How Harley-Davidson Revs Its Brand

Occasionally, however, a brand emerges without the panoply of wall-to-wall advertising and in your face marketing. Instead, recognition comes from a quiet, behind-the scenes effort to sell a product more directly on its merits, in its own time and in its own way. Perhaps no product exemplifies this non-traditional route to brand excellence more than America's freewheeling symbol of the road, the Harley-Davidson motorcycle. Twice at the brink of bankruptcy since the 1960's, the Harley-Davidson Motor Company and its parent, Harley Davidson Inc. have undergone a stunning metamorphosis in the past decade, fuelling a level of demand that is the goal of corporate chieftains everywhere.

 

The change has not only enhanced Harley's standing in the highly competitive and lucrative market for big motorcycles, where it had been pummelled for years by waves of aggressive Japanese imports, but it has also extended the brand's reach to previously untapped businesses as far afield from two-wheel behemoths as fashion and food. Having largely reinvented itself, as both a company and a brand, the Milwaukee-based motor-cycle maker is now reaping the benefits of a hip, with-it image even as it prepares to celebrate its 95th birthday this year.

With its feet firmly planted in both the present and the past, Harley offers traditional -- many say retro -- styles and the best, most-refined 1940's technology around. That approach - marked by ample bulk (some models weigh almost 800 pounds, about twice that of otherwise comparable BMW machines), twin cylinders and a throaty growl - has been derided by high-tech motorcycling enthusiasts as an inefficient relic of a bygone era. But to Harley's customers, the motorcycles are lovingly crafted works of art. And many genuine artists agree. In a recent exhibit of global design held at London's Victoria and Albert Museum, the object chosen to represent America's design sense was a Harley-Davidson.

How Harley came back from death's door to reach this enviable state is a story of marketing and brand enhancement that can apply as much to tools and furniture as to motorcycles. In large part, the revival stems from a hard-eyed comparison of the competition's strengths (in particular, the ability to quickly turn out new products studded with high-tech innovations)with its own (a unique tradition and a powerful mystique).

The company's conclusion, said Clyde Fessler, vice president for business development, "was to turn left when they turn right. 'Let's be the alternative and do the things they can't do.' And that became our strategy in everything we did and still do."

Indeed, membership now doesn't even require a driver's license. Shoppers dropped $100 million last year on Harley-Davidson Motorclothes and an unknown amount on hamburgers and other fare at the Harley-Davidson Cafe in midtown Manhattan. Even kids can join, with toys for the boys and leather-clad Harley Barbie dolls for the girls.

The company accomplished all this by spending very little on advertising - in fact, by running no ads at all last year. This year, it plans to spend a minuscule $1 million on advertising out of a total marketing budget of just $20 million.

Harley's return has almost been too successful for its own good. Sales have grown at a compound annual rate of 16.2 percent since 1987, with profits up even more, soaring at a comparable rate of 29.2 percent. Last year, the company reported net income of $166 million on sales of $1.53 billion. To get to those numbers, it moved a lot of metal, posting worldwide sales of 118,000 big bikes - those with engines of 650 cubic centimetres or more - up from 55,000 in 1989. This year, the company plans to sell 130,000.

But that will not be enough to satisfy demand. The appetite for Harley motorcycles is now so strong that it can take a year or two to get one, even if a customer is willing to pay the thousands of extra dollars that some dealers are tacking onto the usual list price of $15,000 or more.

To catch up, the company has committed $200 million to expand production capacity to 200,000 units by 2003, its centennial year. In the meantime, the inability to meet demand is decidedly a mixed blessing.

On the plus side, Harley enjoys some of the production economies that have made direct computer sellers like Dell and Gateway 2000 such spectacular successes. Every motorcycle that Harley makes has already been sold; in effect, the company is now building to order. That means no steep inventory costs for the big bikes relating to storage, financing and other expenses. (The company is reducing inventory costs for spare parts and accessories in another way: through a sophisticated intranet system that connects its nearly 1,000 dealers worldwide to a central customer data base.)

The bottom line, then, is rich in irony: the senior managers of one of the most recognised symbols of American excess - the chrome-laden, ultraheavy Harley is known affectionately as "the hog, after all - turn out to be conservative keepers of the flame.

The Lifestyle hook

What kept Harley going in its darkest days, and what is driving it now in high gear, is the plain fact that the motorcycle it makes is not just a product it makes is not just a product but rather the centrepiece of a lifestyle - even for its managers.

