Not So Easy Ride(r)

One of the greatest brands in all of marketing is Harley Davidson.  One claim to fame is that Harley images are the #1 most tattooed logo in the world.  Now, that takes a dedicated customer - or even a non-customer!  But Harley is in some trouble, and in fact deeper trouble than many folks realize.

Harley's latest rise came after being repurchased by family of the founders from the conglomerate AMF in the 1970s.  These leaders refocused Harley on its roots as an "outlaw biker" brand, and Harley recaptured the position as the #1 manufacturer of large motorcycles.  Today it's not only the "outlaw" buying and riding a Harley, but in fact people from many walks of life who want the "motorcycle experience."  Harley's problem today is that it has positioned itself so strongly with its big "V-Twin" (referring to the type of engine used) bikes that its appeal is almost exclusively with buyers who are old enough to remember seeing the movie Easy Rider.  Every year that's a shrinking number.  It shows in the average age of a new Harley buyer.  From about 42 ten years ago, the average age is now 47.  These are the people who both seek recapturing the image of "outlaw" and can afford $28,000 for a new motorcycle (about 3 times the price of similar motorcycles made by Honda, Suzuki and Kawasaki.)

Today's younger motorcycle riders have been able to avoid Harley's in droves.  They are much more captured by what some people call "crotch rocket" motorcycles.  Built off the racing style frames used in high speed racing, these motorcycles are far faster off the line than a Harley, often have higher top speeds, usually require less maintenance and start as low as $6,000 - with the top racers costing only $14,000.  Ripping off an old Oldsmobile ad phrase (a brand now retired at GM), my sons look at a big V-Twin and say "Yep, that's my dad's motorcycle".

Harley tried to address this problem about 6 years ago by launching what it called the V-Rod.  This was a totally new design, using an engine made by Porsche.  It was intended to bring in the younger rider.  But dealers took one look at the bike and said "It's not a Harley."  They didn't like the style, and they didn't  like the lower price.  They wanted to keep selling the big, old-style bikes with the big, fat profit margins.  So they turned thumbs-down on the V-Rod, and Harley let them.  And their chance to reverse the trend of a dying off customer base was lost (does this remind you at all of Apple walking away from the Newton - the first successful PDA - because it wasn't a Mac back in the late 1990s?).

Now Harley's suffering from a recent strike (see article here).  But the word around Milwaukee (Chicago's neighbor) is that Harley took the strike because it had more bikes in inventory than needed.  And some analysts are predicting that tighter credit will hurt Harley sales (see Marketwatch Herb Grennberg blog here.)  Harley's market capitalization is down about 20% in 2007.  As more folks realize that the brand is at risk of soon dying off (literally), the risk is that its value will fall further.  Like I said, my sons (college and high school) want jackets that say Honda - not Harley.

Locking in on a Success Formula can produce spectacular results.  Harley Davidson demonstrated just how long and how powerfully a good Success Formula can operate.  Harley, its suppliers, its dealers and its customers have had a tremendous 30 year run, with equity value going up 60x just since 1987.  But, like all markets, the market for motorcycles is changing.  And Harley is at great risk of once again lapsing into declining sales.  The company's sales of bikes have stalled, and already dealerships achieve between 40% and 60% of revenue through paraphernalia (t-shirts, jackets, and other logo gear).  Harley management forgot to Disrupt when they launched the V-Rod, and they let the organization push away their breakout product for the future.  Since then, there has been no White Space producing innovation at Harley.  The company is horribly Locked-in to its old market position, and the fuse is lit on what is going to eventually be a very unpleasant surprise when the brand starts retrenching.