Ducati Case Analysis Essay

Executive Summary

As of twelvemonth 2000. planetary bike market is dominated by a smattering of participants. Nipponese makers such as Honda. Yamaha. and Kawasaki are low cost participants while Harley and Ducati are in the high terminal of the spectrum and have been able to successfully set up themselves as a premium trade name. Harley dominates the patrol car minibike section and is a truly strong participant in the US. where it has a large fan following and loyal client base. However Ducati has been fighting to increase market portion and range to Harley’s degree of net income border that is highest in industry. Ducati is self detecting itself with Minoli to aim right client sections. retaining its nucleus competences and set uping its trade name image for which Ducati stands for.

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Minoli’s consideration of come ining into Harley’s niche market of patrol cars is an first-class pick for Ducati’s future growing. as it reinforces the premium flagship of merchandises that Ducati is celebrated for. We recommend Ducati develop a “sports-cruiser” minibike that offers the equitation manner and comfort of a patrol car such as Harley Davidson. and yet be fast and agile. We besides recommend offering customization capablenesss through Ducati. com and company-owned shops every bit good as individual franchise shops that would go on to offer the same bequest and trade name association that Ducati loyalists prefer. The minibike will be priced at E12. 000 ( USD 16. 200 ) which is right in the scope of Harley’s usage patrol car minibikes and will take a measure off from Ducati’s current line of athleticss motorcycles. This move may look a spot hazardous at first. but the fact that Ducati’s R & A ; D disbursals will be reasonably low due to handiness of high quality engines and big provider pool ; this will non necessitate important new investing to the current apparatus.

Additionally. the company will be able to lure new clients in a niche section with high borders and acquire a important chance for deriving market portion. Besides. Introduction of these minibikes in Europe ab initio will besides cut down the possibility of a recoil from Harley who is the leader in the US market. Ducati can so spread out to US one time they have acquired some gross revenues impulse. Ducati does non anticipate revenge from the low-priced Nipponese participants as it is still positioning itself as a premium maker. However. there is still possibility of new entrants or Nipponese shapers to present a knock-off theoretical account in which instance Ducati will be able to separate itself on properties including high public presentation. customization. trade name image and the prestigiousness that it has historically enjoyed and is respected for in the industry every bit good as the planetary market.

Evaluation of Global Motorcycle Industry

Honda. Yamaha. Suzuki. Kawasaki and few of high terminal premium manufactures that include BMW. Harley-Davidson. Triumph and Ducati comprised the Global bike Industry. These makers compete in different market sections and select demographics based on different properties and manners of bikes across the merchandise offerings. Our analysis of the industry is summarized utilizing Porter’s Five Forces analysis ( Exhibit 1 ) Suppliers: Recent tendencies in the bike fabrication have been tilting towards outsourcing of most bike constituents and the companies making the concluding assembly in-house. Most makers have multiple picks of constituent providers that they may exchange at will. This scheme provides them with high dialogue power. reduced fixed assets. and greater flexibleness to run into altering market conditions rapidly. However. the companies need strong committedness from their providers for a quicker bend about. efficiency and quality.

Buyers: Customers/end users have been categorized into different sections such as knee-down riders/fast riders. easy riders. hot rods/urban riders. and weekend riders. These riders choose the motorcycle based on public presentation. life style. map and comfort. A bike is a extremely differentiated merchandise that is used for conveyance and has tonss of options or rivals. and for this ground purchaser power is high. Customers have myriad of picks runing from different manners of motorcycles such as athleticss. ace athleticss. off-road/dual intent. patrol cars. bare motorcycles. etc. to different trade names including high terminal names such as BMW. Harley Davidson. Ducati. and low monetary value options from Honda. Kawasaki. Suzuki. etc. Entry Barriers: The bike industry is really hard to come in and vie in due to high capital investings spent on R & A ; D. well-established relationships with providers. and strong trade name trueness and acknowledgment that has been established for decennaries.

