It is one thing for people to buy your product or service, but it is another to tattoo your
William Harley and Arthur Davidson, both in their early twenties, built their first motorcycle in 1903. During its 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 its bad boy mystique, power, booming voice, distinctive roar, and toughness. It sounded like nothing else on the road, and even Elvis Presley and Steve McQueen yearned to ride one.
The Harley-Davidson Motor Company has had its ups and downs, and at times the casualties seemed to end in bankruptcy. In the 1960s, Honda, Kawasaki, and Yamaha invaded the American market, and when sales at Harley-Davidson fell dramatically due to declining quality and increased competition, the company began looking for buyers and eventually sold. However, new Harley Davidson owners knew little about 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 spilled oil.
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 back 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 equity 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 far 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 their tour of the Honda plant, Harley Davidson Motor Company decided to put this originally rejected approach into practice.
After implementing just-in-time (JIT) inventory and employee engagement, costs at Harley were significantly reduced; 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, with import tariffs temporarily raised from 4 percent to 40 percent on Japanese bicycles. This extra respite was something the American motorcycle company desperately needed to recover.
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 return profitability and growth to the company. Another important strategic move was the company’s unique branding and marketing campaigns. Studies showed that about 75% of Harley customers made repeat purchases, and executives quickly recognized a pattern that reoriented 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 product 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 organizing rallies to strengthen the relationship between its members, dealers and employees, while promoting the Harley experience to potential customers. Harley owner groups became immensely popular; it allowed motorcycle owners to feel like they belonged to a big family. In 1987, there were 73,000 registered members and Harley now boasts of no fewer than 450,000 members.
In 1983, the company launched a marketing campaign called SuperRide, which authorized more than 600 dealerships to invite people to test drive Harleys. More than 40,000 new potential customers accepted the invitation, and from then 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 to a local motorcycle group, motorcycle publications, private receptions at motorcycle events, insurance, emergency road service, vacation rental arrangements, and a host of other member benefits. Branding the experience, not just the product, has allowed the company to expand the way it captures value, including a clothing line, a parts and accessories business, and the Harley-Davidson Visa card.
If you scanned the list of companies that offered the highest return on investment during the 1990s, you would discover Harley-Davidson. Only a few companies have succeeded in inventing entirely new business models or profoundly reinventing existing ones. Harley-Davidson went from supplying motorcycles to antisocial muggers to selling a lifestyle to old wannabe bad boys caught up in the midlife crisis. Traditionally, Harley-Davidson motorcycle owners came from the middle and working classes, but as the quality and prices of bad boy bikes increased, and with vigorous marketing, the company soon attracted a different class of buyers. : currently a third of Harley buyers. They 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. Now there are groups of accountants, lawyers and doctors. Women also make up a significant portion of new riders, and there are female-only bike clubs scattered around the world.
The future looks bright for the American motorcycle company. According to The Economist, total sales in the United States increased more than 20% in 2000, and in that same year more than 650,000 new motorcycles were sold, compared to 539,000 the previous year. Bike buyers spent an estimated $ 5.45 billion on new bikes in 2000.
Stay alert and get it early. The new paradigm of the brand is to sell a lifestyle, a personality and it is also about appealing to the emotions of its customers. More and more, more and more will be 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 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 Internet pages.
Consumers are no longer easy prey for commercials; they seek new experiences. Whether it’s the bad boy aura of the Harley riding experience, the exquisite coffee experience at Starbucks cafes, or active participation in Web communities, more and more companies will need to follow these 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 the result of ever-changing market conditions.
The brand has changed and so have the marketing and advertising campaigns. New variability, heterogeneity where there was previously homogeneity, emerging wealth stratifications, new preferences and new lifestyles are 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 are creating new wealth are not just getting better; they are becoming different, incredibly different!
Bibliography:
Barker, Joel. 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’ 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 Harley-Davidson Leadership Journey, Harvard Business School Press, 2000.
Young man, James Webb. Technique for Producing Ideas, McGraw-Hill, p. 14.