1. Summarize the case; what is happening and why is this important? 2. How does
ID: 388637 • Letter: 1
Question
1. Summarize the case; what is happening and why is this important?
2. How does this case relate to at least three strategies (connect the dots, there are overlaps, in most of the topics (e.g. stakeholders, external, internal, five forces, rationale for biz level strategy)?
3. Make recommendations (how the company may better implement the strategy or strategies, (i.e. what makes these strategies successful? (look at notes and book)? Remember connect the dots between the topic in class (e.g. matching internal and external environment).
Use complete sentences
CASE 13
Polaris and Victory: Entering and Growing the Motorcycle Business
The braking system was a concern of the Victory team and they set out to develop braking similar to high-performance sport bikes, rather than what’s typically on cruisers. They chose Brembo hardware and worked with Brembo technicians to develop the desired feel and responsiveness. In addition, the Victory team decided to make its own master brake cylinder. The Victory motorcycle team continued with numerous rigorous tests of the engine, chassis, and other components. The first prototype bikes with Victory engines were known as C bikes and an early prototype cost approximately $250,000 to build. On November 7, 1996, the Victory concept bike C-1 (engine and chassis together for its first test ride) was first ridden at the Osceola, Wisconsin municipal airport. Eighteen people witnessed the event. Victory Becomes a Reality7,10 Finally, on February 19, 1997, Polaris issued a press release announcing that it would be entering the motorcycle market. On June 26, 1997, the Victory was rolled out to the press at Planet Hollywood in the Mall of America in Bloomington, Minnesota. Al Unser Jr. rode a preproduction bike into the restaurant, and Victory team members fielded questions about the new bike. The next day, editors from several motorcycle magazines met the Victory staff in Osceola, Wisconsin to learn more about the new American motorcycle. Since the announcement the Victory motorcycle has received universally positive reviews in the motorcycle press. It has also received coverage in newspapers such as the Wall Street Journal, New York Times, and USA Today. Matt Parks has appeared on CNN and CNBC television networks promoting the bike. In August 1997, Victory made an appearance at the 57th annual Sturgis Rally & Races in South Dakota. Demonstration rides sponsored by dealers were given for the first time during January 1998 in Palm Springs, California. Over 200 motorcyclists received demo rides on preproduction prototypes of Victory motorcycles during Daytona Bike Week in March 1998. After taking the bikes for a ride, experiencing street speeds, corners and brakes, riders were given a questionnaire and interviewed by the Victory marketing staff. The riders’ feedback indicated the bikes delivered outstanding handling and power. The Victory staff also made a few adjustments to the motorcycle based on customer feedback.19 The Victory team felt the bike was ready to roll and named the first model the V92C. “V” stood for the V-twin engine, “92” for the engine’s 92-cubic inch displacement, and “C” indicated cruiser. The V92C had the stiffest frame of any cruiser on the market (as stiff as some sport bikes), and utilized the engine as a stressed member (fundamental component) of the frame for increased strength and rigidity. Complementing the stiff frame were its large 45mm diameter fork tubes with a rear suspension incorporating a stiff triangulated swingarm controlled by a single shock absorber under the seat. The Victory V92C delivered up to 50% more horsepower than any of its direct competitors. Victory motorcycles were first produced in “Knock-Your-Socks-Off Blue” or “Antares Red.” “The first Victory V92C motorcycles rolled off the assembly line at the Polaris plant in Spirit Lake, Iowa on the Fourth of July, 1998 just over a year after unveiling the prototype.”20 Previously, in May 1998, Cycle World, the largest motorcycle magazine in North America, selected the Victory motorcycle as the “Best Cruiser of 1998” before the first bike was available to consumers.21 The Polaris team believed it could successfully produce a motorcycle because of its history of design, manufacturing, and distribution of recreational vehicles along with its engineering talent, business savvy and loyal Polaris customers. Former Polaris CEO W. Hall Wendel Jr. said, “Entering the motorcycle market is a logical extension of our diversification strategy. We have the Polaris name, the engineering and marketing expertise, the manufacturing infrastructure, and the dealer and distributor network worldwide to effectively compete in this marketplace. Our main goal right now is to build the brand name recognition. When somebody says, ‘What kind of bike do you have?’ we want the answer to be, ‘I have a Victory.’”22 Today, Victory motorcycles are lighter, have more torque, more storage, better engine performance, and a lower center of gravity than comparable Harley- Davidson bikes. Riders claimed that victory bikes were less tippy, more stable going over bumps, and offered more control while riding than other