Tuesday, August 11, 2009

Biker Lifestyle Severly Diluted

Underneath Ballys Hotel in Las Vegas, situated in a rather dingy corridor, is a Harley Davidson store. Permanently displayed outside is a small sign that reads Sale-Sale-Sale.

Harley were an American success story. Twice resuscitated from near death, by the late-90's they had become the must-have lifestyle accessory for an increasing segment of the population. The highly expensive bikes became scarce as Harley struggled to keep up with demand and dealers were charging $1,000s in premiums on top of the list prices. By the middle of this decade their stock had reached $75 as their strategy of opening new plants & outsourcing began to equalize supply with demand. Then it all started falling apart, sales plummeted and were soon followed by layoffs and plant closures. The stock fell to almost $10 as 2nd Q 2009 profits fell another 35%.

Of course it's easy to explain away Harley's business demise, recession forces bit deep into what is an expensive lifestyle product. But I propose that a lot more factors came into play and perhaps the most influential was that of Brand Dilution.

Brand Dilution is the over leveraging of a brand's influence and companies that rely on high margins based on brand positioning are particularly influenced by this factor. Harley Davidson had franchised more and more dealers, licensed their name to an ever increasing number of merchants and even opened a chain of boutique stores selling everything but motorcycles in such locations as airports and sad malls underneath casinos. The tchotchkes had replaced the core product.

Harley are far from being the only guilty party. Caught up in the stock fervor of the past few years, companies from all sectors leveraged their names and products for short term gain with increasingly predictable long term results. Starbucks' entry into hotel coffee service and kiosks, Tommy Hilfilger's name on everything from beach towels to deodorant, Hummer's H2 and H3 and the Mercedes C-Class sedans, all served to drag the parent brand down. High fashion designers and retailers who've played into the outlet mall market aren't surely wondering why their traditional high end customers are reluctant to purchase a label seen stacked high and cheap at some out of town strip mall?

But what of companies who've carefully preserved their brands? Apple is a great example. Although pressured by analysts to respond to the netbook trend Cuppertino has shown no interest in participating in a low cost/low quality race to the bottom (if I'm a marketer at Apple I'm surely loving the new Microsoft "Macs are expensive" ads where apparently the competition is paying to position my brand). The smallest BMW 1-Series is small but hardly a cheap car, offering the full "driving machine" experience at a premium. The German brand understands that it's passionate buyers would not appreciate a diluted machine built to do nothing but garner market share. Well positioned brands don't have to be up market either, Vans shoes are still revered amongst hard core skaters and their sponsorship of the Warped Tour does nothing but add a halo to their offerings.

So what have we learned from all this? Like the McFamily who supersized their lives and are now struggling to pay off their debts these over reaching brands have mortgaged their wealth and are now facing an almost impossible uphill struggle to regain the customer's trust.

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