Harley-Davidson’s Success in Creating Customer Loyalty

Repeat customers spend more money on brands and move the needle higher on sales; indicating that keeping clients could be more important and cheaper than finding new ones. That means that nurturing healthy relationships with customers and clinging onto loyal customers leads to a company spending less on marketing. Customers who have positive experiences repeat their purchases and build their loyalty and commitment to a brand. Harley-Davidson Inc., an American company that designed and produced high quality motorcycles and was one of the most successful companies known for building long-term relationships with its customers such that its customers had been branded a global ‘tribe’, that shared customs and experiences that brought together diverse Harley owners internationally, had been awarded recognition for its high customer loyalty.

This essay critically examined existing literature on loyalty building using the wheel of loyalty as a framework. The essay found that customer loyalty is only founded on the principles of loyalty building, bond creation and the reduction of churn drivers.

The essay found that the H.O.G programme at Harleys had been a successful one considering what the company had engage in to create an extraordinary customer service for its members. Recommendations for further development were that the organisation targets to increase loyalty among the 18 – 34 year olds, invest more in research and development and use feedback to inform the improvement of strategies.    1.0​Introduction Harley-Davidson Inc. is an American conglomerate of two businesses: (1) Harley-Davidson Motor Company (HDMC) and, (2) Harley-Davidson Financial Services (HDFS). HDMC is the motorcycles and related products segment involved in the designing, manufacturing and selling, at wholesale and retail (through outsourced dealers), of Harley-Davidson motorcycles, spare parts, accessories and related services.

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This essay critically examines the existing literature on overall customer experience and loyalty building, and discusses the various approaches that firms can utilize to develop closer relationships with their customer bases. This essay will draw on the wheel of loyalty as a framework to guide the discussion.

The essay follows on to discuss what HD has done with its H.O.G programme to create an extraordinary customer experience that is unique and valuable to its members. The writer argues that the motorcycle manufacturer has been successful but also recognises that in a highly competitive business environment, the manufacturer needs to enlarge its customer base. Recommendations on what the firm needs to do to cultivate long-term relationships and higher growth are also provided. 2.0​Customer Experience and Loyalty Building: A Literature Review Repeat customers spend more money on brands and move the needle higher on sales; indicating that keeping clients could be more important and cheaper than finding new ones. Loureiro (2019) shows that customer acquisition costs 5 to 25 times more than retention. That means that nurturing healthy relationships with customers and clinging onto loyal customers leads to a company spending less on marketing. However, Georgantzas and Katsamakas (2016) caution that for loyalty to be created, firms need to provide exceptional experiences. Klaus (2014) defines customer experience as the fulfilment of customer expectations and needs beyond the normal function. Georgantzas and Katsamakas (2016) indicate that 89% of clients have been found to switch brands due to negative experiences.

But those who have positive experiences repeat their purchases and build their loyalty and commitment to a brand. Hence, Klaus describes customer loyalty as a situation when a company or brand gains a client’s patronage as a result of continuous positive experiences. Customer loyalty has been found to be important to the profitability of an organisation because, according to Zeithaml et al. (2001), it increases service or product purchases and increases the chances of loyal customers buying any new product introduced by the company. 2.1​The Wheel of Loyalty This review of literature bases its discussion on the wheel of loyalty as a key model, put forward by Zeithaml et al. (2001),that provides a framework on which organisations base their loyalty building strategies. It consists of three components: (1) the laying of a foundation on which customer loyalty and confidence in a brand is built; (2) the development of loyalty bonds that make the relationship cohesive and customers benefits from special treatment; and (3) the reduction of customer chun.

