HARLEY-DAVIDSON
Style and Strategy with a Global Reach
Harley-Davidson’s American success story began in 1903 when two friends—
William Harley and Arthur Davidson—built a motorized bicycle in a machine
shop in Milwaukee, Wisconsin. The progeny of that first machine now travel
the world—with speed and style. Now the Harley Hog is going electric.
Harley’s Roots
When Harley-Davidson was founded it was one of more than 100 firms
producing motorcycles in the United States. By the 1950s, it was the only
remaining American manufacturer. But in the 1960s, Honda began sales in
the United States and Harley had difficulty competing against the Japanese
firm’s smaller bikes. The American Machine and Foundry Co. (AMF) bought
Harley in 1969 and quickly increased production. However, this rapid
expansion led to significant problems with quality, and the better-built
Japanese motorcycles began to take over the market. A group of 13
managers bought Harley-Davidson back from AMF in 1981 and began a turn
around with the rallying cry “The Eagle Soars Alone.” Richard Teerlink, former
CEO of Harley, explained: “The solution was to get back to detail. The key
was to know the business, know the customer, and pay attention to detail.”
The goals driving this turn around were increasing quality and improving
service to customers and dealers.
Consolidation and Renewal
In 1983 Harley-Davidson asked the International Trade Com- mission (ITC)
for tariff protection on the basis that Japanese manufacturers, including
Honda, were stockpiling inventory in the United States and providing unfair
competition. The request was granted. Harley was confident enough in 1987
to petition the ITC to have the tariff lifted because the company had improved
its ability to compete with foreign imports. Once Harley’s image had been
restored, the company began to increase production and open new facilities.
The average Harley customer in the 1980s was male, late thirties, with an
average household income above $40,000. Teerlink said: “Our customers
want the sense of adventure that they get on our bikes. . . . Harley-Davidson
doesn’t sell transportation, we sell transformation. We sell excitement, a way
of life.” The company created a line of Harley accessories available online, by
catalog, or through dealers, all adorned with the Harley-Davidson logo. These
jackets, caps, T-shirts, and other items became popular with nonbikers as
well. In fact, the clothing and parts had a higher profit margin than the
motorcycles; nonbike products made up as much as half of sales at some
dealerships.
Global Expansion
Although Harley had been exporting motorcycles ever since it was founded, it
was not until the late 1980s that management invested seriously in
international markets. Traditionally, the company’s ads had been translated
word for word into foreign languages. Now, new ads were developed
specifically for different markets and Harley rallies were adapted to fit local
customs. Harley actively recruited dealers in Europe and Japan, built a large
parts warehouse in Germany, and purchased a Japanese distribution
company. Harley’s management learned a great deal from these early
international activities. Recognizing, for example, that German motorcyclists
rode at high speeds—often more than 100 mph— the company began
studying ways to give Harleys a smoother ride and emphasizing accessories
that would give riders more protection. Its Japanese subsidiary adapted the
company’s marketing to fit local tastes, even producing shinier and more
complete toolkits than those available in the United States. Harley bikes are
now symbols of prestige in Japan, and many enthusiasts see themselves as
rebels on wheels. The company has also made inroads into the previously
elusive Chinese market. It partnered with China’s Zongshen Motorcycle
Group, which makes more than 4 million small-engine motorcycles each year.
Despite China’s growing disposable income, the new store has several
hurdles ahead of it, including riding restrictions imposed by the government in
urban areas.
The Future
The U.S. market still represents almost 75% of Harley’s sales. Executives
attribute Harley’s success to loyal customers and the Harley-Davidson name.
“It is a unique brand that is built on personal relationship and deep
connections with customers, un- matched riding experiences, and proud
history,” said Jim Ziemer, Harley’s former president and chief executive. CEO
Keith E. Wandell seeks to increase growth by focusing effort and resources
on the unique strengths of the Harley- Davidson brand. He also plans to
enhance productivity and profitability through continuous improvement. Part of
his approach focuses company resources on Harley-Davidson products and
experiences, demographic outreach, commitment to core customers, and
even more global growth. The latest innovation is the electric Hog, now in
prototype and soon on the highways of the world. A Harley spokesperson
says: We anticipate it’s going to appeal to a younger, more urban
demographic” and that it is part of Harley’s commitment to “preserving the
riding environment.”