cruisers and touring bikes. Victory enjoyed a 95 percent owner satisfaction rate in 2010.23 Manufacturing and Distribution7,10 In addition to developing a new, quality American motorcycle, another challenge was to develop quality manufacturing, distribution and marketing plans. In determining how to best produce their bikes, the Victory team visited three European companies: Triumph Motorcycles in England, a company that made most of its engine parts; Aprilia of Italy, a scooter and small racing-bike builder; and BMW, a well-known German bike producer. As a result of these visits, Polaris decided to combine both outsourcing and original equipment manufacturing. Polaris would manufacture their own parts and components when they felt they could do a superior job, and outsource other components to good suppliers with requisite expertise. The outsourced components of the Victory come from many sources. Wheels, pre-painted body parts, ignition coils, rear shock absorbers and the lower end of the motor were purchased from reputable U.S. suppliers. Brakes and front forks were supplied by companies in Italy. The electronic fuel-injection system was made by the British firm MBE, and pistons and cylinders were purchased from Mahle, a German company. Victory motors were assembled at the Polaris plant in Osceola, Wisconsin, alongside lines on which engines for watercraft and all-terrain vehicles are made. Steel tubing for the bike’s frames is also formed and fabricated in Osceola. The engines and frame parts were then shipped to Spirit Lake, Iowa, where robots were used to weld up the frames before they were given a powder-coat treatment. Making the frames in-house was essential, the company believes, because it ensured the consistent geometry required to make each bike behave as the designers intended. Engines and all the other parts came together on an assembly line that consisted of a carrier suspended from an overhead track. The bottom of the carrier is waist high so employees do not have to bend over. The assembly line is staffed by nine two-person teams, who walk from station to station on a padded surface covering the concrete floor, each building an entire motorcycle. At the end of the line each bike is scrutinized by an optical measuring device called a laser theodolite, which checks the chassis for misalignments that could hurt handling. Finally, a few test miles are put on each bike using a “rolling road” dynamometer. The Victory team knows the success of the Victory project depends on the quality of the bike. This philosophy was expressed by Spirit Lake plant manager, Chuck Crone, who said, “The interest is not to make them quick. The interest is to make them right.”24 The Spirit Lake plant was already producing certain all-terrain vehicles and personal watercraft prior to assembling motorcycles. The Spirit Lake site was chosen because it had production capacity and required Polaris to add only a handful of new jobs. Assembling the Victory motorcycles at the Spirit Lake site allowed approximately 400 employees to change from seasonal workers to year-round workers. This also marked the first time that a motorcycle was manufactured in Iowa for commercial distribution. Polaris managers planned on keeping the motorcycle break-even point low and to start with conservative numbers to ensure quality, then eventually to expand internationally. Longer term they expected Victory to become a significant part of the company’s business. Managers planned initial production to be 2,000-3,000 units. The first dealer shipments were rolled out in July 1998. To recognize the significance of Victory’s entrance into the motorcycle market, Polaris numbered each of the first 1500 bikes with a plate fastened to the handlebar clamp. Victory number 0001 was kept by the company to commemorate its history. Initially, motorcycles were manufactured and assembled in the spring and summer. However, in the long term, manufacturing of motorcycles commenced year round. Victory motorcycles were sold through the Polaris dealer network. The selection criteria for these dealers were very strict. The intent was to monitor quality. Polaris dealers also sold lawn and garden equipment, marine products, motorcycles, and farm implements. The Victory was designed to eventually help Polaris leverage its existing engineering and manufacturing base, and provide cross-selling opportunities to its entire network of over two thousand dealers.25 Matt Parks wanted dealers who were completely committed to the Victory brand. He felt that the company would be very well represented by dealers in all 50 states when the motorcycles became available. All dealers were fully trained in service and sales prior to receiving their motorcycles. The initial Victory rollout involved two hundred dealers, and each dealer received approximately 10 bikes. Assessing the Market 10 Polaris managers felt the company’s best opportunity for entering the motorcycle industry was the heavyweight segment. Heavyweight motorcycles were utilized as a mode of transportation as well as for recreational purposes. There were four sub-segments including cruisers, touring, sport bikes and standards. Polaris analysts saw 1997. The company estimated that approximately 128,000 cruiser motorcycles