The following sample essay on Ducati Improved its Position on Motorcycle Market. Ducati Q) How did Ducati become a profitable motorcycle maker despite its small scale? Before its takeover by the American private equity firm Texas Pacific Group (TPG), Ducati went from being one of the top manufacturers of the high performance sport motorcycle industry to being on the verge of bankruptcy. TPG identified Ducati as a high end product with enormous potential for growth but realized that serious change was required if Ducati was to ever fulfill this potential.
TPG decided to appoint Federico Minoli, an expert in turnaround management as the CEO of Ducati.
When Minoli arrived he saw that the company had no distinct overriding strategy, there was no management structure and no set goals to guide the direction the company would take. The first thing that Minoli did was revamp the entire management team, he looked for personnel that were not only talented but would also be passionate about Ducati.
He believed that these characteristics, combined with very little internal rigidity would lead to creative decision making by his management team.
Ducati had everything that it required to be successful in its market niche of high performance sports motorcycles; It had a top notch uniquely beautiful product, a world class team of passionate designers and engineers and a brand name with very strong potential. Its customer base was one of the most loyal in the motorcycle industry with about 56% expressing repeat purchase intentions. All Ducati needed was a direction.
Minoli set 2 targets; double digit growth and to reach Harley’s profitability levels – the highest in the industry.
At that point Ducati faced two alternative strategies it could either focus on its product or focus on the Ducati brand. The first strategy would mean designating all of Ducati’s energy on producing a better, faster and more powerful product. However Minoli deliberated that Ducati was not about having the fastest bike with the most powerful engine; it was about the unique feeling, the unique sound, the dream, the passion that is evoked by a Ducati. This focus on the brand, the “World of Ducati”, was going to be Ducati’s fundamental strategy.
This fundamental strategy combined with a very vigorous effort to increase its market share, improve overall quality, reduce all inefficiencies and significantly cut down on costs was to be the basis of the future success of Ducati. The 5 signature features that every motorcycle was going to have, that were going to collectively represent the universal image of Ducati were the desmodromic distribution system, the L-twin engine, the tubular trestle frame, the Italian style and Ducati’s unique sound. Previously, Ducati produced only sport motorcycles, specifically hyper sport, super sport and naked.
These bikes were based on high performance and superior design and were geared towards younger customers. Ducati decided to expand in the sport touring category in order to produce bikes that were going to cater to an older population. Ducati also decided to introduce more variety in each of the categories by introducing both higher and lower end models. This proved to have a very good impact on revenues as it enabled them to cater to more price sensitive customers and at the same time, charge premiums of up to 30% on some of their higher end and more ‘exclusive’ models.
Furthermore, Ducati made a lot of improvements in the use of its side businesses of spare parts, accessories and apparel. Both production and distribution of spare parts was outsourced to 2 companies in the local Emilian mechanical district. This led to an increase in availability, more efficient distribution and better prices which meant a significant increase in revenues from spare parts. On the accessories and apparel side it offered custom made components to improve performance and customization of the bikes, high performance racing gear and fashionable apparel which represented the style and exclusivity of Ducati.
It soon became the second most successful brand in motorcycle accessories and apparel, only led by Harley. By 1999 Ducati, despite its small size, became the most efficient producer of sport motorcycles in the world. Ducati had managed to successfully establish itself as a producer of high quality, reliable and stylish motorcycles. They did this through an aggressive outsourcing policy, using strict supplier criteria, using the platform approach to production and by leveraging the advantages of being located in the highly sophisticated Emilian mechanical district.
Ducati outsourced around 87% of their production, which was the highest in the industry. By outsourcing to highly specialized components producers in the Emilian district Ducati could focus on the key value adders such as design, R&D, the production of strategic parts and quality control. Ducati was very selective and placed great emphasis on the quality of its suppliers, so its number of suppliers decreased from 200 to 130. It typically identified at least 2 suppliers for each component and signed only short term contracts with them.
This provided Ducati with a pool of highly competitive and dedicated suppliers. A big factor in the efficiency of the production process was the platform approach to production. Ducati would divide motorcycles into a small number of large components which would consist of smaller subcomponents. A key supplier would then be made responsible for a component and managing the suppliers for the respective subcomponents. Heavy investment in R&D was made and an internal design division (Ducati Design Centre) was created which led to a 50% decrease in time to market for product launches.
These approaches combined with a very high level of standardization – Ducati only used 2 crank cases and 3 cylinder heads in making all of its motorcycles – proved to be extremely profitable as they enabled Ducati to successfully reduce costs, increase quality and efficiency all while preserving the essence of Ducati. Ducati also launched a new 3 step distribution strategy in line with the firms overall branding strategy. Firstly, it took control of distribution and marketing in strategic markets by creating subsidiaries.
Then, it revamped its network of dealers, instead of focusing on quantity it started placing greater emphasis on factors such as quality of services and showrooms greatly reducing the number of dealers. And lastly, it created a chain of “Ducati Stores” in major cities across the world which provided superior technical assistance and emphasized Ducati’s unique and exclusive brand image. The new distribution strategy combined with the unique “World of Ducati” strategy proved to be a hit as Ducati’s market share grew and the company reaped the benefits.
Ducati launched its first global marketing campaign in 1998 called “Ducati People” which focused on all the characteristics that really identified Ducati; the Italian style, the history, the young and fashionable customers. It also initiated many marketing campaigns with fashionable brand names such as DKNY and Harrods and was really successful in establishing itself as a designer motorcycle. Its state of the art Ducati museum in Bologna which gets around 10,000 visitors a year is another symbol of the fashionable and exclusive “World of Ducati”.
Similar to the “Harley Davidson owner’s club” Ducati also tried to create a “Ducati owner’s club” and held yearly events to create hype and interest in the brand. It also offered Ducati club members exclusive access to Ducati Race teams through various social events and dinners. In conclusion Ducati, through the implementation of a set strategy of focusing on its brand, combined with structural changes in production and distribution was able to not only retain but successfully expand its market niche and establish itself as a successful and profitable motorcycle maker.