Hi Classmates –
The Victory Motorcycle case study was an interesting opportunity to see the process companies use to determine whether or not to diversify. In many ways, Polaris was incredibly detailed in their evaluation, including surveys to existing Polaris customers, part-by-part evaluations of cost, manufacturing requirements, and skills, as well as targeting a segment of the market with growth, where competitors, like Harley, were failing to meet customer demand. The team conducted tests with experts and customers to determine specifications that customers would appreciate, and considered not only expressed needs but also intangibles that customers could not vocalize, but would find valuable. They made a product that met or exceeded customer expectations, that successfully captured market share, and received critical acclaim. Based on their logic, you can see why Polaris decided to enter the on-road motorcycle market.
Where Polaris had issues was in assumptions made about the economic and consumer environment. Making motorcycles specifically targeted to leisurely baby boomers with disposal income has two concerning assumptions. First, the company is assuming that the economy would continue to grow, without a downturn. During an economic recession, luxury items are the first items cut from personal budgets. Since a cruiser motorcycle, designed for long-term escapades, was not a basic need, the targeted segment needed to continue to remain affluent. Obviously this changed after the most recent banking crisis. Secondly, targeting a specific generation has limitations, as that generation keeps aging, eventually ‘aging out’ of the targeted segment. Without targeting younger generations, it is possible that the customer base will dry up. Without customers, it is challenging to create revenue, even with an exceptional product. One recommendation to assuage this would be to calculate the likely loss during economic downturns, and build that into anticipated revenue within a five year period. It would still be a challenge to anticipate when downturns may occur, but by building it into the five year model, the team would be able to make a more accurate decision on whether or not to pursue diversification.
In addition to assumptions made about the economic and consumer environments, Polaris was excessively optimistic about winning share. Assuming that customers would stop buying Japanese vehicles, because motorcyclists were “red, white, and blue Americans” turned out to be flawed logic. The Japanese manufacturers continued to put out quality cruiser products and maintain their share of the market. In addition, Harley was able to ramp up manufacturing to catch up to demand, which closed the gap for customers who were waiting for a motorcycle to become available, who may have considered a Victory alternative. As a recommendation, any organization should consider the likely moves of competitors, based on market entry. Differentiation in the market place requires more than assumptive nationalism.
In January, 2017, Polaris announced its retirement of the Victory brand. This was due to the company operating at a loss for three of the prior five years, as well as burgeoning growth of their recently acquired Indian motorcycles. The decision was made to focus resources on the brand with the more tradeable name, and larger growth potential. Given the decision to acquire the Indian brand, which also diversified the company’s portfolio, it may have been in Polaris’ best interest to decide to acquire a smaller, name brand firm in the first place, rather than eating the costs of research and development for a new brand.
Looking forward to reading your thoughts.