Motorcycles are going more and more technologically advanced. which makes it really hard for a new entrants to vie on a similar degree without big sums of capital and advanced discriminators. Rivals: Competition between the eight major bike makers can be considered high. The entire figure of bike makers has declined dramatically. with merely one major maker staying from the US. These major participants are ferocious rivals and are competing for market portion based on the trade name. manner. properties. service. and monetary value ( particularly Nipponese companies ) . As a consequence of such high competition within the industry. makers invariably need to better designs and functionality. Substitutes: Last. several replacements are available if we consider motorcycle merely as a mechanism of conveyance.

However. in many instances. a bike is beyond a mere manner of transit as a conservator in the instance said. it is a “perfect metaphor for 20th century. ” Riding bikes provide a alone experience. and it has been a cultural icon as presented in a figure of Hollywood films. In this sense. menace of replacements. which may be athleticss autos and rushing autos or other manner of transit. could be considered reasonably low. The undermentioned subdivision describes alterations in the industry and how that affects Ducati. Industry Changes & A ; Deductions on Ducati: The industry is progressing at a high gait today due to technological inventions. such as the debut of electronic constituents. coming of CNC and CAD engineerings. progresss in material scientific discipline to present lighter and stronger composite stuffs. Superior engine public presentation combined with lower emanations and fuel ingestions is quickly altering the face of the industry and competition.

There is besides a push from the makers to better constituents like sophisticated air assisted forks. glandular fever daze rear suspension. and front and rear phonograph record brakes to run into the customers’ hungriness for better quality as derived from market study consequences and client feedbacks. These technological alterations and quality betterments are positive for Ducati who is abreast on its technological invention and public presentation. Advanced technology and province of the art engineering have ever been Ducati’s strengths. as apparent by the figure of World Superbike Championships won by Ducati between 1990 and 2000 ( 8 triumphs ) . Lighter stuffs help Ducati to continuously better its already superior public presentation and retain its place in the athleticss section where it already has a fastness.

Additionally. the outsourcing of constituents and in-house assembly platform of fabrication bends in favour of Ducati as most of Ducati’s providers are concentrated in the Emilian territory – a major hub of specialised parts and constituents providers. Ducati typically enters into short-run contracts with its providers. Efficaciously. Ducati has enjoyed a strong clasp on its provider base which in bend has made them the most-efficient maker in the industry and this scheme will go on to supply them the flexibleness and border in design and sourcing of new constituents traveling frontward.

Ducati’s Current Strategy

Frederico Minoli. the Chief executive officer of Ducati. had two strategic ends in head when he took over: dual digit growing and bing Harley-Davidson’s net income degree of EBITDA border of 20 % . which was the highest in the industry. The challenge was split within the company into polarized waies ; Engineers wanted to go on company civilization of high focal point on merchandise. and Minoli wanted to appeal to broader spectrum of clients and non merely utmost riders. The undermentioned subdivision provides our analysis of Ducati’s current scheme utilizing Strategy Diamond method ( Exhibit 2 ) . Spheres: Ducati chiefly offered public presentation motorcycles in athleticss and street class. which are loosely identified as Hyper-sport. Super-sport. Naked and Sport touring. They face tough competition from Nipponese makers such as Honda. Yamaha. Kawasaki and Suzuki. who have captured the lion’s portion of the market.

Research shows that a big figure of new registrants are categorized under imposts and little bike sections with 32. 7 % and 22. 9 % market portion severally in 2000 ( Case Exhibit 2 ) . Ducati is dawdling behind in this section every bit far as the market portion goes. In respects to geography. Ducati has distribution through Italy. US. Germany. France. Japan. UK ( Case Exhibit 14 ) . Ducati presently attracts and retains immature male “knee down” riders and rushing aficionados who associate Ducati with utmost public presentation and functionality. and late there has been an addition in adult females clients ( who comprise of 8 % of their Monster line – their most popular theoretical account ) . This could be a turning section that Ducati has non yet considered. Last. Ducati’s merchandises are in the athleticss niche ; 41 % to 54 % of its clients own big motorcycles greater than 500cc. It bit by bit entered in athletics touring class to turn to older client base and besides entered into accoutrements and dress concern by geting Gio. Ca. Moto which produces line of accoutrements for Ducati.