were sold in the U.S. market in 1997. Demand for cruisers at the time was strong. Cruiser sales in the United States increased thirty-one percent between 1994 and 1996. Sales were predicted to jump another nine percent in 1997 just prior to Polaris’ entry, to nearly 134,000 bikes. According to industry estimates, the worldwide market for cruiser motorcycles was more than 200,000 units annually in 1997/98. In their annual report, Polaris predicted an 11-15 percent annual growth for the next five years in U.S. cruiser sales. Polaris started distributing conservative quantities of bikes during the first few years of production. The company estimated that the first sales would be to existing Polaris customers, due to a survey that indicated thirty percent of Polaris ATV and PWC owners also owned motorcycles. Polaris managers felt that re-entry customers were a major potential source of sales for Victory. Longer term, the company expected to expand internationally and broaden the product line to include models in all four motorcycle segments – cruisers, touring, sport bikes and standards. The expectation was for Victory bike sales to become a significant part of the overall company business. The worldwide motorcycle market was larger than that of snowmobiles or PWC, and Victory bikes were priced to sell at about twice the average price of Polaris’ other products.28 “Our assumption all along has been that our target buyer is also a hard-core Polaris enthusiast,” said Matt Parks. “We asked them if they’d be interested in a motorcycle made by us, and they said ‘absolutely.’ We asked how many of our customers had owned or ridden motorcycles and 100 percent said yes.” Parks said they were not aiming at the youth market. “A major source of cruiser business is comeback riders. They’ve had careers, children and mortgages and got out of bikes. Now they have empty nests, disposable income and more leisure time, and they’re getting back into riding.” Polaris marketing executives were initially targeting a rising cruiser wave fueled by baby-boomers in their 30s, 40s. One Polaris dealer said his customers had two things in common, “They wanted another choice besides Harley-Davidson for an American cruiser … and people want their money’s worth. They don’t care what it costs as long as they get their money’s worth.”29 Polaris also intended to build strong owner loyalty through their Preferred Registered Owners (PRO) program, consisting of more than 600,000 members in 1998. Members were eligible for exclusive merchandise, competitive insurance rates for their Polaris vehicles, special group rides, and package tours. In return, these informed, responsible riders served as informal advocates for the Polaris brand. These customer groups provided valuable feedback on their riding habits and product demands. Dealer councils were formed to stay attuned to the market and their retailer needs. Polaris expected to recoup the money invested in Victory within three years. Victory was expected to break even on 4,000 bike sales a year – about three percent of the market. Managers believed that Victory would help Polaris’ overall sales. With an initial retail price of $12,995 nearly all of the 2,000-3,000 bikes made in 1998 were pre-sold. For example, John Gardner at Mt. Hood Polaris sold 10 of his first 15 bikes sight unseen. Gardner said the number of customers was a surprise. Introducing Victory to the Market7,10,25,26 One of the first public appearances of the production version of the Victory motorcycle was during The Rock to Rock Victory Tour. This tour was intended to showcase the quality, performance, and dependability of the Victory motorcycle by riding across America on a Victory motorcycle. “We’re doing it to demonstrate the ‘rock-solid engineering’ of the new Victory V92C,” said Mark Klein, owner of Big City Motorcycles in Manhattan, New York. Mark Klein’s father, Joe, started the ride from a historic ‘rock’ on one coast, the Statue of Liberty, and rode to another one on the opposite coast, Alcatraz, in the San Francisco Bay. The tour started in Manhattan October 2, 1998 and within eight days and over 3,300 miles later, the tour ended in California. At the completion of the tour, Joe Klein said he had no problems with the ride. “I could hop on and ride the bike back home. That’s how much confidence I have in the bike. I had a taillight bulb that went out and that was it,” Klein said. “The gas mileage increased the further west we went, and the bike just performed flawlessly. It was really great.” The only other thing that had to be done to the bike was to adjust the clutch once. They named the support truck driver and mechanic the Maytag repairman because he seemingly was just along for the ride. A billboard outside Polaris headquarters showed a pair of Victory bikes against the dramatic backdrop of Monument Valley, Arizona—a Harley-Davidson kind of scene. The message on the billboard states, “It’s a free country. Act like it.” The Victory trailers were also used to market the motorcycles. The graphic on the Victory trailers featured a huge photo of the V92C motorcycle and the image of the American flag provided the background on the truck’s sides. The Victory fleet of semitrailer trucks was honored by Fleet Owner