Harley-Davidson Porter’s Analysis

Threat of New Entrants

An analysis of the cruiser market presents a situation with our company leading the pack by a significant portion in most regions of the world. We possess neither technological superiority nor economies of scale in production. Our success has been attributed to the brand’s strength, thus suggesting that companies that desire to enter this market would have to compete in terms of brand strength. There is also high cost of entry involved in the cruiser market. A competitor, Ducati, estimates a cost of Euro 43 million for developing and producing a cruiser.

However, the evenly distributed nature of the European market suggests that no single firm has been able to gain a significant advantage over the others. This market is shared more or less evenly between us, the Japanese manufacturers, BMW and Triumph. This suggests that a threat from a new entrant who addresses the needs of the European consumers for performance and style poses a credible threat to the incumbent firms.

Threat of Substitutes

The cruiser market is typically characterized by older, wealthier consumers. Some of these consumers may choose to substitute motorcycles for cars to meet the needs of their growing families. However, given the high average income of a cruiser owner it is quite likely that he/she already owns a car in addition to a motorcycle, and thus the threat of substitution by products from different industries is quite low. There is also the small possibility of substitution by other segments of the motorcycle industry.

Bargaining Power of Buyers

The strength of our brand globally, as displayed by very high brand loyalty, implies that cruiser buyers possess significant bargaining power. This is reinforced by the fact that a number of Japanese motorcycle manufacturers have (at great R&D expense) introduced cruisers that are technologically superior to ours but have not been able to sway our customers as the perceived switching costs are too high. Thus cruiser buyers appear to be influenced more by brand strength than the attributes of the product.

In addition, new entrants would be restricted in their choice of intermediate buyers (dealers) since many of them are locked into exclusive contracts with the companies they represent.

Bargaining Power of Suppliers

The concentrated nature of the market suggests that suppliers have relatively low bargaining power with companies that they are already supplying. On the other hand, suppliers have very high bargaining power with potential entrants to the market due to the cost of switching. For instance, our suppliers have customized their manufacturing processes to meet our requirements and a switch would require considerable cost to the supplier.

Competition

We command a 48.1% share of the US market, 25.8% of the Japan/Australia market and 8.1% of the European market for heavyweight motorcycle (>650cc). Since the cruiser market forms only a part of the heavyweight motorcycle segment, this implies that we possess a higher market share of the cruiser market than the above figures suggest. Thus we can see that we enjoy a monopoly-like status in the US and