DUCATI, CASE ANALYSIS

Nitin Dangwal 13P094 Section B

Problem Statement
How to maintain double digit growth by finding new sources of business in the next decade

Analysing company's history, development, and growth

Innovative & Technical Excellence fuelled high growth through 60s & 70s Desmodromic Valve Distribution System provide higher RPM, its sound became music to the ears of purist.did well in racing circuit Product Portfolio Avg Price Premium per family in' 97 (in %) 31 Avg Price Premium per family in '01 (in %) 31 Growth Trend (96-00)

Segments

USP

Price ($ '000)

CAGR

Hyper Sport Super Sport Naked Sport Touring**

Extreme performance, derived from racing world high performance, good handling and low weight good perforamnce and urban riding speed and handling, comfort for longer rides

13-21

continuously increasing peaked in 98 continuously increasing fell in 98 growing since then

20.8%

7.8-11 6.1-13

8 13

7 13

7.0% 31.7%

12.2-13.7

29

20

5.1%

From the table above we see that Two segments Hypersport and Naked have fuelled the growth story of Ducati with CAGR of 20.8% and 31.7% respectively We can see what is common to these two models is that they provide high degree of differentiation to the customer ( in two completely different ways)

Year 96 97 98 99 00

No. of Bikes 935337 1111270 1261263 1463239 1566215

Share of Ducati Ref Market 29.7 30.3 32 32.7 33.2

No. of bikes in Ducati Ref Market 277795 336715 403604 478479 519983

Ducati Share (in %) 3.9 5.1 6.2 6 6.7

Current Market Analysis

Product market for large displacement bikes -off road, cruisers, touring and racing, Ducati had presence in racing segment decreasing Median age of Ducati customer, Women segment growing Influencers like Specialized magazines presenting review of bikes, Movies, racing events have considerable impact. Technology improvements shifting trends in bikes towards performance and comfort through Manufacturing trend towards automation production lines, flexible streamlined, Europe, US and Japan -three major markets, there is a reduction in the number of competitors, Harley dominated American Market

SWOT Analysis
Strength Ducati had a very good product, engine loved by purist, (high RPM engine), they had top notch engineers, engineering driven company, Strong Brand Potential -brand loyalty among the highest in the industry, Strong Presence in racing circuit, Hyper Sport and Naked Segment growing significantly with high premium, Constant year on year growth in EBITDA Weakness Very low share in the overall market, Sport touring and Super sport facing low growth No presence in other segments than sports Opportunity Ducati brand can be utilized in other segments apart from sports, Growing women customer base, Sub 500cc provides an attractive opportunity Threat Aggressive Japanese competitors, Company seemed to have reached saturation in growth with current strategy Corporate level Strategy (Till 90s)

Believed in making powerful products and then rationalizing production processes. Business level Strategy The company followed a differentiation strategy by producing high performance bikes. With the entry of Minoli in Ducati, there was clear shift in focus to making bikes that also appeal to a broader spectrum of customers Analysing company structure Production In 96 80% production activities outsourced (target of 90%), higher than industry avg These arrangements increased the quality and reliability of Ducati Distribution Initially, Ducati distributed its motorcycles through independent distributors, Afterwards, started integrating distribution as its core function, Through a 3 phase strategy; it gained control over distribution, reduced number of, distributors, improved average quality and created Legacy Ducati Stores, This strategy aimed at aligning distribution with the niche product appeal of Ducati. R&D and Product Development Focus on internal design, reduced time to market to half, R&D and Product development worked along with racing department and marketing division This strategy aimed at keeping core designing activity as internal while reducing cost by collaborating on other activities. Other activities like advertising, ducati owners clubs, museum and events focused on creating a deeper association with the existing customers and create a premier feeling with the product. Ducati.com provides exciting possibilities to connect with the customer

Alternatives
I. Enter the sub 500 segment that represents a huge chunk of market share Advantages Potential to reach new market segment Ducati brand can be leveraged Disadvantages Does not represent part of core strategy, the entire value chain aims at producing bikes for niche market rather producing for masses Enter off road or touring segment Advantages Ducati Brand can be leveraged in this segment Disadvantage

II.

Represents low opportunity as share of these segment is low in market Already crowded with legacy players

III.

Enter cruiser segment Advantages Harley Davidson is the sole major player in the market, other competitors are mere imitator of Harley BMW with its own interpretation of Harley enjoyed huge success, similar strategy by Ducati can reap benefit as it already has a name for itself in the market Disadvantages Harley Davidson enjoys tremendous loyalty among its customer Will require capital investments R&D on new segment means high time to market Retaliation from Harley through price reduction Focus on existing segment Advantages Risk reduction Huge potential as company has very low share in its reference market (Japanese dominate the market) Low capital investment Disadvantages Japanese company have strong hold on market, difficult to gain market share

IV.

Recommendations As per the analysis of options above, Ducati should focus on combination of strategy First of all focus on existing segment There is a lot of scope to increase its market share as touring and super sport bikes share are low as compared to hyper sport and naked segments. Their market share is not as high as they were in last 5 year, so this means these segments have potential. So Ducati should focus on increasing marketing efforts and engaging with customers to revive these two segments Second, they can enter into cruiser and off road segment These segment are niche segments and most of the competency of Ducati can be readily applied to these segments, the target customer profile is similar with little difference from Sports segment, Ducati brand can be leveraged This options calls for investment in capital structure, but Ducati has already developed standardization capabilities which can help it to develop this segment in less time and lesser costs