This framework is all encompassing consisting of segmentation, targeting and positioning, firm value proposition, the customer pyramid, service quality, customer bonds, Churn diagnostics, roles of frontline employees, account management, loyalty programs and customer relationship management (CRM). This model is found to be useful to this literature review in the sense that targeting, acquiring and retaining the right clients determine success in service companies. The aim is not only for a company to build a relationship with its customers but for an organisation to develop a pool of loyal customers who will, in various ways, contribute to increasing business in the short and long-term (Loureiro, 2019). Figure 2.1 below provides the Wheel of Loyalty.  2.2​Building a foundation for Loyalty This requires that firms manage relationships with customers by segmenting them and maintaining their loyalty through well thought out relationship management strategies (Wirtz et al., 2016). However, Viscusi and Tucci (2016) indicate that with segmentation, comes the question: ‘whom should we be serving’. By answering these questions, organisations are able to match customer needs (. price, speed, prestige, comfort), characteristics (e.g. age, gender) and organisational capabilities, the technology they use and the strategic options that they select.

This is explained by Zeithaml et al. (2001) through the Customer Pyramid which provides four levels of the types of customers (Figure 2.2 below)At the top of the pyramid are the platinum classed customers who may be small in numbers but are super users/buyers thereby making huge increases in company profit as such customers are less concerned about high prices. With commitment, they would willingly try new products offered by a firm. Second from the top, the gold users show less commitment but have larger numbers compared to the platinum group. However, they are sensitive about price and would therefore not purchase as much as the platinum users. Iron users are the most and enable a company to break even thereby providing funds that facilitate the maintaining of the platinum and gold class users (Zeithaml et al., 2001). Companies tend to benefit more from word-of-mouth sale from iron users as well as emotional attachment to a company and its products. However, (Wirtz et al. (2016) argue that satisfaction by customers does not always lead to loyalty. This has to be complemented by customer knowledge of the product and how this compares to that offered by competitors in order to avoid switching of customers and companies incurring switching costs. The lead segment, according to Zeithaml et al. (2001) is the most difficult to do business with as they cost firms a lot to maintain but returns from them are not equal to the effort (in terms of money and time) put in by firms.

This form of segmentation is quite evident within the airline service industry where we have Business Class, Premier Economy and Economy class customers. These three levels depict the platinum, gold and iron respectively. For instance, business class users would mostly be high profile individuals who have no difficulties in raising the cost of a plane ticket or are paid for by their companies. Travelling for such customers is frequent therefore the chances of using the same airline is high given the package of benefits given to them. It is therefore right to assume, as Georgantzas and Katsamakas (2016) argue that companies need to search for the value obtained in each individual customer group. The authors caution against targeting buyers who purchase based on the lowest price because they lack commitment to firms and switch often. But again, valuable customers may not always be high spenders. For instance, airlines can make profits from economy class travellers who book in large groups. 2.3​Creating Loyalty Bonds According to Moore et al. (2012), building a customer loyalty bond for a brand requires developing emotional bonds with customers where clients develop strong feelings of love for the brand to encourage repeat purchases, while turning regular shoppers into loyal fans. This has been evidenced in brands such as Amazon and Apple. Building such bonds can be achieved using various strategies depending on a company’s target customer base.

Tan et al. (2017), in their study on the building of loyalty bonds between international students and universities, asserted that providing valuable content is mind catching and enables remembering of a brand. For example, blogs, video runs and having strong social medial presence have been cited as valuable options. Apart from keeping customers knowledgeable, social media is also known to maintain a strong interaction between the client and firm (e.g. Facebook and Instagram) including responding to comments and complaints promptly and effectively. Wirtz et al. (2016) discusses about reward programmes (which could be financial or non-financial) as well as referral schemes, both which Fisk (2015) found play a double role of attracting new customers while retaining existing ones. In this case, firms can increase their market share by offering existing clients a reward every time they refer a new client. For instance, Tesco and many other supermarkets offer customer reward points while money lending firms offer financial incentives for customers who refer new loan applicants. Emotional bonds have also been created by offering money-back guarantee rewards. For instance, in weight loss products. Wirtz et al. (2016) also highlight about ‘brand families’ where firms create communities such as group chats on Facebook where clients share views on brand products and/or services, business forums or even hosting business events to draw customers together. 2.4​Reduction of Chun Drivers Wirtz et al. (2016) presents this section of the wheel as the part that allows organisations to understand behavioural aspects of their clients, why they intend to leave and strategise on the reduction of chun drivers. Different researchers have come up with varying causes of the main reasons that make clients switch loyalty. According to Fisk (2015), dissatisfaction and negative experiences are common.

