Harley-Davidson and Globalization

Harley-Davidson is hoping to break into untapped markets in a big way by offering a small and lightweight motorcycle.  Countries like India, Italy, Portugal, and Spain are primary countries targeted with the bike’s release.  The bike will sell for either $6,700 or $7,500 depending on engine capacity, which makes “The Street” the company’s least expensive motorcycle.  The Street is the Harley-Davidson’s first new bike platform in 13 years, and while it is going to be sold in the US, it is geared toward an international audience.  The company is projecting a 15 percent increase in international sales from 6 years ago, resulting from a proliferation of dealerships outside of the US. 

In the domestic market, The Street is Harley-Davidson’s bridge into the lightweight motorcycle market.  The company has stayed out of this segment of the market until now, leaving demand to competitors like Honda, Yamaha, and Polaris.  The Street is expected to directly compete with Honda’s Rebel, which is another lightweight motorcycle but costs significantly less at $4,190.  The company has been able to operate without a lightweight model by relying on the heavyweight domestic market.  In 2012, 62 percent of new motorcycles were considered heavyweight – 57 percent of which Harley-Davidson provided.

While Harley-Davidson’s competition offers comparable or better prices on products, Harley offers prestige products.  This prestige factor allows the company to overcome such large differentials in price.  Further, the bike’s prestige is enhanced by a lack of supply; the company is unable to produce motorcycles at a rate fast enough to meet market demand.  Consumers often have to wait for significant periods (1 – 2 years) before actually receiving a motorcycle.  Scarcity is another reason why price is higher than most competitors.

Source: Harley Seeking Global Buyers for New Lightweight Bikes

4 thoughts on “Harley-Davidson and Globalization

  1. The scarcity of Harley Davidson bikes allowing the company to charge more for their products is interesting. It is almost counterintuitive. When there is an operating monopoly, the monopolist reduces output and charges consumers higher prices. In theory, this creates a large dead weight loss because consumers who want the bike at the lower price cannot afford to buy one, and monopolists cannot realistically sell the extra bike for a lower price than they are charging and keep all other prices the same. Therefore, it is interesting that when there are cheaper, more readily available bikes, some people prefer to wait longer and pay more for a Harley. It seems as if the “prestige” factor leads to some people willingly participating in a monopolistic producer/consumer relationship.

  2. Market power indeed! – H-D has long had the option of increasing capacity and has deliberately chosen to instead keep prices high. So as Mr. Winn’s post and Ms. Keesler’s comment suggest (but never use the jaron to make explicit), why aren’t we seeing the normal dominant firm monopolist finding its market share eroding in the face of fringe firms? The answer, as both suggest, is that H-D is a luxury product. Few people ride daily, very few commute. My brother-in-law bought a bike post-retirement. Another friend my age bought one only a couple years ago. I do know of a few young bikers, but not many. So the market is weekend riders who not only pay H-D’s prices but then kit out their bikes with lots of high-margin extras.

    I wonder whether this “entry-level” strategy will work. Mercedes-Benz in Europe hurt its brand by launching downsized cars that eroded some of its luxury image. BMW in contrast is careful to keep the Mini a separate brand. Now H-D is by reputation a company with thoughtful management. It would be interesting to hear what they’re thinking. They’re publicly traded as “HOG” – what do they say in their annual report?

  3. I agree with Prof. Smitka. The idea of a non-luxury Harley-Davidson seems counter-intuitive. It might almost make more sense to keep the brand out of the United States, and thereby prevent the erosion of firm prestige due to the release of a non-luxury model.

Leave a Comment!