ATLANTA — Across the country, motorcycle makers are seeing an uptick in female owners,

but Harley-Davidson’s cultlike following gives it potential with baby boomers who have money
to burn. Harley prices start at $6,500 and can top $30,000 with all the trimmings.

Harley-Davidson has built a two-wheeled empire out of tapping the full-throttle urges shared by
factory workers and physicians alike.

Until recently, women mostly rode along as accessories. “Women are moving from the back of
the bike to the front,” said Jenifer Freda, general manager of Killer Creek Harley-Davidson, near
Atlanta. “They’re tired of riding behind their boyfriends or husbands . . . They want control.
Plus, it’s a lot of fun.”

Growing demand for heavyweight bikes, a surge in patriotism and a thundering marketing
campaign tied to Harley-Davidson’s recent 100th birthday have all pumped new life into the
American-made motorcycle brand. Harley-Davidson recently said that shipments, sales and
earnings are hitting record levels this year. That’s on top of two decades of soaring sales, nearing
$5 billion annually. Dealerships across the country are expanding.

As good as business is for Harley-Davidson, though, the WOMEN: ON THE FRONT

Milwaukee-based icon faces some challenges on the horizon. SEAT
• Harley-Davidson says shipments, sales
More than half of Harley-Davidson buyers are age 46 and older and earnings are hitting record levels
• More than half of the company’s buyers
— compared with a median age of 38 for other motorcycle are age 46 and older
buyers — and those baby boomers are eventually going to be too • 10% of new two-wheeler buyers are
old for two wheels. women, up from about 5% 10 years ago
• Nearly 29,000 people have taken Harley-
Davidson’s rider classes
Untapped market • About 40% of the students are women
Going after younger riders is one option, but they tend to like the
speedy Japanese bikes made by Honda, Suzuki, Kawasaki and Yahama. Harley-Davidson’s
sportbike line, the Buell brand, contributes only 2 percent of the company’s revenue.

Women, however, are a huge untapped market. Only 10 per cent of new Harley-Davidson buyers
are women, but that’s up from about 5 per cent 10 years ago.

Overall, more than 4 million women operate motorcycles, according to the Motorcycle Industry
Council. The number of women buying their own bikes is small by comparison — 635,000 —
yet the number of owners has surged by nearly 40 per cent in the past five years, the council said.

Even though women have always played a role in buying decisions and the riding habits of Hog-
wild males, Harley-Davidson has only recently started to actively target them.

About 10 years ago, Harley-Davidson dealerships started sprucing up the scruffy, oil-soaked bike
shop of the past into a boutiquelike setting with bright, open showrooms and squeaky-clean
floors.
The company was trying to attract affluent first-time buyers, but a side consequence was that the
less-intimidating atmosphere brought in droves of women, too. “We’ve seen a big change in the
consumer market,” said Pete Anziano, sales representative for Stone Mountain Harley-Davidson,
near Atlanta. “It has gone from the roughneck, bearded guys with tattoos to guys in suits and
women. ... I see single women coming in about three times a week.”

With a goal to “sell the experience,” as General Manager Cameron Ayer puts it, part of the
Harley experience has changed from, say, bringing in strippers on the weekend to holding classes
geared toward safety and road skills.

Nearly 29,000 people have taken Harley-Davidson’s rider classes since they launched four years
ago, and about 40 percent of the students are women, according to the company. (Women on
Wheels members said they noted a similar ratio of women at Honda’s rider classes.)

The classes are good for business: 70 per cent of students buy a bike within a year, Harley-
Davidson says.

The Killer Creek dealership doesn’t offer rider classes, but it holds Girls’ Night Out events,
including seminars on such things as basic mechanics and how to pack a saddlebag for a long
trip. Also, makers of jackets, pants and protective clothing are waking up to the fact that women
aren’t just ornaments,noted Freda of Killer Creek. “Clothing has really changed,” Freda said. “It
used to be ‘Hey, I look cute,’ and then you get out there and freeze. ... Now, it’s not just for a
Barbie girl. The clothing comes in extended sizes. ... It’s still cute, but it’s functional, too.”

Biker Judy Mecham saw so much potential for women’s riding gear that she opened She-Rides
Active Wear four years ago in the North Georgia town of Dahlonega.

“I was trying to find riding apparel for myself and realized that it’s extremely hard to find,” said
Mecham, who zips around on a Suzuki sportbike.

Tucked next to Toosy’s Way Station, a popular motorcycle pit stop in the foothills of the North
Georgia mountains, She-Rides has already expanded the space and is getting franchise inquiries
as far away as California, Mecham said. “Women are ecstatic to have a place to shop,” she said.
“Each year I add one or two lines of apparel ... and the business has doubled or tripled every
year.”

String of changes
As far as the bikes themselves, Harley-Davidson made a string of unprecedented changes to its
entry-level Sportster model, in part to reach out to women.

The seat was lowered, and a new rubber engine mount reduces vibration. As a special bonus for
those spreading boomer bottoms, the rear tire is fatter. “We made a lot of ergonomic changes that
were designed to make the Sportster a good fit for a wide variety of riders,” said Harley-
Davidson corporate spokesman Bob Klein. “But they’re also women-friendly as well. We don’t
make a ‘woman’s bike’ because we don’t think women would buy it.”
Martin, Ga., resident Robin Dahlman, 39, planned to blow right by the Sportster this month and
check out the bigger Softail Deuce as she shops for her first Hog.

The Hart County social worker had no clue she was born to be wild until her husband, Todd, got
a Harley-Davidson last summer. After a few spins in the back seat, Dahlman was ready for her
own pipes. She graduated from Harley’s rider class this month with the “most likely to wear
leather” award, plus a “You rock!” from her 17-year-old daughter.

Dahlman said the first big road trip will likely be in her neighborhood, though. “I want to get
some good seat time around the house, where I’ll only have to worry about the deer and the
squirrels.”

Harley-Davidson, Inc.: History and General Situation

Arthur’s brothers, William Harley and Walter, started Harley-Davidson Motor Company in 1903. They first started the
business in the Davidson family’s backyard in Milwaukee, Wisconsin. In 1904, the company then moved into an
office. The company was acquired by AMF Inc, which favored short-term profits instead of investing in research and
development and retooling. Harley focused solely on sales, while competitors were continuously improving the quality
of their motorcycles. This resulted in a downturn of the company with weak profits. In 1981, a new management team
joins to buyout the company.

Harley-Davidson Inc. acquired the Buell Motorcycle Company during 1993. This investment offers Harley-Davidson
the possibility of gradual entry into the sport and performance motorcycles market.

