Polaris and Victory:
Entering and Growing the Motorcycle Business
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Polaris and Victory
INTRODUCTION
To strengthen its diversified portfolio, Polaris Industries entered the motorcycle
business in the 1990s. This case encapsulates the history and development of the Polaris
Victory Motorcycle Division from its conception in 1993 up until 2014. It closely follows
the new product research and development process, thoroughly examining the company’s
pre-production planning stages. Decisions regarding product introduction and value chain
activities (manufacturing, distribution, and marketing) are reviewed, along with detailed
coverage of market conditions and industry competition.
The objective of this case study is to re-examine the company’s strategy in light
of actual performance and changing conditions in the marketplace. To do this requires an
analysis of the conditions which initially influenced Polaris’ new product development
decisions and a review of what the company did right and what it did wrong. Then,
changes in the marketplace since the Victory motorcycle was introduced should be
appraised in order to determine if the company’s strategy is suitable for current industry
conditions.
• What factors influenced the company’s decision to enter the heavyweight segment
of the motorcycle market in the mid-1990s? Were industry conditions favorable
for a new entrant at the time?
• In what ways was Polaris successful with the introduction of the Victory product
line? What did the company do wrong?
• 15 years after entering the industry, describe current market conditions facing
Polaris. How have competitors responded to Polaris and Victory; and what
prominent competitive threats presently exist?
• How do today’s conditions affect the company’s strategic decisions for Victory’s
next decade in the marketplace?
ANALYSIS
• What factors influenced the company’s decision to enter the heavyweight segment
of the motorcycle market in the mid-1990s? Were industry conditions favorable for
a new entrant at the time?
Polaris and Victory:
Entering and Growing the Motorcycle Business
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Polaris and Victory
service and warranty operations, and parts and accessories division. The company’s
experience with recreational vehicles, engineering and design capabilities, technological
knowledge, production capacity, marketing expertise, and distribution system were all
internal strengths which could easily support expansion into the motorcycle business.
And its interest in moving into a parallel engine business indicated that “the stars were all
aligned”.
Competitively, Polaris believed that lengthy delivery delays at industry-giant,
Harley-Davidson, made the competitor’s 54% market share vulnerable to a new product
designed with superior functionality. The company also believed that it would be able to
compete with a lower cost structure. (Refer to the competitor profile of Harley-Davidson
below.)
Harley-Davidson – Competitor Profile
Disadvantages Advantages
Entrenched world leader in heavyweight segment
One of the most recognized and respected brand names
Brand image of prestige, freedom, individuality
Inimitable intangibles associated with the brand name
Network of 1,000 dealers worldwide
Able to charge premium price for high quality
Market of older, more-experienced riders
1997 sales of $1.75 billion, 30% of the world market
Largest company-sponsored enthusiast organization – 900,000 members
—————————————————————————————
Falling behind in innovation
High costs
Unable to meet market demand
Polaris and Victory:
Entering and Growing the Motorcycle Business
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Polaris and Victory
product lines commanded attention from Polaris decision makers. Essentially, Polaris was
certain that offering another American branded product to meet excess domestic demand
would be an advantage over foreign-produced motorcycles. In addition, Polaris believed
it could design and deliver a superior cruiser that would eliminate the common practice of
replacing many components (such as brakes, seats, wheels, vibration-adsorption devices,
frame stiffeners, and intake systems) on their brand-new motorcycles immediately after
purchase.
• In what ways was Polaris successful with the introduction of the Victory product
line? What did the company do wrong?
With experienced researchers, and by drawing from all corners of the industry,
Polaris executed a thorough, methodical, and analytical entry into its new business.
Adding the motorcycle line to its portfolio enabled Polaris to balance seasonal production
cycles for increased operational efficiencies and to expand into a related engine business,
which added potential for an extended product line. In addition to production synergies,
the move also provided cross-selling opportunities to a network of over 2,000 Polaris
dealers.
Polaris invested $100 million in the development of the Victory motorcycle. As
cruiser industry sales doubled from 1993 to 1997, the company fully expected to recoup
its investment within three years. However, Polaris entered the market at the tail end of
the expansion period. Consequently, it was 2006 before Polaris turned a profit on the new
line. Sales peaked during 2006-2007 and then fell to 2003 levels. As of 2010, sales levels
had yet to meet Polaris’ expectations. Using the estimates below, sales were still short of
Polaris’ 4,000 unit breakeven point and were failing to meet the company’s targeted goal
of capturing 5% (or $150 million) of the estimated global market.