magazine as winner of a 1998 Fleet Owner Vehicle Graphic Award.27 Industry Competition10 At the beginning of the 20th century there were three big American manufacturers producing large displacement bikes: Harley-Davidson, Indian and Excelsior- Henderson. Harley-Davidson, Indian, and Excelsior accounted for ninety percent of the US market in 1930. The Great Depression devastated the industry, wiping out most of the smaller manufacturers. Starting in 1975 and continuing through the mid-1980s, Japanese companies penetrated the big-bore custom motorcycle market with Harley look-alikes sporting V-twin engines. Harley struggled against Japanese competition in the 1970s, but came back stronger than ever in the eighties. As the twentieth century ended, 1998 marked the first time since 1955 that Americans have had the choice of a large American designed and manufactured motorcycle other than Harley-Davidson.31 The introduction of the Victory marked the first time in sixty years that a new American motorcycle manufacturer introduced a “significant motorcycle” that will be widely distributed. The Victory motorcycle was aimed at grabbing market share from both the Japanese manufacturers (Honda, Yamaha, Kawasaki and Suzuki) and Harley-Davidson. Victory’s initial assessment of the attractiveness of entry into the motorcycle industry was based on their assessment of Harley’s profit margins. When Victory was launched Harley-Davidson had a nearly fifty-four percent share of the U.S. market for heavyweight bikes and held an estimated thirty percent share of the $3 billion worldwide heavyweight market. Victory’s goal was to take five percent of that market, or in other words, sales of approximately $150 million.32 The heavyweight cruiser market had been growing and Harley-Davidson had been unable to satisfy the demand in the United States. By default, the Japanese producers were able to capture increasingly larger shares of the market. Some analysts felt that Victory bikes would take share from the Japanese but not from Harley-Davidson. Japanese Manufacturers – Honda, Yamaha, Kawasaki and Suzuki10 Honda, Yamaha, Kawasaki and Suzuki entered the US market in the seventies at the expense of both Harley- Davidson and the British motorcycle makers, and were now the predominant world industry players. These longtime Japanese motorcycle powerhouses were strong competitors because they enjoyed large overall sales volume and diversified product lines.33 Polaris had successfully taken on Japanese competitors in the past when it entered the Japanese-dominated market for all-terrain vehicles in 1985 and started selling personal watercraft in 1992. Polaris was now one of the biggest makers of each of those markers and was leading in terms of U.S. market share in snowmobiles. Polaris regarded the Japanese as their significant competitors. At the time of the Victory launch only two manufacturers, Polaris and Yamaha, competed in all four power-sports vehicle markets -snowmobiles, personal watercraft, all-terrain vehicles and motorcycles. Polaris expected their success to continue with motorcycles. The Victory team also felt that US customers could be lured from Yamaha, Suzuki, Kawasaki, and Honda by exploiting the notion that the Japanese-brand bikes were not American-made. However, by 2009 the Japanese bikes were as popular as ever, and the Japanese companies were showing no sign of retreating from the market. Honda was the world’s largest producer of motorcycles and announced its 300-millionth bike in 2014. The Honda motorcycle line included everything from small scooters to the huge 1832cc Valkyrie Rune – one of the largest engines in the market. In 2014 Honda offered an extensive line of cruisers, custom street bikes, racing, and touring bikes. Their Shadow and VTX models were, in effect, Harley look-alikes. The Honda Gold Wing was still considered one of the best touring bikes as well. Honda and the other Japanese manufacturers seemed to be in the heavyweight segment to stay. Harley-Davidson10,33 The Harley-Davidson Motor Company was founded in 1903 in Milwaukee, Wisconsin. During World War I, Harley-Davidson supplied the military with motorcycles and became the largest motorcycle company in the world in 1918. In 1969, AMF (American Machine and Foundry), Inc. purchased Harley and poured money into the company. Some think the strategy used by AMF hurt Harley’s quality while others thought AMF actually saved Harley from the Japanese because of its deep pockets. In 1982, a group of Harley managers, led by Vaughn Beals and Jeffrey Bluestein, purchased Harley from AMF and turned around the company in the 1980s. By 1988 Harley was Fortune Magazine’s most admired transportation firm and Harley had entrenched itself as a world leader in the heavyweight segment. Harley-Davidson products included cruisers, factory custom, and touring motorcycles, as well as police and military motorcycles. In 2009, Harley offered over thirty different motorcycle models. Harley-Davidson benefitted from having one of the world’s most recognized and respected brand names and their motorcycle models- Sportster, Super Glide, Low Rider, Dyna Glide, Wide Glide, Softail, Road King, Electra Glide and Tour Glide, were among the best-known in the industry. Harley also