Ducati_Case_Competitive_Advantage

Stephanie Browning MGMT 5560 August 30, 2011 What did Ducati do to achieve the turnaround' And should Ducati go into the new cruiser market segment' Ducati, a once successful company, lost sight of its deep Italian tradition of quality, technological performance, and leadership in the competitive sports motorcycle niche industry. Due to its weak management and inability to effectively take advantage of its resources, Ducati lacked a strategic direction, an efficient supply chain system, and strong brand awareness. However, after Minoli created a clear vision and rediscovered what the company represented, Ducati was not only able to recover from bankruptcy, but from 1997 to 2001, the number of the motorcycles sold increased about 61.5%, global revenues increased by 226.47 millions of Euro, profits reached 13.4 millions of Euro, and the world market share within the relevant niche for Ducati increased from 5.1% to 6.7%. Through his passionate leadership direction, supply chain improvements and creation of a “The World of Ducati”, Minoli was able to increase growth yet maintain profit margins, effectively achieving a successful turnaround for Ducati. Minoli created stability and direction for the Ducati employees by establishing a specific goal and an identifiable company culture driven by passion and cooperation. His goal was to obtain double digit growth and match Harley Davidson’s profit level and he was going to get there with an entirely new set of inexperienced top management driven by their passion for Ducati. The young and inexperienced employees were more likely to accept radical change, establishing a company culture of openness and innovation. He also emphasized the important of minimal internal boundaries, encouraging cross-departmental cooperation and creative decision-making. To bring back the celebrated tradition of Ducati efficiency and quality, Minoli restructured Ducati’s production and distribution processes. To increase efficiency, Minoli greatly increased the rate of outsourcing and standardization with respects to in-house production. By 2001, 87% of production was outsourced and all of Ducati’s models used only two crankcases and three cylinder heads. To increase quality, Minoli adopted a platform process and a tighter in-house quality control and supplier selection processes. The platform system increased accountability among suppliers and the in-house quality control process made sure Ducati consistently produced high quality products. To increase flexibility and competition among suppliers, which correlated into greater end product quality, Minoli reduced the number of suppliers by 35% and only allowed short-term contracts. Minoli also restructured Ducati’s distribution process by having the company take control of sales and marketing subsidiaries and emphasizing dealer quality over reach within markets. Minoli decreased the overall amount of retailers and increased the number of registrations per dealer each year from 14 to 150. Direct ownership and increased dealer responsibility not only reinforced dealer’s commitment to Ducati, but allowed the company to control the brand positioning and retail environment within each store. Supply chain restructuring allowed for greater control over product quality and logistics and by 2001, Ducati was considered one of the most efficient manufactures in the industry, productivity increased by 15% and costs decreased by 12.4% from 1997 to 2000. Decreased production costs enabled greater resource allocation towards the development of the “World of Ducati”. The creation of the “World of Ducati” increased brand equity as Ducati transformed into a lifestyle rather than just a product. Minoli made the Ducati motorcycle the center of “this world” identified the five core traits that made each motorcycle unique: desmodroimic distribution system, L-twin engine, tubular trestle frame, Italian style, and the Ducati’s sound. Motorcycle related products strengthened its core and surrounding it were an intertwined connection of intangible assets. The racing, advertising, stores, events, Ducati Owners Club, museum and university clubs appealed to the social and cultural needs of the consumer. An “open paddock” policy, allowed Ducati Club members to “live” the racing events by giving them access to dinners or social events leading up to racing competitions. The museum attracted 10,000 visitors a year and developed a brand of Ducati enthusiasts, giving them exclusive insider access to Ducati’s history, technical achievements, and racing tradition of the company. Minoli said, “we sell something more: a dream, passion, a piece of history, and the motorcycle is at its core”. It was the “more” or elusive brand appeal that allowed for premium rates on products increasing growth, sales, bottom-line profitability, and effectively achieving a turnaround. Whether to enter into the cruiser market is contingent upon the strengths, weaknesses, threats, and opportunities (SWOT Analysis) and cost-benefit analysis of the Ducati in reference to the cruiser market. Possible strengths of Ducati are their ability to deliver a product that is valued from a brand and quality perspective. Ducati’s Italian traditions and “World of Ducati” accounts for their strong brand awareness, while the Ducati’s five distinctive motorcycle characteristics and efficient supply chain account for their technological performance and quality superiority. In addition the adaptive and cohesive corporate culture is another strength that allows the company to embrace change and creativity. Possible weaknesses of Ducati are their undiversified customer profile and failure in expanding to an older customer market within the boundaries of their sport’s niche. In 2000, about 87% of Ducati’s sales were on average purchased from single males with an age ranging from 18-35, whereas married males with an average age ranging from 31-43 accounted for only 13% of total sales. A possible opportunity is high market share growth potential because there is no majority leader within the European market share for motorcycles. Even though Japanese brands offer technological superiority, they have no customer loyalty (Kawasaki has a consistently low repeat purchase rate of around 40% from 1995 to 2000). Even though Harley Davidson is known for high brand equity, in 2000, 78% of their Harleys were sold in the US, demonstrating their inability to fully satisfy the needs and wants of the European market. Possible threats from competitors include Harley Davidson’s strong brand following, low price point of competitors, and economies of scale advantage from many of the Japanese automobile companies who can share fixed costs across production. Finally there is brand dilution threat, by entering into a non-sporting segment; Ducati may destroy the focused strategy competitive advantage of only supplying to niche markets. Even though Ducati exhibits substantial strengths and potential growth opportunities (benefits) of entering into the cruiser market after conducting a SWOT analysis, Ducati should not enter based upon a cost-benefit analysis. The extremely high cost of entry, cost amounting around 43 million euro, could destroy the company and the success of the hard achieved turnaround. In addition the cost of diluting the brand’s vision of a focused strategy and targeting one specific market, Ducati will lose its brand equity competitive advantage and revert back to a company with no clear strategic vision.