In 1995, the company acquired Eaglemark. As a financial service company, Eaglemark provides financial services to
leisure product manufacturers and their dealers and customers in the United States and Canada. At the same time,
Eaglemark provides motorcycle floor planning to participate North American dealers of the Motor Company because
it is a majority-owned subsidiary. They also offer retail-financing to the Motor Company’s domestic customers, and
provide insurance for motorcycles as well as service contracts extensions. Eaglemark works complementary for the
Motor Company.

Harley-Davidson Inc. operates in two business segments: Motorcycles and Related Products and Financial Services.
These two segments offer different products and services, and they are managed separately. However, the financial
service works as a complementary for the Motor Company.

Industry Essentials

The motorcycle industry is a consolidated industry. The U.S. and international heavyweight motorcycle markets are
highly competitive. The major players, such as Yamaha, Suzuki, and Honda, generally have financial and marketing
resources that are substantially greater than the non-major players. Competitions in the heavyweight motorcycle
market are based on several factors; price, quality, reliability, styling, product features, customer preference, and
warranties.
Harley’s first segment is the motorcycle and related products business. It included designing, manufacturing, and
selling primarily heavyweight touring and custom motorcycles and offering a broad range of related products that
included motorcycle parts and accessories and riding apparel. The custom products charge a higher price because of
its features, styling, and high resale value. Their target market is mainly in US. By the end of 1997, they have an
approximate 48.3% share in the US market, 6.1% share in European, and 16.5% share in Asia/Pacific.

New competitors have entered the marketplace because demand for the motorcycles has exceeded production. The
demand is prospected to grow in the future, and the switching cost is low.

Their customers are mainly male, middle age, married, and have some degree of education. Most buyers hold a
motorcycle for recreational purposes rather than for transportation purpose. These buyers are mostly experienced
motorcycle riders. They are loyalty toward brand, quality, and style. Since the consumer switching cost is not high, so
the consumer has medium to high power to choose the product and the supplier has medium to low power.

The power of a threat of substitute products is medium since there are other products, such as bicycle and recreation
car, that serve the similar customer needs. Since most Harley’s motorcycles are buying for recreational purposes, all
other recreational entertainments are possible substitutions.

Every country has various environmental control requirements relating to air, water, and noise pollution. This affected
the business and operations of the business. The company has to ensure that the facilities and products comply with
all applicable environmental regulations and standards. Certain levels of cost are required for the company to deal
with this issue.

SWOT analysis

First, The Motor Company established a long-term mutually beneficial relationship with its suppliers. Through these
relationships the Motor Company is able to gain access to technical and commercial resources for application directly
to product design, development, and manufacturing initiatives. This strategy resulted in improved product technical
integrity, application of new features and innovations, reduced lead-time for product development, and faster new
vehicle introductions. Excellent relationships with suppliers enable them to ask for cost reducing and quality
improvement.

Second, since the company discontinued the operation of the Transportation Vehicles segment and sold the related
division, which lead to $100 million cash for the company, the company can pay back their debt and have more cash
available.

Third, the company developed a long-lasting relationship with employees to ensure continued success, and joined in
community affairs to enhance the company’s image. For example, they raised funds for the fight against
neuromuscular disease, and the employees were encouraged to volunteer and become involved in charitable
organizations. As the largest motorcycle club in the world, Harley Owner Group offers their customers organized
opportunities to ride. By doing so, they strengthen the relationships among members, dealers, and employees.

Fourth, the company licensed the production and sale of a broad range of consumer items, which not only generated
revenue for the company, but also enhanced the company’s image.

Even though the company has much strength, some weaknesses drive them down. They have poor marketing
strategies over the foreign market. According to Figure 1, they were only able to establish a limited market shares in
Europe and Asia Pacific market comparing to North America. Moreover, as commented by CEO, many buyers have
high repurchase intentions; but they seem weak on generating new customers.

President and CEO’s Comments Criticize

The president and CEO of Harley-Davidson Inc. are sometimes too confident and overly stated on their comments.
They believe that their motorcycles are among the most admired in the world. The word ¡¥world¡¦ is quite
controversial. As of 1997, Harley has generated 48.3% market shares of the US market, which is almost half of the
motorcycle industry (Fig 1). These data shown that the company did exceptionally good in targeting the US market.
However, the company did relatively poor on managing foreign sales. In the Europe industry, they can only obtain
6.1% market share of the 250.3 thousand units in total. This figure is extremely low compare to the US market.
Furthermore, the company could only acquired about 1/6 of the total Asia/Pacific market. With these insignificant
foreign market shares, Harley-Davidson cannot claim to have a big share of the ¡§world¡¨ market. They did prove that
they have success in the US, but not the oversea market. They are proud of the sixth consecutive year of continued
growth for the worldwide heavyweight motorcycle market. Although they had generated profit year by year, these
profits are growing relatively slow (Fig. 2). When European motorcycle industry was growing rapidly, Harley’s sales
were not. This slight growth may be great improvement for some smaller companies, but not for such a large
corporation. They also believe their image creates brand loyalty and led to high repurchase intent of the customers.
Maintaining a high repurchase intention is essential; but they should also attract more new customers. Figure 3
shows that the buyers of Harley-Davidson’s motorcycle were getting older and older. There were less male buyers
and more female buyers, they are mostly married and have 3 or more children. There seems to be a trend that most
buyers are re-purchasers. As the average age of the buyers are getting older, we can suggest that these buyers
belong to the same group from the 60s; they are getting married and ride Harley motorcycle with their
partners/spouses. The fact is what if these re-purchasers eventually die and the company is not generating new
customers.

Recommendation

The international heavyweight market is growing and is significantly larger than the U.S. heavyweight market. As of
1997, Europe has the largest motorcycle industry (Fig 1), even larger than US. There is high potential in expanding
business in Europe. However, the company holds a smaller market shares in the European market. Therefore,
continuing to develop the European market should be a major issue for the company over the next few years. The
following recommendations could be used in the European market.

Not only should they target heavyweight motorcycles market, they can also target sport motorcycles market. The
reason is that the European sport/performance market is four times larger than U.S., and is expecting to grow even
more in the future. The company could distribute the Buell Motorcycle Company’s product to the European market in
order to establish a sporty image and able to directly complete with other competitors.

Also, the company can build a motorcycle plant in the European by using strategy alliance or joint venture. Building
the plant in the European can reduce the transportation cost and increase the company’s international experience.
Strategy alliances is suitable in this case since the company can create value from transferring competencies or
sharing resources between diversified businesses in order to realize economies of scope.

