Them to Tattoo Your...
By Josef Schinwald
William Harley and Arthur Davidson, both in their early twenties, built their first motorcycle in
1903. During their first year, the company’s entire output was only 1 motorbike; however, by
1910, the company had sold 3,200. Movies such as Easy Rider made Harley's a cultural
icon and soon the company attracted people who loved its bad-boy mystique, powerfulness,
rumbling voice, distinctive roar, and toughness. It sounded like nothing else on the road,
and even Elvis Presley and Steve McQueen longed to ride one.
The Harley-Davidson Motor Company has had its ups and downs, and at times, the downs
seemed as if they would end in bankruptcy. In the sixties, Honda, Kawasaki, and Yamaha
invaded the American market, and when sales at Harley-Davidson dropped drastically due
to decreasing quality and increasing competition, the company began to look for buyers and
was finally sold. However, the new owners of Harley Davidson knew little about how to
restore profitability. The quality became so bad that dealers had to place cardboard under
bikes in the showroom to absorb the oil leaking.
Daniel Gross, in Forbes Greatest Business Stories of all Times, recounts how in 1981, with
the aid 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, the grandson of the founder Arthur Davidson. In a classic leveraged buyout, they
pooled $1 million in equity and borrowed $80 million from a consortium of banks lead by
Citibank.
Harley’s rescue team of loyal executives knew that the Japanese motorbike manufacturers
were far ahead in regard to quality management, and they made a bold decision to tour 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, interestingly enough,
had been rejected by American manufacturers. As a result, they offered this approach to
Japanese manufactures that were eager to learn and implement it. Therefore, soon after
their tour of the Honda plant, the Harley Davidson Motor Company decided to put into
practice this originally rejected approach.
After implementing just-in-time inventory (JIT) and employee involvement, costs at Harley
had dropped significantly; this meant that the company only needed to sell 35,000 bikes
instead of 53,000 in order to break even. Their lobbying at Washington also helped, and
import tariffs were raised temporarily from 4 to 40 percent on Japanese bikes. This extra
breathing space was something that the U.S. motorbike company desperately needed for its
recovery.
The combination of visiting a Japanese motorbike manufacturing plant and lobbying in
Washington for import tariffs was a daring move on behalf of Harley’s executives in their
attempt to bring back profitability and growth to the company. 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. Simply put, they needed to find a
way to appeal to the extraordinary loyalty of customers, which they found in creating a
community that valued the experience of riding a Harley more than the product itself.
The sponsorship of a “Harley Owners’ Group” has been one of the most creative and
innovative strategies that has helped create the experience of this product. Without realizing
it, Harley executives had pioneered a new paradigm that would be increasingly embraced by
other industries in their quest to increase profitability by converting their product into an
experience. The company started to organize rallies to strengthen the relationship between
its members, dealers, and employees, while also promoting the Harley experience to
potential customers. The Harley Owners’ Groups became immensely popular; it allowed
motorcycle owners to feel as if they belonged to one big family. In 1987, there were 73,000
registered members, and Harley now boasts to have no less than 450,000 members.
In 1983, the company launched a marketing campaign called SuperRide, which authorized
over 600 dealerships to invite people to test-drive Harley's. Over 40,000 potential new
customers accepted the invitation, and from then on, many customers were not 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 to a local riding group,
motorcycle publications, private receptions at motorcycle events, insurance, emergency
roadside service, rental arrangements on vacation, 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 line of clothing, a parts and accessories business, and Harley-
Davidson Visa card.
If you were to scan the list of companies that delivered the greatest returns on investment
during the 1990s, you would discover Harley-Davidson. Only a few companies have been
successful in inventing entirely new business models, or profoundly reinventing existing
ones. Harley-Davidson went from supplying motorcycles to antisocial raiders to selling a
lifestyle to the aging bad boy wannabes caught in their midlife crises. Traditionally, Harley-
Davidson bike owners came from the working and middle classes, but as quality and prices
of the bad-boy-bikes rose, and with energetic marketing, the company soon attracted a
different class of buyers—currently one third of Harley buyers are professionals or
managers, and 60% are college graduates. The new customer segments of Harley are the
Rolex Riders or the Rich Urban Bikers. Hell's Angels do not run in the same group anymore.
Now there are groups of accountants, lawyers and doctors. Women also account for a
significant portion of the new riders, and there are women-only riders clubs spreading all
over the globe.
The future looks bright for the U.S. motorbike company. According to The Economist, overall
U.S. sales increased over 20% in 2000, and more than 650,000 new motorcycles were sold
in the U.S. in the same year, up from 539,000 the year before. Bike buyers spent an
estimated $5.45 billion on new bikes in 2000.
Stay alert and get it early. The new branding paradigm is to sell a lifestyle, a personality and
it is also about appealing to emotions of your customers. Increasingly, 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 well as the opportunities to maximize
profitability and create value in the process. Nonetheless, the majority of companies
continue to follow traditional ad campaigns and they 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 sitting ducks for commercials; they are looking for new
experiences. Whether it is the bad-boy-aura of the Harley riding experience, the exquisite
coffee experience in Starbucks cafés, or the active participation in Net communities, more
and more companies will need to follow these early new branding pioneers. They will need to
look into the dynamics of their relationships with customers and the nature of their
interaction. They will need to ask themselves some serious “out-of-the-box” questions if they
want to move with the shifting value that is the result of constantly changing market
conditions.
Branding has changed and so have marketing and advertising campaigns. New variability,
heterogeneity where there was once homogeneity, newly emerging stratifications of wealth,
new preferences, and new life styles are all characteristics of the 21st century customer that
are here to stay. We better get used to it, at lease until the next paradigm is discovered.
Remember, the companies that are creating new wealth are not just getting better; they are
becoming different—mind-bogglingly different!
Bibliography:
Barker, Joel. Paradigms. Harper Business, 1993.
Bedbury, Scott. A New Brand World: 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 Producing Ideas, McGraw-Hill, p. 14.
Josef Schinwald is consultant in Performance Measurement and professor in Business
Strategy at the University of Belgrano, Buenos Aires, Argentina, and his didactic material
must not be replicated without the given permission to do so. Copyright © 2003-2005
Business Design Innovation. Josef is also owner of ValueQuest, LLC, a e-commerce
business, and you can visit his sites at My Motorcycle Leather http://www.my-motorcycle-
leather.com and Stylish Wedding Favors http://www.stylish-wedding-favors.com.