The Harley Management team, in fact, has a visceral connection to the brand and to its customers that is difficult to match in most corporate boardrooms. The senior executives own the motorcycles and ride with their customers. Indeed, to Harley rallies and taking their places on the same waiting lists to get new bikes.

"We are committed to motorcycling," Richard F Teerlink, Harley's chairman and former chief executive, said in a recent interview. "It's not hardware; it is a lifestyle, an emotional attachment. That's what we have to keep marketing to." As an American icon, Harley has come to symbolise freedom, rugged individualism, excitement and a sense of "bad boy rebellion."

"Harley reflects many things Americans dream about, said Benson P Shapiro, a consultant and a marketing professor at the Harvard Business School. "They're a little bit naughty, a little bit nice, which is a very attractive brand image to have."

Harley has marketed this emotion across a broad consumer population, from blue-collar craftsmen and bearded, beer-bellied "motorheads" to a growing legion of chief executives, investment bankers and high-profile entertainers, including Arnold Schwarzenegger, Jay Leno and Billy Joel. The profit of the typical Harley owner has steadily gone up during the past decade, in both age and household income (from 32 to 44 years and from $30,000 to $72,000), as more white-collar baby boomers have bought the bikes to fulfil a lifelong dream. How many boomers are holding the handlebars? One rough measure: 31 percent of all Harley owners are college grads.

Yet while catering to this new upscale market, Harley has managed to avoid alienating its traditional customer base, the hard-core Harley lovers, whom Mr Teerlink referred to as "the enthusiasts." "It's an honour to be a status symbol," he said, "but status symbols go away. We want to be part of your life."

To keep that role, Harley-Davidson has become adept at fostering "customer intimacy" - and even extending concept to dealers and employees. Harley's 5,500 employees, for example, vie with each other to attend rallies and other company-sponsored events during the year. Being a Harley employee at a rally is a "badge of honour," said Joanne M Bischmann, the company's marketing vice president.

Over the humps

The company went very close to bankruptcy in 1983. In 1986, the company went public, and managed to stave off closure, and become the darling of Wall Street.

A road map had already been drawn by Mr Fessler, now the company's vice president for business development. He recently recalled a four-day strategy meeting he held back then with Harleys new ad agency, Carmichael Lynch of Minneapolis.

"On a big piece of paper, we drew up a list of comparisons between the Japanese bikes and ourselves," he said. "We put down all the strengths and all the weaknesses. The Japanese were global, into long-term strategic planning, did a lot of advertising and had great diversity in their global markets. They could take a concept from idea to product in 18 to 24 months.

"As for Harley, we had heritage, tradition, mystique. How were we going to compete against these giants? We looked at where they had been the previous five years and were able to project where they were going in the next five - new engines, new frames, new suspensions, very high-tech. So we decided to be the alternative."

Out of that decision came a number of key concepts that determined Harley's fate:

Back to the future

Harley made a clear choice to stay with its traditional styling, a classic 1940's and 50's design that aficionados believe motorcycles were meant to have. "We experimented with radical designs inside," Mr Fessler said, But every time we did that, we found out the customers didn't want it and we had to fall back."

Build a community

In 1983, at the urging of Mr Beals, Mr Fessler set out to create a company sponsored club for Harley riders. The Harley Owners Group, or H.O.G., was started as an organisation that would sponsor rallies, offer special promotions and keep Harley owners in close contact with the company and each other. For as long as anyone could remember, Harleys had been called hogs, but the connotation was a negative one, of outlaw bikers like Hell's Angels. "My thought was to turn a negative into a positive," Mr Fessler said. for many Americans, the sight and sound of an entourage of Harelips roaring into town meant a nasty motorcycle gang had arrived. So Mr Fessler pushed hard to get H.O.G. associated with the Muscular Dystrophy Foundation. Under the club's banner, groups would ride for charity. Slowly, the perception began to change. Today, H.O.G. members constitute the fourth largest contributing group to the Jerry Lewis Telethon each September.

nGive them a reason to belong

At the first H.O.G. rally in 1984 in California, 28 people showed up. Today, H.O.G. has 365,000 members in 940 chapters throughout the world. More than 100,000 riders are scheduled to converge next year to mark the company's 95th birthday. Already, there are no hotel rooms available for that weekend within 100 miles of Milwaukee.

nExtend the brand

Mr Fessler realised that legions of Harley riders in black leather jackets and black T-shirts also hurt the company's image. Unfortunately, that is what the company sold them. So in 1986, he launched Harley-Davidson Motorclothes, which offered shirts with collars, denim blue jeans, baby clothes and bright-coloured fashion items for women.