They could improve their foreign marketing strategy. Over the years, Harley built up a strong heavyweight image over
the American buyers, but this image could be unfit to the Europe or Pacific market. When the company first started up
the business, the heavyweight idea was developed according to American’s taste. They actually did successfully in
the US market. However, when they expand to globalize the company, they did not do as successful as they did in
the US market. They should do more research on people’s preference and tastes in the targeted countries. Space
could also be one of the reasons. Cities in Europe and Asia has very high density compare to US. For example Hong
Kong is a tremendously high-density city. High-rise buildings are everywhere. Streets and roads are usually one to
two lanes. Thus, people in Hong Kong would rather choose to buy a transportation vehicle than a motorcycle since
pollution levels are very high. Moreover, traffic density in Hong Kong is also very high, and traffic jams happen
everyday. If people want to buy a motorcycle, they would rather buy a small and light one, as it is more convenience
to wander around small and narrow streets.

Prices could be another reason why they fail in the oversea market. Harley’s motorcycles are priced slightly higher
than competitors. In the U.S. market, since the customers are brand, quality, and style loyalty. Instead of focusing on
the price leadership strategy, they should focus on differentiate strategy. Therefore, under the current financial
availability, they should be able to generate certain funds to run the Product Development Center, which bring
together employees and suppliers to design the fashion products. At the same time, the company should focus on
product development and product proliferation strategy. They should concentrate on creating new products or
improving existing products in order to attract existing and new customers.

The company should continue to build their enterprise. Since the industry does not have significant economies of
scale, growth-via-acquisition strategy could be used. Harley-Davidson can merge or acquire weaker rival or smaller
players. Taking over the weaker and smaller players will increase the entry barriers.

Opportunities
1.The international heavy weight market is growing and is now larger than the U. S. heavyweight
market
2.The European demand for Harley Davidson is the highest in the international market and
represents the single largest motorcycle market in the world.
3.Interest rates are at historical lows.
4.Women and younger riders are increasing becoming interested in bikes.
5.Alliances with Ford Motor Company or other automobile manufacturers are possible.
6.Industry registrations of domestic heavyweight motorcycles are increasing.
7.Market share increasing in Europe and Asia for the last two years.
8.Increasing demand in US markets for bikes.
9.Customers value quality parts.

Threats

1.Harley’s ongoing capacity restraints caused a shortage supply and a loss in domestic market
share in recent years.
2.Harley’s average buying age is 42 years old and increasing.
3.The European Union’s motorcycles noise standards are more stringent than those of
Environmental Protection Agencies in the U.S and increased environmental stand.
4.Some competitors of Harley Davidson have larger financial and marketing resources and they
are more diversified.
5.Environmental protection laws.
6.Shifts in buyers needs and tastes.
7.Customer loyalty in European and Asian Countries.
8.Costs could become expensive from international importing.
9,The Buell division needs to continue to produce a quality motorcycle under Harley’s brand
name.

Harley-Davidson's Marketing Strategy Overcame Competition

Uploaded by Let's Go ALL The Way on Jun 26, 2005

How Harley-Davidson's Marketing strategy has Overcome Fierce Competition from Foreign Companies

As many enthusiasts may describe it, the pride of owning a Harley-Davidson is the pride of owning an 'American
Icon'. Harley-Davidson's (HD) positioning strategy can best be defined by its mission statement: "We fulfill dreams
through the experience of motorcycling- by providing to motorcyclists and to the general public an expanding line
of motorcycles, and branded products and services in selected market segments." Now in its 100th year, however,
the ideal of owning an 'American Icon' has slowly dwindled out of the public's mind, due mostly to the competition
from Japanese manufacturers like Honda and Yamaha. HD's strength's of its powerful brand image, maintaining
good customer relationships, strong financial position, and superiority of technology and design are hindered by its
weaknesses related to product capacity and unfulfilled demand for their products2.

Strategic Direction and Marketing Objectives

HD has chosen the strategic direction of targeting a younger market that is technologically conscious in order to
increase its share in the performance cruiser market space. With the introduction of the new V-Rod motorcycle,
HD is in a position of attaining a sizeable share in the performance cruiser marketplace. To target the younger
market with the new product line, the company has adopted the following marketing objectives: to expand its
current market (market expansion), diversify its product line (product diversification), and modify its marketing mix
to target a younger demographic.
During the 1970's, HD was facing a decline in market share due to increased competition with Japanese
companies. By phasing out weak models, becoming more selective, and limiting sales and promotions, HD was
able to carve out a niche in the marketplace which it enjoys today3. Now again faced with a period of decline, HD
is relying on its newly adopted marketing objectives. First, HD needs to expand its potential customer base to
include enthusiasts and non-enthusiasts males in the 35-44 age group. (INSERT MEDIAMARK DATA HERE) This
is accomplished through the introduction of the V-Rod and positioning it in the market to a younger demographic.
Secondly, HD needs to position the V-Rod to also appeal to first time buyers of motorcycles. HD's strong brand
identity can help pull in new clients. Third, HD has to set an appropriate marketing mix that will help attract a
younger consumer base. By using the low-end approach, which involves attracting a young audience to a brand
name product with a low price tag (similar to what Jaguar and BMW have done), HD can expand its popularity to
the domestic and international market.

Marketing Mix Elements

For Harley-Davidson's marketing objectives to be successful, the company has to implement the four elements of
a marketing mix for the V-Rod. These four elements are strategies that involve the product, pricing, promotion, and
distribution.

The product strategy is any decision that helps the company continue to develop new products around its
signature American image and positions the company in the market as such. The main reason for the introduction
of the V-Rod was the need to create a bike that would appeal to a younger demographic and attain a greater
market share for the company. By using the low-end targeting method (as discussed previously) with the
introduction of the V-Rod, this can be considered HD's first step toward implementing its strategic and marketing
objectives.

As for the pricing strategy, HD must be careful to implement a pricing decision based on the low-end targeting
method. Priced at $17,000 MSRP, HD's V-Rod has the second highest price tag in the performance cruiser
market. Although HD does have a 22% share of the total market, HD's pricing strategy has three main factors that
have influenced how it has priced the V-Rod: 1) the used motorcycle market, 2) lower priced motorcycles, and 3)
HD's inability to keep up with demand4. In order for HD to attain a greater market share, the company must
examine how these three factors will continually play a role in pricing and adjust accordingly.

The Harley-Davidson Corporation has found multiple ways to implement its promotion strategy. HD's primary
promotional tool since 1983 has been the HOG. The company's advertisements and commercials are focused
around female images. Since 93% of bikers are males, the HOG advertising campaign has been successful for
decades5. HD also uses another strong promotional campaign through its cafes, located in most dealerships. HD
has also developed an interactive website (www.harley-davidson.com). The website gives the company the
chance to expand its operations online. Finally, HD's most important promotional tool is the brand image of a truly
American product. Such a tool appeals to the domestic market, and owning a Harley-Davidson bike fits well into
supporting the national feelings of pride for America.