supplied or licensed motorcycle replacement parts, accessories, riding and fashion apparel and collectibles. Harley-Davidson formed a riders club in 1983 and by 2006 the Harley Owners Group (HOG) had in excess of 900,000 members worldwide. HOG was the industry’s largest company-sponsored enthusiast organization. By comparison, Honda’s Gold Wing Road Riders association registered only 75,000 members.35 In 1993, Harley-Davidson took an equity stake in the Buell Motorcycle Co. of East Troy, Wisconsin, and began selling Buell cycles through its dealer network.34 Erik Buell was a former Harley engineer who left the company to start a sport-bike business. Buells were racing bikes powered by modified Harley engines mounted on Harley frames, and were designed to appeal to younger riders. Harley-Davidson acquired one hundred percent of the company in 1998, the same year as the launch of Victory. Approximately, nine thousand bikes were sold at its zenith in 2004. However, Buell sales both in the US and overseas started to decline in 2004.35 In an attempt to continue to grow its sport bike business, Harley acquired MV Agusta of Italy in 2009. Agusta made sport bikes for both on and off-road enthusiasts. Harley represented freedom and individuality. Harley viewed competitors as trying to imitate their motorcycles, but unable copy the intangibles that made owning a Harley-Davidson a unique experience. Harley managers felt they were able to determine what was original and authentic in terms of the real riding experience. The quality of their bikes was very good and they were able to charge a price premium in the market. Prices ranged from approximately $8,000 for an entry-level Sportster to $30,000 for a top-of-the line touring bike. They felt that even though competitors were duplicating the Harley design by making look-alike bikes that they could not copy the Harley image. Harley tended to appeal to older riders with relatively more riding experience. In the eighties and nineties Harleys became very popular with higher income groups such as accountants, lawyers and doctors who were attracted by the prestige and image associated with owning a Harley. In the late nineties Harley commanded forty-eight percent share of the growing North American market for heavy road bikes. Harley’s product line was sold through a worldwide network of more than 1,000 dealers. Even though the number of motorcycles produced increased, Harley-Davidson still could not meet the demand for its motorcycles. Customers worldwide who ordered a new Harley sometimes waited at least a year for delivery. For years Harley had been building presold bikes, and some dealers have alienated customers by jacking up prices on scarce models. The wait was sometimes as long as two years for some models. Dealers were upset because they sometimes had no inventory. Customers were upset because they had to wait so long for the product. Harley was facing a dogfight for the first time since 1983, primarily because of Victory and also because the Japanese were planning to respond to Victory with improvements in their cruisers as well. As Harley’s production caught up with the demand, the phenomenal resale value of the bikes would begin to decline. Rival producers saw opportunity in Harley-Davidson’s production constraints. Honda, Kawasaki, Suzuki and Yamaha Corp. have all began chipping away at Harley’s grip on the high-margin cruiser category. This continued through the nineties into 2014 and beyond. By 2010 Harley production volume and sales had dropped to 2001 levels.36 In 2008 the company made over 300,000 motorcycles but planned to cut production in 2009 to around 200,000 units. It also terminated the Buell line of sport bikes, sold the MV Agusta Italian motorcycle business back to the Agusta founder, and forced its labor unions into wage and benefit concessions by threatening to move factories out of Milwaukee. Its bike owners were getting old and not many younger riders were being attracted to Harley products. Harley sales peaked in 2006 at 349,000 units but because the bikes were no longer in short supply, demand hit a wall. As supply met demand Harley became just another industry competitor and in the last quarter of 2009, it experienced its first quarterly loss in sixteen years.37 However, in 2014 Harley announced its new electric motorcycle- the Live Wire. The new Live Wire was incredibly fast and quiet. The company also announced a new smaller bike- the Street 750 which was developed to penetrate the Asian market. All in all, Harley was continuing to develop products around its strong brand name and was positioning to compete into the future heavyweight motorcycle segment. Excelsior-Henderson10,38 Brothers Dave and Dan Hanlon attended a 1993 Sturgis bike rally in South Dakota and noticed nearly everyone owned a Harley or a Harley knockoff. As a result they decided to resurrect an American motorcycle manufacturing company, Excelsior-Henderson, and compete in the heavyweight segment. Originally founded in 1876, Excelsior expected to compete with Japanese bikes as well as the new Victory and Harley-Davidson even though they were charging a relatively higher price. Excelsior-Henderson Super X was priced at $17,500 in 1999, which was more than a comparable