However. Ducati’s limited editions in 1999 were frosting on Ducati’s portfolio. Vehicles: Ducati has first-class applied scientists and interior decorators who themselves are fiends of the motorcycle- they are purist “knee down” riders. and have strong beliefs in velocity. public presentation. and passion for races. Ducati invested a big proportion of their gross in planing new engineering. development of merchandises and human resource direction. Ducati’s core strengths including the Desmodromic valve distribution system and the proficient high quality of its engines. and their coaction with other houses such as Lamborghini and Ferrari fueled Ducati’s growing. Ducati advertises through specialized magazines and concentrate on the Italian manner. history. immature riders. and a clean attitude.

Ducati. com web site used the cyberspace as a vehicle. and sold 500 units of a limited edition in 31 proceedingss and 2. 000 units in 10 yearss at different times. educated clients. and created consciousness about its trade name. this has been a existent win for Ducati. Differentiators: Ducati’s end was to better mean quality of traders and increase competency gross revenues force unlike Nipponese industries who utilized multi-franchise retail merchants to sell multiple trade names with less specialised cognition of merchandises. Second unlike their rivals. they established Ducati nines about 400 which allowed members to “live” at rushing events and acquire inside entree to squads. Ducati besides participated in societal events and museum Tourss that has helped Ducati circulate information about its history and trade name which increased client trueness and helped get new 1s.

Ducati is heading in the right way but is still far from Minoli’s vision to enable and foster traders to link with nines more easy. Staging: Minoli strategized Ducati to turn into a powerful trade name and would travel off from merely viing with Nipponese trade names. Ducati decided to construct museum alternatively of repairing the raining roof and that’s one cardinal factor in constructing the trade name image of Ducati and directing the right signal to employees and clients. It so identifies the 5 nucleus properties that Ducati signifies – technologically advanced engine. cannular trestle frame. Italian manner and its alone engine sound. Ducati was able to cut down the clip to market attempt for all its new merchandises using their research centres musculus. Another of import determination Minoli took was come ining into accoutrements and dress bring forthing concern.

This created the “world of Ducati” a really successful enterprise to construct on Ducati trade name and beef up its client trueness. Economic Logic: Ducati is a premium trade name that consumers appreciate and regard extremely. The trade name image and bequest allows Ducati to maintain monetary values high and therefore reap high net income borders on its minibikes. accoutrements. dress. etc. Ducati motorbike monetary values can max out at $ 21. 895 compared to $ 14. 350 for Harley Davidson. $ 9. 500 for Triumph. and $ 9. 300 for Honda. Besides. its limited edition motorcycles were sold at global monetary value of E26. 000 that made Ducati reap immense net income borders. Ducati’s ain selling and distribution procedure and working power of cyberspace ( Ducati. com ) helped it retain most of its net income and hold higher borders and they controlled their production costs by standardising constituents. ( eg: merely two tender instance and 3 cylinder designs ) . .

Recommendations and Specific Actions

Spheres: We recommend Ducati to plan and establish a custom sports-cruiser motorcycle aiming athleticss motorcycle fans. who would prefer the siting comfort. manner. and customization of a patrol car. This new merchandise is basically a fast minibike that has a athleticss engine morphed into patrol car manner human body. We besides recommend offering customization services to accommodate the manner and demands of our single clients. This will be introduced ab initio in Europe and finally in the US and Asia. Europe is the market where Ducati has experience. design expertness. preferred supplier base. propinquity to rushing spheres. and association with other world-renowned featuring auto companies like Maserati and Lamborghini. Hence. constructing a strong foundation in Europe foremost provides the advantage that is really difficult to copy by others.

Our mark section is riders in the age group of 30-50 who like the comfort and the manner of a patrol car. and yet prefer the power. velocity. and particularly the handling that is synonymous to a athleticss motorcycle. Additionally. there is involvement in customization particularly for patrol car section that we would wish to work and offer as an added benefit to our clients. Furthermore. we will leverage light-weight design constituents ( magnesium metal frame. C fibre organic structure and parts ) to supply the public presentation border needed in a athleticss motorcycle. This will pull immature riders every bit good as adult females. who typically prefer lightweight motorcycles. Vehicle: Initial launch will concentrate on current Ducati owned shops. This will assist us gauge clients response ; provide early feedback from Ducati stalwarts. every bit good as chance to pull clients utilizing viva-voce advertisement. Based on the feedback and larning from this rollout. we would be able to place other possible locations to open new shops ( combination of company owned and single-franchise traders ) . get downing from Italy. and so spread outing out into the European sub-continent.