HD's distribution strategy can best be described by its creed found on its website: "Harley-Davidson's dealer's are
the company's life-line to our customers, with a wide variety of product offerings, dealer's provide knowledge,
service, and information to riders out on the road." The networks of dealers established by HD are placed in areas
that provide access to the largest concentration of potential customers. These dealerships are used to distribute
products, accessories, and merchandise. HD also promotes its motorcycles through dealerships with marketing
programs, shows, and public relation programs. Demo bikes are also made available at events like Daytona and
Sturgis. HD also has a non-dealer network of mid to high-end department stores like Costco's and BJ's. These
outlets are meant to appeal to the non-enthusiast.

Timing, Cost, Return, and Feedback of the Marketing Plan

Before the marketing plan and strategy for HD can be introduced, an analysis of the timing at which the plan is to
be implemented, the cost and return of the plan and the feedback involved in continually improving the product
must be done.

The most strategic timing for the plan is at peak buying seasons such as around bike demo events and seasonal
shopping. It is at these times that people are most interested in new products like the V-Rod and more likely to
have the assets to purchase the product. The cost of implementing the marketing plan is going to be related to the
assets involved in the development and research, as well as the production of the V-Rod and the
 promotion/advertising involved in making the V-Rod known to motorcyclists and non-enthusiasts.

The optimal return that is desired from the implementation of the marketing plan is a sizeable and profitable share
in the performance cruiser market. A substantial share in the market would be attributed to HD's strategic plan of
attracting new 'low-end' buyers. This group of buyers is a younger demographic compared to HD's traditional
consumer base. Attaining such a group would most certainly guarantee HD future business by attempting to gain
brand loyalty.

The most important aspect of understanding the functionality of the marketing plan is the feedback involved from
the consumer. To comprehend why or why not a certain aspect of the marketing mix is working, consumers of the
product must be allowed to give their input. Continual and efficient uptake of data from the customer, whether
through surveys or questionnaires or any other technique is critical in order to see whether the marketing plan
implemented is working accordingly as planned

With half the US market and a third of the global one, Harley-Davidson is the largest manufacturer of heavyweight

motorcycles in the world by market share, capturing half the US market and a third of the global market. The
company markets products under the Harley-Davidson, Buell, and MV Augusta brands. As a luxury good, Harley

competes primarily on design and quality, rather than price, which keeps margins high; gross margin during 2008 was
34.5%.[1]

Harley's past growth and continued success is closely tied to its customers brand loyalty; Harley is arguably the only

company whose customers have been known to regularly tattoo its trademark on their bodies. Despite this rebellious

image, the average Harley customer is an upper-class 47-year-old white male, and has been getting older at a rate of

6 months every year for the last 20 years. Because Harley's primary value is in its brand, investors would be well

advised to monitor the growth or decline of Harley culture.

Despite brand loyalty, the company had to shut down and consolidate factories in 2009 due to the effects of the
recession and the fall of the U.S. Housing Market. About 15% of Harley's business used to be writing loans to its

motorcycle buyers. The company's finance arm has since collapsed and has shown no signs of stabilizing as of Q2

2009.

Business Financials[edit]
Tough Times in 08 and 09[edit]
Harley Davidson’s 2009 second quarter earnings declined 91% from the same quarter in 2008. Revenues declined

26%. Harley Davidson’s credit facility has been seeing rising defaults, which led to a write down accounting for 35%

of Harley’s total losses. Another 14% of the losses were due to an impairment of the company’s goodwill due to

prevailing negative economic conditions. The rest was simply because the company could not sell as many

motorcycles. [2]

This serious hit to earnings is forcing Harley Davidson to ship 25% fewer motorcycles in 2009, and to fire about 2,500

of its employees (2200 hourly positions, and 300 salaried positions). This accounts for about 25% of its total

workforce. It is shutting down, or consolidating numerous manufacturing facilities to accommodate the drastically

reduced capacity. Because it is actually shutting down factories, Harley will be able to produce fewer motorcycles for

years to come. [2]

Operating Segments[edit]
Harley has two main businesses: selling Harleys, and giving people credit to buy Harleys. Traditionally, the financing

arm generates about 15% (+/-3%) of Harley's income, while the motorcycle branch generates about 85%. 2008-2009

have been atypical because the financing arm has actually lost money.[3]

Specifically, Harley Davidson sells motorcycles directly, sells motorcycle parts and accessories, operates retail

motorcycle dealerships, sells motorcycle gear and general merchandise, and offers loans to buyers.

The following graph shows how badly each of these sectors performed in 2009 versus 2008. The 3 month

comparison deals with Q2 2009 and Q2 2008. The 6 month deals with Q1 and Q2 of both years.[2]

The graph shows not only that every single sector of Harley Davidson has declined since last year, but also indicates

that every sector is declining at an accelerating rate (with the exception of the gear and clothing sector).

International Sales[edit]
Harley Davidson generates 70% of its sales in the United States, and 30% internationally. Europe accounts for about
50% of international sales. Canada accounts for about 15%, while Japan accounts for 13%. [2]
Demand in Japan and the rest of Asia declined only about 7% in the past year, whereas Canada saw a decline of

36.7%. This could be due to Canada’s exposure to the United States Market, which saw a 26% decline. Overall,

world sales have not been affected nearly as much as North American either due to premium brand recognition (in
the case of Asia) or the depreciation of the US Dollar (Europe). [4]

Contents

 1 Business Financials

 1.1 Tough Times in 08 and 09

 1.2 Operating Segments

 1.3 International Sales

 2 Trends and Forces

 2.1 An aging customer base

 2.2 The strength of the US Dollar versus the Euro and the Yen

 2.3 The "American-made" premium

 2.4 The housing market

 3 Comparison to Competitors

 3.1 Major Competitors

 3.2 Financial Resources

 3.3 Difference in Product Lines

 4 History

 5 Notes
Trends and Forces[edit]
An aging customer base[edit]
Harley Davidson’s average customer has been getting 6 months older for the past 20 years, and is now 47
years old. The children of Baby Boomers generally do not want huge bikes that drive most of Harley's sales. Younger

generations have a taste that errs towards smaller, cheaper Japanese bikes. To address this, Harley bought out

Buell, a fast bike producer, in 1998, introduced the unconventional V-Rod in 2002, and bought out the Italian MV

Agusta company which makes premium light-weight bikes. These acquisitions of fast bike companies have not yet
slowed the aging of the Harley customer base. [4] While Harley’s faster smaller bike segments have been growing

steadily since 2004, they still account for less than 20% of Harley’s total sales. [5]

Harley will need to attract younger buyers to maintain its long-term market share, while not alienating its core
customer too much.

