Ducati Case Analysis Essay

Executive SummaryAs of twelvemonth 2000, global motorcycle grocery store is dominated by a handful of players. Nipp wholenessse manufacturers much(prenominal)(prenominal) as Honda, Yamaha, and Kawasaki ar deplor able cost players while Harley and Ducati be in the towering can of the spectrum and have been qualified to success full(a)y render themselves as a premium tick off. Harley dominates the police car pedal divide and is a in reality hygienic player in the US, where it has a big fan following and loyal customer bagful. n anetheless Ducati has been struggling to increase foodstuff sh atomic number 18 and pass off to Harleys level of profit margin that is highest in industry. Ducati is self discovering itself with Minoli to target right customer elements, retaining its snapper competencies and establishing its stake image for which Ducati stands for.Minolis consideration of get into into Harleys niche market of cruisers is an excellent choice for Ducatis future growth, as it reinforces the premium flagship of products that Ducati is noned for. We recommend Ducati develop a manoeuvres-cruiser motorbike that offers the riding style and comfort of a cruiser such as Harley Davidson, and yet be fast and nimble. We similarly recommend pass customization capabilities done Ducati.com and company-owned stores as hale as single franchise stores that would continue to offer the same legacy and brand association that Ducati loyalists prefer. The motorbike exit be tolld at E12,000 (USD 16,200) which is right in the range of Harleys custom cruiser motorbikes and go out take astep away from Ducatis current problem of sports bikes. This decease may take care a bit risky at first, but the fact that Ducatis R&D expenses lead be fairly low due to availability of high quality engines and giant supplier pussy this will non require significant peeled enthronization to the current setup.Additionally, the company will be able to entice cutting customers in a niche section with high margins and get a significant opportunity for gaining market share. Also, Introduction of these motorbikes in europium initially will also condense the possibility of a backlash from Harley who is the leader in the US market. Ducati can consequently expand to US once they have acquired some sales momentum. Ducati does not expect retaliation from the low-cost Japanese players as it is still positioning itself as a premium manufacturer. However, there is still possibility of new entrants or Japanese makers to introduce a knock-off dashl in which case Ducati will be able to detect itself on attributes including high surgery, customization, brand image and the prestige that it has historically enjoyed and is respected for in the industry as well as the global market.Evaluation of Global Motorcycle IndustryHonda, Yamaha, Suzuki, Kawasaki and few of high end premium manufactures that include BMW, Harley-Davidson, Triumph and Ducati comprised the Global motorcycle Industry. These manufacturers compete in different market segments and ask demographics ground on different attributes and styles of motorcycles across the product offerings. Our analysis of the industry is summarized using Porters Five Forces analysis ( introduce 1) Suppliers Recent trends in the motorcycle manufacturing have been leaning to struggleds outsourcing of most motorcycle components and the companies doing the last-place fabrication in-house. Most manufacturers have multiple choices of component suppliers that they may switch at will. This schema go aways them with high negotiation force-out, reduced fixed assets, and greater flexibility to meet changing market conditions quickly. However, the companies need strong commitment from their suppliers for a quicker turn roughly, efficiency and quality.Buyers Customers/end users have been categorized into different segments such as knee-down riders/fast riders, easy riders, hot rods/urba n riders, and weekend riders. These riders choose the bike trading floord on performance, lifestyle, function and comfort. A motorcycle is a highlydifferentiated product that is used for transport and has lots of alternatives or competitors, and for this reason buyer power is high. Customers have myriad of choices ranging from different styles of bikes such as sports, top-notch sports, off-road/dual purpose, cruisers, naked bikes, etc. to different brands including high end names such as BMW, Harley Davidson, Ducati, and low price options from Honda, Kawasaki, Suzuki, etc. Entry Barriers The motorcycle industry is very difficult to enter and compete in due to high capital investments spent on R&D, well-established relationships with suppliers, and strong brand loyalty and scholarship that has been established for decades.Motorcycles are becoming more and more technically advanced, which makes it very difficult for a new entrants to compete on a similar level without large amoun ts of capital and innovative differentiators. Rivals Rivalry amongst the eight major motorcycle manufacturers can be considered high. The total number of motorcycle manufacturers has declined dramatically, with solitary(prenominal) one major manufacturer remaining from the US. These major players are fierce competitors and are vying for market share based on the brand, style, attributes, service, and price (especially Japanese companies). As a result of such high competition inside the industry, manufacturers constantly need to improve inventions and functionality. Substitutes Lastly, several substitutes are available if we consider motorcycle only as a mechanism of transport.However, in many cases, a motorcycle is beyond a mere method of transportation as a curator in the case said, it is a perfect metaphor for ordinal century. Riding motorcycles provide a unique experience, and it has been a cultural icon as presented in a number of Hollywood movies. In this sense, threat of substitutes, which