Oh, No — The gazelle is turning into a pig

Years ago I listened to an interview with the CEO of Ducati or the CEO of Ducati, North America… I really don’t recall which one of the two it was, so let us just refer to him as the CEO.

In the interview the CEO did a really good job at explaining the product differentation relative to Harley-Davidson and made the point that this differentation is critical to Ducati and should be obvious to anybody by way of sight or sound. To emphasize the point, he explained how even his own child, a 4 year old girl or something like that, could tell the difference between a Ducati and a Harley-Davidson motorcycle simply listening to its idle.

Anyone who has seen, heard, or ridden a modern Ducati and a modern Harley-Davidson motorcyle will know exactly what the CEO was talking about. Crudely put, from a visual, audio, or riding perspective, a Harley Davidson is a pig, or, as Harley Davidson’s marketing geniuses likes to position it, a hog, and a Ducati is a gazelle. In fact the product alignement along these lines have been so clear that even if you have never seen a classic modern Ducati and a classic modern Harley-Davidson you can tell the difference by simply keeping the gazelle/pig image in your head. In the picture below, for instance, it should be easy to identify the Ducati.

Ducati Streetfighter

Having and showing pride in your product is, of course, important, but not without its problems when you are trying to enter into a new market and fighting an entrenched competitor with a somewhat different product, which was the point of the interview with the CEO. As he noted, Ducati had severe problems breaking into the North American market — and in particular into the all-important middle-class to high-income segment that Harley Davidson completely dominates — although, in his view the Ducati product, of course, is superior to that of Harley-Davidson.

The underlying question facing the CEO, of course, was whether or not Ducati would be willing to sacrifice its fundamentals, converging its gazelle-like product style towards the pig-like product style of Harley-Davidson. The CEO soundly and firmly rejected this notion — a position that, as something of a product marketing purist, I admired greatly.

To a Ducati fanatic this question may seem absurd, but from a business perspective it is not — far from it. In 2007, Harley-Davidson, at its roots a cruiser and touring style company (think fat, loud bike with lots of suspension, comfortable and w-i-d-e seat — reflecting probably the run-amok obesity crisis in the developed world in general, and in the United States in particular,) had done exactly the same thing, introducing the Harley Davidson XR 1200, a motorcycle squarely aimed at the sporting standard crowd in the European market, a key demographics of Ducati — and particularly aimed at Ducati’s very successful Monster streetbike line.

Harley-Davidson Sportster Nighster

Moreover, stimulated by the increasing interest in the sporting standard market and facing a situation where it has tapped out the cruiser market, Harley-Davidson had begun creating products that blended the traditional fat Harley Davidson look with the streamlined look of sporting standard bikes, including the Harley-Davidson Sportster line, achieving a look that actually was attractive to Harley-Davidson fanatics, probably the most conservative and brand-loyal consumer group on the planet, and, in 2008, Harley-Davidson had acquired the MV Agusta Group, the maker of the high-performance MV Agusta line of motorcycles, an Italian based direct and significant competitor to Ducati’s high performance segment.

From Gazelle to Pig

Given my confessed purity and my pleasure with the CEO’s statement, you can imagine my horror when I visited a local Ducati dealer and discovered that Ducati’s newest bike in the North American market, the Ducati Diavel, is … wait for it … a fatter, more streamlined version of the Harley-Davidson Sportster.

Ducati Diavel

Ducati Diavel

The gazelle is turning into a pig. What is next? A Ferrari F12berlinetta that looks like a Ford Explorer?

Why — and will it work?

I understand what is going on here, but I am not sure that it will work.

Haley-Davidson, with revenues in excess of $4 billion and a market capitalization of nearly $10 billion, absolutely dominates the North American market and the global cruiser and touring market, and, so, is a hard nut to crack from a competitive standpoint.

And cracked it must be. Haley-Davidson has a bumpy history at expanding out of its core segment, but the reality is that it has to break out in order to satisfy its investors’ demands for continued growth. Moreover, uniquely among motorcycle companies, Harley-Davidson have the financial strength to keep attempting a breakout almost irrespective of how much it costs to fail in these attempts. The failure in integrating Agusta MV Group and Buell, for instance, which would materially have impacted any other motorcycle company, did not even dent Harley-Davidson by virtue of the immense airbag provided by the core segment. So if Ducati does not do something to unsettle Harley-Davidson in its core segment the odds are good that it will — eventually — be consumed by Harley-Davidson.

The introduction of the Ducati Diavel in North America indicates that Ducati think that the trick to luring away the all important North American Harley-Davidson customer is to make motorcycles that visually appeal to Harley-Davidson owners, but are cooler, sleeker, and … well… better — a pretty obvious idea, predicated on the generally accepted notion that the consumer will follow the product.

Good thinking by Ducati, but…. ultimately, I think, wrong. You see the secret to Harley-Davidson’s success is not, I think, the product, which, frankly, is not that great, but, rather, the incredibly marketing around the product, centered primarily on the Harley Owner Group (HOG) concept and capitalizing on the significant wealth of the baby boomer generation. In a nutshell, hitting midlife and working in IT is not very cool, regardless of how much one has accumulated in assets, and what owning a Harley-Davidson and joining HOG has done is to allow the baby boomer generation to achieve street-creed in a completely safe environment.

Effectively, Harley-Davidson capitalized on the Hells Angels culture, providing its customers with a pseudo-Hells Angels experience that, much like Disney Land’s and Universal’s adventure rides, appears dangerous, but in reallity is entirely safe. At the same time Haley-Davidson has been careful to keep supply low while raising prices dramatically so as to induce a culture of scarcity, which combined with the expropriation and legitimization of the Hells Angel culture, allowed it to charge a premium to fulfill the babyboomer generation’s need for, if you like, an alternate identity.

The key to this is the culture, and the roots of this culture is deep, stretching across James Dean into the very youth of the baby boomer generation. Simply put, when Harley-Davidson, the company, was established in the 1981 the main asset that it acquired from American Machine and Foundry, the owner of the Harley-Davidson brand since 1969, was not machines, products, or even brand. Rather it was the counter-culture image, which eventually would enable it to sell motorcycles to consumers who would otherwise not have been buying, and, frankly, are not really into motorcycle riding, but, rather, into being a part of the community around owning a Harley-Davidson motorcycle.

’nuff said….

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