The strength of the US Dollar versus the Euro and the Yen[edit]
Harley Davidson is increasingly reliant on international sales, especially in Europe. In 2004, only 18% of the
company’s sales were international. This figure had moved to 32% by 2008, helped by a heavily weakening dollar. [5]

Because Harley incurs its production costs in the United States, it benefits when the dollar weakens against the Euro

and the Yen.

People tend to buy dollars to buy US goods, or to hedge against the fluctuation of global currency (the US Dollar is

the world's most trusted currency). When people buy dollars, the dollar goes up, and Harley gets hurt.

The "American-made" premium[edit]

Some say the collapse of General Motors (GMGMQ) was the end of an era for American manufacturers. GM did not

just collapse because of high pension obligations. Its cars did not sell well. Asian competitors were making cheaper

cars that broke less, took less gas, and went faster. [6]

As an increasing number of American factories go overseas to reduce expenses and do not see a decline in quality.

Even Harley imports some Japanese parts due to their higher quality. The "American-made" premium is more

nostalgic at this point than anything else. Honda and Kawasakis compete head-to-head with Harleys on technical

specifications.[7] Harley is able to charge premium prices for their motorcycles primarily because of their brand image.

The question is: can a brand built on an increasingly distant past survive the future?

Harley faces two threats with its reliance on its brand image. First of all, cool retro-"Easy-Rider" culture could fade out

of style along with corresponding demand for Harley's. Secondly, custom American chopper producers such as Big

Dog Motorcycles and American IronHorse actually deliver the promise of an All-American bike that is more powerful

and customized than almost anything out there.[8]

The housing market[edit]

Homes serve as the traditional collateral for credit. Harley Davidson has frequently been called a banking stock in

drag due to its own extensive financing branch. Depressed housing prices mean a higher percentage probability of

loan default due to moral hazard (“Go ahead and take my house, but good luck selling it.”). Higher loan defaults mean

greater losses, neccesitating higher rates, which encourages further defaults and so on.

June 2009 housing data beat expectations, but renting is cheaper than owning in many parts of the country. [9]

Harley’s financing arm, which is hemorrhaging cash needs the housing market to recover. If the housing market does

not recover in the immediate future, Harley will have difficulty selling motorcycles.

Comparison to Competitors[edit]
Major Competitors[edit]
Harley-Davidson maintains a large margin in its dominance in the US Heavyweight
Motorcycle market as compared to its major competitors.

2003 - 2007
US
Heavyweight US Market Share 2007 2006 2005 2004 2003
New
Registrations
Share[10]
Harley-Davidson 49.4% 50% 49.6% 50.2% 50.3%
Honda 14.2 15.1 16.6 18.7 18.4
Suzuki 12.5 12.9 12.4 10.2 9.8
Yamaha 9.2 8.6 8.9 8.7 8.5
Kawasaki 7.2 6.8 6.5 6.4 6.7
While the United States is HOG's most important market, the company sells motorcycles in many other markets

worldwide. The two most important are Europe, where the company has grown market share from 9.8% in 2005 to

10.7% in 2007, and Canada where HOG had a 39.0% market share for 2007, up from 32.7% in 2005.[11] Worldwide,

Harley has a dominant worldwide market share of 33% in what is a growing industry.

Financial Resources[edit]
While the company’s competitors, notably Honda Motor Company (HMC) and Suzuki, do not have as dominant a

market position, they often have greater financial resources. This is largely because companies like Honda have

more diverse product lines (like cars), and are greater in size than Harley-Davidson, a far more specialized company.

For example, motorcycle sales at the company’s largest competitor, Honda, hover around 12% of total revenue.

Difference in Product Lines[edit]

Harley-Davidson is the premier manufacturer of heavyweight motorcycles. As compared to lightweight motorcycles,

the products typically appeal to very different cross sections of the population, with the lightweight market catering

more to younger buyers seeking speed, agility, and affordability in a motorcycle and the heavyweight market to older

buyers seeking style, quality, and, sometimes, status. Because heavyweight bikes are perceived as a luxury good,

they offer greater margins for the manufacturer.[12] Thus, Harley’s true competitors are other heavyweight

manufacturers, though the company competes to some degree with any motorcycle manufacturer. Heavyweight

motorcycles accounted for 54% of the U.S. motorcycle market in 2007.[13]

History[edit]
With the first Harley (or, as a Harley bike is often known, “Hog”) produced in 1903, the company began a storied

history extending over a century. In just a few decades, the company emerged as the largest motorcycle

manufacturer in the world, before stumbling like most companies through the Depression. Harley nonetheless

survived, and soon supplied products to the U.S. Army during World War II. Harley-Davidson was sold to investors for

$80 million in 1981, before it was taken public in 1986. It has since enjoyed a period of tremendous growth, achieving

annualized gains of over 30% for investors since its IPO. Through the long history of the company, the Harley-

Davidson brand name has been extraordinarily well-recognized within the industry.

NEW YORK 19 December 2007 - If you're the $6 billion-a-year Harley-

Davidson company, the thing you want most this Christmas is to prop up
the illusion that you market a vehicle for an edgy, outlaw lifestyle. The
new holiday commercial features a death-skull-faced Santa dressed all in
black from his head to his toes, with a sleigh pulled by eight Harleys
spewing fire in their wake.

The Harley-Davidson Motor Company (NYSE: HDI) is an American

manufacturer of motorcycles based in Milwaukee, Wisconsin, United
States. It is one of the two remaining American mass-producers of
motorcycles (along with Victory Motorcycles). The company emphasizes
heavy bikes designed for cruising and known for their distinctive exhaust
noise.

Harley-Davidson motorcycles (popularly referred to as "Harleys") are

distinctive in design and attract a loyal following, and hold their resale
value very well compared to other vehicles. A well maintained vehicle
might never drop in value at all, although regular maintenance is
expected.

The company supplies many domestic police forces with their motorcycle
fleets. Harleys are especially noted for the tradition of heavy
customization that gave rise to the chopper-style of motorcycle. It also
licenses its logo, which is a profitable side business ($41 million of
revenue in 2004, or almost 5% of net income).

Since 1998 Harley-Davidson has also owned Buell Motorcycle Company.

