Sit through any conference presentation on customer loyalty, and chances are that, at some point in the presentation, the speaker will reference one of two companies as paragons of customer loyalty: Apple, or Harley-Davidson. Few brands have become as storied as Harley-Davidson at building long-term relationships with their customers; Harley owners aren’t merely customers – they’re a tribe, with shared customs and experiences that unite disparate Harley owners around the globe. That loyalty is why the news of Harley’s sales and profit declines hits so hard. If a loyal customer base can’t save Harley-Davidson, then what can?
By Rick Ferguson
No brand has more institutional knowledge of how to build loyal fans than Harley-Davidson.
The Wall Street Journal reports that global retail sales of motorcycle manufacturer Harley-Davidson Inc. have plummeted 7 percent in the third quarter while revenue dropped 10 percent to $1.2 billion. On the plus side, the company’s profits beat forecast, and Harley-Davidson maintained its guidance for the year, which forecasts a sales drop of between 6 to 8 percent over last year. On a recent earnings call, Harley CEO Matt Levatich promised factory layoffs as a result.
What factors have prompted the decline? The company faults seasonality and force majeure for some of this year’s decline, as Hurricanes Harvey and Irma and the Mexico City earthquake dampened sales. Harley-Davidson is also certainly not alone amongst its competitors; global retail motorcycle sales fell 7 percent in the quarter. Global motorcycle sales were hit hard by the Great Recession, and never recovered; according to the Motorcycle Industry Council, the industry globally ships about half the bikes that it shipped a decade ago.
Another factor: Customer demographics. Harley-Davidson built its empire on the backs of Baby Boomers, and like so many Boomer-led leisure pursuits – baseball, golf, horse-racing, et.al. – motorcycle leisure riding is increasingly a geriatric pursuit. As Bloomberg reports, in 2003 only a quarter of U.S. motorcycle riders were over 50; now, half of all motorcycle riders qualify for AARP membership. Meanwhile, those pesky Millennials – who persist in their quest to ruin everything – have yet to heed the call of the open road.
From a customer loyalty perspective, the most dire news comes from Harley’s accessory and apparel sales, as this money quote from Bloomberg illustrates:
“Perhaps most alarming, however, was a 17 percent drop in revenue from general merchandise, a sales slump that outpaced declines in dollars derived from bikes, parts, and financing. Souvenir sales were even worse in the first quarter when it recorded a 21 percent drop in merch revenue. The company that rides on the strength of its brand appears to be moving far less apparel, jewelry, and do-rags than it has in the past.”
Those numbers are worrisome signs of a brand fast losing its cachet. How will Harley-Davidson respond to the challenge? The first challenge is structural: introduce new products to change the perception of a Harley motorcycle from a discretionary achievement trophy for affluent, middle-aged men to an essential component of the hipster Millennial lifestyle. To that end, Harley has introduced nine bike models that retail for less than $9,000, with the goal of making bikes more affordable, designed less for Route 66 and more for city streets. Typical of the new product approach is the Harley Street 500, described thusly by Bloomberg:
“Unveiled in 2013, the Street 500 resembles a conventional Harley in the way an Ivy League quarterback resembles an NFL lineman. The engine, just shy of 500cc, won’t turn any heads in Daytona Beach or wake anyone up in suburbia. The seat sits relatively low to the ground and the whole package can be had for just under $7,000. The Street 500 quickly became the standard kit in Harley’s riding schools, which churn out 65,000 new riders a year.”
Harley’s second challenge is to leverage its existing community of loyal riders to help build relationships with the next generation of riders. Harley’s Harley Owners’ Group (HOG) is legendary in customer loyalty circles for the sense of community it has fostered; enlisting HOG members to recruit new riders is a natural evolution of its brand. Per the Wall Street Journal:
“Harley aims to add two million new riders in the U.S. over the coming decade, and grow its international business to 50% of its total annual volume from around 38%. The company is working to expand its appeal to women, minorities, young adults and city dwellers. Chief Executive Matt Levatich said Harley has trained more than 51,000 motorcyclists so far this year and boosted sales to newly minted Hog riders. The company has rolled out new leasing deals and a scheme to pair new motorcyclists with experienced riders. ‘Training someone doesn’t necessarily make them a rider,’ Mr. Levatich said. ‘We have to have a long view of what it actually takes to build confident, safe, avid riders, and in my view we’re just getting started.’”
The long view is precisely the view Harley needs to take – and so far, the steady state of the company’s stock price means that investors are willing to give the company time to evolve. The good news: No brand has more institutional knowledge of how to build loyal fans than Harley-Davidson. Millennials may never ride hogs in the same numbers as their forebears; those who do ride will find that no company treats them more like family than Harley-Davidson.
Rick Ferguson is Editor in Chief of the Wise Marketer Group and is a Certified Loyalty Marketing Professional (CLMP).