The British Motorcycle Industry at a Crossroad Group 3 Annie Wong, Anne Ning, Albert Qian, Albert Liang, Huck Wu, Ted Zhao January 17, 2005 Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Outline Case introduction Markets & Products Competitors Design & Production Selling & Distribution Recommendation Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

About NVT (Norton Villiers Triumph) Case Introduction About NVT (Norton Villiers Triumph) British motorcycle makers Competition HONDA and other rivals Need more suggestion to re-evaluate strategic alternatives They are last British motorcycle industries. They face of competition from Honda、other Japanese rivals、BMW、Harley……… NVT’s production had fallen from 130 thousand bikes in 1960 to 20 thousand in 1974,and seemed difficulty to fast recover. They have tried to transit reorganizations the group to save their position in global motorcycle industry, but they are defeated. Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling & Distribution Recommendation Case introduction Markets & Products Competitors Design & Production Selling & Distribution Recommendation Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

In the Markets : Market & Products Sold mostly in North-America and Europe Mostly buyers used motorcycle for recreation In 1974,total buyers over 1.4 million Now, the market demand appeared to be reaching saturation. though some consultants forecast a 4-5% annual growth rate for the coming years. In U.S., man and younger then 25 age is target customers. Typical buyer before purchasing will get the product attributes from many ways. Including owners、dealers、monograph、manufacturer’s literature、competition results and test drives. Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Size of U.S. Motorcycle Market Market & Products Size of U.S. Motorcycle Market NVT’s products just seize on total demand about 1.7% 20000/1159000 Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Factors Influencing Buyers Market & Products Factors Influencing Buyers Product Attribute Percent of Buyers Considered Quality of workmanship 94.6 % Availability of parts 91.6 % Handling / Performance 88.9 % Power / Acceleration 85.9 % Styling / Appearance 84.6 % Warranty coverage 72.1 % Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Premiums price influencing demand Market & Products In the Products Products range Premiums price influencing demand Bikes were often classified by engine displacement. Small bikes for economical commuting Luxurious super-bikes for cruising Rugged off-road bikes model In same displacement class, competitors did set different prices, but the demand would neither rise nor fall much as long as the model’s price was within 10% of retail price. The price more than 10% would cut demand, and premiums above 40% would wipe out all demand. Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling & Distribution Recommendation Case introduction Markets & Products Competitors Design & Production Selling & Distribution Recommendation Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Who are the main Competitors? Honda (and other Japanese rivals) Harley Davidson (U.S) BMW (German) Market Shares in the U.S. of 1968 Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Competitors Honda Model offer in every displacement (125cc~750cc) Had a succeeded 1st in market for small motor, but expended to larger class. Modern but cheaper Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Competitors Harley-Davidson Protected by U.S government for their employment Maintained a loyal following in U.S. It’s image is big and tough The last U.S made option Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Competitors Arno know that Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Competitors Tom know that, too Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Competitors BMW Very high quality. More expensive than other rivals’ equal displacement model 30%~40%. All models were variants of a single engine and frame design Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Competitors Market Shares in the U.S. of 1968 &1974 Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling & Distribution Recommendation Case introduction Markets & Products Competitors Design & Production Selling & Distribution Recommendation Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Design & Production Design Honda NVT Involved commercial review and production cost analysis before design Designed by designer only Followed a precise flow chart. More standardized parts shared Pure design consideration with non-standard parts R&D: 1300people, 0.75 people vs 1M R&D: 100people 2.7 people vs 1M 18months from idea to production 36months from idea to production Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Design & Production Engine and Spare parts Production Honda NVT Production volume was 2M per year Low volume Plants were specialized. Engine and frame parts were in different area 3plants not organized to differentiate parts production locations Automated production with advanced technologies Used very outdated machine with labor intensive to produce engine and frame parts Accumulate extensive experience to reduce 20% cost No modern production experience accumulated Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Design & Production Assembly Honda NVT Labor intensive, 16,400employee in assembly plant Most of 2950people involved in engine and frame parts but minority involved in assembly Cycle time down to a bare minimum NVT assembly cycle time was about 1.5 times longer than Honda Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Procurement of raw mtl and compts Design & Production Procurement of raw mtl and compts Honda NVT Strategic cooperation with supplier, even in house-build Big supplier consider NVT as small customer Share and educate supplier with new technology, growing up with supplier NVT’s supplier were reluctant to adopt the latest technology in production Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling & Distribution Recommendation Case introduction Markets & Products Competitors Design & Production Selling & Distribution Recommendation Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling and Distribution Total costs were 20% of overall retail sales The distribution subsidiaries of Honda, NVT, and other competitors sold motorcycles to independent dealerships, which in turn sold the machines to riders. Handled physical distribution Deployed advertising and promotions to pull consumers into dealerships Gave dealers incentive and support to push bikes through the channel Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Physical distribution Selling and Distribution Physical distribution It was straightforward Freight services Packing materials Duties (3% for output to U.S.) Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Advertising and promotion Selling and Distribution Advertising and promotion In the U.S. in 1975 Consumer advertising and promoting budgets Honda $10 million NVT $800 thousand Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling and Distribution Dealer relations NVT offered considerably less supply to its dealers than Honda or other competitors Dealers were willing to accept a dollar markup on each Honda bike that as much as $120 lower than the markup on each British cycle Honda sold its motorcycles in U.S. through more dealers than NVT Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling and Distribution Data from BCG: Motorcycle market In U.S.,1974/75 Retail value Of Honda =P(H) *Q(H) =$477.7mm Of NVT =P(N) *Q(N) =$26.3mm P S H P(H) D(Honda) N P(N) D(NVT) Q(N) Q* Q(H) Q Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling and Distribution Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling and Distribution The curve of U.S. Motorcycle Market,1974 by Displacement Class D1 <750cc D2 750cc and above Only at P* is MR = MC Get maximum profits So NVT supply at P* for 750cc and above maximum profit P S S=MC P* MC P’ MR D2 D1 Quantity Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Selling & Distribution Findings from the case Recommendation Case introduction Markets & Products Competitors Design & Production Selling & Distribution Findings from the case Recommendation Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Recommendation Penetrate into new emerging market in Southeast Asia like China with appropriate advertisement Move Motorcycle assembly line to Southeast Asia Outsourcing the engine and frame parts in Asia Close two factories in England and centralize global R&D function in Meriden factory, but design consideration must be changed to cost oriented and components standardization Sell low cost Motorcycle back to US and Europe to beat Japanese makers Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator

Thank You! Q & A Picture source: BMW, and HONDA’s web sites; the movies of TOP GUN, and Terminator