may be sports cars and move cars or other mode of transportation, could be considered fairly low. The following section describes changes in the industry and how that affects Ducati. Industry Changes & Implications on Ducati The industry is move on at a high pace today due to technological innovations, such as the interpolation of electronic components, advent of CNC and CAD technologies, advances in material science to introduce lighter and stronger composite materials. weapons-grade engine performance combined with lower emissions and fuel consumptions is rapidly changing the face of the industry and competition. there is also a push from the manufacturers to improvecomponents like sophisticated air assisted forks, mono seismic disturbance rear suspension, and front and rear disc brakes to meet the customers hunger for better quality as derived from market survey results and customer feedbacks. These technological changes and quality improvements are positi ve for Ducati who is abreast on its technological innovation and performance. Advanced engineering and state of the art technology have always been Ducatis strengths, as evident by the number of World Superbike Championships won by Ducati between 1990 and 2000 (8 victories). Lighter materials champion Ducati to unendingly improve its already superior performance and retain its position in the sports segment where it already has a strong defend.Additionally, the outsourcing of components and in-house assembly platform of manufacturing turns in favor of Ducati as most of Ducatis suppliers are concentrated in the Emilian district a major hub of specialised parts and components suppliers. Ducati typically enters into short-term contracts with its suppliers. Effectively, Ducati has enjoyed a strong hold on its supplier base which in turn has made them the most-efficient manufacturer in the industry and this outline will continue to provide them the flexibility and edge in design and sourcing of new components going forward.Ducatis Current StrategyFrederico Minoli, the CEO of Ducati, had two strategic goals in mind when he took over parallel digit growth and equaling Harley-Davidsons profit level of EBITDA margin of 20%, which was the highest in the industry. The challenge was break-dance within the company into polarized directions Engineers valued to continue company culture of high focalisation on product, and Minoli wanted to appeal to broader spectrum of customers and not just extreme riders. The following section provides our analysis of Ducatis current strategy using Strategy Diamond method (Exhibit 2). Arenas Ducati primarily offered performance bikes in sports and street category, which are mostly identified as Hyper-sport, Super-sport, Naked and Sport touring. They face tough competition from Japanese manufacturers such as Honda, Yamaha, Kawasaki and Suzuki, who have captured the lions share of the market.Research shows that a large number of new registrants are categorized under customs and small motorcycle segments with 32.7% and 22.9% market share respectively in 2000 (Case Exhibit 2). Ducati is lagging behindin this segment as far as the market share goes. In regards to geography, Ducati has statistical distribution through Italy, US, Germany, France, Japan, UK (Case Exhibit 14). Ducati currently attracts and retains young male knee down riders and racing aficionados who run Ducati with extreme performance and functionality, and recently there has been an increase in women customers (who comprise of 8% of their Monster line their most popular model). This could be a growing segment that Ducati has not yet considered. Lastly, Ducatis products are in the sports niche 41% to 54% of its customers own large bikes greater than 500cc. It gradually entered in sport touring category to address older customer base and also entered into accessories and apparel business by getting Gio.Ca.Moto which produces line of accessories fo r Ducati.Nonetheless, Ducatis limited editions in 1999 were icing on Ducatis portfolio. Vehicles Ducati has excellent engineers and designers who themselves are fanatics of the motorcycle- they are purist knee down riders, and have strong beliefs in speed, performance, and passion for races. Ducati invested a large proportion of their revenue enhancement in pattern new technology, development of products and human resource management. Ducatis core strengths including the Desmodromic valve distribution arrangement and the technical superiority of its engines, and their collaboration with other firms such as Lamborghini and Ferrari fueled Ducatis growth. Ducati advertises through specialized magazines and focus on the Italian style, history, young riders, and a sporty attitude.Ducati.com website used the internet as a vehicle, and sold 500 units of a limited edition in 31 minutes and 2,000 units in 10 days at different times, educated customers, and created awareness about its bran d, this has been a real win for Ducati. Differentiators Ducatis goal was to improve average quality of dealers and increase competence sales force unlike Japanese manufactures who utilized multi-franchise retailers to sell multiple brands with less specialized knowledge of products. Secondly unlike their competitors, they established Ducati clubs more or less 400 which allowed members to live at racing events and get inside access to teams. Ducati also participated in affectionate events and museum tours that has helped Ducati disseminate information about its history and brand which increased customer loyalty and helped acquire new ones.Ducati is heading in the right direction but is still far from Minolis vision to enable and foster dealersto connect with clubs more easily. Staging Minoli strategized Ducati to turn into a powerful brand and would move away from just competing with Japanese brands. Ducati decided to form museum instead of fixing the raining roof and thats one ke y factor in