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Archive for the ‘Value Creation’ Category

Harley-Davidson, Inc. (NYSE:HOG) reported the third quarter 2019 financial results in a press release HERE.

Key indicators the motor company reported was revenue from motorcycle and related products fell 4.9% Y/Y to $1.07B in Q3.  Motorcycle shipments were down 5.8% to 45,387 and gross margin fell one point to 29.9% of sales.  The company stated it expects shipments of 38,500 to 43,500 motorcycles in Q4 and 212K to 217K for the full year.

In other interesting financial sound bites; Harley’s Q3 marketing spend was up over 30% with efforts on the LiveWire and LowRider S television spots running in major markets across the U.S.  International retail sales were up 2.7% driven by growth in both developed and emerging markets.  In addition, Harley-Davidson gained 2.2 percentage points of market share during the quarter within the Touring and Cruiser segments, which represents approximately 70% of the total 601cc plus industry.

In the attracting more people to riding and keeping riders riding space (i.e. the 2027 strategic imperative) — in Q3 the company gained deeper analysis and insights on why people engage, participate and disengage from riding.

Lets call it a “participation lifecycle!”

H-D Marketing and Brand Amplification

Harley-Davidson now has an acute focus on how to influence each customer at their buying decision points to build the total number of committed Harley-Davidson riders.  By 2027,  the company will expand to 4M total Harley-Davidson riders in the U.S., grow international business to 50% of annual HDMC revenue, launch 100 new high impact motorcycles and do so profitably and sustainably.  Lastly, Harley added Amplified Brand as a growth catalyst in the More Roads to Harley-Davidson’s growth plans.

For example Harley-Davidson refreshed their brand look at major events during Q3 including Sturgis, World Surf League and Spartan races and recently announced we will be the presenting sponsor at next summer’s hotly anticipated Hella Mega music experience tour featuring Green Day, Weezer and Fall Out Boy.  The Hella Mega Tour being promoted by Harley-Davidson is the co-headlining tour of rock bands Green Day, Fall Out Boy, and Weezer. The tour was announced on September 10, 2019 and includes dates from March to August 2020.

Navigating Section 301 Tariff Process

You can’t have a finance report these days and not talk about TARIFFS!  The dizzying series of trade and tariff events over the last few months has pushed the trade war front and center into Harley-Davidson.  How to navigate the Section 301 Tariff process, prepare for any impact etc., is a challenge in of itself.  For the full year 2019, Harley-Davidson now expect impacts of recent EU and China tariffs to be approximately $105 million. This is a $5 million increase from prior expectations and is driven by an increase in Section 301 tariffs, which continue to shift with the breeze as part of global trade negotiations.

It appears that some developed nations will slip towards recession, and governments and companies keep hoping the signs of economic weakness in China would push all the parties to a “deal” table faster.  Harley-Davidson looks to continue mitigating the impact of tariff increases through tariff classification, tariff engineering, first sale, and other methods.  Some of which may have an impact on U.S. manufacturing jobs.
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Q3’19 Press Release:  HERE
Investor Slides:  HERE
Transcript of Q3’19 Financial Call:  HERE
More Roads Plan:  HERE
Hella Mega Tour:  HERE
Section 301 Tariffs:  HERE
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Photos courtesy of Harley-Davidson
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All Rights Reserved (C) Northwest Harley Blog

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Customize It And Stand Out

According to Reuters, Harley-Davidson Inc. has laid off 40 employees in Milwaukee at their general merchandise division.

It’s not a large number of employees, but most unfortunate if your career “rug” was just pulled out from underneath you as someone impacted by this reorganization.

Important to note is that Harley-Davidson’s second quarter earnings report, released July 23, 2019 reported general merchandise sales of $64.6 million, a 5.8% decline from 2018. The company saw a 4.2% decline in the first half of 2019 from 2018 in general merchandise.  It’s also no secret that Harley-Davidson continues to see a decline in motorcycles sales in the U.S. and abroad as it works to adapt to changing clientele.

In the Reuters report the motor company stated the general merchandise division re-org was to manage it’s business with “focus and discipline.”  That statement reads like a quote from the Six Disciplines playbook.  Was the division previously an over-committed reactionary one with no focus and discipline?  That euphemistic “focus and discipline” term seems to be more about flattering management because at the end of the day it’s a “reduction in force,” which is an old school straightforward term.

SAVE, SAVE, SAVE

And speaking of general merchandise — have you noticed the significant up-tick of emails from Harley-Davidson corporate or your local dealer?  I follow Harley-Davidson on multiple channels to stay current on their events and product announcements and always get a number of emails, but I’ve seen a dramatic drum-beat increase over the last couple of months.

It’s starting to have a feel of desperation to survive and meet sales quotas.  Here are a couple recent examples:

Motorclothes, Last Chance to Save Up to 50%…
Harley-Davidson VISA…Reap The Rewards…
End of Summer Sale…
Customize It and Stand Out…
Finance Interest Rate Specials…
Schedule a test ride today…
The 2020 Models are here…
Ride into Fall sale…
Performance Workshop this weekend…

Why is email solicitation so popular?  Because it’s a free alternative to tele-marketing and direct-mail campaigns.  The cost of sending an email is minimal compared to the cost of printing and mailing paper and the email “opportunity” goes directly to your inbox for review.

I predict we’ll see more and more sales email as the motor company works even harder to capture and retain our interest.

Photos courtesy of Harley-Davidson email blasts

All Rights Reserved (C) Northwest Harley Blog

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The number of businesses investing in the Internet of Things (IoT) technology continues to grow.  Harley-Davidson is one company that recognizes the benefits and has started to leverage IoT both internally as part of their manufacturing process and externally with the new H-D™ Connect service.