Harley. The first Super X production bike was shipped to a dealer on January 30, 1999. Excelsior-Henderson appeared to have a strong brand name with historical cachet and a strong management team with some motorcycle-industry experience. Excelsior-Henderson was also an American brand. The new Excelsior-Henderson Motorcycle Manufacturing Company headquarters and manufacturing plant were both constructed in Belle Plaine, Minnesota, less than 100 miles away from the Victory plant. The original plan was to produce a single heavyweight cruiser- the Super X. Unlike Victory Motorcycles, which drew on the experience and resources of its corporate parent, Excelsior-Henderson booted up design, manufacturing, and marketing operations from scratch. The Hanlons initially signed up dealers, most of whom also sold Harleys. The Excelsior needed to sell 5,000 motorcycles a year to break even. They expected to produce 20,000 bikes per year in the Minnesota plant. However, production facilities never really materialized and sales were not forthcoming. The company went bankrupt in the year 2000. Other competitors10 BMW. In 1997, Germany’s Bavarian Motor Works (BMW) unveiled a new heavyweight, low-slung cruiser to take on Harley. Over the years, BMW has continually developed high quality/high performing motorcycles with both comfort and style. BMW had an advantage of engineering that provides excellent handling characteristics. Known for extremely high quality and performance, BMW was able to charge a price premium sometimes up to forty percent over similar bikes. The company announced plans for electric motorcycles in 2014. Big Dog. Big Dog Motorcycles were custom manufactured in Wichita, Kansas and had a high cost of production and high retail prices.39 Big Dog produced only five models – the Bulldog, Vintage Sport, ProSport, Vintage Classic, and Pitbull. Their V-Twin motors ranged from 88 to 107 cubic inches. Each bike was painted to customer specifications and is built within 60 days from the time of the order. It had relatively few employees and produced only three hundred bikes in 1997. Sheldon Coleman, president of Big Dog Motorcycles of Sun Valley, Idaho, built his first bike in 1993 and began the company the following year. Big Dog bikes were cruisers that provided customers with highly customized bikes at a price more competitive with the mass producers. New markets and emerging technologies There were many niches in heavyweight motorcycle market segment. Dealernews reported seventy-seven different sellers of new ‘big twin’ motorcycles, as well as numerous other custom and touring producers and sellers.40 Companies such as Lifan, a Chinese motorcycle maker, had entered the industry by dominating countries where the Japanese were not present. Lifan marketed initially only in Iran, Nigeria, the Philippines, Vietnam and Indonesia, but was preparing to move into more mature markets in the new millennium. Shanghai Motorcycle Works, another Chinese company, was ready to market its Xing-fu cycle worldwide. Xing-fu meant ‘happiness’ and was a very practical, energy-efficient small bike targeted at commuters and large city riders. Traditional Italian bike makers like Bimota, Ducati and Motto Guzzi were continuing to produce super bikes of extremely high quality and style. Bombardier, a Canadian firm, disrupted the market with a remarkably popular three-wheeled roadster. And the British bike companies, Triumph and Norton, were creating very interesting and exciting new motorcycle models as well. Triumph was the fastest growing motorcycle brand, in terms of percentage sales growth, in the world in 2010.41 On top of all this, new entrepreneurial companies like Zero Motorcycles were gaining notice in the business press and in the market. Zero produced electric dirt bikes and won praise from both Businessweek and Fortune for their products and business planning.42 In June of 2010 at the Bonneville Salt Flats in Utah, Mission One, another new company, had a rider set a world speed record of 150 miles per hour on a motorcycle with an electric motor.43 By 2014, both Lotus (a car company known for racing) and Catheram (a British company known for excellent track cars) announced new gas-powered motorcycles. Tesla, the leading electric car company, along with LIT motors, BMW, and Daimler announced they were developing electric bikes. The Indian Acquisition46 One major development for Polaris and Victory came on April 19, 2011 when the company announced the acquisition of Indian Motorcycle Company. Indian Motorcycles (Indian Motorcycle Manufacturing, Inc.) was the most recognizable American brand next to Harley-Davidson. Indian was the first American motorcycle company founded in 1901 and the Indian Chief was a classic heavy cruiser highly desired by motorcycle enthusiasts worldwide. However, the company had been out of business since the British motorcycles knocked it out of the market in the 1950s. There were several attempts to revive the brand in the 1990s although none was very successful in the long term. The Polaris press release for the acquisition was as follows: MINNEAPOLIS, Apr 19, 2011 (BUSINESS WIRE) – Polaris Industries Inc. (NYSE: PII) today announced the acquisition of Indian Motorcycle. The business was acquired