Harley Davidson Porter Five Forces Analysis
Five Forces analysis of Harley Davidson covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
Harley Davidson is one of the most popular premium motorcycle companies in the world. Founded in 1903, the company marks its presence in more than 100 countries of the world. Entering the premium motorcycle category requires lot of investment into research and development, brand creation, setting up dealership network, repair and maintenance services, etc. This level of investment, with no guarantee in return is the reason why this market has not been clouded with newer companies experimenting with the product. Also, analyzing the consumer sentiment, the customer likes to pay for the heritage that the brand brings, the exclusive community that they become a part of once they purchase a motorcycle of this category. Hence, the switching cost of the customer too increases, even if not tangibly. Another consideration is the availability of spare parts and resale value of the vehicle after it has been used for a few years, which is not easy for any new entrant to navigate. The new company would also be under regulatory pressures in terms of licenses, taxes, and environmental guidelines. These are the reasons why the threat of new entrants is a weak force in case of Harley Davidson.
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This concludes the threat of new entrants in the Harley Davidson Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Harley Davidson:
A premium motorcycle usually costs at least 3-5 times a standard motorcycle, which means that the market is extremely niche. A customer who has the willingness to pay that amount for a vehicle can also consider purchasing a smaller car.
However, the percentage of these customers is extremely minimal because Harley Davidson is a lifestyle product. At the price range of the vehicle, the type of four-wheelers available would not satisfy the lifestyle needs that the customer is seeking. Hence, the threat from other vehicle types remains minimal as the customer would be short of relevant options. The only threat that exists is other lifestyle goods or services fighting for the same wallet space. For example, customers might face a tradeoff of purchasing a Harley Davidson or taking their family for a vacation to a foreign destination. Therefore, we can conclude that the threat from any direct substitutes is a weak force to define the competitive environment of Harley Davidson.
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Bargaining Power of Customers:
In the Harley Davidson Porter Five Forces Analysis the bargaining power of the customers can be explained as:
The customers who are inclined to consider Harley Davidson motorcycles are usually well aware of the technical details of the product, hence information asymmetry is minimal. The switching cost of the customers is moderate, because of the better availability of dealers and spare parts of Harley Davidson motorcycles as compared to other market players. Also, the customer stands a chance to become a member of various bike-clubs when they purchase a Harley Davidson, a community which is much stronger than that of the competitors. The customers can’t negotiate on the prices of the product as well as future services, because of high level of standardization. However, the customer can always choose other companies to purchase their bikes from depending on their taste, deals, availability and the popularity among their cohort.
Overall, we may conclude that the bargaining power of customers remains low to moderate and hence is not a substantial force to define the competitive strategy of the company.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Harley Davidson:
Harley Davidson procures its parts from several mid-sized suppliers, for whom the company is a significant and sometimes, the only customer. The supply of raw materials is generally stable, except the semiconductor shortage spurred by the reopening of economy after the coronavirus pandemic. The company has information asymmetry advantage over individual suppliers, who are not competent enough to engage in forward integration activities and become a competition to the company. Since these suppliers are not big companies themselves, they have minimal negotiation powers and cannot disrupt the sales of their products to the company. The switching cost for Harley Davidson is significantly lower than that of these suppliers, who would find it difficult to engage in contracts with the competing firms. Therefore, we can conclude that the bargaining power of suppliers is a weak force to affect the competitive landscape of Harley Davidson.
Competitive Rivalry:
The impact of key competitors in the Harley Davidson Porter Five Forces Analysis is as follows:
Harley Davidson has a few competing brands in the premium motorcycle category, which come into customer’s consideration depending on their tastes and preferences. Some of these brands include high performance sports bikes, which are suitable for joyriding, and offer similar lifestyle benefits as compared to Harley Davidson. Here, the customers understand the technical specifications very well, and would always explore options while spending the significant money that a premium motorcycle comes for. The variety of firms itself creates a challenge for the company, as it comes in competition with firms with different positioning strategies as compared to Harley Davidson. There are some local companies operating within their respective geographies. These firms are able to offer customizable products at a competitive price, which is challenging for Harley Davidson given its scale of operations.
Therefore, we may conclude that the competitive rivalry is a strong force in motivating the competitive landscape of the motorcycle veteran.
To conclude, the above Harley Davidson Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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