The Road Less Travelled
Harley Davidson has underestimated the potential of Project LiveWire and needs to pursue strategic partnerships to succeed in the market
For 111 years, Harley-Davidson has sold a story of freedom and independence. It built a brand that connected with the youthful rebellion of a generation and has become entrenched as an American cultural icon. However, with 65% of the company’s revenue last year coming from Caucasian men over the age of 35 and an expected 20% decline in its baby-boomer customer base by 2030, Harley is facing its own mid-life crisis. This demographic shift, combined with a rising median age among motorcyclists and a decline in first-time buyers, paints a dark picture of future growth prospects, particularly among the younger generations. Moreover, despite the fact that revenues are currently on the rise, unit sales are still down 30% compared to 2006. Harley’s cultural ubiquity has allowed the brand to become a symbol of American individuality, which has translated to commercial success in the past. However, this powerful branding is no longer relatable to younger audiences, and unless it can revitalize its brand, Harley will fade into obsolescence.
To mitigate the issue of its aging customer-base, Harley has recently focused on new product development. The Harley- Davidson StreetTM 500 and StreetTM 750 motorcycles, released in late 2014, were intended to serve as platforms to attract a new generation of young, urban riders to Harley. The Street bikes are offered at a discount of approximately 30-50% of typical Harleys, with the StreetTM 500 and the StreetTM 750 starting at $6,799 and $7,499 respectively. The new line has been well received, and is forecasted to sell 7,000 to 10,000 units in the first year.
This new line, however, may not prove to be a long-term solution as the cheaper Street may dilute Harley’s image, built upon notoriously loud, up-right heavyweight motorcycles. Deviation from this image has historically been ineffective, as demonstrated by the unpopular release of its lower priced, entry-level motorcycle, The Buell Blast, in 2000. Focusing on the Street line alienates Harley’s core fan base and shifts the brand image into murky territory that it has not been accounted for in its marketing and messaging.
The Street line also moves Harley away from its established competitive strategy of strong differentiation based on its heritage and cult following, to a space that is highly saturated by competitors such as Honda, Yamaha, Kawasaki, and Polaris. Foreign competitors have dominated the space of urban, lowcost, and reliable motorcycles in the international market. With a research and development budget of only 2.9% of sales, Harley’s investment in technology lag far behind Yamaha’s 5.4% and Honda’s 5.1% allocations of sales dollars to motorcycle R&D, indicating a strategic mismatch if the desire for product innovation is genuine. Harley also has a lower capacity in purchasing and manufacturing compared to its counterparts, such as Honda. Harley sells approximately 400,000 units annually, while Honda sells close to 10 million, giving Honda higher buying power against suppliers and potentially improved economies of scale. From a manufacturing standpoint, Harley is accustomed to producing low volumes of high-margin motorcycles. When switching its focus to the Street line, Harley may face challenges in adjusting to higher manufacturing volumes.
Two proverbial roads are diverging, and Harley Davidson is faced with a choice. Rather than placing its reliance on the Street Line to appeal to the younger generation, Harley should take the road less travelled by more seriously pursuing Project LiveWire: its prototype electric motorcycle. By focusing on LiveWire, Harley can introduce a new and relevant product to the younger generation, while still maintaining its position as a premium motorcycle manufacturer.
Test Driving the Competition
Project LiveWire is Harley’s first foray into the electric motorcycle market. A prototype model is currently being toured throughout North America and Europe in an attempt to solicit consumer feedback. This feedback will help Harley decide if and when to bring an electric motorcycle to market. The prototype has a single gear, a touch screen dashboard, and is strangely quiet. Harley’s CMO, Mark-Hans Richer, denotes that Project LiveWire is all about building buzz and showing Harley can appeal to new kinds of customers, rather than a concrete plan to release an electric bike . This narrow focus is a missed opportunity for Harley Davidson.
Harley is not the first to enter the electric motorcycle market. Electrics have been a niche market since 2010, with the space comprised almost exclusively of small companies such as Zero, Brammo, Energica and Mission. Zero Motorcycles and Brammo were the first two companies to bring electric bikes to market. However, these players currently have insignificant sales compared to traditional motorcycle manufacturers. Zero Motorcycles expects to sell about 2,400 bikes this year globally, a small fraction of Harley’s 2013 sales of gasoline-powered motorcycles.
This market may not stay quiet for long, as big player Yamaha has hinted in its 2013 annual report at an introduction of electric bikes in the near future. Indeed, research from Navigant Research suggests the e-two-wheeler market is ready to surge as component prices drop. It estimates that 55 million plug-in two-wheelers will be sold within the next decade.
The main obstacle Harley will face when attempting to enter this new market is its lack of expertise in manufacturing electric motorcycles. Notably, the current specs of LiveWire pale in comparison to those of niche brand bikes, specifically when it comes to range and speed. These issues stem from battery capacity limitations and component manufacturing, as the technology is not yet mature and battery quality is a key factor for both cost and bike functionality. Despite these challenges, it is important for Harley to stay ahead of the curve and spot opportunities early in order to maintain sustainable growth. The most effective method through which Harley can maintain its positioning is to seek out strategic partnerships to complement its strengths and offset its weaknesses.