from Indian Motorcycle Limited (“IML”), a company advised by Stellican Limited and Novator Partners LLP, U.K. Private Equity firms. Terms of the transaction were not disclosed. “We are excited to be part of the revitalization of a quintessentially American brand,” said Scott Wine, CEO of Polaris Industries Inc. “Indian built America’s first motorcycle. With our technology and vision, we are confident we will deliver the classic Indian motorcycle, enhanced by the quality and performance for which Polaris and Victory are known.” With this acquisition, Polaris adds one of motorcycling’s legendary brands to its strong stable of Victory cruiser and touring bikes. Indian will operate as an autonomous business unit, building upon the potent combination of Polaris’ engineering acumen and innovative technology with Indian’s premium brand, iconic design and rich American heritage. “We are delighted to have reached an agreement with Polaris. Polaris will utilize its well-known strengths in engineering, manufacturing, and distribution to complete the mission we undertook upon re-launching the brand in 2006: harness the enormous potential of the Indian brand,” said Stephen Julius, chairman of Indian and managing director of Stellican. “Polaris is the most logical owner of Indian Motorcycle. Indian’s heritage brand will allow Polaris to aggressively compete across an expanded spectrum of the motorcycle market.” Novator Partners LLP is a London based alternative investment firm founded and led by the investor Mr. Thor Bjorgolfsson. An avid motorcycle enthusiast, Mr. Bjorgolfsson said “After a troubled past, our goal was to bring the legendary Indian bikes back on the roads. The initial phase of that project is done and now our great partners at Polaris will carry on the work to realize the full potential of this classic American brand.” Founded in 1901, Indian was America’s first motorcycle company, producing some of the industry’s most iconic models and becoming the world’s largest motorcycle manufacturer. In recent years, Indian has continued to produce these legendary motorcycles on a smaller scale. The company’s instantly recognizable badge is still associated with premium products and strong American heritage by casual consumers and motorcycle enthusiasts alike. Polaris CEO Scott Wine stated in an April 20, 2011 webcast that the company would incorporate the manufacture of Indian Motorcycles into the current Victory plant in Spirit Lake, Iowa. Wine indicated that Polaris’ world-class manufacturing and distribution skill would blend nicely with Indian’s rich American heritage and style. He said that Polaris had the corporate resources and strategic strengths to contribute to what Indian needed for success, including a strong dealer network, while Indian provided Polaris and Victory with enhanced brand recognition in the heavy weight segment. He went on to note that the acquisition provided Polaris’ motorcycle business access to the ‘die hard’ component of the heavy weight motorcycle segment. The amount Polaris paid for Indian was not given in the press release or in the webcast. Scott Wine did say, however, that Polaris had ‘plenty on the balance sheet’ to support the acquisition. The acquisition of Indian came at a great time for both companies. According to the webcast, Victory sales were up 77 percent for the first quarter of 2011. Sales were up substantially in France and Germany, and were growing internationally in general. Victory revenue was up 59 percent for the 2011 first quarter. Indian, on the other hand, was having financial difficulty and needed help in terms of quality manufacturing. By 2014, Polaris had moved Indian production to the Iowa Spirit Lake plant and had announced plans to grow the Indian brand. The company indicated they would produce the class Indian Chief model and resurrect the classic smaller Indian Scout motorcycle. Growing Polaris Motorcycles46,47 Additionally, on October 26, 2011, Polaris Industries announced that it had acquired a minority stake in Brammo, an Oregon-based producer of two-wheeled electric vehicles. Brammo, founded in 2002, is an industry leader in electric power-train and battery-pack technologies, and offers the Encite, Empulse, Engage, and Enertia electric motorcycle lines. According to the Polaris press release, Brammo motorcycles are capable of speeds in excess of 60 miles per hour and can travel more than 100 miles on a single charge. Scott Wine stated that the acquisition positions Polaris well in terms of capitalizing on growth in the electric vehicle market. Wine also noted that Polaris will work with Brammo to grow the core businesses of both companies. Another strategic move in 2012 further cemented the company’s commitment to motorcycles. In July of 2012, Polaris announced a joint venture with Eicher Motors, manufacturer of classic Royal Enfield motorcycles, to market bikes in India. Polaris and Eicher each held fifty percent of the new operation. On its 60th anniversary in July of 2014, Polaris surprised everyone with another announcement of a new product, the Slingshot. The Slingshot, a three-wheel two-seater roadster, was a head-turning vision of the future of motorcycling. The vehicle featured a 173 horsepower motor and had a five-speed manual