Ducati Solution Essay Example for Free

Ducati Solution EssayIssues/Ch all(prenominal)enges Today, Ducati is one of the most successful bicycle companies in the world with a dramatic modifyment growth since 1996. Before its huge success, Ducati was one look away from facing bankruptcy. Ducati managed to overcome such an obstacle through strong innovation and culture. Today, Ducati is faced with an otherwise(prenominal) challenge that may bring fortune to the ships company if successfully managed. Ducati set a new goal, which is to stand up the explosive double-digit profit growth in the next decade and rasetually r separately Harley Davisons profit level. Ducati is considering attacking Harley Davidson by entering the cruiser foodstuff, which is Harley Davidsons niche crop and likewise a genuinely profitable market plane section in the industry. To do this, Ducati must invest 17 million Euro and damage of 26 million Euro. Based on this huge capital requirement, should Ducati enter the new market plane sect ion or should Ducati provided concentrate on its current plane section? If Ducati chooses to enter the cruiser market, what ar other requirements besides the capital? Does Ducati have what it takes to succeed in the new market segment?The purpose of this memo is to help the executives of Ducati to off the optimum decision for Ducatis future success. This memo contains the industry psychoanalysis, as well as an internal strategic analysis, company performance, and solutions and recommendations. This industry is divided into 4 segments. Ducatis dominating segment is the sport sector. Ducati managed to utilize its differentiation strategy by taking into account of the industrys operate forces. The cruiser segment is one sector that Ducati is actually interested in entering.Unfortunately, Berts consulting concluded that this is not the opera hat option through the feasibility analysis. The analysis contains the advantages and disadvantages of both options and the result was th at the disadvantages outweighed the advantages. Also, entering the cruiser market is not really necessary for Ducati based on its current performance level. Industry analysis Although the reckon of bike manufacturers has declined by a greathearted snatch over the last century, competition exists among companies from different continents. Currently, all major manufacturers be from Japan, The U. S. , and Europe.The motorcycle industry is segmented into four categories off-road, cruisers, touring and sport bikes, each of them with different qualities and place customers. Industry forces Economic instruct is one of the major factors that drive the industry. This is an burning(prenominal) factor because depending on the condition of the economy vendees demand will change. For example, when the economy stays strong, more people will buy the harvest-tide while less people will buy when there is an stinting downturn. The reason for this is because motorcycles are products that ar e not really necessary to possess in life.In other words, they are luxury goods. During the economic downturns, people become price sensitive and they could simply choose not to buy the product or find a substitute such as public transportation or vehicles that nominate bond more passengers. Therefore, the threat of substitute is precise high. Motorcycles, like any type of automobiles, are a base of transportation, except they are luxury products. Companies in this industry compete with differentiation strategy rather than depression cost strategy, meaning that companies focus on the quality of the product rather than low price.As recollective as the economy stays healthy, high income consumers will always buy the product no proposition how much it costs. some other key factor is to understand the target market. As mentioned earlier, the motorcycle industry bunghole be segmented into 4 categories. A wide variety of individuals, with equally different tastes, bought and rode motorcycles (Gavetti, pg 2). Each segment has certain qualities that attract different customers with different preferences. The riders can also be categorized into different types just as the motorcycles and they are knee down, easy-riders, weekend riders, and highway riders.Different qualities include performance, functionality, lifestyle, and comfort. Riders choose their motorcycle based on which qualities they are attracted to. Motorcycles are not standardized products. They are highly differentiated products and they are not items that can be bought in large volume. For this reason, the power of buyers is relative low. Also, since the majority of buyers are not price sensitive, switching to different vendors is fairly easy. Prices do not affect the buyers in this industry because the buyer hard demands quality over price.For example, if a new company comes up with a model with the best quality, the buyers will still switch to the new company no matter how expensive the new pro duct is. This is the point where strong rivalry comes into play. alone competitors have the same objective, which is to attract as many customers as they can by providing quality products. Although their objective is the same, each competitor follows their objective with their own unique strategies. Since customers can easily be attracted with innovative products, the rivalry in this industry is rattling(prenominal) high.One of the most important drivers of the industry is strong innovation. Technology advancement is very critical in this industry. Companies heavily invest a large portion of their revenues into explore and training to create innovative technologies that differentiate themselves from competitors. This is very important in strengthening their name denounces. Major companies used their early technology inventions as their foundation, and built up to an even higher level. Due to strong innovative thoughts, motorcycles performance, comfort, reliability, and ease of maintenance had improved vastly (Gavetti, pg 3).Due to very high capital requirement, strong innovative thoughts, and numerous large size competitors, the entry barrier is very high. Also, to be able to compete with these companies, new entrants must design a complex but expeditious supply chain system for the manufacturing process. Motorcycle manufacturers rely heavily on the suppliers for quality input and significant delivery. Outsourcing minimized furbish up asset investment, but the quest for quality, reduced costs, and responsiveness to market fluctuations forced utmost assemblers to create strong commitment at the level of suppliers (Gavetti, pg 3).To create high quality output at a lower fixed investment, it is very important for the manufacturers to maintain a good relationship with the suppliers. Also, as mentioned earlier, motorcycles are not standardized products, but differentiated products. This means that the components of the motorcycles are also quality inputs provided by the