Harley-Davidson Five Forces Analysis (Porter’s Model)

Harley-Davidson Five Forces Analysis Porter, competition, bargaining power buyers, suppliers, threat, substitution, new entrants case study
An old Harley-Davidson motorcycle at the Auto & Technic Museum in Germany. A Five Forces Analysis of Harley-Davidson indicates that competition is a major force based on external factors in the motorcycle industry environment. (Photo: Public Domain)

Harley-Davidson’s success as one of the main players in the chopper/custom motorcycle market is linked to the company’s ability to respond to the Five Forces in its industry environment. Porter’s Five Forces Analysis examines the external factors that affect business strategy and development. In Harley-Davidson’s case, the motorcycle industry and automotive industry environments present challenges that could hamper global business growth. The company has maintained a conservative stance toward global expansion. In this regard, business stability is emphasized in Harley-Davidson’s strategy in addressing the Five Forces affecting its business and the industry environment. However, strategic reform is needed to ensure that Harley-Davidson overcomes these external factors while the business internationally expands.

A Five Forces Analysis of Harley-Davidson reveals competitive rivalry and the bargaining power of customers as the most significant external forces that affect the motorcycle industry environment. These factors must be among the priorities in Harley-Davidson’s strategies.

Overview: Harley-Davidson’s Five Forces Analysis

A Five Forces Analysis of Harley-Davidson requires consideration for the external factors in the motorcycle industry environment and the automotive industry environment in general. The company is relatively stable compared to other firms. The following are the intensities or strengths of the Five Forces affecting Harley-Davidson:

  1. Competitive rivalry or competition (strong force)
  2. Bargaining power of buyers or customers (strong force)
  3. Bargaining power of suppliers (weak force)
  4. Threat of substitutes or substitution (moderate force)
  5. Threat of new entrants or new entry (moderate force)

Recommendations. Based on this Five Forces Analysis, Harley-Davidson needs to focus on counteracting the effects of the strong force of competition and the strong bargaining power of customers. For example, Harley-Davidson can increase product development efforts, along with investment in technological innovation. The external factors in the motorcycle industry environment also point to the limited but significant effects of the threat of substitution and the threat of new entrants. Harley-Davidson can address these concerns through strategic alliances, market penetration, and global expansion.

Competitive Rivalry or Competition against Harley-Davidson (Strong Force)

Harley-Davidson’s performance responds to competition. This part of the Five Forces Analysis identifies other companies’ impact in the motorcycle industry and automotive industry environments. In Harley-Davidson’s case, the following are the external factors that create the strong force of competitive rivalry:

  • High number of firms (strong force)
  • High availability of substitutes (strong force)
  • Moderate variety of firms (moderate force)

Harley-Davidson competes with a considerably large number of firms, including small ones in local markets. Also, the company faces effective substitutes, such as private cars and public transportation. The moderate variety of firms leads to considerable competition, as customers value product features and uniqueness. Based on the external factors in this part of the Five Forces Analysis, Harley-Davidson must maintain competitiveness, especially in terms of product quality, to protect its business from other firms.

Bargaining Power of Harley-Davidson’s Customers/Buyers (Strong Force)

Customers are a factor in Harley-Davidson’s business performance. This part of the Five Forces Analysis outlines the external factors that enable consumers or buyers in influencing the motorcycle industry environment. The following external factors contribute to the strong bargaining power of Harley-Davidson’s customers:

  • High substitute availability (strong force)
  • High quality of information (strong force)
  • Moderate switching costs (moderate force)

Easy access to substitutes imposes a strong force against Harley-Davidson. In relation, the external factor of moderate switching costs enable customers to move away from Harley-Davidson and use substitutes and other products instead. Also, companies in the motorcycle industry and the automotive industry now provide high quality information to customers to empower them in making better purchase decisions. In this part of the Five Forces Analysis, it is shown that customers are a major force in Harley-Davidson’s industry environment.

Bargaining Power of Harley-Davidson’s Suppliers (Weak Force)

Suppliers affect Harley-Davidson in terms of the sufficiency of materials used for its business. This part of the Five Forces Analysis tackles how suppliers influence the motorcycle industry environment. In Harley-Davidson’s case, the following external factors create the weak bargaining power of suppliers:

  • Low forward integration (weak force)
  • High supply stability (weak force)
  • Moderate size of suppliers (moderate force)

Harley-Davidson’s suppliers are weak because they have minimal forward integration. This means that the suppliers have low control on the distribution and sale of their products to companies like Harley-Davidson. Also, because of the high stability of supply, individual suppliers have low leverage in imposing their demands on Harley-Davidson. Only the moderate size of some suppliers enables them to have moderate effect on the company. Based on the external factors in this part of the Five Forces Analysis, Harley-Davidson can safely attribute low priority to the bargaining power of suppliers.

Threat of Substitutes or Substitution against Harley-Davidson (Moderate Force)

Harley-Davidson’s business performance partly depends on the effects of substitutes on customers’ behaviors. This part of the Five Forces Analysis indicates how substitute products influence the motorcycle industry environment. The following external factors lead to the moderate threat of substitution against Harley-Davidson:

  • Moderate switching costs (moderate force)
  • Moderate substitute variety (moderate force)
  • High substitute availability (strong force)

There are many substitutes to Harley-Davidson’s products. For example, cars and public transportation are available. This condition exerts a strong force on Harley-Davidson. However, the overall threat of substitution against the company is only moderate because customers who are really into using chopper motorcycles are less likely to readily shift from Harley-Davidson to such substitutes. Also, the moderate substitute variety makes substitutes have a significant but limited attractiveness. This part of the Five Forces Analysis shows that Harley-Davidson must include the moderate force of the threat of substitution as a significant concern in strategic formulation.

Threat of New Entrants or New Entry against Harley-Davidson (Moderate Force)

New entrants can reduce Harley-Davidson’s customer base. This part of the Five Forces Analysis determines the potential effects of new firms on Harley-Davidson and the motorcycle industry environment. The moderate force of the threat of new entry is based on the following external factors:

  • Moderate economies of scale (moderate force)
  • Moderate switching costs (moderate force)
  • High cost of brand development (weak force)

Companies like Harley-Davidson benefit from moderate economies of scale. Only some new entrants can easily achieve the same benefit. Also, Harley-Davidson must consider moderate switching costs, which means that it is moderately easy for customers to shift to other brands or companies. However, the high cost of brand development prevents many new entrants from successfully competing against companies like Harley-Davidson. As shown in this part of the Five Forces Analysis, Harley-Davidson must address the threat of new entrants as a considerable issue in the motorcycle industry environment.

References
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