Polaris and Victory:
Entering and Growing the Motorcycle Business
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Polaris and Victory
2010 Sales (from Exh. 1)
$60.1 million*
Average Retail Price (from Exh. 3)
$17,834
Estimated Units Sold
3,370 units
(*This figure may include parts, clothing, and accessories, which would slightly
distort, or overstate, the calculation.)
Despite its product successes and an effective strategy to overcome entry barriers,
hindsight reveals some hitches in Polaris’ market approach.
o No market remains static, and Polaris failed to consider the competitors’
responses to Victory’s arrival in the industry. Vigorous retaliation can be expected
when existing firms have a major stake in the industry and substantial resources to
support strategic or tactical moves. The company also failed to anticipate that
other new entrants would be attracted to the same growing demand for the cruiser
segment of the market that Polaris had identified. The company had done its
homework, but it is possible that it was too comfortable with its choices to
identify imminent competitor reactions or to prepare for unanticipated threats.
o By selecting a higher-end of the cruiser market, Polaris was basically targeting the
mature hard-core enthusiast with disposable income. This pitted the company in
direct competition for Harley-Davidson’s base of older, more experienced riders.
Long-term success required that the company break the competitor’s strong hold
on the cruiser segment. Alternatively, the company might have found a niche
Polaris and Victory:
Entering and Growing the Motorcycle Business
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Polaris and Victory
• 15 years after entering the industry, describe current market conditions facing
Polaris. How have competitors responded to Polaris and Victory; and what
prominent competitive threats presently exist?
Industry sales have rebounded since 2009, but competition is intense – more
intense than when Polaris entered the market. Out of its major competitors, Harley-
Davidson is Victory’s closest rival. A powerhouse in the high-margin cruiser category,
Harley-Davidson is fighting against industry participants chipping away at its hold on the
segment. By 2010, the company’s sales volume and dollars had fallen to 2001 levels. Its
sales also peaked in 2006, and the company cut production by 1/3 from 2008 to 2009.
Harley-Davidson has also discontinued and divested product lines and pressured labor
unions for concessions – further efforts to confront market realities. Now that supply has
caught up with demand, delivery delays are no longer a black mark against the company.
But, its riders are aging, and younger riders are less attracted to the Harley-Davidson
brand. The rival, however, is no stranger to tough times and intense competition. It is not
Polaris and Victory:
Entering and Growing the Motorcycle Business
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Polaris and Victory
Throughout the industry, eager competitors have fostered the formation of many
niches in the heavyweight and other motorcycle segments since Polaris entered the
market. There are 77 sellers of new big twin cycles and numerous custom and touring
producers. American brands have been revitalized. European bike companies, like
Triumph and Norton, are creating interesting and exciting new motorcycle models. (The
British Triumph was the fastest growing motorcycle brand in terms of 2010 sales.) Car
companies, like Lotus and Catheram, are entering the motorcycle market. BMW also
entered the low-slung cruiser market to take on Harley-Davidson; and it is second only to
Harley-Davidson in market share for the heavyweight/cruiser segment. This high-quality
STRATEGY
• How do today’s conditions affect the company’s strategic decisions for Victory’s
next decade in the marketplace?
Polaris and Victory:
Entering and Growing the Motorcycle Business
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Polaris and Victory
Initially, Victory motorcycles were a big hit with Polaris customers. But when
initial sales to this base waned, it became apparent that demand for motorcycles amongst
Polaris’ existing recreational, off-road product owners was an insufficient core market to
achieve desired levels of expansion. The company has been passing up potential sales
which could be achieved from placement where other on-road bikes are sold. Even after
identifying the limitations of an exclusive Polaris cross-product distribution strategy, the
division has failed to develop or broaden its distribution network. The Victory brand
needs greater exposure, and the company needs a better presence in the on-road market –
in other words, improved effectiveness of distribution and marketing. To pursue new
outlets, management will need to establish solid plans for expanding product distribution
and for selecting valuable distribution partners.
Polaris and Victory:
Entering and Growing the Motorcycle Business
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Polaris and Victory
Or the company may try a cooperative or diversification strategy to venture into off-road
or sports bikes, which would complement its ATV and snowmobile businesses. Industry
research is needed to determine the market potential for newer/younger riders and for
each of these product options.