Georgantzas and Katsamakas (2016) discuss about customers viewing a company negatively because of unfair pricing or deception. For instance, during sales, sellers can advertise huge price reductions when in reality the price of the product would not have been adjusted. Within the service industry, customers would be curious on how a firm responds to their complaints and how they go about resolving dissatisfactions. Firms have to critically analyse the reasons for customers leaving and find solutions that would satisfy the customer’s confidence of their complaints having been resolved amicably and under the understanding that ‘the customer is always right’. Klaus (2014) advocates for the setting up of complaints handling committees and personnel. It is agreeable that completely eliminating customer defections is impossible but it is possible to reduce them. Today’s world of life and work is one where individuals have limited time. Hence the location of a business can be a major determinant of whether customers can stay or leave.

Customers want conveniently located businesses. Wirtz et al. (2016) crowns it all by indicating that the most modern way of understanding consumer behaviour and keeping in close touch is through customer relationship management (CRM) systems. This is particularly beneficial when large numbers of customers have to be handled. The CRM system would enable the company to segment and tier services that work quite well with loyalty programmes. For instance, Tesco has a CRM system that keeps data of what customers purchase, especially for online purchases. Upon checkout, they are reminded about items they may have forgotten to buy based on their previous purchase history. Figure 2.3 below, provided by Keaveney (1995, pg. 72) gives a decent summary of the drivers for customers to switch firms:3.0​Success of Harley-Davidson’s H.O.G Programme H.O.G stands for Harley Owners Group. This is a sponsored community marketing club, operated by HD for the fans of the company’s motorcycles. It is a community building effort that promotes both the motorcycles and a riding lifestyle (Denove et al., 2007). The company offers different H.O.G membership types. While taking the principles of the wheel of loyalty into consideration, this section argues that HD has been successful in using its H.O.G programme to create an extraordinary customer experience that is unique and valuable to its members.

The section identifies how the organisation has built the foundation for loyalty, created loyalty bonds and reduced churn drivers. These will be discussed in unison. Segmentation, targeting and positioning, according to Denove et al. (2007) has been highlighted as HD’s key loyalty building and marketing strategy. According to the organisations’ discussion on segmentation, it is indicated that psychographic segmentation is the strategy used to address the volatile needs of the type of clients that the company deals with because their brand is considered to be one of a ‘lifestyle’ nature (Harley-Davidson, 2019). Harley’s are therefore selected over other brands. But segmentation is also realised in the type of memberships they offer: full membership, associate membership, life and associate life memberships which differ based on fees and the benefits that go with the level. For instance full membership which is the platinum level on the loyalty pyramid allows members to enjoy multiple rides, events where they gain recognition, they have a H.O.G badge on all their merchandise among other benefits (Herley-Davidson, 2019).

On creating loyalty bonds, Moore et al. (2012) indicate that companies emotionally nurture their customers to love their products and/or services. According to the website, HD has created an extraordinary customer experience through the following ways. New customers get a free one-year H.O.G subscription thereby increasing those interested in memberships. Upon renewal of their subscriptions, they continue to enjoy various benefits including roadside assistance, invitations to events, a touring handbook, events calendar, access to HD museum, an insurance service and theft reward programme, hotel and flying discounts (the fly and ride programme) as well as a magazine that contains various information and promotions HD, 2019) (Herley-Davidson, 2019). Lacobucci and Churchill (2015) indicate that positioning a product or service to a target market is vital in securing knowledge and image in the minds of the users, just like principles of the wheel of loyalty stipulate that CRM systems communicate the value of products (Zeithaml et al., 2001). HD maintains personalised relationships with customers through social media and on-going research to keep up with the changing expectations of its customers. In addition, members are allowed to express individualism and freedom which also informs improvement efforts. H.O.G events involve the families of members which encourages bonding and brand community building.

