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Ducati : In pursuit of magic

Group 1 :
1. Aakash Khurana -18PGHR01
2. Aditya Jain -18PGHR11
3. Chetna -18PGHR21
4. Lovey Chaudhary -18PGHR31
5. Samanway Roy -18PGHR41
6. Surbhi Dua -18PGHR51
History of the company

• Set up by Antonio Cavalieri Ducati and his three sons in 1926 as a manufacturer of electrical
components for radio
• Set up offices in New York, London, Paris in the next 15 years
• Entered the motorcycle market with ‘il Cucciolo’ in early 1950’s as it started producing it on it’s own
• Fabio Taglioni joined Ducati and introduced the Desmodromic valve distribution system
• Company purchased by Cagiva Group in 1983
• Despite of the success of “Monster” and “916”, the company was
on the verge of bankruptcy
• US based private equity firm, Texas Pacific Group bought a
controlling interest in Ducati
Brief description about the case

• The case evaluates Ducati’s performance in three different periods, i.e., pre 1996, between 1996-01 and 2002-05
• The company performed reasonably well till 1980. However, in the early 1980’s things began to change and Ducati
started losing money
• With Minoli’s strategies, the company again started performing well and reached new heights in terms of profits
and EBIDTA
• However, this phase lasted till 2001 and since 2002 Ducati’s financial performance has stagnated
Ducati between 1996 and 2001

• Almost at the verge of Bankruptcy


• Federico Minoli joined as the CEO having worked at P&G, Mc K etc.earlier
• ‘World of Ducati’ established to create a complete brand about superior engineering because he believed that the
brand is about the experience they are offering
• Revenues moved from €95 million to €380 million from 1996 to 2000
• EBITDA improved from a loss to a positive €60 million in the same period
• But in the next 5 years, business results stalled: revenues fell 2.3 percent on a compound annual growth rate from
2000 to 2005, and EBITDA fell to -€273,000 at the close of 2005
• Ducati introduced a new Sport Touring line targeted at an older crowd (over 70 percent were over 30 years old)
• Near the end of the turnaround, Texas Pacific Group reduced its holdings from 72 percent of Ducati to 34.8 percent
in an initial public offering on the Milan and New York Stock exchanges
Ducati between 2002 and 2005 : What went wrong?

FINANCIAL ANALYSIS

• An after tax loss of 41.5 million Euros in 2005


• Revenue from motorcycle decreased by 13.1%
CHANGES AND CHALLENGES
• Sales from accessories, spares and apparels dropped by 3.8%
• Drop in dollar against Euros cost Ducati an estimated €19.3
million in EBITDA in 2004 • Released Multistrada resulting
in strong sales response and
increased sales in accessories.
• Change in Customer
REASONS FOR POOR PERFORMANCE Acquisition model. High
competition from Japanese model
As per Miloni, Ducati’s performance was hit during the period • Major decline in US business.
because of : Sales decreased by 39%`
• product discontinuity,
• trouble with the customer acquisition model
• Halving U.S. volumes due to local mismanagement &
disruption
Ducati in 2006 (1/2)

•Provided products across six categories: Superbike (17.9%), Super Sport (3%), Sport Naked
(48%), Sport Touring (4%), Multistrada (17.8%)and Sportclassic (9.5%)
Products • USP: High engine performance, Light weight, Low engine sound, Compact design
architecture and Italian styling

•Invested €26.5 Million in R&D (8.3% of revenues)


New Product •Feedback mechanism for design and style
Development •Tried to incorporate characteristics of Ducati in every new type of product

•Sold €29 Million of accessories & spare parts


Accessories & Spare •Outsourced storage and logistics to reduce costs
Parts •Margins high in accessories and spare parts

• Collaborated with Oakley, Dainese and Suomy to produce Ducati branded suits, jackets ,
gloves, boots, helmets & other gear
Apparel • During decline in 2002-2005, apparel business witnessed a growth
• People with low purchasing power but Ducati fans bought such apparels
Ducati in 2006 (2/2)

•Placed ads in selective motorcycle publications


•Supported 200 clubs with 50,000 members
Marketing •Ducati’s museum & factory: 500,000 visitors
•Formal motorcycle training for male and female riders
•Eight country specific website to reach a larger customer base

•800 multi franchise distribution points across 61 countries


•Wholesale distribution through wholly owned subsidies in selected countries
Sales & Distribution •Network of independent dealers in France, Germany, UK & Italy
•In US, European brands team up to share cost as they have low market share

•35,000 bikes produced with efficiency of 120 to 160 bikes per day
•93% of COGS was from parts and components & 7% attributed to labor, research &
Production development
•Suppliers mapped to specific parts required in the bike
Recommendations for the future

• Outsourcing of parts can be done from low cost countries from APAC region
• Launch a new brand for bikes of economic range
• Portray the brand as deluxe, but not unattainable in order to tap new customers
• Collaborate with other brands for merchandise to push feeling of belongingness among customers
• Expand their brand presence through social media means