We do non be after to open any new shops instantly. until the market picks up and demand is more than 25 % of bing gross revenues. The premise is that any addition within 25 % of gross revenues volume can be managed via the bing shops. Any franchising will be done through single-franchise franchises so as to keep more control and stress quality. As a long-run program. we besides would wish to add 10 new Ducati owned shops leased at strategically of import metropoliss around Europe. which would be us E10M ( E200K/year ) over 5 old ages. and another E5M for care ( design. upkeep. staffing. revenue enhancements etc. ) Differentiators: Customers value Ducati for its trade name. high public presentation engines. strong association with racing. Italian manner. and the alone sound of its engine. among other things. We believe that our scheme will assist keep our nucleus competences and resources integral. while leting us to spread out into newer infinite as good.

The customization services that we besides plan to offer along with our merchandise will be a value-add service to Ducati stalwarts. which can be priced at a premium. These customization services include different organic structure manners. pigment strategies. accoutrements etc. . which will profit from the handiness of the big pool of provider base that we have local entree to. This big and varied supplier base besides provides Ducati with purchasing power and speedy turn-around clip of new designs. Ad outgo for Ducati comes to about three times that of Harley in the twelvemonth 2000 entirely. About 14. 5 % of gross gross is being spent on advertisement. selling and gross revenues attempt. shut to about what we get in return as our net income. We do non be after to cut down on advertisement and selling but will hold to come up originative. more cost effectual ways to acquire our message out at that place to make a broader spectrum of clients like Minoli envisioned.

Using channels such as viva-voce. social-media. YouTube picture. coaction with athleticss motorcycle bloggers. observers. and besides puting and spread outing Ducati fan/owners nines are ways we can leverage cost-efficient selling techniques. Economic Logic: Our R & A ; D squad ( including HPE ) already has several high-end public presentation engines that can be utilized in planing such a motorcycle. hence we feel our major R & A ; D disbursals will be towards the design of the frame and organic structure constituents. This will cut down our overall R & A ; D spend. as compared to a full blown redesign/production of a new engine engineering. Furthermore. we merely need about E2M for R & A ; D disbursals ; E5M for CAPEX. go forthing the staying E12M for advertisement. This CAPEX budget covers the extra fabrication capacity every bit good as assembly line disbursals. We plan to leverage the bing web of providers by go oning to outsource.

We forecast a sale of 3. 300 motorcycles to be sold in the first twelvemonth after launch ( ab initio Europe merely ) . priced at E12. 000 ( $ 16. 200 per unit ) . see Exhibit 3. which is 2 % of the worldwide cruiser/custom minibike market. where Harley is the leader. Ducati was able to sell about 3. 500 units of its athleticss touring after launch. so we think that we should be able to run into this prognosis of 3. 300 for the new sports-cruiser loanblend. Thereafter. we project a 10 % growing in gross revenues in the 2nd twelvemonth. and thenceforth about 15 % growing in the 3rd. 4th and 5th twelvemonth. We are presuming that the life-span of a design is typically for 5 old ages ; thenceforth. this design/model would be retired or become disused. We would monetary value the motorcycle at about E12. 000 so that it is non seen to be a inexpensive motorcycle. while at the same clip doing certain it is non excessively expensive for Ducati fans to purchase. At a price reduction rate of about 8 % and an initial investing of E17M to establish the merchandise in Europe. we anticipate a net return on investings of about E16. 8M in 5 old ages.

Major Internal and External Risks

Presently. there is no market research available that shows a section in Europe and US who would wish to hold a intercrossed patrol car that drives as a athleticss motorcycle. The retail concatenation and distribution channels available in Europe and the US are possibly more familiar with Harley-Davidson ruling the patrol car section. and the Nipponese participants viing in both the patrol car and the athleticss section in Europe. Ducati is a universe renowned Italian athleticss motorcycle trade name and although we are positive that we will hold considerable success in carving out a ample market section with this new merchandise we plan to establish. there is ever a hazard in traveling after a new market section. particularly a niche section. Significant capital would hold to be invested to set up ad runs. events. retail ironss to raise consciousness. all before a dime is earned. Internal Hazards: Ducati’s expertness lies in the athleticss bike sphere. and it has ne’er offered a patrol car manner minibike.