suppliers. The influence of the supplier on the final output is immense therefore, the power of suppliers is high. Internal strategic analysis Ducati uses differentiation strategy as many other companies at heart the motorcycle industry.Therefore, all companies compete with each other by producing the best quality motorcycle. Ducatis unique business model and sum of money activities helped to begin Ducatis way of quality motorcycles mainly focusing sport sector. Ducatis strength comes from four core activities, which are production process, distribution system, development of product and RD, and The world of Ducati. One of Ducatis core strategies is that Ducati heavily outsources its production compared to its competitors. As of 2001, outsourcing had grown to approximately 87%, and the company planned to bring it to 90%, likely the highest in the industry (industry experts estimated that the average outsourcing level for the industry was lower than Ducatis) (Gav etti, pg 10). By doing this, Ducati is able to reduce fixed asset investment, and mainly focus on product design, development and quality control. To ensure its product quality, Ducati collaborated with a takings of the well-known firms such as Ferrari, Lombardini, Motori, etc, and formed the Engine Technology Di exact (Gavetti, pg 11).All the firms within this district had one thing in common. They were all heavily focusing on engine technology. They basically collaborate with each other on activities such as RD, purchasing, suppliers quality control, employee training etc (Gavetti, pg 11). Ducati is very strict on selecting suppliers. Since suppliers play key roles in providing quality motorcycle components to the company, Ducati selected different suppliers for each component. Also, Ducati did not make long-term contracts with suppliers except for the major components.Ducati simply switched to different suppliers when the short-term contracts were over if needed. This ensured t he quality and reliability of Ducati. Another core strategy that Ducati has is the distribution system. This strategy mainly helps Ducati to create a standard and unified Ducati knowing business model for all dealers and subsidiaries to keep the scent and the culture of Ducati alive and therefore increase the take to be of the brand name. Through this system Ducati found many advantages. First of all, Ducati had full control of the distribution and market process.Instead of distributing its products to franchising dealers, and independent distributors, and letting them independently manage their own network of dealers, Ducati established company have subsidiaries throughout the world. All the subsidiaries were managed under Ducati, which help to retain traits of Ducatis brand (Gavetti, pg 12). This also increases the profit because Ducati owns the extreme sales made by all subsidiaries. Second, Ducati re-organized its network of dealers. Unlike many other companies, Ducati conc entrated to improve the dealers performance instead of geographic expansion.There are many aspects that Ducati took into consideration for dealers performance such as sales forces, good technical assistance, and an adequate physical space for product display (Gavetti, pg 11). Instead of expanding the number of dealers, Ducati reduced by a large number. This made it easier for Ducati to manage to improve each dealership since the number decreased. Lastly, under this system, Ducati created its own chain stores. These stores owned by mono-franchisers offered company branded merchandises such as accessories and provided technical support and customer service.These stores provided a unique retail environment emphasizing the distinctive traits of Ducatis injury while a History Wall displayed images of Ducatis racing heritage, and Engineering Wall showed a large scale engineering drawing of the 916, Ducatis symbol (Gavetti, pg 12). This is an important factor because it strengthens the b rand name and also increases customers loyalty by creating a culture. The third Ducatis core strategy is the unique production development and RD process. Ducati invested a large portion of their revenue in designing new technologies, development of products and human election management.Ducati created two research centers, the Cagiva Research Center and the Ducati Design center. The Cagiva Research Center focused on outdoor(a) design and Ducati Design Center focused on internal design. As a consequence of these efforts, the company greatly reduced the time to market for new product launches (Gavetti, pg 12). This means that Ducati is able to develop a new model in shorter time period. Also, Ducati integrated RD and marketing for technological improvements. Through market research and customer feedback, Ducati managed to improve their technology and design.The World of Ducati is a strategy that helps the development and improvement of the value of the brand through a set of activi ties. In addition to Ducati Stores, the World of Ducati compromised a series of other activities that had been consistently developing in the past three years (Gavetti, pg 12). One legal action is that unlike its competitors, Ducati implemented an assailable Paddock policy, which allow members of Ducati club to be in close contact with the racers by participating in dinners and events.This is very important because ccording to a companys website survey, the most important purchasing factor is the Superbike competition, followed by snip tests, sports orientation of the brand, and its link to competition (Gavetti, pg 12). All these factors definitely improved customers loyalty to Ducatis brand which is very important to sustain customers. Racers greatly collaborated with the RD process of Ducati by constantly testing the machines through competitions. Another activity is that, unlike its competitors, Ducati only used special magazines as the source of advertisement.One of the most popular campaigns was Ducati/People, which feature Ducati workers and their motorcycles in and around Bologna in black and white retro pictures, and emphasized some primaeval values of the brand the Italian style, the history of the company, the young age of the riders and their sporty attitude (Gavetti, pg 13). There are many other well-known specialized magazines that are related to motorcycles. Others activities involved Ducatis museum tour, owners clubs, and social events.All these activities attracted many customers to learn the history of Ducati, get indepth knowledge of Ducati and ultimately increase the number of fans and customer base. transaction analysis So far, Ducati enjoyed the dramatic profit growth. Revenues quadrupled since 1996 EBITDA had grown from 33. 4 million Euros in 1997 to around 60 million. In 2000 market share had gone from 5. 1% in the sport bikes segment in 1997 to 6. 7% in 2000 (Gavetti, pg 1). This is clear proof that Ducati is a very competitive op ponent to many companies within this industry.