The Harley-Davidson V-twin engine

The classic Harley-Davidson engines are two-cylinder, V-twin engines with
the pistons placed at a 45 degree angle. The crankshaft has a single pin,
and both pistons are connected to this pin through their connecting rods.
This design causes the pistons to fire at uneven intervals.

On the V-twin, the sequence is as follows:

1. the first piston fires (this is the 0° position)
2. the other piston fires at 315° into the stroke
3. there is a 405° gap (as both cylinders go through their
exhaust stroke) until the first piston fires again

This design, which is covered under several United States patents, gives
the Harley-Davidson V-twin its unique "potato-potato" sound.

On 1 February 1994, the company filed a trademark application for the

distinctive sound of a Harley-Davidson motorcycle engine: "The mark
consists of the exhaust sound of applicant's motorcycles, produced by V-
twin, common crankpin motorcycle engines when the goods are in use".
Nine of Harley-Davidson's competitors filed comments opposing the
application, arguing that cruiser-style motorcycles of various brands use a
single-crankpin V-twin engine which produce a similar sound. These
objections were followed by litigation. After six years, Harley-Davidson
withdrew their trademark application.

Harley-Davidson 45° V-twin, Evo Sportster

History
Company founding

The company considers 1903 to be its year of founding, though the

Harley-Davidson enterprise could be considered to have started in 1901
when William S. Harley, age 21, drew up plans for a small engine that
displaced 7.07 cubic inches (116 cc) and had four-inch flywheels. The
engine was designed for use in a regular pedal-bicycle frame.

Over the next two years Harley and his boyhood friend Arthur Davidson
labored on their motor-bicycle using the northside machine shop of their
friend Henry Melk. It was finished in 1903 with the help of Arthur's
brother, Walter Davidson. Upon completion the boys found their power-
cycle unable to conquer Milwaukee's modest hills without pedal assistance.
Will Harley and the Davidsons quickly wrote off their first motor-bicycle as
a valuable learning experiment.

Work was immediately begun on a new and improved machine. This first
"real" Harley-Davidson motorcycle had a bigger engine of 24.74 cubic
inches (405 cc) with 9-3/4 inch flywheels weighing 28 pounds. The
machine's advanced loop-frame was similar to the 1903 Milwaukee Merkel
motorcycle. They also got help with their new engine from outboard motor
pioneer Ole Evinrude. Elder brother William A. Davidson also lent a hand.

The prototype of the new improved loop-frame model was assembled in a

10 by 15 foot (3 by 5 meter) shed in the Davidson family backyard. The
machine was functional by 8 September 1904 when it was entered in a
Milwaukee motorcycle race, the first known appearance of a Harley-
Davidson motorcycle.

In January 1905 small advertisements were placed in the "Automobile and

Cycle Trade Journal" that offered bare Harley-Davidson engines to the do-
it-yourself trade. By April, complete motorcycles were in production on a
very limited basis. In 1905 no more than a dozen machines were built in
the backyard shed. (Some years later the original shed was taken to the
Juneau Avenue factory where it would stand for many decades as a tribute
to the Motor Company's humble origins. Unfortunately, the first shed was
"accidentally" destroyed by contractors in the early 1970s during a clean-
up of the factory yard.)

In 1906 Harley and the Davidsons built their first factory on Chestnut
Street (later Juneau Avenue). This location remains the Motor Company's
corporate headquarters today. The first Juneau Avenue plant was a
modest 40 by 60 foot single-story wooden structure. That year around 50
motorcycles were produced.

In 1907 William S. Harley graduated from the University of Wisconsin at

Madison with a degree in mechanical engineering. That year additional
factory expansion came with a second floor and later with facings and
additions of Milwaukee pale yellow ("cream") brick. With the new facilities
production increased to 150 motorcycles in 1907. That September a
milestone was reached when the fledgling company was officially
incorporated. They also began selling their motorcycles to police
departments around this time, a tradition that continues today.

Ralph Hepburn races his Harley in this 1919

Production in 1905 and 1906 were all single-cylinder models with 26.84
cubic inch (440 cc) engines but as early as February of 1907 a prototype
model with a 45-degree V-Twin engine was displayed at the Chicago
Automobile Show. Although shown and advertised, very few dual cylinder
V-Twin models were built between 1907 and 1910. These first V-Twins
displaced 53.68 cubic inches (880 cc) and produced about 7 horsepower
(5 kW). This gave about double the hill-climbing power of the first singles.
Top speed was about 60 mph (97 km/h). Production jumped from 450
motorcycles in 1908 to 1,149 machines in 1909.

The success of Harley-Davidson (along with Indian's success) had

attracted many imitators. By 1911 some 150 makes of motorcycles had
already been built in the United States -- although just a handful would
survive the 1910s.

In 1911 an improved V-Twin model with mechanically operated intake

valves was introduced. (Earlier V-Twins had used "automatic" intake
valves that opened by engine vacuum). Displacing 49.48 cubic inches
(810 cc), the 1911 V-Twin was actually smaller than earlier twins, but
gave better performance. After 1913 the majority of bikes produced by
Harley-Davidson would be V-Twin models.

By 1913 the yellow brick factory had been demolished and on the site a
new 5-storey structure of reinforced concrete and red brick had been built.
Begun in 1910, the red brick factory with its many additions would take
up two blocks along Juneau Avenue and around the corner on 38th Street.
Despite the competition, Harley-Davidson was already pulling ahead of
Indian and would dominate motorcycle racing after 1914. Production that
year swelled to 16,284 machines.

World War I

In 1917, the United States was drawn into World War I and the military
demanded motorcycles for the war effort. Harleys had already been used
by the military in border skirmishes with Pancho Villa but World War I was
the first time the motorcycle had been adopted for combat service.
Harley-Davidson provided over 20,000 machines to the military forces
during World War I.

By 1920, Harley-Davidson was the largest motorcycle manufacturer in the

world. Their motorcycles were sold by dealers in 67 countries. Production
was 28,189 machines.

In 1921, a milestone was reached in motorcycle racing. A Harley-Davidson

machine was the very first to win a race at an average speed of over 100
mph (160 km/h).

During the 1920s, several improvements were put in place, such as a new
74 cubic inch (1.2 L) V-Twin, introduced in 1922, and the gas tank still
seen today, called a "Teardrop" tank, in 1925. A front brake was added in
1928.
 Harley copied the BMW to produce its XA model

World War II

One of only two American cycle manufacturers to survive the Great

Depression, Harley-Davidson again produced large numbers of
motorcycles for the US Army in World War II and resumed civilian
production afterwards, producing a range of large V-twin motorcycles that
were successful both on racetracks and for private buyers.