transmission. It came in two models- the basic Slingshot at $19,999 and the premium model at $23,999. The Slingshot generated a great deal of media attention drawing more attention to the Polaris Motorcycle Division. And it didn’t take long for the Bammo acquisition to pay dividends. In February of 2015, Polaris and Victory announced the first bike from the partnershipthe Victory Charger. Polaris has trade-marked the name of the bike but other details about it are not currently known. However it does appear that having access to Brammo’s expertise will allow Polaris to make the Charger available quickly- perhaps even beating the Harley Live Wire to market. The Future As Steve Menneto walked into company headquarters, he reflected on all the events surrounding the heavyweight motorcycle industry. His company’s motorcycle division had successfully taken on Harley-Davidson, an American icon. Menneto realized his motorcycles had received critical acclaim in the industry. Victorys were perceived as high quality and technologically advanced bikes, especially compared to Harleys, and were offered at a very competitive price. Since 2011 Victory profits constituted over seven percent of Polaris company’s bottom line.44 Victory sales increased by twelve percent from 2012 to 201345 . Demand had improved across the entire Victory line but particularly for the Cross Roads and Cross Country touring models. Markets outside North America were growing significantly, and sales of accessories, clothing, and parts were also up in 2013. Menneto knew his bikes were good, but had they been marketed and distributed effectively? Was Victory successfully capturing the attractive profit-margin potential of the heavyweight segment as they had planned? Menneto also needed to consider whether it was a good decision to limit sales of Victory motorcycles to Polaris dealerships. The goal was to monitor quality through the Polaris dealers – but were they simultaneously losing potential business? Menneto knew the strategic positioning of the new Polaris on-road vehicle division had tremendous implications for both Victory and Polaris as a whole. He was also aware that current Polaris CEO, Scott Wine, wanted the company to grow into ‘adjacent’ businesses. Did this mean the company would move into off-road bikes? Did this mean that Victory would engage in some sort of overseas expansion? Or perhaps some sort of energyefficient scooter would make sense for Polaris? Perhaps the company was thinking of making more acquisitions in order to grow? Would they be in the market for more types of electric motorcycles or other alternative energy-related acquisitions? Victory’s future was certainly shaping up to be as challenging and eventful as its recent past.
Explanation / Answer
1. Summarize the case; what is happening and why is this important?
In this case study, we see that Polaris had come up with a winner in the form of V92C. They had cracked the cruiser market with the combination of high quality at the right price. They also got the marketing strategy right by involving the potential customers even before the launch and best of all, noting their feedback and actually working on it. The final product was way better than the competition. This case study shows that Polaris was obsessed about the quality aspect of their products and took lot of efforts and paid great attention to detail to create the perfect product. They rightly manufactured only those components which they believed they could manufacture best and outsourced the remaining components from specialists.The distribution part was also handled very well by restricting the distribution rights to the Polaris dealer network only to make sure there was no compromise in terms of quality. They also selected the right category to enter the motorcycle market. i.e. cruisers. in short, everything thst could go right for them was going right. They also experienced a successful inorganic growth strategy through the acquisition of Indian Motorcycles.
In contrast, this case study also shows the dangers of misreading the demand situation and incorrect strategy and execution as we see in the case of Harley Davidson. The gap left by low production of Harley bikes was quickly filled by foreign competitors, namely Honda, Yamaha, Kawasaki, BMW, etc. This case shows us two contrasting case studies and stresses the importance of certain basic strategies like:
While this case study talks about motorcycles, the learnings can be extrapolated to almost any other product or service.
2. How does this case relate to at least three strategies (connect the dots, there are overlaps, in most of the topics (e.g. stakeholders, external, internal, five forces, rationale for biz level strategy)?
Access to notes and class teachings required to answer this part. Need clarity about the names of the strategies being referred to in the question.
3. Make recommendations (how the company may better implement the strategy or strategies, (i.e. what makes these strategies successful? (look at notes and book)? Remember connect the dots between the topic in class (e.g. matching internal and external environment).
Access to notes and class teachings required to answer this part.
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