building the brand image of Ducati and sending the right signal to employees and customers. It then identifies the 5 core attributes that Ducati signifies technologically advanced engine, tubular trestle frame, Italian style and its unique engine sound. Ducati was able to reduce the time to market effort for all its new products utilizing their research centers muscle. Another important last Minoli took was entering into accessories and apparel producing business.This created the world of Ducati a very successful initiative to build on Ducati brand and strengthen its customer loyalty. Economic Logic Ducati is a premium brand that consumers appreciate and regard highly. The brand image and legacy allows Ducati to keep prices high and hence reap high profit margins on its motorbikes, accessories, apparel, etc. Ducati motorbike prices can max out at $21,895 compared to $14,350 for Harley Davidson, $9,500 for Triumph, and $9,300 for Honda. Also, its limited edition bikes w ere sold at world-wide price of E26,000 that made Ducati reap huge profit margins. Ducatis own selling and distribution process and make foring power of internet (Ducati.com) helped it retain most of its profit and have higher margins and they controlled their production costs by standardizing components, (eg only two crank case and 3 cylinder designs)..Recommendations and Specific ActionsArena We recommend Ducati to design and launch a custom sports-cruiser bike targeting sports bike fans, who would prefer the riding comfort, style, and customization of a cruiser. This new product is basically a fast motorbike that has a sports engine morphed into cruiser style chassis. We also recommend offering customization services to suit the style and needs of our individual customers. This will be introduced initially in Europe and eventually in the US and Asia. Europe is the market where Ducati has experience, design expertise, preferred supplier base, proximity to racing arenas, and as sociation with other world-renowned sporting car companies like Maserati and Lamborghini. Hence, building a strong foundation in Europe first provides the advantage that is very hard to imitate by others.Ourtarget segment is riders in the age group of 30-50 who like the comfort and the style of a cruiser, and yet prefer the power, speed, and especially the handling that is synonymous to a sports bike. Additionally, there is interest in customization especially for cruiser segment that we would like to exploit and offer as an added benefit to our customers. Furthermore, we will leverage light-weight design components (magnesium alloy frame, carbon fiber corpse and parts) to provide the performance edge needed in a sports bike. This will attract young riders as well as women, who typically prefer lightweight bikes. Vehicle Initial launch will focus on current Ducati owned stores. This will help us gauge customers response provide primordial feedback from Ducati loyalists, as well a s opportunity to attract customers using word-of-mouth advertising. Based on the feedback and learn from this rollout, we would be able to identify other possible locations to open new stores (combination of company owned and single-franchise dealers), jump from Italy, and then expanding out into the European sub-continent.We do not jut to open any new stores immediately, until the market picks up and demand is more than 25% of existing sales. The assumption is that any increase within 25% of sales volume can be managed via the existing stores. Any franchising will be done through single-franchise dealerships so as to maintain more control and emphasize quality. As a long-term plan, we also would like to add 10 new Ducati owned stores leased at strategically important cities around Europe, which would cost us E10M (E200K/year) over 5 years , and another E5M for maintenance (design, upkeep, staffing, taxes etc.) Differentiators Customers value Ducati for its brand, high performanc e engines, strong association with racing, Italian style, and the unique sound of its engine, among other things. We believe that our strategy will help maintain our core competencies and resources intact, while allowing us to expand into newer space as well.The customization services that we also plan to offer along with our product will be a value-add service to Ducati loyalists, which can be priced at a premium. These customization services include different body styles, paint schemes, accessories etc., which will benefit from the availability of the large pussycat of supplier base that we have local access to. This large and varied supplier base also provides Ducati with buying power and quick turn-around time of new designs. Advertising expenditure for Ducati abide bys to about trey times that of Harley in the year 2000 alone. About 14.5% of gross revenue is being spent on advertising, marketing and sales effort, close to about what we get in return as our net income. We do n ot plan to cut down on advertising and marketing but will have to come up creative, more cost effective ways to get our message out there to reach a broader spectrum of customers like Minoli envisioned.Using carry such as word-of-mouth, social-media, YouTube videos, collaboration with sports bike bloggers, commentators, and also drop and expanding Ducati fan/owners clubs are ways we can leverage cost-effective marketing techniques. Economic Logic Our R&D team (including HPE) already has several high-end performance engines that can be utilized in designing such a bike, hence we feel our major R&D expenses will be towards the design of the frame and body components. This will reduce our overall R&D spend, as compared to a full blown redesign/production of a new engine technology. Furthermore, we only need about E2M for R&D expenses E5M for CAPEX, leaving the remaining E12M for advertising. This CAPEX budget covers the special manufacturing capacity as well as assembly line expense