Victory motorcycles Essay

Victory motorcycles Essay.

“Victory Motorcycles is a motorcycle manufacturer based in Spirit Lake, Iowa, United States, which began production of its vehicles in 1998. Its parent company, Polaris Industries, created the firm following the modern success of Harley-Davidson. Victory’s motorcycles are designed to compete directly with Harley Davidson and similar American-style motorcycle brands, with V-twin engines and touring, sport-touring, and cruiser configurations. The first Victory, the V92C, was announced in 1997 and began selling in 1998. Victory has been modestly profitable since 2002.

” Strategic Thinking The decision for Polaris to diversify its operations into motorcycle production by creating the Victory Motorcycle brand was founded in the Resource Based View (RBV) of strategic thinking.

The company’s idea for diversification was sound; however, their understanding of the market dynamics and market geography may have been limited. In 1993, when Polaris’ General Manager for New Products, Matt Parks, noticed that the wait time between the ordering and delivery of a Harley-Davidson was lengthy, he realized that there was an opportunity available for Polaris.

The opportunity was not without risk though as Harley commanded much of the market share due to its brand name recognition and the fact that it was virtually the only American-made motorcycle available for purchase. Parks and his associate, Bob Nygaard, Polaris’ Snowmobile, Division General Manager, realized that the barriers to enter this market and take advantage of Harley being at the limits of its production capacity would be high. Some of these barriers included adequate production facilities, design capability, and distribution, all of which existed and were under-utilized Polaris resources.

In addition, start-up costs were expected to be high. At the core of Polaris’ strengths were its strong manufacturing capabilities. In 1954, Polaris Industries began by producing snowmobiles. They built a high-quality snowmobile and had loyal customers, but the snowmobile market, by definition, is seasonal. As a result, the company was not utilizing their resources year round. To address this seasonality, the company diversified into all-terrain vehicles (ATVs) in 1985. Similarly, in 1992, Polaris again diversified its product line to include personal watercrafts (PWCs).

Shortly thereafter, they began researching their next product expansion. Their production of snowmobiles, ATVs and PWCs ran by season, and did run collectively year round; however, Polaris had not maximized their use of all company resources. The company didn’t have enough work to keep all of its work force employed year round, yet were still required to hire seasonal workers to meet peak demand production. It was evident to Polaris’ management team that company resources could handle more production capacity.

Along with its strong manufacturing capabilities, Polaris had robust engine production and injection molding facilities. They also had an established dealer and service network with over 2,000 locations. Polaris had the strategic assets to consider expansion into motorcycle manufacturing, and the existing infrastructure to help keep their initial outlay costs down. Therefore, in considering the expansion into another product line (i. e. , motorcycle production), capital expenditures for another new product line wouldn’t be too cost prohibitive.

As with any expansion, costs were a major concern. These were perhaps more important in this decision as Polaris was planning to compete directly with Harley-Davidson (and to some extent, the Japanese motorcycle manufacturers). At the heart of their decision, the core competencies that Parks and Nygaard wanted to exploit was Polaris’ manufacturing ability and cost control, as they thought Harley was most vulnerable in these areas. The studies of the external market and of Polaris’ facilities demonstrated that the capability and the demand were there.

According to Parks, “the manufacturing capabilities and technological know-how required to produce cruisers seemed within Polaris’ grasp. ” Nygaard, on the other hand, had reservations. “Let me sell against price, let me sell against features and benefits, let me sell against more advertising, and I can find ways to do that. Help me to sell against the lifestyle, with loyalty that is as passionate as I’ve ever seen on any product (Harley-Davidson). To sell against an image is very, very difficult, and that was my biggest concern. ”

To sell against an image, and what some would call “a life style,” is where Polaris would have their greatest challenge. They could not just equal Harley-Davidson in competition, because they weren’t competing against just a motorcycle. Polaris was competing against Harley’s American motorcycle image. To compete with an established reputation, Polaris would have to be better than Harley. They would have to outperform, out-handle, and be the “best-in-class. ” This challenge would be a tall order, and would require Polaris to execute this plan in “cost-savings” mode.