Paving the Way
Harley traditionally produced heavyweight, gas-powered motorcycles. It enjoyed success in this space through innovative technology, like the V-Twin engine, which led to Harley bikes being seen as loud, powerful, and unique. This image has allowed Harley to price their bikes at a significant premium to the rest of the industry. If the LiveWire is to assume a premium position and become the market leader in the electric motorcycle space, Harley will need to design a bike with best in-class performance. The current specs of the LiveWire are insufficient to achieve this status. To bridge the gap between their current abilities and the required skills, Harley should seek the expertise of Tesla Motors.
Tesla gained widespread attention through the launch of the Tesla Roadster, the first fully electric sports car, and has since become the champion of electric vehicle technology. Tesla has a history of developing key electric vehicle components for other manufacturers, such as for the Toyota Rav4 and the Mercedes B-Class Electric Drive. Tesla contributed both the battery pack and the electric drivetrain, which are key components needed to be improved on LiveWire. With sales of the jointly developed Toyota RAV4 EV winding down since its release two years ago, the company will likely have additional capacity to produce for external manufacturers, and would be interested in working on a Harley motorcycle to expand the reach of their brand into diversified products. Tesla also released a number of its patents to the public in June 2014, indicating that the company wishes to standardize its charging technology. With Tesla actively looking to expand its customer base, Harley can capitalize on Tesla’s expertise to resolve the major issues facing LiveWire. This will allow the Harley to develop a model with leading specs and be seen as a front-runner in the industry.
A partnership with Tesla would also help overcome the lack of charging infrastructure for electric motorcycles. Currently, LiveWire would have to utilize Level 2 public charging stations. These stations result in charging times of approximately two hours, which decreases the appeal of owning an electric motorcycle. Partnering with Tesla would allow LiveWire to utilize Tesla’s network of SuperChargers. In 2012, Tesla began constructing a network of 480-volt fast charging stations that would facilitate longer distance trips for its cars. There are currently 144 stations in North America in high-traffic corridors, 121 in Europe, and 48 in Asia, with many more stations on the way. The Superchargers would allow for a drastic reduction of charge time to potentially as low as 20 minutes. Where Harley would benefit from battery technology and compatibility with Superchargers, Tesla stands to gain additional acceptance of its technology standards. By partnering with Tesla, LiveWire riders would be able to experience a convenient and ubiquitous riding experience across the United States.
Harley has overlooked the potential to fully launch the LiveWire to not only appeal to younger riders, but also to be the first to pave the future for sustainable motorcycle riding. Harley should focus on expanding its market share of young professionals in the US between 24-45 years of age that earn over $90,000 annually, indicating a current market size of 5.77 M people. This demographic is typically concentrated in urban areas, have disposable income, and are increasingly choosing alternatives to cars due to limited parking and high traffic. With 32% of vehicles being purchased on average by that age bracket and a 3% ratio of motorcycle sales to vehicle sales in the US, Harley stands to see a market size of $343 M. In comparison to their expected sales of its Street line-up, Harley would need to capture 22% of the market to achieve similar top line growth. While this is significantly smaller compared to Harley’s entire motorcycle market share in the US, Harley can jumpstart this capture by heavily pushing sales in California
. This move aligns with the strategy as a whole, as it is not only the locations of Tesla’s headquarters, allowing the company to promote sales through association, but it is also the state that is most committed to creating a zero-emission transportation industry. The value of the opportunity is bolstered by the international potential of LiveWire, specifically in Europe, where there is growing demand for renewable energy transportation.
Revving the Electric Engine
The iconic company can once again infiltrate popular culture, in effect building loyalty for a modified Harley brand. In the past, Harley became an ingrained component of American culture by being the transportation of choice for the US military, rockand- roll icons, the Hell’s Angels, and Hollywood rebels. The brand evolved to represent American rugged individuality and promoted desire for Harley motorcycles. This focus on individuality should be extended to the new LiveWire through Harley’s online tailor-made platform, where an abundance of colours, textures, and materials will be available for customization to further attract the younger generation, which continues to value personalization.
Harley’s cult following must also be rebuilt within the context of modern culture by associating the brand with relevant cultural figures and popular media. Harley must court celebrities who are prominent with the young professional demographic, provide them with free bikes, and strive to have these bikes appear in relevant movies and TV shows. Additionally, these new target users must experience the product for themselves. Harley should approach corporations for proposed partnerships, in which dealerships will host events at major offices to allow the employees to become more comfortable and knowledgeable about the Harley brand. This will ensure Harley is attracting people who can afford the product and are within the target market. By re-immersing Harley into popular culture in meaningful ways and marketing direct to consumers, Harley can become a cultural icon that is no longer associated with an out-dated past, but with the future.
Hitting the Open Road
Harley is at a crossroads, but within shifting demographics there lies an opportunity for the once powerful brand to build a new, more sustainable image. The dawn of electric vehicles is here, and Harley can either be in the driver’s seat and steer itself into the bright future, or wait for the world to drive by. The Street line has only succeeded in blurring the future of Harley- Davidson. With the LiveWire, Harley is able to maintain profitability by selling a technologically advanced product that justifies premium pricing and high margins. In a partnership with Tesla, Harley will not only be able to better execute its strengths, but also take advantage of Tesla’s innovative technology to produce a top-line motorcycle that aligns with Harley’s brand. This move will create a sustainable competitive advantage by establishing Harley as the first major brand in the new electric motorcycle market. More importantly, this move will attract a new generation of Harley fans. Harley must not let the roar of the past overpower the hum of the future.