Case Analysis Questions
1. If you were CEO of Harley-Davidson, how would you compare the
advantages and disadvantages of using exports, joint ventures, and
foreign subsidiaries as ways of expanding international sales?
2. In America, Harley has shifted the positioning of its products away
from simply motorcycles and more toward being status symbols of a
particular lifestyle. What are the implications of cultural factors for
positioning in other countries that Harley has targeted for growth—
ones like Japan, China, France, and Brazil?
TRADER JOE’S
Keeping a Cool Edge
The average Trader Joe’s stocks only a small percentage of the products of
local supermarkets in a space little larger than a corner store. How did this
neighborhood market grow to major status, garner superior ratings, and
become a model of management? Take a walk down the aisles of Trader Joe’s
and learn how sharp attention to fundamentals of management made this
chain more than the average Joe.
From Corner Store to Foodie Mecca
All across the United States hundreds of thousands of customers are treasure
hunting. Driven by gourmet tastes but hungering for deals, they are led by
cheerful guides in Hawaiian shirts who point them to culinary discoveries such
as Ahi jerky, ginger granola, and baked jalapeño cheese crunchies. It’s just an
average day at Trader Joe’s, the gourmet, specialty, and natural-foods store.
Foodies, hipsters, and recessionistas alike are attracted to the chain’s
charming blend of tasty treats and laid-back but enthusiastic customer service.
Shopping at Trader Joe’s is less a chore than it is immersion into another
culture. Crew members and managers wear smiles and are quick to engage in
a friendly chat. Chalkboards unabashedly announce slogans such as, “You
don’t have to join a club, carry a card, or clip coupons to get a good deal.”
“When you look at food retailers,” says Richard George, professor of food
marketing at St. Joseph’s University, “there is the low end, the big middle, and
then there is the cool edge—that’s Trader Joe’s.” But how does Trader Joe’s
compare with other stores with an edge, such as Whole Foods?
Both source locally and around the world. Each values employees and strives
to offer the highest quality. However, Trader Joe’s has a cozy and intimate
atmosphere that its rival lacks. Trader Joe’s limits its stock and sells quality
products at low prices—about twice as much per square foot than other supermarkets. But this scarcity benefits both Trader Joe’s and its customers.
According to Swarthmore professor Barry Schwartz, author of The Paradox of
Choice: Why Less Is More, “Giving people too much choice can result in
paralysis . . . Research shows that the more options you offer, the less likely
people are to choose any.” Founder “Trader” Joe Coulombe opened the first
Trader Joe’s store over 50 years ago in Pasadena, California. Its success led
to expansion into a bona-fide chain, as Trader Joe’s stores became known as
oases of value that replaced humdrum sundries with exotic, one-of-a-kind
foods priced persuasively below those of any reasonable competitor.
Coulombe eventually sold the chain to the Albrecht family, German billionaires
and owners of Aldi markets in the United States, Europe, and Australia.
Cost Control
Trader Joe’s prides itself on its thriftiness and cost-saving measures,
proclaiming, “Every penny we save is a penny you save” and “Our CEO
doesn’t even have a secretary.” Its strongest weapon is a deliciously simple
approach to stocking stores: (1) search out tasty, unusual foods from all
around the world; (2) contract directly with manufacturers; (3) label each
product under one of several catchy house brands; and, (4) maintain a small
stock, making each product fight for its place on the shelf. Most Trader Joe’s
products are sold under a variant of their house brand—dried pasta under the
“Trader Giotto’s” moniker, frozen enchiladas under the “Trader Jose’s” label,
vitamins under “Trader Darwin’s,” and so on. But these store brands don’t
sacrifice quality—readers of Consumer Reports award Trader Joe’s house
brands top marks. The house brand success is no accident. According to
Trader Joe’s [former] president, Doug Rauch, “the company pursued the
strategy to put our destiny in our own hands.”
