive despite the rivalry in the market and the changes in the business environment. First, the company has managed to be financially able in the market. This has been through sound management principles, and informed investments in the relevant product line. Consequently the company has been able to fund its main development plans. One of this plans include the sales and marketing plan implementation that requires a lot of funds. It has also use its financial position to engage in research and development thus developing new products that meets the specific needs of the customers.
Second, Harley’s commands the largest market share in the motor cycle industry. This factor has been important in the development and growth of the company. This is because it ensures stable and sustainable revenue for the company. It is for this reason the company is keen in maintaining its market share through the differentiation strategy. The company’s products are trusted by the customers. This has resulted in customer loyalty. Thus the competitors of the firm have found it hard to compete with it in the industry.
Third, the company has always focused on developing and using new technologies in its productions. This has been done through research and development as well as purchase of state of the art equipment that facilitates the designing and manufacturing of new products. This has helped the company to main its competitiveness by producing goods that are relevant to the needs of the market.
Finally, the company has learned to develop cordial relationships with its customers. This has been achieved by encouraging positive experiences with the customers through activities such as motor ride competitions. Most importantly is the fact that the firm has learnt to understand the needs of the customers and to incorporate such needs in the development of its products. This is explains why the products of the company are popular among the users of motor cycles. Some of these factors are attributed to greater strategy execution while others are attributed to greater leadership. The success factors associated with financial stability and technological advancements in production can be attributed to greater strategy execution. This is because they involve both technical and policy perspectives. Thus there is a need to develop formal strategies that are to be followed. It is important to execute the identified success strategies with precision in order to ensure success. The success factors associated with market share and understanding of the needs of the customers can be attributed to greater execution of leadership. This is because they mainly involve the development of success strategies based on experiences and interpersonal skills as opposed to a theoretical or an academic framework.
Recommendations to Keith Wandell
While the company seems to be doing well at the moment, this does not guarantee success for the future. Thus the company must continue to develop and pursue sound development strategies that will ensure its competitiveness in the future. The current strategies adopted by the firm are relevant to the needs of the firms as discussed above. However, in order to achieve a greater growth in the future, the company can consider the following commendatiosn. There are three recommendations that the company can consider.
First, the company should focus on cost reduction. At the moment the company has given more attention to the development of new products as well as the innovation or differentiation of its existing products. Development of new products is important in maintaining the market share. However, it has risks that can be avoided especially at the time when the company is experiencing a decline in sales. The risks involved include the development of a market for the new product. Besides the lifecycle of the product is characterised by a long period before the product reaches its maturity stage in the market. This has two implications. First, the success of the product in the market is not guaranteed since it is new. Secondly, the company’s funds are tied as the product develops through the phases in the market. In response to this the company can focus on reducing the costs of product and lower prices. The sales in this case are guaranteed since the products are already established in the market. The overall result will be great revenue.
Secondly, the company can consider diversifying its investments; this can be in the form of investing in other profitable industries such as housing and communication. The company can apply its management principles in these sectors and achieve success. The overall effect will be greater revenue and profits to the firm. The rationale of this strategy is the fact that the company will be assured of income in even in the cases whereby the motor cycle industry is facing challenges. Thus the company will use this strategy to ensure stability over time.
Finally, the firm can consider venturing into new markets. This can include the African and parts of the Asian market where it is not well represented. This will increase the company’s global market share and profitability in the long term. Besides, the company will take advantage of better terms of conducting business in the overseas markets.