Ducati: In Pursuit of Magic

Case Analysis
Group 4 - Section B
Anwesh Mukherjee 16P072
Rahul Dwivedi 16P101
Salil Shukla 16P106
Shreyans Banthia 16P111
Sreshtha Sinha Roy 16P115
Vishal Tyagi 16P119
,
 The Global Motorcycle Industry
Worth- $48.3 Billion as of 2004
Motorcycle Consumption

10.1
Global
Motorcycle 16.4
Market 56.1
17.3
Scooters
Motorcycles
Three Wheelers
Mopeds Asia Pacific US Europe ROW

Types of Riders:
Motor Cycle Categories based on use: affordable means of transportation and
Touring sought fuel efficiency,
Cruisers comfort, ease-of-use and safety
sport bikes concepts of coolness,
off-road freedom, rebellion and desire

In 2004, 28.2 million two wheel motorized Sports segment breakdown:

vehicles were sold. Ducati relevant market was Superbikes
estimated at 642,000 units and was defined as Naked
motorcycles in the sports, sport touring and Dual
related categories Sport touring
 Ducatis History: The First 70 Years in Brief:
1926-1995
1926- Ducati as a
Development of the Early 1980s- The company
manufacturer of electrical
Cruiser 175cc and the 98cc. was losing Money
components for radios.

1954- Fabio Taglioni -

+15 years- Offices in 1983- Ducati was
designs broke previous
London, Paris, New York, purchased by Castiglioni
records by surpassing
Sydney and Caracas. brothers
speeds of 162 km/hour

End of the 2nd World War,

in 1946- Launch of il
Introduction of the 1993- Monster and then
Cucciolo. a small auxiliary
Desmodromic Valve the 916- Motorcycle of the
motor that could be
distribution system century
attached to a bicycle for
enhanced speed.

1996- Ducati was on the brink of bankruptcy- texas Pacific Group bought a controlling interest in the company
considering its strong niche position in the motorcycle industry.
 The Turnaround Strategy: 1996-2001
Federico Minoli hired by Texas Pacific Group as Ducatis new CEO in 1996

Key changes by the new CEO:

Goals of double-digit revenue growth and an EBITDA ratio of 20 percent
Invested in the Ducati brand. World of Ducati, for Ducati experience and reinforcing loyalty with the
loyal Ducatisti.
boosted R&D to build up new products and the racing division
TTM for new models was reduced from an average of 36 months to 15 months
Increased the outsourcing of production from 80% to 90%. maintained the machining of two key
components crank cases and cylinder heads and assembled all bikes in its production facility in
Bologna

Successful turnaround results due to the changes made:

Revenues climbed from 195.6 million in 1997 to 379.5 million in 2000
EBITDA moved from 33.4 million in 1997 to 60.0 million in 2000

Due to the successful turnaround Texas Pacific Group reduced its holdings of Ducati from 72% to 34.8%
in an initial public offering on the Milan and New York Stock exchanges
 The Next Era: 2002-2005

The Period of Performance Stagnation

400

300

200
Revenues
100

0
2001 2002 2003 2004 2005

Ducati Revenues for the period 2001

to 2005
 The Next Era: 2002-2005
Major Reasons for Stagnation
Product Discontinuity
In 2004, Ducati replaced the popular Superbike 998 model with 999
model. Though superior to the 998, it could not connect with the masses
the way 998 did.

Customer Acquisition Model

Ducatis low cost entry level super bikes SS651 and 620 could not compete
with the superior Japanese Bikes which were cheap and more advanced.

Halving of U.S Volumes

Ducatis head office in North America moved from the east coast to the west
coast causing major decline in Ducatis sales in the region.
 Ducati as of 2006

Ducati
Strategy followed

Product Innovation
Competitive edge by Increased focus on R&D
Differentiation Emphasis on New
Consistent look and feel Product Development
Basic characteristics Radical design, innovative
uncompromising - rigid

Branding Market
Brand Image Taking Feedback directly
Non-traditional way for Complete customer
visibility and demand engagement
Grand Prix, Races,
Championships

Others
 Ducati as of 2006
Revenue Increases through Accessories and spare parts

29 million sale of accessories

------------------------------------------------------
3,50,000 of motorcycles sold

2X Margins on accessories compared to motor-

cycle sales

Plan to offer accessories, so customer can customize

more at the time of buying

Results in additional revenue stream

 Ducati as of 2006
Ducati Marketing, Branding and Sales

Apparel
Collaborations - Oakley, Dainese
and Suomy
Licensed its logo and name for
other products
Increased Sales during 2002-05

Marketing
Ducati.com Minimal, less frequent, Tribal Advertising
Product Specifications Focused on World of Ducati Museum to
Custom bikes only available online sold entice fans
Used the website to leverage user database Racing, Training and Riding Clubs to
Feedback from users propagate brand
 Ducati as of 2006
Ducati Sales and Production

Sales and Distribution

800 Multi-franchise distribution points
61 Countries
151 independent mono-franchise Ducati retail stores in select markets
Wholly owned subsidiaries to maintain better control
US problem Not enough volume to setup stores, suggested partnership with
other brands

Production
Ducatis manufacturing facility outside Bologna, Italy consisted of 360,000
square meters and had 1,000 employees
In 2005, the facility produced a total of 35,000 finished bikes
93 % of the companys cost of goods sold were from parts and components
and 7 % was attributed to labor and research and development
 Product
Niche products like superbike,
super sport, sport naked, sport
and sport classic, mainly to
target the sport enthusiasts.
Also differentiated products, like
personalised vehicles.
4 Ps
Promotion
Specialised promotion- did not
invest in paid advertising.
Placed ads in selected
motorcycle publications, racing
events and mostly relying on
media coverage.
Price
The products are priced high to
create a status symbol for the
target consumer.
Also, they have enhanced the
brand value with this price
flagging.
Place
Established offices all over
Europe.
Wholesale sales in foreign
markets- direct contact with end
consumers.
 Strength
1.Strong market presence
2. Research and Development
3.Niche Products. eg. Superbike,
sport touring, etc.
4. Brand building Brand building
as racing bikes
SWOT
Opportunity
Analysis
1. More global sourcing of
components. Example-
something that can be made in
Thailand for 8 Euros is made in
Italy for 82 Euros.
Weakness
1. Tribal Advertising (no
frequency)
2. Lack of infrastructure for a
standalone distribution channel
3.High reliance on suppliers
Threat
1. Strong competitors like Harley
Davidson, BMW, Honda, etc.
Ducatis market share even in
Ducati relevant market was
much lower than that of Honda,
BMW, kawasaki, etc.
 Conclusion
Corporate and business strategy analysis shows that setting up a global
brand is critical for Ducati to increase its sales and profitability while
SWOT analysis on Ducati and Harley Davison provides a clue to why
these two firms use differentiation strategy for marketing.

To sustain the increasing growth of Ducati in future, Ducati should

further strengthen the e-commence business by improving Ducati.com
as well as other physical distribution channel. Ducati should also start
providing a customization service for the bike to the customers.