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KTM Ready to Race Case Solution
Over the years, Motorcycle industry has shown stable growth. In 1998, the industry's sales volume was 1,375,000 units which drastically increased to 1,591,000 units in 2002. Motorcycles have gained far-reaching acceptance; global demand growth was projected to be 5.3 percent for the next four years. The industry broadly consists of two segments on-road and off-road; on-road bikes being almost 80 per cent, in 2002. Among the two segments on-road bikes are popular among the older population for transportation and recreation, on the other hand, off-road bikes are popular among youth for cross-country racing. Since the market for off-road riders tends to adopt new trends, and latest equipment is of importance to them, key winning factor in this industry is flexibility. The Strong dealer network is crucial for the industry for the reasons, it provides contact to the customer, helps in forecasting the demand, identifying the trends, and enabling new product development. Technology being the other most vital factor; off-road motorcycles commonly have either two-stroke or four-stroke engines. The engine is less complicated for a two-stroke. For the sake of environmentally friendly vehicles, Japanese Manufacturers moved to producing four-stroke engines. The process of moving to four-stroke engines was gradual and challenging for smaller competitors because of complex technology and high R&D costs.
Following questions are answered in this case study solution
The Motorcycle Industry
Porter Five Forces
KTM Core Competencies
Options for Growth
Case Analysis for KTM Ready to Race
Global trends for motorcycle industry have also emerged. In North America, sales expected to increase by almost 10% in 2003 and the off-road segment is well-established, sales expected to grow by 17%-18% over the next three years. On the contrary European market has shown a decline for three years, sales expected to decrease by 10% in 2003 and by 4% in the next three years. A parallel trend was rising in Japan. Asia and Latin America's market seem to be promising areas for the expansion of motorcycle industry.
2. Porter Five Forces
i. Barriers to Entry
There are high barriers to entry in this industry owing to high costs of Research and development. There is oligopolistic competition, Honda and Yamaha having the largest market share, 43.1% in European off-road market and 62.4% US off-road market in 2002. The Strong dealer network is necessary for the off-road segment, which adds to the cost.
ii. The threat of Substitutes
The decline which is visible in Japan's and European market is due to growing baby boomer generation; they want different and sophisticated means of transportation. Possible substitutes, however, are buses, cars, and other public transportation. The switching costs are low for consumers.
iii. Bargain Power of Suppliers
The automobile supply industry is quite fragmented, so the bargaining power of suppliers is low.
iv. Bargain Power of Buyers
Since there are varieties of options for customers, so the bargaining power of buyer is high.
With motorcycles being a differentiated product, and the industry needing high fixed costs and investments, competition is established on differentiation. So, the competition is high and will continue to remain high in the future as well.
3. KTM Core Competencies
KTM designs and manufactures motocross, rally and cross-country racing motorcycles; the target market for KTM is adults and children. The sales had reached to € 314.1 million, in 2002. About 70 percent of KTM's revenues came from off-road motorcycle sales, by the end of 2002. KTM provides its customers unique engine configuration and exclusive design elements, compact and reliable engines, all attributes required for the off-road bikes. KTM also offers bikes which are categorized as dual sports bikes and used for adventure and everyday riding in the city, with the elements similar to those of on-road bikes. The orange color of the motorcycle and the styling is distinctive.
In its marketing activities, KTM displays greatly off-road motorcycle racing so as to establish the "ready to race" and the positioning of the brand is "focused, uncompromising and extreme," to explain adventure oriented feature of the brand. Given the short average life span and quick launch of new models and up gradation, Enduro and Motocross are fastest growing sectors of KTM's product sales. The major factors contributing to the company's success is racing, along with R&D, which enabled KTM to establish first-class functioning into all its products. KTM sponsored racers in every major off-road racing circuit in Europe with much success.
4. SWOT analysis
Strengths: KTM has a niche market of young racers and adventurous riders. KTM's workforce is motorcycle enthusiasts.
Weaknesses: Distribution through general imports, which doesn't allow them to control some factors affecting the sales.
Opportunities: The market for the on-road bike is also growing; KTM can take advantage of it and cater to this market as well, and create a brand image for on-road riders. To cater to those who appreciate the technical expertise but not necessarily are into racing.
Threats: The magnitude of the competition and cost-leaders strategies used by the competitors. The reliability of the brand name, "me too" products can emerge with the resembling brand name.
5. Competitors Analysis
Net sales of Kawasaki in North America is 40.8% and in Europe 16.9%. Suzuki's net sales in Europe are 20%, in North America 19% and Japan 47%. Whereas, Yamaha's net sales in Asia is 18.8%, in Europe 23.2%, in North America 34.0% and in Japan 15.1%. KTM's net sales in Europe is 60.7% and in North America 29.5%. As compared to the financials of KTM and its competitors, KTM has spent a lot on its R&D and sales & sports activity, which gives an advantage to KTM over its competitors.
6. Supply Chain
Initially, KTM used general importers for all the markets. Later KTM moved from general imported to its sales subsidiaries for the reason being regulatory standards established by EU, which was hard to fulfill at that time. This step was a significant supporting factor to KTM's success in recent years. KTM has an existence in 72 countries around the world.
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