During World War II, the U.S. Army asked Harley-Davidson to produce a
motorcycle as good as BMW's side-valve R71. So Harley copied the BMW,
simply converting metric measurements to inches, and produced the
shaft-drive 750 cc 1942 Harley-Davidson XA. Due to the superior
cooling of an opposed twin, Harley's XA cylinder heads ran 100° cooler
than its V-twins'. The XA, though a wonderful motorcycle, was eclipsed by
the Jeep. Only 1,000 were made and the XA never went into full
production.

As part of war reparations, Harley-Davidson acquired the design of a small

German motorcycle, the DKW RT125 which they adapted and marketed as
the "Hummer" from 1948 to 1966 (in in the UK, BSA took the same design
as the foundation of their BSA Bantam).
 Tarnished reputation

In 1952, following their application to the US Tariff Commission for a 40%

tax on imported motorcylces, Harley-Davidson is charged with restrictive
practices.

In 1969, American Machinery and Foundry (AMF) bought the company,

streamlined production, and slashed the workforce. This tactic resulted in
a labor strike and a lower quality of bikes. The company also ceased to be
an innovator in the motorcycle industry, with a design that remained
basically unchanged for many years. The bikes were expensive and
inferior in performance, handling, and quality to Japanese motorcycles.
Sales declined, quality plummeted, and the company almost went
bankrupt. The venerable name of "Harley-Davidson" was mocked as
"Hardly Ableson", and the nickname "Hog" became pejorative.

Tarnished reputation

AMF H-D Electra Glide

In 1952, following their application to the US Tariff Commission for a 40% tax on imported
motorcycles, Harley-Davidson was charged with restrictive practices.[35] Hollywood also
damaged Harley's image with many outlaw biker gang films produced from the 1950s through
the 1970s, following the Hollister, CA biker riot on July 4, 1947. "Harley-Davidson" for a long
time was synonymous with the Hells Angels and other outlaw motorcyclists.[citation needed]

In 1969, American Machinery and Foundry (AMF) bought the company, streamlined production,
and slashed the workforce. This tactic resulted in a labor strike and a lower quality of bikes. The
bikes were expensive and inferior in performance, handling, and quality to Japanese
motorcycles. Sales declined, quality plummeted, and the company almost went bankrupt.[36] The
"Harley-Davidson" name was mocked as "Hardly Ableson", "Hardly Driveable," and "Hogly
Ferguson",[37][38] and the nickname "Hog" became pejorative.[citation needed]

In 1977, Harley-Davidson produced what has become one of its most controversial models, the
Confederate Edition. The bike was essentially a stock Harley with Confederate-specific paint and
details.[39]
[edit] Restructuring and revival
In 1981, AMF sold the company to a group of thirteen investors led by Vaughn Beals and Willie
G. Davidson for $80 million.[40] Inventory was strictly controlled using the just-in-time system.

In the early eighties, Harley-Davidson claimed that Japanese manufacturers were importing
motorcycles into the US in such volume as to harm or threaten to harm domestic producers.
After an investigation by the US International Trade Commission, President Reagan imposed in
1983 a 45% tariff on imported bikes and bikes over 700 cc engine capacity. Harley Davidson
subsequently rejected offers of assistance from Japanese motorcycle makers.[41][42]

Rather than trying to match the Japanese, the new management deliberately exploited the "retro"
appeal of the machines, building motorcycles that deliberately adopted the look and feel of their
earlier machines and the subsequent customizations of owners of that era. Many components
such as brakes, forks, shocks, carburetors, electrics and wheels were outsourced from foreign
manufacturers and quality increased, technical improvements were made, and buyers slowly
returned. To remain profitable Harley continues to increase the amount of overseas-made parts it
uses, while being careful not to harm its valuable "American Made" image.

Ford F-150 Super Crew

Harley-Davidson edition

The "Sturgis" model, boasting a dual belt-drive, was introduced. By 1990, with the introduction
of the "Fat Boy", Harley once again became the sales leader in the heavyweight (over 750 cc)
market. At the time of the Fat Boy model introduction a story rapidly spread that its silver paint
job and other features were inspired by the World War II American B-29 bomber; and that the
Fat Boy name was a combination of the names of the atom bombs (Fat Man and Little Boy) that
were dropped on Nagasaki and Hiroshima respectively. However, the Urban Legend Reference
Pages lists this story as an urban legend.[43][44]

1993 saw the replacement of the FXR frame with the Dyna, though it was revived briefly in 1999
and 2000 for special limited editions (FXR2,FXR3 & FXR4).

In 2000, Ford Motor Company added a Harley-Davidson edition to the Ford F-Series F-150 line,
complete with the Harley-Davidson logo. This truck was a Super Cab for model year 2000. In
2001, Ford changed the truck to a Super Crew and in 2002 added a super-charged engine (5.4 L)
which continued until 2003. In 2004, the Ford/Harley was changed to a Super-Duty, which
continues through 2009. Ford again produced a Harley-Davidson Edition F-150 for their 2006
model-year, as well.

Building started on $75 million 130,000 square-foot (12,000 m2) Harley-Davidson Museum in
the Menomonee River Valley on June 1, 2006. It opened in 2008 and houses the company's vast
collection of historic motorcycles and corporate archives, along with a restaurant, café and
meeting space.[45]

Captain America" replica bike from the film Easy Rider

Leadership regained
In 1981, AMF sold the company to a group of thirteen investors led by
Vaughn Beals and Willie G. Davidson. They introduced the "Sturgis" model
boasting a dual belt-drive. Inventory was strictly controlled using the Just
In Time system. As a result, quality and buyers slowly returned. The
motor company increased sales.

Rather than trying to match the Japanese, this new management

deliberately exploited the "retro" appeal of the machines, building
motorcycles that deliberately adopted the look and feel of their earlier
machines and the subsequent customizations of owners of that era.
Quality increased, and technical improvements were made.

By 1990, with the introduction of the "Fat Boy", Harley once again became
the sales leader in the heavyweight (over 750 cc) market. There was a
controversy that the Fat Boy model was allegedly inspired by the name of
the bombs (Fat Man and Little Boy) that were dropped on Nagasaki and
Hiroshima. The company vehemently denies this and claims it is
coincidence.

In 1999, Ford Motor Company added a Harley-Davidson edition to the

Ford F-Series F-150 line, complete with the Harley-Davidson logo. This
truck was an extended-cab for model year 1999. In 2000, Ford changed
the truck to a crew cab and in 2002 added a super-charged engine (5.4L)
which continued until 2003. In 2004, the Ford/Harley was changed to a
Super-Duty, which continues through 2006. Ford will again produced a
Harley-Davidson Edition F-150 for their 2006 model-year, as well.