Polaris did have advantages in having several different product lines, good quality control and loyal customers. And as Polaris’ management team knew, customers aren’t loyal to your product if you have poor quality control. This would mean that Parks’ team would have to determine the best way to reduce costs without cutting corners in quality. Polaris would have to be careful about what it outsourced, and what it vertically integrated into their operation in the interest of quality control. One of the areas that Parks determined must stay in-house was the frame production.

A lot of testing and research went into the Victory design in order to provide great handling. This depended on exact geometric control of the frame and its welding. Another item Parks knew Polaris must innovate and control was the manufacturing of the engine. These two things would give Polaris the “power and performance” they needed to compete against Harley. Another resource Marks and Nygaard considered was the resource of their customer base. They knew from surveys that there was demand for a motorcycle line.

While this resource was factored into their decision making, where they faltered was not fully realizing an additional resource of the “unrealized consumer. ” The surveys they used were from the Polaris magazine that is distributed to existing and former customers. While this did give them an accurate gauge of this narrow customer market demand, their knowledge of the rest of the market was limited. This fact was ultimately demonstrated by the fact that their new product virtually sold out once it hit the market.

Polaris has a good market share of the recreational vehicle (e.g. , snowmobile, ATVs, PWCs) market. However, this same market make-up is not the same as the market that Harley exploited when the sales of its motorcycles boomed in the 1980s and 1990s. Although their intention was to keep their strategy focused by selling through their dealerships, the initial failure to properly identify the market potential was perhaps Polaris’ biggest mistake and missed opportunity. The “die-hard” Harley rider will probably never leave Harley, but the “yuppie” executive, mid-life crisis guy is exactly who Polaris should market to.

He is the guy that has no ties to a Harley, but just wants an American Cruiser “that sounds cool,” and will also be the customer most appreciative of an innovative design that is easier to ride. This isn’t the customer that is going to buy farm implements and lawn-mowers. He is driving his BMW to a nice restaurant on a Tuesday. He is the guy who wants to look like a rebel biker even though he is not. The Victory enthusiasts are actually very technical motorcycle riders, and the image of the Harley is less important to them than which is the better bike. In this sense, Polaris was actually able to enlist the new wave of biker.

For the reasons set forth above, Polaris’ decision to diversify into motorcycles was a good one. It was able to leverage its core competencies, customer base, cost efficiencies, and ultimately capture enough of the motorcycle market to begin producing profits. I/O Model and the RBV Models The Industrial Organization (I/O) model “specifies that the industry in which a firm chooses to compete has a stronger influence on the firm’s performance than do the choices managers make inside their organizations. ” “Grounded in economic theory, the I/O model has four underlying assumptions.

First, the external environment is assumed to impose pressures and constraints that determine the strategies that would result in above average returns. Second, most firms competing within a particular industry or industry segment are assumed to control similar strategically relevant resources and to pursue similar strategies in light of those resources. Third, resources used to implement strategies are assumed to be highly mobile across firms. Because of resource mobility, any resource difference that might develop between firms will be short-lived.

Fourth, organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests, as shown by their profit maximizing behaviors. ” As noted earlier, part of Polaris’ overall business strategy was the manufacturing of snowmobiles, ATVs, and neighborhood electric vehicles. In the early 1990s, it began focusing on the external market via mergers and acquisitions (M&A). Polaris utilized the I/O model in several aspects of its M&A decision making, particularly in studying the external environment and identifying an industry with high potential for above-average returns.

In analyzing the external environment, a couple of off-road motorcycle acquisition opportunities and a motorcycle distribution opportunity were identified, which caused Polaris’ management team to begin performing research of both the dirt bike and street bike motorcycle businesses. As a result of the interest these opportunities generated, management conducted “over 300,000 surveys through the company’s Spirit magazine for Polaris vehicle owners to measure readers’ interest in buying a wide variety of products from Polaris.

” One of the results of the surveys was that there was a strong interest in motorcycling. Management also hired two external consulting firms to assist them in further conducting research. Bob Nygaard commented on the research, which showed Polaris “could get to the market with a bike that we could make money, and the heavy cruiser end of it was certainly what we wanted to target because that’s where the numbers were, and that’s where the margin was. ” As for strategy implementation, included in Polaris’ strengths was its high level of quality engineering.