WTF?  Isn’t this a motorcycle blog Mac?  You lost me at that inter-web-thingy!

First off, lets set some context with a bit of IoT background:

The Internet of Things (IoT) is used across industries such as manufacturing, logistics, healthcare, agriculture, automotive and industrial markets.  Think connected cars, smart buildings, smart homes and smart city grids.  You’ve likely interacted already with internet-enabled appliances (refrigerators, washer/dryer, garage door openers), there are smart TV’s, there are wearable health trackers.  Need more specifics?  Think RING doorbells, NEST  thermostats or Philips Hue lightbulbs.  Just a few product examples that highlight IoT-based value creation.

The key point here is VALUE creation.  It involves performing activities that increase the value of a company’s offering and encourage customer willingness to pay.  That is the heart of any business model.  Simply connecting a “thing” to the Internet isn’t enough—you must be able to ensure that the data generated by that thing can be leveraged to enable new business benefits.  Whether that benefit is reducing your business’ costs or enhancing your customers’ experiences with new services, the systems chosen to power an IoT deployment must work reliably, be easy to manage, and help you get to real business.

That’s enough context.  Let’s circle the discussion back to motorcycles.

You may not know, but Zero Motorcycles produced a prototype of its first electric motorcycle in 2006 and began marketing them in 2008. In 2013 the company produced a mobile app enabling communication with the motorcycle using Bluetooth; effectively using the Internet of Things (IoT) to connect owner, motorcycle, and service facility.  The app allowed the rider to configure their motorcycle in a number of different ways. For example, it can be configured for a more energy efficient ride or for a higher performance ride using only the app. One of the rider benefits is that the app can also inform you of your current battery capacity as well as an estimation of how far you can travel on the charge.

In addition, the Zero Motorcycles can communicate directly to the manufacturer, dealer, or repair shop. Most vehicles today can communicate with the mechanic by being plugged into a computer, but it requires a trip to the garage. The Zero Motorcycle app allows the motorcycle to send that diagnostic information directly to the mechanic over the internet no matter where you are.  If a rider experiences mechanical problems with the motorcycle, all they need do is to tap the help button located in the app. The information is transmitted and the rider can get troubleshooting advice on location as well as having the company schedule a service appointment if desired. Rather than taking days to get your motorcycle into a mechanic for diagnosis, it is all done in minutes.

Now lets chat about the new H-D™ Connect service; a cellular telematics control unit (TCU) that functions as an (LTE) enabled modem connecting the 2020 LiveWire™ and select 2020 Touring models to the cloud.  It’s built on the IBM Cloud and launched earlier this week.  The H-D Connect (a $12/month fee-based service – FREE 1st year) service remotely connects you to your motorcycle through the Harley-Davidson App on your smart phone.  The fact that Harley-Davidson marketing boldly claims they “will lead the electrification of motorcycling”, is a stunning statement-of-hype when they basically imitated a 6-year old service from Zero Motorcycles!

H-D Connect uses built-in cellular (LTE) connectivity with the IBM Cloud, IBM artificial intelligence (AI), analytics and IoT to enhance the rider’s experience as well as keep the rider in the know with motorcycle status, notifications and alerts.  The rider is always “plugged in”.  Riders can check the battery charge status or the fuel level, available range, tire pressure (on TPMS-equipped models), ride mode (on equipped models), odometer, Infotainment software updates where applicable, and riding statistics.  There is even a GPS-enabled stolen vehicle tracking feature that lets riders share the motorcycle location with law enforcement.

It’s been reported that Harley-Davidson used IoT sensors as far back as 2013 along with other applications to keep track of production on its manufacturing facility in York, Pa., and can complete a new motorcycle every 86 seconds.  But, clearly Harley-Davidson’s desire to make money in the internet-connected space is not limited to physical motorcycle sales; other revenue streams become possible after the initial product sale, including value-added services, subscriptions, and apps, which over time might even exceed the initial purchase price of the motorcycle.

As more and more of our daily life is internet-connected and “recorded” by computers communicating with other computers, riders (myself included) have a legitimate concern about security.  There’s been very little information made available from Harley-Davidson in regards to how they will ensure the privacy of both rider, their riding data and the motorcycle stats.  How often are data logs taken from the motorcycle, streamed to the cloud and then reviewed, stored and archived?  Is the data encoded in a proprietary format, is it encrypted and who can review the data?  Does it require a double-top secret decoder?  The LTE cellular link is ideal to connect the motorcycle and it’s sensors to the dealer and motor company, but it also seems fairly simple to obtain or review that data for evidence that might be used later against the rider.

Any new technology hooked up to the web has the potential to become a surveillance device, even if it’s original purpose was benign.  Law enforcement “cartapping” or using “things” for surveillance has been possible for years, but maybe we should dwell on the benefits that we as a society can reap from this technology.  The new H-D Connect service and Harley-Davidson’s Internet of Things (IoT) platform may provide a reduction in motorcycle fatalities, provide increased benefits of predictive driving in real-time and a more energy efficient future once we’re all inter-connected to smart city grids.

We’ll know soon enough if Harley-Davidson’s internet-connected motorcycles and services actually increase the value of the company’s offering and encourage customer willingness to pay more.

Additional Information:

How Many Turns in a Screw? Big Data Knows — WSJ Paywall
IoT Makes Motorcycles, Helmets Safer, Smarter — Information Week
Harley-Davidson to Redefine Riding with IBM Cloud — IBM PR
How Smart Connected Products Are Transforming Companies — Harvard Business Review

Photos courtesy of Bosch and Deloitte

All Rights Reserved (C) Northwest Harley Blog

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