This also includes invitations to members to participate in charity events, model launches and riders’ appreciation nights organised by the company which increases customer benefit (Herley-Davidson, 2019). They have created a global platform for its members to communicate worldwide thereby opening opportunities for networking, connections and acquaintances from diverse people. This association also encourages members from H.O.G groups in one country to travel and participate in events for a different country thereby not only expanding and popularising the H.O.G tribe and motorcycle brands as well as increasing customer perceived value, but also allowing members to share their passion for the brand and subsequent events. 3.1​Attracting Millennials Millennials, people aged between 18 – 34 years, form a large percentage of the global population. Succeeding in attracting this age group requires that HD not only builds motorcycles but also engage riders to push sales high. HD has been struggling to attract young riders. A brand strategy that could draw young people to the iconic brand would include a blend of initiatives.

Zeithaml et al. (2001) insist on firms understanding the needs of clients in order to produce products that suit their expectations. First, the HD brand is already known. But the challenge could be that not many young people know how to ride HD bikes. To attract and tie the loyalty of such young people, the company could invest in a rider training programme where young people are trained by skilled instructors through the HD Riding Academy. Completion of the course could be integrated with obtaining a riding license. This way, they would not only increase the number of young riders but they can also learn about the HD motorcycle and provide feedback on how best it could be modified to suit the younger person. If they learn on a HD bike and are taught by HD instructors, it is highly likely that they would buy a HD bike as their first choice. It is working in this circle of ideas that Wirtz et al. (2016) indicates, loyalty is built. Potential young bikers are also becoming more connected within their countries and globally through social media platforms.

They are often on their smartphones. More engaging relationships can be established with young adults to form a large part of its global fellowship through social media engagement. Their love for video games can also be exploited by HD developing video games related to bike riding. This way, they start building interest in the HD brand thereby growing interest in wanting to learn bike riding (Loureiro, 2019). While also engaging with video games, HD could also launch simulation-styled bikes where potential learners could practise and have a feel of starting and riding a bike. In so doing, HD would link the ‘unreal riding experience’ to ‘riding for real’ (through the training programme). Young peoples’ purchase decisions are influenced by the ‘coolness’ factor which HD needs to regain; millennials think that Harleys is no longer cool because the bikes are too large and loud (Loureiro, 2019). To meet the needs of the millennials, HD needs to blend its endeavour to build bikes of different shapes, sizes and skill levels with aesthetics that would be more appealing to young people.

Millennials have lower financial capability compared to their parents and would therefore not afford large bikes. In expanding its product line, HD can introduce stylish bikes that appeal to younger audience yet maintaining the iconic heritage of HD motorbikes by making smaller, cheaper, light-weight, more fashionable, faster, quieter and sleeker bikes. 4.0​Conclusion and Recommendations The above events have led HD succeeding in surviving through difficult financial times and emerging as one of the most successful organisations. H.O.G has grown rapidly from a start-up club with 33,000 members in the first year to a global organisation with over 1 million plus members across 1400 chapters and 100+ countries (Herley-Davidson, 2019). H.O.G also played a major role in assisting the company return back to its financial stability during difficult financial times. The 1 million+ members act as brand ambassadors and net marketers of the HD brand (Harley-Davidson, 2019).

The programme has also served to open new revenue streams for the company, with the production of tie-in merchandise offered to club members. Harley-Davidson (2019) indicates that H.O.G members spend 30% more than other owners on clothing and the company’s sponsored events. The high level and broadly advertised branding presents HD as an American icon and the pride of being an American-made brand. . HD can continue increasing its client base by increasing their investment in research and development in order to capture the growing needs of various generations of clients and also understanding why their customers may reject their bikes for competitors’ bikes. While building their customer base, they could also reduce the rate of customer defections by reaching out to potential defectors and not only speaking to them about their concerns but ensuring that they are satisfactorily amended (Wirtz et al. (2016). To generate customer satisfaction, HD can listen to feedback obtained through various data collection methods. This improves customer knowledge and trust. Third, while customer participation may differ, it would be vital for HD to focus effort on all customers by treating both profitable and non-profitable customers uniquely to make them feel wanted. For instance, the company could find activities to engage clients outside the H.O.G programme so that customers receive value in all aspects.