Ducati: In Pursuit of Magic Case Analysis

Topics: Brand, Ducati, Motorcycle Pages: 5 (1538 words) Published: March 17, 2014
Ducati: In Pursuit of Magic
By: Hanmiao Li, Bohong Liu, Adam Loewer, Tianyue Shao, Yi Wei

Ducati is a specialized manufacturer of racing and sport motorcycles based in Italy. In this case report, we will analyze Ducati’s competitive position through an opportunities and threats analysis, Porter’s Five Forces, a value and cost drivers analysis, as well as the VRIO framework.

Opportunities/Threats
One of the biggest opportunities in the motorcycle industry is the growth trend of 3.3% in unit sales over the past five years, mostly in the United States and Asia/Pacific markets. Also, the rapid growth of women ridership offers the potential of an even larger customer base in the future. In the sport segment in particular, growth in the next few years is expected between 2% and 3%. The history and brand recognition of Ducati will help them to attract some of these new customers related to industry growth.

The industry continues to face the threat of adverse regulation relating to the safety of motorcycles. Also, the lack of growth in Europe may be signaling a change of preferences away from motorcycles to other forms transportation and recreation. This is particularly troubling for Ducati because most of their sales are to riders in European markets. Also, the industry faces the constant threat of negative exchange rate movements, especially related to the dollar, which devastated Ducati and other European manufacturers in recent years.

Porter’s Five Forces
1) Barriers to Entry
Overall, the industry has relatively low barriers to entry. 1) One barrier that exists relates to mechanical engineering expertise, which in the sport bike category may be even greater. However, automobile manufacturers may have some of required expertise already or they could hire the needed expertise relatively easily. Therefore, all existing car manufacturers are potential competitors. 2) A second barrier relates to fairly high capital requirements. Investments include the cost to purchase equipment and machines, raw materials, warehouses to store inventory, and to specialists for production and design. On the other hand, existing car manufacturers, again, may face negligible barriers due to the production similarities between the two industries. At the least they could convert an existing car production facility into a motorcycle production facility. 3) The third barrier relates to the established brands of the incumbents. After so many years of motorcycle production, Ducati is a strong brand in the industry. Any new entrants including existing car manufacturers would have to compete with these very successful brands.

2) The Power of Suppliers
The power of suppliers is low. Inputs for motorcycles are fairly standard and cheap suppliers exist in the Far East and India. Suppliers depend heavily on the main motorcycle manufacturers, thus their bargaining power is relatively low. In particular, by 2001, Ducati has outsourced the majority of its production to third parties. If suppliers were charging high prices for their service, then Ducati would simply manufacture these parts themselves. 3) The Power of Buyers

The power of buyers is relatively low due to the lack of high-volume buyers and product differentiation. Ducati’s global sales network is a combination of 800 multi-franchise distribution points and 151 independent retail stores. In the U.S. market, Ducati predicted that in order to make a distribution point profitable, each place had to sell 200 motorcycles per year - which comprised small portion of Ducati’s sales (especially under the circumstance that all of the European brands had low volume in the U.S. and none could stand for a single-line dealer). Moreover, unique design and the use of Desmo system differentiated Ducati models from other products. When buyers purchase product in low volume and the product is highly differentiated, the buyer power is low.

4) The Threat of Substitutes
The threat of...
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