HBR-Ducati-Case

BabsonCollege,MOB72029-701-132REV.MARCH8,2002________________________________________________________________________________________________________________ProfessorGiovanniGavettipreparedthiscasesolelyasthebasisforclassdiscussion.ProfessorAndreaLipparinioftheCattolicaUniversityofMilancontributedtopreparetheindustryoverview.TheauthorwishestoacknowledgeProfessorsTarunKhannaandJanRivkinforcommentsonanearlierdraft.Casesarenotintendedtoserveasendorsements,sourcesofprimarydata,orillustrationsofeffectiveorineffectivemanagement.Copyright©2001PresidentandFellowsofHarvardCollege.Toordercopiesorrequestpermissiontoreproducematerials,call1-800-545-7685,writeHarvardBusinessSchoolPublishing,Boston,MA02163,orgoto—electronic,mechanical,photocopying,recording,orotherwise—withoutthepermissionofHarvardBusinessSchool.GIOVANNIGAVETTIDucatiBytheendof2000,FedericoMinolihadwonhisbattle.Overthepastfiveyears,the“turnaroundartist”--asForbesimagazinedubbedhim–-hadtransformedacompanyonthevergeofbankruptcyintooneofthemostprofitablemotorcyclemanufacturersintheworld;amechanicalconcernintoaglobalbrand;afastmotorcycleintoasymbolofItaliandesignandtradition,extremeperformance,andtechnicalexcellence.UnderMinoli,Ducatihadenjoyedexplosivegrowthandprofitability.Revenueshadquadrupledsince1996;EBITDAhadgrownfrom33.4millionEurosin1997toaround60.0millionEurosin2000;themarketsharehadgonefrom5.1%inthesportbikessegmentin1997to6.7%in2000(seeExhibit1).Despitethissuccess,Minoliwasconcernedwiththefutureofthecompany.HeknewthatDucaticouldnotgrowindefinitely,andwasstrugglingwithwhatstrategymightovertakethesebounds.MinoliandtherestofDucati’stopmanagementteamwereconsideringdifferentalternatives.OnealternativewastoattackHarleyDavidson’snichewithaDucatiinterpretationofacruiser.WasthisbroadeningofDucati’straditionalnichetherightmovetosustaintheprofitablegrowthofthecompany?TheMarketforMotorcyclesin2001Therootsofthemotorcycleindustrydatebackto1868,whenLouisPerrauxinstalledasteamengineonarudimentarybicycle.In1894,theHildebrandbrothersandAloisWolfmüllerproducedthefirstmotorcyclewithaninternal-combustion,two-cylindergasolineengine.Themotorcyclequicklybecameaculturalicon.AsT.Krens,thecuratorof“TheArtoftheMotorcycle”exhibitionattheGuggenheimMuseuminNewYork,observed:Themotorcycleisaperfectmetaphorforthetwentiethcentury.Inventedatthebeginningoftheindustrialage,itsevolutiontracksthemaincurrentsofmodernity.Theobjectanditshistoryrepresentthethemesoftechnology,engineering,innovation,design,mobility,speed,rebellion,desire,freedom,love,sex,anddeath.ParkthelatestDucati,Harley,Honda,orBMWonastreetcornerinanycityortownintheworld,andacrowdwillgatherii.BabsonCollege,MOB7202701-132Ducati2ProductsApproximately1.6millionmotorcyclesweresoldaroundtheworldin2001(seeExhibit2).Industryexpertsdividedthemarketforlage-displacementmotorcyclesintofoursegments:off-road,cruisers,touringandsportbikes.Theoff-roadsegmenttypicallyincludedbothmotorcyclesforpurelyoff-roaduse,andmotorcyclesdesignedforbothon-roadandoff-roaduse(dualpurposebikes).Thesemotorcycleswerecharacterizedbyanuprightergonomics,thicklypaddedseats,softshocks,andsuperiorsturdiness.ThelargestplayerswithinthissegmentwerealloftheJapanesemanufacturers,KTM,BMW,andHuskvarna.Cruiserswerebigmotorcycleswithanuprightridingposition.Theirdesignemphasizedstylingovercomfortandspeed,andwaspreferredbymanyAmericanriders.Harley-Davidsondominatedthissegment,whileJapanesecompaniessuchasHonda,Yamaha,Suzuki,andKawasakiimitatedthetraditionalHarleystyle.In1997,BMWintroduceditsowninterpretationofacruiser,whichenjoyedastunningcommercialsuccess.Touringbikeswerelargermotorcyclesequippedforlongerridesandgreatercomfort.Withinthissegment,thethreelargestplayerswereBMW,Harley-Davidson,andHonda.Sportbikeshadlighterframes,amoreforwardseatedposition,andemphasizedspeed,acceleration,andminimalcomfort.Thisniche,whichDucatiidentifiedasitsrelevantmarket(seeExhibit3),couldbefurtherdisaggregatedintofoursub-segments:hyper-sport(extremeperformance,closelyderivedfromtheracingworld),super-sport(highperformance,goodhandlingandlowweight),naked(goodperformanceandurbanriding)andsporttouring(speedandhandling,marriedwithcomfortforlongerrides).Japanesecompaniesdominatedthisniche,whileEuropeanfirmssuchasDucati,BMW,andTriumphalsoviedformarketshare.Harley-DavidsonenteredthesportbikemarketbyacquiringBuellMotorcyclesin1998.ThissegmentwasDucati’sreferencemarket.CustomersAwidevarietyofindividuals,withequallydifferenttastes,boughtandrodemotorcycles(Exhibit4).“Kneedown,”orracingaficionados,soughtextremeperformanceandfunctionality(e.g.,reliabilityandtechnicalexcellence).”Easy-riders”layattheotherextreme,andassociatedthemotorcyclewithaparticularlifestyle.“Weekendriders”and“highwaylovers”weremoreinterestedinattributeslikefunctionalityandcomfort,whilealargeportionof“undecidedbikers”preferredamorebalancedandversatilebike.Eachcustomertypedifferedbyage,income,educ