It is in this area that management at Polaris utilized the RBV model, which “assumes that an individual firm’s unique collection of resources and capabilities, rather than the structural characteristics of the industry in which it competes, is the primary influence on the selection and use of its strategy or strategies. ” Polaris was able to utilize its own engineers to design and build a “signature engine” that it believed was critical to their success as a manufacturer of an American cruiser motorcycle.

This decision to internally develop its engines was also aligned with the company’s decision to begin its own engine manufacturing operations. In addition to building its own engines, Polaris also determined that the chassis handling was a top priority. Consequently, “The Victory development team began an in-depth benchmarking study by obtaining and extensively road-testing a fleet of the competitors’ cruisers…” The study was not done to copy what the competitors produced, but to identify the best of the traits and then utilize that knowledge to build a superior chassis.

From that knowledge, Polaris engineers were able to design a chassis that met the goal of improved road handling, and then reconfigure its own engine design to fit the chassis design. Although other aspects of the motorcycle design were outsourced (e. g. , wheels, brakes and front forks), the Victory development team also designed and manufactured its own master brake cylinders, suspension forks, and rear suspension.

The result was that Polaris was able to utilize its unique tangible and intangible resources in people, its core competencies in engine and chassis design, and financial strength to develop a successful prototype, which was later launched into full production. As noted earlier, to sell its Victory motorcycles Polaris relied solely on its dealer network. The decision on how to distribute the motorcycles was a deliberate one as, “The Victory was designed to eventually help Polaris leverage its existing manufacturing base, and provide cross-selling opportunities to its entire network of over two thousand dealers. ”

Using the I/O Model to identify opportunities and threats provided by the external environment, and coupling those with its internal competitive advantages of design, manufacturing, and marketing, Polaris was able to design a strategy to develop, produce, and distribute its Victory motorcycle. And although we have not specifically addressed the Stakeholder Model of Responsible Firm Behavior and Firm Performance, which emphasizes creating competitive advantages through stakeholder relationships, Polaris’ management team was able to create value by simultaneously managing its internal and external shareholders (e. g.

, its customers, suppliers, employees, and owners of the company), and become a successful organization by learning “… how to appropriately integrate the information and knowledge learned from each model. ” Business-level Strategy By using the business-level strategy of differentiated focus, Victory Motorcycles was able to leverage their resources to gain market share in the heavy cruiser market previously dominated by Harley-Davidson. Parks and Nygaard knew that cutting into Harley’s market share would be difficult, especially given the Harley legend and established tradition of over a century of building “the American motorcycle.

” Therefore, it was imperative to have a tight focus on exactly how they could use their core competencies to innovate more efficiently than Harley. Perhaps the biggest advantage that Victory had is that they started with a clean slate, where in order for Harley to innovate they would have to overcome 100 years of doing things the “Harley way. ” Harley knew they served a very specific customer who wanted a traditional American motorcycle. To betray that customer, would be to betray their roots and their customer base.

This made Harley slow to move in new directions. In fact, Harley’s first move in a new direction was actually spurred on by the need to “compete with Japanese and American muscle bikes. ” The V-Rod represented Harley’s first attempt at something new and was arguably in response to Victory entering the market. (The V-Rod first appeared in 2001. ) It is also interesting to note that hard-core Harley riders shunned the V-Rod when it was first introduced as being “a flop. ” Polaris, on the other hand, had none of this baggage as to what a Victory motorcycle “should be.

” Parks and Nygaard saw the best place in the market for them to focus was where Harley was not meeting demand in the heavy cruiser market. They were able to take the best ideas from Harley and Honda. They also looked at Yamaha, Ducati and BMW. Their methodical analysis at the best and worst of all these popular cruiser manufacturers allowed Victory to “build the better mousetrap (motorcycle). ” Parks knew that not only could they build a better bike, but that they could do it for less money than Harley.

When examining every part from a Honda Shadow and a Harley FXRS, the team very carefully considered what it could outsource for better cost control, and what they would manufacture to ensure the best level of quality control. Components like the wheels, certain body parts, ignition coils, shocks, lower end of the motor, brakes, and front forks could be outsourced with great quality and cost control. The Polaris team knew that they could draw on their core competencies in the areas of engine assembly and chassis construction.