s. We plan to leverage the existing network of suppliers by continuing to outsource.We forecast a sale of 3,300 bikes to be sold in the first year subsequentlyward launch (initially Europe only), priced at E12,000 ($16,200 per unit), assist Exhibit 3, which is 2% of the worldwide cruiser/custom motorbike market, where Harley is the leader. Ducati was able to sell about 3,500 units of its sports touring after launch, so we think that we should be able to meet this forecast of 3,300 for the new sports-cruiser hybrid. Thereafter, we project a 10% growth in sales in the 2nd year, and thereafter about 15% growth in the 3rd, 4th and 5th year. We are assuming that the life-span of a design is typically for 5 years thereafter, this design/model would be retired or bring forth obsolete. We would price the bike at about E12,000 so that it is not seen to be a cheap bike, while at the same time making sure it is not too expensive for Ducati fans to buy. At a discount rate of about 8% and an initial investment of E17M to launch the product in Europe, we anticipate a net return on investments of about E16.8M in 5 years.Major interior and immaterial RisksCurrently, there is no market research available that shows a segment in Europe and US who would like to have a hybrid cruiser that drives as asports bike. The retail chain and distribution channels available in Europe and the US are perhaps more familiar with Harley-Davidson dominating the cruiser segment, and the Japanese players competing in both the cruiser and the sports segment in Europe. Ducati is a world renowned Italian sports bike brand and although we are positive that we will have considerable success in carving out a sizable market segment with this new product we plan to launch, there is always a risk in going after a new market segment, especially a niche segment. Significant capital would have to be invested to arrange ad campaigns, events, retail chains to raise awareness, all before a dime is earned. Internal Risks Ducatis expertise lies in the sports bike arena, and it has never offered a cruiser style motorbike.The needs of this customer segment are definitely different than the sports bike segment, and it is possible that Ducati could run short on delivering a product that meets the needs of the segment itis targeting. Ducati may not unavoidably have the skills or the expertise to provide this sort of value to its customers. Translating and adapting its core skill-set to a different model type to develop a product more aligned with the cruiser model is not going to be easy. Also, this move could upset hard core Ducati fans, who would not want Ducati to be associated to anything other than sport bikes. Ducati could possibly risk losing their loyal fan base, if it were to substitute into bike-variants other than sports. Diversifying too far from what Ducati is known for also puts the reputation and prestige of the company and its engineers who have become respected and well-k nown in the industry for making high quality performance bikes.The technical excellency and performance that Ducati is so well-known for around the world could well be seen to become diluted by moving into a cruiser bike segment which historically has been associated with a different demographic segment altogether. Yet, by carefully positioning this new product to be a sports bike at its core and by re-establishing our commitment to producing high-quality performance bikes that we have come to be known for, we could potentially re-assure our current fans. External Risks Harley Davidson has dominated the custom cruiser segment for years with a very loyal fan base and supplier chain. Ducatis entrance in this segment will be seen as an aggressive move by Harley, and Ducati must be prepared for some backlash. Harley has a strong network of suppliers, and distribution channels in theUS, and has set high entry barriers for Ducati in the US market. Ducatis suppliers are primarily placed i n Bologna, and hence Ducati has enjoyed the benefit of being in close proximity to a large pool of supplier base and component manufacturers. Going with sports cruiser hybrid could mean that Ducati may need to establish relationships with a whole new set of suppliers based out of the US.US suppliers might not necessarily have a sense of the Italian style, a core value that the product provides. Therefore, we do not plan to enter the US market just yet, thereby preventing getting ourselves into a face-face with Harley. Once we build some credibility with customers in Europe, where we have a strong supplier base, and a decent distribution channel, we could potentially launch in the US in 2-3 years time frame based on the success of this launch. European markets have been dominated by Japanese players in sales volume, and entering the market could prompt them to bring out a competing product of their own, which could eat into the market share that Ducati is hoping to grab with this hyb rid.If Ducati does not differentiate its product and service offerings enough, there is a risk of being dragged into a price war with the Japanese. However, this is the arena where Ducati shines and has made its name- superb performance, exquisite design, and the racing dominance. By strategically positioning our product for a whole new segment of customers Ducati can protect itself from appearing to start a war. By providing additional customization services, which would be charged at a high premium, we separate ourselves by going after an sense of hearing who is not a typical low-cost Japanese bike buyer. BMW successfully launched and defined its own cruiser and so can DucatiExhibit 3 Projected SalesYearUnit Sales offshootUnits SoldPrice/Unit (in Euros)Total RevenueEBITDA0-17,000,00013,30012,00039,600,0006,930,000210%3,63012,00043,560,0007,623,000315%4,17512,00050,094,0008,766,450415%4,80112,00057,608,10010,081,418515%5,52112,00066,249,31511,593,630NPV16,862,800