The demands of this client section are decidedly different than the athleticss motorcycle section. and it is possible that Ducati could run abruptly on presenting a merchandise that meets the demands of the section itis aiming. Ducati may non needfully hold the accomplishments or the expertness to supply this kind of value to its clients. Translating and accommodating its core skill-set to a different theoretical account type to develop a merchandise more aligned with the patrol car theoretical account is non traveling to be easy. Besides. this move could upset hard-core Ducati fans. who would non desire Ducati to be associated to anything other than athletics motorcycles. Ducati could perchance put on the line losing their loyal fan base. if it were to diversify into bike-variants other than athleticss. Diversifying excessively far from what Ducati is known for besides puts the repute and prestigiousness of the company and its applied scientists who have become well-thought-of and well-known in the industry for doing high quality public presentation motorcycles.

The proficient excellence and public presentation that Ducati is so well-known for around the universe could good be seen to go diluted by traveling into a patrol car motorcycle section which historically has been associated with a different demographic section wholly. Yet. by carefully positioning this new merchandise to be a athleticss motorcycle at its nucleus and by re-establishing our committedness to bring forthing high-quality public presentation motorcycles that we have come to be known for. we could potentially re-assure our current fans. External Hazards: Harley Davidson has dominated the usage patrol car section for old ages with a really loyal fan base and provider concatenation. Ducati’s entryway in this section will be seen as an aggressive move by Harley. and Ducati must be prepared for some recoil. Harley has a strong web of providers. and distribution channels in the US. and has set high entry barriers for Ducati in the US market. Ducati’s providers are chiefly located in Bologna. and therefore Ducati has enjoyed the benefit of being in close propinquity to a big pool of provider base and constituent makers. Traveling with athleticss cruiser loanblend could intend that Ducati may necessitate to set up relationships with a whole new set of providers based out of the US.

US providers might non needfully hold a sense of the Italian manner. a nucleus value that the merchandise provides. Therefore. we do non be after to come in the US market merely yet. thereby forestalling acquiring ourselves into a face-face with Harley. Once we build some credibleness with clients in Europe. where we have a strong provider base. and a nice distribution channel. we could potentially establish in the US in 2-3 old ages clip frame based on the success of this launch. European markets have been dominated by Nipponese participants in gross revenues volume. and come ining the market could motivate them to convey out a viing merchandise of their ain. which could eat into the market portion that Ducati is trusting to catch with this loanblend.

If Ducati does non distinguish its merchandise and service offerings plenty. there is a hazard of being dragged into a monetary value war with the Japanese. However. this is the sphere where Ducati radiances and has made its name- superb public presentation. keen design. and the racing laterality. By strategically positioning our merchandise for a whole new section of clients Ducati can protect itself from looking to get down a war. By supplying extra customization services. which would be charged at a high premium. we separate ourselves by traveling after an audience who is non a typical low-priced Nipponese motorcycle purchaser. BMW successfully launched and defined its ain patrol car and so can Ducati!

Exhibit 3: Projected Gross saless

Year
Unit of measurement Gross saless Growth
Unit of measurements Sold
Price/Unit ( in Euros )
Entire Gross
Earnings before interest taxes depreciation and amortization
0

-ˆ17. 000. 000
1

3. 300
ˆ12. 000
ˆ39. 600. 000
ˆ6. 930. 000
2
10 %
3. 630
ˆ12. 000
ˆ43. 560. 000
ˆ7. 623. 000
3
15 %
4. 175
ˆ12. 000
ˆ50. 094. 000
ˆ8. 766. 450
4
15 %
4. 801
ˆ12. 000
ˆ57. 608. 100
ˆ10. 081. 418
5
15 %
5. 521
ˆ12. 000
ˆ66. 249. 315
ˆ11. 593. 630

NPV
ˆ16. 862. 800