By no small coincidence, these were also two areas that would allow them to outshine Harley. Similarly, when it came to the distribution of the Victory bikes, Parks knew that by using the established Polaris dealers he would keep the strategy focused. This decision would allow for those most committed to the Polaris brand to market, service and sell the bikes. Also, he knew that the established Polaris customers were comfortable with the Polaris product line and would associate that same level of comfort, quality and performance of the company’s other products with the new on-road Victory motorcycles.

Competitor Analysis In completing a competitor analysis for Victory motorcycles, one must initially consider the global public policy environment. With this completed, consideration of major competitors, their objectives, assumptions, weaknesses and strengths can then be completed to obtain a more complete picture of the market and gain insights on how Victory is positioned to enter into the motorcycle market. In an increasingly environmentally conscious world where the fuel efficient motorcycle is becoming a more practical mode of transportation, this trend suggests a growing global market.

This environmental conservation trend also suggests a need for emerging technology to produce hybrid or electric bikes especially for categories specifically targeted towards commuters. Also, as emerging economies begin to realize the benefits of economic growth, there are more people who have sufficient disposable income to enjoy the luxury of recreational motorcycles. The emergence of China as a low cost provider of various products, including motorcycles, also suggests the eventuality of increasing pressure on price and cost.

Other than increasing regulation to reduce pollution, there are no obvious regulatory trends that show signs the motorcycle industry is facing challenges for growth. The most significant foreign competitors are the Japanese manufacturers, mainly Honda, Yamaha, Kawasaki and Suzuki. These companies entered the US market in the 1970s, and over the next two decades came to dominate the industry in terms of sales volume and market share. The Japanese companies were able to dominate by providing technologically innovative, easy to maintain motorcycles that were less expensive than the offerings of the market leaders at the time (i.e. , Harley-Davidson, the British companies, and BMW).

The price advantage gained through innovative value chain management, sleek designs, and technologically advanced products were winning competitive advantages in most categories and were the Japanese companies’ greatest strengths. Although the Japanese manufacturers were able to erode Harley-Davidson’s market share, their bikes were generally viewed as Harley imitations and were never accepted as a replacement for the American bike.

The Japanese manufacturers had diverse products from off road recreational vehicles to cars, which allowed them to take advantage of economies of scale and scope in manufacturing. This diversity meant they had ample production capacity and could leverage their networks of dealerships and their brand name. They could also introduce new models to the market in a shorter time, compared to the traditional suppliers. The more technologically advanced, cheaper to purchase and maintain products appealed to a younger population who over time would help grow a loyal customer base for heavy cruisers.

On the other hand, in the heavy cruiser market, they could not compete against the Harley-Davidson brand and image. Japanese bikes offered little after-market options and were not as easily customizable as a Harley. Although considered “imitation Harleys,” they were still offering new models and growing a customer base in the heavy cruiser segment using the competitive advantages previously described. They were also growing internationally in this segment. These companies held a leading position in a market they perceive as lucrative and growing and were planning to stay in it.

The only other significant competitor in the cruiser market is BMW, a German manufacturer with the advantage of good engineering knowledge. BMW offers a line of elegant, sporty and comfortable bikes. They have a good reputation in the market, which allows them to charge a premium price above similar bikes. They have a relatively small market share compared to the Japanese competitors and can be considered a relatively new entrant into the heavyweight cruiser market. BMW is likely less of a competitor to Victory as their product is expensive.

Several other foreign competitors, such as Italian companies Ducati and Motto Guzzi, Canadian Bombardier, and British motorcycle companies such as Triumph and Norton were creating new models that were growing in popularity. Monitoring the emerging markets suggests that at least two Chinese manufacturers are expanding into global markets that they have access to and American companies are shut out of (due to political sanctions), and have had a chance to develop their knowhow. All of these other competitors faced similar challenges to gain significant market share in the American market.

They were not American companies and did not have the brand equity that either Harley or the Japanese motor bikes had earned. The second challenge related to price, and the cost to manufacture and distribute in the US, a competitive advantage the Japanese had mastered and that was still illusive to many of the European competitors. But perhaps the most significant insight from monitoring these competitors was an understanding that this is a large and growing market that has room for new innovative products, and is attractive enough to warrant the interest of many competitors.