At the same time, Harley began to license its popular shield-and-bars logo for hundreds of products, from train sets to Christmas ornaments to the special edition Barbie. In Europe, LOreal licensed the name for a line of cologne. Mr Fessler insisted that the merchandise had to be durable and high quality. The logo was licensed to a Zippo lighter, for examples, rather than a Bic disposable.

Each decision to go upscale in ancillary products led to another. Realising that most of its dealers were ill equipped to sell fashion items, Harley began to require them to remodel their stores (at their own expense) to showcase the merchandise. Despite grumbling from a few of the 600 domestic dealers, the clothes operation has become a big success, helping to boost sales of Harley parts and accessories, which now account for $210 million a year in revenues.

Meanwhile, the Harley-licensed restaurant in Manhattan, modelled after the Hard Rock Cafe, will soon be joined by another, in Las Vegas.

The idea is to give people access to the Harley experience, whether they own a bike or not. "We always ask, 'Does it somehow lead back to the motorcycle?'" said Ms Bischmann, the marketing vice president.

She added that Harley toys, built by the likes of Mattel and Kenner, are an excellent way to extend the passion for Harleys to a younger audience, and with an ageing customer base, this is a key marketing challenge. "What better way is there to get a 3-year old to feel the Harley motorcycle experience? Ms Bischmann asked.

Critics suggest that Harley is "selling out" and diluting its brand by putting its logo on so many products. But Harvard's Professor Shapiro disagreed. "As long as they don't get distracted from their core business, this helps build the mystique, he said. If you don't continually change and extend the brand, you die. If you change too much, you also die. But I don't believe Harley has come close to burning out."

nExtend the enterprise

Even through its bleakest period, Harley has maintained close ties to its dealers. of the 600 domestic dealers, most have been with Harley for decades; many dealerships have been in the same family's hands for three generations, with one family tracing its ownership back to 1914. The company holds quarterly meetings with an elected 10-member dealer advisory council. In July, every senior Harley manager is expected to attend the annual dealer meeting, where new models are previewed and problems get aired. Six years ago, the company opened Harley-Davidson University, where dealers can take three-day courses in such topics as "How to Manage Your Business" or "How to Create a Succession Plan."

Harley, said Mr Hart, the consultant, is cognisant of the fact that it was the dealers who came to the rescue as the company went through its rebirth during the mid-1980's. During the first years following the management buyout, the quality of the bikes was terrible and Harley counted on the dealers to fix them, Mr Hart said. "They went through the war together and the dealers didn't charge the company back for any of this."

Of course, the dealers make more money from service and the sales of parts and accessories than from sales of the motorcycles, so few are complaining. The relationships are long, deep and symbiotic. Harley understands that the dealer is the customer's conduit to the company. Indeed, for many Harley owners, the local dealership is a second home, a gathering place.

nAdd value

Like Mercedes and Porsche, a Harley holds its value to an astonishing degree, and the company has taken advantage of that fact. In the late 1980's, Mr Fessler created a marketing campaign called Ride Free, designed to move owners up to bigger, more expensive motorcycles. The company promised owners who bought new Harley Sportsters, the entry level bike which sold at the time for $3,395, that they could trade them in a year later for a bigger Harley and get the full $3,395 credited toward the price of the new bike.

There is also a huge aftermarket for Harley parts and customising kits, which Harley shares with legions of independent third-party chop shops." Personalising a Harley by innovative paint jobs, scads of new chrome and pricey saddlebags has become its own time-honoured Harley tradition.

Looking ahead

Harley is quite sensitive to the production shortfall. A new plant, scheduled to open next year, should ease the wait considerably. In the meantime, management watches nervously as some dealers take advantage of the situation by adding $5,000 or more to the suggested retail prices, inevitably turning some would be customers off for good.

Company executives agree that the backlog is far too long. Our mystique has never been about being hard to get, Ms Bischmann said. We don't want the waits; our dealers don't want the waits. This is just an obstacle we have to overcome."