Ducati_casestudy.pptx

COMPETITIVE STRATEGY – DUCATI ASSIGNMENT Name: Ayushi Singhal PGID: 61920622

Strategy for Ducati’s Turnaround Product •

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Launch of products in new segment: sport touring segment motorcycle introduced (1997) for older customers which constituted 15% share of units sold on an average (from 1997-2000) and commanded a premium of ~25% vs. comparable products Introduction of new models within existing segments: several new models launched under hyper-sport, super-sport and naked category some of which were flagship and were sold at ~30% premium Other products/services: entry into accessories/apparel business to provide whole range of products for Ducati riders. In addition, spare parts were outsourced leading to greater availability and higher revenues.

Production •

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Distribution • • •

Control over distribution: established own sales and marketing subsidiaries to remove dependence on independent distributors Re-organisation of dealer network: focus on quality over quantity. Reduction in number of retail dealers all across the globe. As a result dealer registration annually went from 14 to around 150 Setting up of Ducati stores: high end stores set up in selected cities which not only provided superior customer service but also gave an insight into Ducati’s legacy. It was a way to connect customers to the brand •

Other •

Outsourced production: all activities except R&D, design, quality control and machining of crank cases and cylinder heads were outsourced (87%) to small and specialised manufacturers leading to efficiency (bikes produced per worker increased from 76 in 1997 to 87 in 2000). This led to significant reduction in COGS from 68% of revenues in 1996 to 59% of revenues in 2000. Optimised supplier network: stringent selection procedures deployed to optimise supplier network from 200 to 130. Short term contracts and switching between supplier as need arises helped increase quality and reliability

Promotion •

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Series of events and activities were launched as a part of brand promotion. This included presence at all major bike competitions (a factor which impacts purchase decision of 27% customers) – revenue from racing division increased from 0 in 1996 to Euro 7.9 million Advertisement via exclusive and specialised magazines only in contrast to competition brands Setting up of museum which celebrated history of Ducati, Ducati owners’ club to link Ducati owners across Various motorbike competition were organised

Huge investments in R&D (Euro 3.2 mn in 1997 to Euro 12.9 mn in 2000) which helped to bring new models to market in time. Increased coordination between R&D, marketing and racing division Restructuring of senior leadership team to get not just talented but passionate individuals

Core logic of Ducati’s turnaround and will it sustain? Large segment of buyers were not attracted to the intrinsic attributes of the motorcycle but what the motorcycle evokes and represents. “Ducati is not only about beating Japanese bikes, we have a powerful brand to preserve and develop, and ultimately Ducati is not, or not only, a motorcycle company. We sell something more: a dream, passion, a piece of history, and the motorcycle is at its core” - Federico Minoli •

As Minoli had put it, core logic for Ducati’s turnaround was to build a brand which people could resonate with. He envisioned Ducati not just as a motorcycle company but a symbol of speed, passion and terrific history. In his opinion Ducati had: • A great product • Brilliant team of engineers and designers • Strong potential as a brand; and therefore all the efforts were directed towards creating a full fledged experience for the customers

• Ducati can sustain its success because it has been focussing extensively on building good and reliable products specific to its customer segment and providing great services • In addition, Ducati has been successful in creating a brand legacy which customers relate to and hence are loyal towards. Ducati has transformed itself into a well knit community of engineers, researchers, riders, racers who were speed lovers, adventure fanatics and passionate about the brand • All the turnaround efforts (production efficiency, distribution control, premium pricing, new launches, R&D investments etc.) were planned and implemented in the right way which lead to cost reduction and contributed to the continued growth of Ducati over the years. This is expected to be sustained provided Ducati continues to deliver on its core.

Entry into Cruiser segment? •

Pros

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Cons

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Enter the market

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Enter

Don’t enter

Huge market segment with expected unit sales of 400,000 in 2000 Opportunity to widen the customer base (targeted towards elderly) Risk diversification among the motorcycle segments

• Focus on improvements in existing products and expanding the market share in sports segment

Huge expenditure required (17 mn in investment and additional 26 mn costs) Well established players in the market (Harley) hence fierce competition Might lose focus on existing products and alienate existing customer base

• Lose out on the opportunity to tap in a huge business segment

Breakeven analysis Selling price ($)

15000

Expected average selling price of a Cruiser

COGS (%)

66%

Assuming same COGS as Harley's - Exhibit 12

Contribution ($)

5100

Fixed costs ($)

26,000,000

Breakeven units

5098

Pg 87

Ducati can breakeven at ~5100 units which is 1.25% of the 400000 units expected to be sold in 2000. This doesn’t seem to be an unachievable target given Harley Davidson and its subsidiary were able to attain a combined market share of ~4.9% in sports bike category which was not their primary segment worldwide in 4 years All the other competitors of Ducati (BMW, Honda etc.) have presence in all bike segments and hence would make sense for Ducati to diversify as well Key to success would to ensure continued focus on its existing products and customers. Ducati shouldn’t forget its core value (experience) while building or entering the cruiser market.