The Polaris strategy to brand and market their bikes as the “other American motorcycle” positions Polaris to cater to a slightly different consumer in the motorcycle market than its foreign competitors. If it is true that the number one declared reason for buying a Harley is that it is an American made bike, then Victory fully qualifies. The strategy of pricing its bikes slightly less than Harley-Davidson also signaled to the consumer that they are in a similar category with Harley. This pricing differential distinguishes them from the low cost provider stigma while setting them apart from the very high end luxury product.

Along with effective pricing, Polaris was able to take advantage of the economies of scope and learning by leveraging their existing manufacturing capacity and engineering “know how,” which allowed them to maintain healthy margins. The biggest threat from the Japanese is that they can bring new technology to market quickly to compete with Polaris; however, it should be remembered that Polaris had successfully taken on these same corporations in other products and outperformed them, which suggests that Polaris has the ability to do that again.

The legendary Harley-Davidson, seemingly unbeatable in the heavy cruiser segment of the industry, has a number of advantages, the most important of which beyond a doubt is the brand equity and mind share with its customers. “It’s One Thing for People to Buy Your Product or Service, but It’s Another for Them to Tattoo It On Their Body. ” This allegiance provides Harley with a strong, loyal customer base. Harley-Davidson also enjoys the benefits of a large dealership network that provides parts, service, and accessories.

A Harley bike is an easily customizable product catering to a customer base that appreciates this individualization, as well as the fact that the customers can maintain their bikes themselves. Conversely, if the customers choose to, they can always depend on the large network of Harley mechanics. Even more, Harley-Davidson bikes retain their after sales value more than any other bike on the market, which to some makes them a financial investment. Very important to note, Harley-Davidson is the only large market share company that is completely focused on heavy motorcycles.

Harley-Davidson does not make any other type of vehicle. Conversely, Harley cannot take advantage of some of the economies of scale and scope that other providers do in this market. At the time that Victory was surveying the market, Harley’s production was capacity constrained, and unable to deliver product fast enough to clients. This delay in delivery was frustrating some customers and allowed the Japanese competitors to gain market share. At the time of the Victory entry into the motorcycle market, Harley-Davidson had shown little recent innovation or technology advancement.

Harley’s main product required an experienced driver, which effectively eliminated some new customers. The bikes were also expensive in general, and some of the manufacturing techniques indicated that the cost of making them was too high. The brand name strength of Harley-Davidson, and its announcements to expand capacity, both suggest that Harley-Davidson has the ability to withstand competition and to reduce price instantly as a response to a serious new threat into the market.

The fact that Harley-Davidson was expanding their dealerships internationally, and did not have plans to diversify their products beyond the motorcycle industry, suggests that Harley views its market as a lucrative and attractive segment to stay in. There are numerous other American suppliers whose attempts to unsuccessfully enter the market only proved the high barrier of entry caused by expensive production facilities and the lack of engineering expertise. Those brands that do make it are niche operations that don’t compete in the same segment as Victory.

In summary, Victory can produce more technologically advanced, sleek looking, less expensively-priced American bikes than Harley, and they can do it with an existing loyal customer base that is less biased than average. Polaris also has manufacturing capacity and engineering knowhow to overcome market entry barriers, suggesting that Polaris is well positioned to compete with Harley-Davidson, albeit on a smaller scale. Given the small market share Victory is initially projected to take, Harley-Davidson may not react to them at all.

If Harley were to react to Victory’s entry to the market, they may increase production capacity, decrease price, adopt new technology into their product, and try to discredit the Victory brand as simply being another imitation Harley. The strategy to begin distribution of the Victory motorcycles through Polaris dealerships allows the company to take advantage of the loyal Polaris enthusiasts, and leverage that loyalty to break the initial stigma of being a Harley imitation.

Along with the pricing strategy described earlier, Victory should be able to withstand the pressure by effectively wedging itself in a space in the market that is between Harley and the Japanese producers. Victory seems well positioned to compete profitably and grow steadily in the heavy cruiser market. Synergies and Economies of Scale (“On-Road” Vehicle Division) The announcement of an “on-road” vehicle division within Polaris seems like a natural progression in furthering Victory’s success over the past decade.