Building started on $75 million 130,000 square-foot (12,000 m2) Harley-

Davidson Museum in the Menomonee Valley on June 1, 2006. It is
expected to open in 2008 and will house the company's vast collection of
historic motorcycles and corporate archives, along with a restaurant, café
and meeting space.

Origin of Hog nickname

Beginning in 1920 a team that consistently won races had a hog, a pig, as
their mascot. Following a win, they would put the pig (a real one) on the
back of their Harley and take a victory lap A photo of the pig is also on
their website. In 1983, an organization was formed, taking advantage of
the long-standing nickname by turning "hog" into the acronym H.O.G., for
Harley Owners Group.

Harley-Davidson attempted to trademark "hog," but in 1999 ultimately

lost the case, with the appellate panel ruling that "hog" had become a
generic term for large motorcycles, and is therefore unprotectable as a
trademark

Events
In 2003, Harley-Davidson Company celebrated its 100th birthday. On
Labor Day weekend the city of Milwaukee hosted the largest Harley-
Davidson event, and possibly the largest motorcycle event, in history.

Other motorcycle events:

• Sturgis Motorcycle Rally - held at the beginning of August
each year in Sturgis, South Dakota, 514,951 attended in 2004.
• Laconia Motorcycle Week - held since the first Loudon classic
race started 1923. Located in Laconia, New Hampshire.
• Daytona Beach Bike Week - held since 1937 in Daytona
Beach, Florida.
• Republic of Texas Biker Rally - a popular event in Austin,
Texas held every June.
• Myrtle Beach Bike Week - a Spring and Fall rally in Myrtle
Beach, South Carolina Click on link here.
• Rolling Thunder - an annual rally in Washington, D.C. to raise
awareness of veteran issues (specifically POW/MIA soldiers).

Harley Owners Group

Harley-Davidson established the Harley Owners Group (H.O.G.) in 1983 in

response to a growing desire by Harley riders for an organized way to
share their passion and show their pride. By 1985, 49 local chapters
existed, with a membership of 60,000.

Rapid growth continued into the 1990s, and in 1991 H.O.G. officially went
international, with the first official European H.O.G. Rally in Cheltenham,
England. Worldwide membership numbered 151,600, with 685 local
chapters.

As the 90s continued, H.O.G. spread into Asia, including new chapters in
Singapore and Kuala Lumpur, Malaysia. By 1999, worldwide membership
had reached half a million, and the number of local chapters totaled
1,157. Today, more than one million members make H.O.G. the largest
factory-sponsored motorcycle organization in the world.

H.O.G. benefits include organized group rides, exclusive products and

product discounts, insurance premium discounts, and the Hog Tales
newsletter.

Famous owners of Harley-Davidsons include singer Elvis Presley,

comedian Jay Leno and professional wrestler The Undertaker.
 Marketing techniques
The sponsorship of a "Harley Owners' Group" has been one of the most creative and innovative
strategies that has helped create the experience of this product. Without realizing it, Harley executives
had pioneered a new paradigm that would be increasingly embraced by other industries in their quest
to increase profitability by converting their product into an experience. The company started to
organize rallies to strengthen the relationship between its members, dealers, and employees, while
also promoting the Harley experience to potential customers. The Harley Owners' Groups became
immensely popular; it allowed motorcycle owners to feel as if they belonged to one big family. In
1987, there were 73,000 registered members, and Harley now boasts to have no less than 450,000
members.

In 1983, the company launched a marketing campaign called SuperRide, which authorized over 600
dealerships to invite people to test-drive Harleys. Over 40,000 potential new customers accepted the
invitation, and from then on, many customers were not just buying a motorcycle when they bought a
Harley; instead, they were buying "the Harley Experience."

Harley-Davidson offered its customers a free one-year membership to a local riding group, motorcycle
publications, private receptions at motorcycle events, insurance, emergency roadside service, rental
arrangements on vacation, and a host of other member benefits. Branding the experience, not just the
product, has allowed the company to expand how it captures value, including a line of clothing, a parts
and accessories business, and Harley-Davidson Visa card.

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. In Willie G. Davidson, the grandson of one of the
founders, the company had a vital link to its design heritage. Dressed in black leather and beret, Mr. Davidson, now
the 64-year-old head of the design department, took to the road and met with Harley customers, listening to their
comments. Voicing disdain for the slick Japanese machines, they expressed nostalgia for old Harley models and the
outlaw touches that had turned Harleys into "choppers." Willie G. designed new lines like the Softtail to mimic the
beauty and elegance of 40's classics like the Hydra Glide.
"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 organization 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 Harleys 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.

Give 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. The organization sponsors hundreds of rallies around the
country each year, including massive gatherings in Daytona Beach, Fla., and Sturgis,
S.D. With the Fly and Ride program, H.O.G. members who are on vacation or
traveling on business can call ahead and rent Harleys through local chapters. And
every five years, the company and H.O.G. sponsor anniversary reunions in
Milwaukee. 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.

Extend The Brand: Mr. Fessler realized 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-colored 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, L'Oreal
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 example, rather than a Bic disposable.

Each decision to go upscale in ancillary products led to another. Realizing 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, modeled after the Hard Rock Cafe, will soon be joined by
another, in Las Vegas. And Harley-Davidson stores selling clothes and other paraphernalia have become familiar
tenants in malls around the country.

Mr. Fessler acknowledged some bad decisions -- like licensing the Harley name to a line of cigarettes -- and the
company's licensing department now has strict operating guidelines. 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 aging 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."
 Extend 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 cognizant 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. "I can set my watch by certain people coming in every day," said Mr. O'Neil of Cycle-Craft.

Add 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 customizing kits, which Harley shares with legions of
independent third-party "chop shops." Personalizing a Harley by innovative paint jobs, scads of new chrome and
pricey saddlebags has become its own time-honored Harley tradition. In fact, industry watchers agree with Mr.
Conrades that Harley could get a big boost in sales by focusing on this market more than it does.

Not surprisingly, as production shortfalls over the past six or seven years have led to waits of up to two years for new
bikes, the value of used Harleys has skyrocketed and owners can often sell their machines for more than they
originally paid.

Sometimes they don't have to wait very long at all to make a profit. John Atwood, owner of Cycle-Craft, recalled the
day, some four years ago, when he sold a new Harley Road King to a customer who then walked out the door and
resold it to someone else in the parking lot for $2,000 more. "He didn't even have the decency to leave my lot," Mr.
Atwood said. "I felt like I had a big 'stupid' sticker on my forehead."