Customer Connection
Ten to 15 new products debut each week at Trader Joe’s—and the company
maintains a strict “one in, one out” policy. Items that sell poorly or whose cost
rises get the heave-ho in favor of new blood, something the company calls the
“gangway factor.” If customers don’t like something about a product, out it
goes— count spinach and garlic from China among the rejected losers. “Our
customers have voiced their concerns about products from this region and we
have listened,” the company said.
Discontinued items may be brought back if customers complain. “We feel
really close to our customers,” says Audrey O’Connell, vice president of
marketing for Trader Joe’s East. “When we want to know what’s on their minds,
we don’t need to put them in a sterile room with a swinging bulb. We like to
think of Trader Joe’s as an economic food democracy.” In return, customers
keep talking and recruit new converts. Word-of-mouth advertising has lowered
the corporation’s advertising budget to a fraction of that spent by supermarkets.
Trader Joe’s culture of product knowledge and customer involvement is
carefully cultivated among new hires and exist- ing employees. Everyone is
encouraged to taste and learn about the products and to engage customers to
share what they’ve experienced. Most shoppers recall instances when helpful
crew members took the time to locate or recommend particular items. Job
descriptions highlight desired soft skills, such as “ambitious and adventurous,
enjoy smiling and have a strong sense of values.” They count as much as
actual retail experience.
Strength from Within
A responsible, knowledgeable, and friendly “crew” is a natural extension of the
firm’s promote-from-within philosophy. And crew members earn more than
their counterparts at other chain grocers, sometimes by as much as 20%.
Starting bene- fits include medical, dental, and vision insurance; company paid
retirement; paid vacation; and a 10% employee dis- count. Assistant store
managers earn a compensation pack- age averaging $70,0001 a year
(including salary and cash bonus) while the store managers’ packages
average $109,000. Future leaders enroll in training programs such as Trader
Joe’s University that foster in them the loyalty necessary to run stores
according to both company and customer expectations. The program teaches
managers to imbue their part- timers with the customer-focused attitude
shoppers have come to expect. What does the future hold? Will Trader Joe’s
allure of cosmopolitan food at provincial prices continue to tempt new
consumers? Will management practices continue to attract the talent Trader
Joe’s needs to maintain its culture and customer focus as the competition
heats up?
Case Analysis Questions
1. In what ways does Trader Joe’s demonstrate the importance of each
responsibility in the management process—planning, organizing,
leading, and controlling?
2. What lessons does the Trader Joe’s story offer to aspiring
entrepreneurs who want to get off to a good start in any industry?
IN-N-OUT BURGER
Building Them Better
In-N-Out Burger seems like a modest enterprise—only four food items on the
menu and little to no advertising. So, how has this West Coast chain achieved
near-cult status among regular Joes and foodies alike? For more than 60
years, In-N-Out has wooed customers by providing them just the basics—
fresh, well-cooked food served quickly in a sparkling clean environment. Its
hallmarks are consistency and quality. E.J. Baumeister Jr./Alamy Gordon
Ramsay is not an easy man to satisfy. The celebrity chef and star of Hell’s
Kitchen is well known for his culinary prowess, perfectionism, and earthshaking, profanity-strewn tantrums. He is infamous for finding fault with simple
and extravagant dishes alike. So it came as a shock to many when Ramsay
revealed his affinity for a darling of West Coast fast food. “In-N-Out Burgers
[are] extraordinary,” Ramsay says, recounting a recent visit. “I was so bad: I
sat in the restaurant, had my double cheeseburger, then minutes later I drove
back round and got the same thing again.”