Following the same strategy that launched and established Victory, Polaris can leverage its economies of scope and learning to enter an adjacent market. Polaris has used this strategy repeatedly as a path for sustainable growth. The next interesting question might be “What will that division produce? ” The answer was a smaller, sportier bike to capture the interest of the younger generation of riders, which in turn might develop into a longer term customer base for its heavy cruiser or perhaps electrical motor vehicles in anticipation of increasing pressures stemming from rising fuel prices and pollution issues.

In July 2009, Polaris announced its on-road division’s first product – a low emissions electric “Neighborhood vehicle. ” If their strategic plan of moving into adjacent segments continues to reap benefits, this action could very well result in a decade that experiences Polaris’ first electrical heavy cruiser, catering to the – by then – aging reentry to the motorcycle market of Generation-X as a more environmentally conscious customer. Whatever the outcome, it certainly signals a continuation by Polaris of a furthering strategy that provides the potential of industry disrupting innovation by Victory.

Announcing that the management team who created the Victory brand from scratch will lead the new on-road division suggests a renewed focus on Victory and its motorcycle business. With the strong Victory brand as the cornerstone of the new division, the possibilities of entry into other segments of the motorcycle market was greatly enhanced. In essence, the announcement of the on-road division was an extension of Polaris’ announcement of its purchase of the privately owned Indian Motorcycle company, which further signaled its intentions to expand their foot print into the motorcycle industry.

Due to the acclaim that Victory had achieved in the past decade with the development of its cruiser line of motorcycles, it seems only natural that their expansion into Polaris’ “on road” vehicle division would come in the lines of motorcycles and energy efficient vehicles. The company had long demonstrated its ingenuity in creating lighter and easier to handle motorcycles, and with the strategic specialization into an “on road” division, the logical progression was to venture into energy efficient bikes and automobiles.

Its new competitor, Zero Motorcycles, was already gaining notice in the business press, and in the market, by producing electric dirt bikes. Given Victory’s passion to compete and further carve out a niche for itself, electric vehicles were soon to follow. Additionally, given their experience and expertise with off road vehicles, such as its Ranger Side-by-Side ATV, as well as the environmental focus for lower vehicle emissions, the transition into electric and hybrid “on roads” would not be far behind. By September 2009, Polaris was already marketing its electric, full-size utility vehicles.

“With Gas prices soaring, and the emphasis on preserving the environment, more people are becoming “eco-friendly. ” From the influx of hybrid cars, energy-saving appliances, and even energy efficient light bulbs, Americans are taking notice of the environment and saving money in the process. ” By using the focused strategy approach of energy efficient and electric vehicles to enter the “on road” market, Polaris can avoid direct competition from major automobile manufacturers, who can use their many years of manufacturing history and experience to their advantage.

Since the electric vehicle segment is a new field for all companies, Polaris might well utilize their more recent learning experiences to become competitive in the market much faster in this area than when they entered the cruiser segment. Also, since much of its pedigree and experience lies in engine manufacturing, it is likely that Polaris will continue its entry into the on road, energy efficient vehicle sector through acquisition or joint venture partnerships.

Additionally, the entrance into “on road” energy efficient vehicles would offer substantial differentiation from Harley, and further diversify the Polaris offering. In October 2011, Polaris announced an investment in Brammo, Inc. , an electric vehicle company based in Ashland, Oregon. Its first production electric motorcycle, the Enertia, is assembled in Ashland and is selling online via the company’s website, at select Best Buy stores in Oregon and California, and ironically, at select Harley Davidson dealerships. Polaris

has also been showing interest in electric propulsion for some time, producing an electric version of its Ranger Side-by-Side, and more recently buying up Global Electric Motorcars (GEM) from Chrysler. As one publication put it, “This latest move likely signals the addition of clean and quiet drivetrains to ATVs and motorcycles under the global giant’s brand…” Other Strategic Techniques Concept of Sustainable Competitive Advantage “A sustainable competitive advantage is possible only after competitors’ efforts to duplicate the value-creating strategy have ceased or fai.

Victory motorcycles Essay