Simple Formula for Success
Walk into any In-N-Out Burger location and you’ll only find four food items on
the menu: Hamburger, Cheeseburger, Double- Double, and French Fries. You
can wash those down with a Coke or a milk shake. In addition, there’s . . .
nothing else. That’s the entire menu. Or so In-N-Out would have you think.
Stand next to the ordering counter long enough, and you’ll hear customers
recite a litany of curious requests. None are on the menu, but sure enough,
the cashier rings each one up with a smile: Animal Style (a mustard-cooked
patty with extra pickles, extra spread, and grilled onions), Flying Dutchman
(two patties, two slices of cheese, no bun or garnish), Protein Style (heavy on
the fixings, wrapped in lettuce instead of a bun), or any permutation of patties
and cheese slices up to a 4 3 4 (four patties and four slices of cheese barely
contained in one bun). It’s as if you’ve gone through the looking glass, and the
menu is not what it seems. But the open secret of the secret menu is only part
of what keeps customers coming back for more. In-N-Out’s motto is clear:
“Give customers the freshest, highest quality foods you can buy and provide
them with friendly service in a sparkling clean environment.” So is the chain’s
formula for success: Make only a few food items, consistently make them
well, and earn the trust of customers by not deviating from this premise.
All in the Family
Harry Snyder and his wife Esther opened the first In-N-Out Burger in Baldwin
Park, California, in 1948. Unlike other carhop- oriented fast-food restaurants
of the era, Harry installed a two- way speaker through which drivers could
order without leaving their car, creating California’s first drive-thru hamburger
stand. He brought sons Rich and Guy to work at an early age, where the boys
learned their father’s insistence on complementing fresh, promptly cooked
food with great customer service. The Snyders’ second restaurant opened
three years later, and franchising continued slowly until 1976, when Rich took
over after his father’s death. Although he was only 24 when he became CEO,
Rich Snyder expanded In-N-Out into new cities but still retained stringent
control. Unlike his dad, who hoped employees would transfer skills learned at
In-N-Out to a “better” job, Rich thought: “Why let good people move on when
you can use them to help your company grow?” Knowing that his expansion
plans would require a pool of talented and loyal store managers, he opened
In-N-Out University. Store associates had to please hungry diners, show
initiative, and exhibit strong decision-making skills for at least one year before
being invited to attend the management training program. Reasoning that the
same high- tech tools for performance analysis employed by pro sports teams
could also improve his team, Rich videotaped trainees to analyze their
performance and produced training films.
Entrepreneurship Under Control
The chain’s founding family is fiercely entrepreneurial, and they maintain strict
control over the franchisees. Their influence shows everywhere from the sockhop décor to the secret menu to its treatment of employees as long-term
partners rather than as low-cost, disposable resources. They followed their
own formula for success instead of chasing, or copying, the competition.
They’ve also avoided the temptations of selling the firm through an IPO. A
posting on the firm’s website states: “In-N-Out remains privately owned and
the Snyder family has no plans to take the company public or franchise any
units.”
Quality Drives Future Plans
In-N-Out Burger is now led by Guy’s daughter Linzi Snyder Torres who is
committed to following the Snyder family’s strategy by not changing what
already works so well. The firm continues to get rave reviews for making only
a handful of items with great attention to quality. Vice President of Planning
and Development Carl Van Fleet says: “At In-N-Out Burger, we make all of
our hamburger patties ourselves and deliver them fresh to all of our
restaurants with our own delivery vehicles. Nothing is ever frozen. Our new
restaurant locations are limited by the distance we can travel from our patty
making facilities and distribution centers.” How did this family-owned burger
chain with roadside diner roots inspire such a passionate following?
Case Analysis Questions
1. Rich Snyder was 24 years old when his father passed away and he
assumed leadership of In-N-Out. Was his young age an asset or a
liability for leadership of the company? After answering, take a
position on this question: Does age really matter in
entrepreneurship?
2. In an era of fusion cuisine and extreme fajitas, is In-N-Out’s strategy
of offering only four simple food items still on track? How about the
firm’s approach to employees? Does it give them an edge over the
fast-food competition?
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