Ducati Case Study

Ducati, founded on July 4, 1926, is an Italian company that produces and sells sport motorcycles. From the advent, Ducati has been a front runner on the motorcycle technology front. The epitome of Ducati's technical excellence has been its Desmodromic engine, famous for its remarkable power delivery. In 1996, Ducati was on the verge of bankruptcy due to lack of working capital. The company rebounded by 2000, quadrupling its revenues, doubling its EBITDA (since 1997) and doubling its market share (since 1996) (Exhibit 2). Ducati’s mission statement is to be the world's most attractive motorcycle company that have deep commitment to racing competitions; practice the purest expression of refined skill, unmistakable design and above all, have a great passion for bikes^[1].

In spite of the fact that Ducati’s operations were small scale, they became the second most profitable motorcycle maker in the world. Ducati was able to maintain this status quo because of its strategy that revolved around increasing the efficiency in their production operations. They used a platform-based approached, Ducati divided the bike into small number of components which were further divided into sub-components. A key supplier was responsible for delivering the component and managing the sub-components suppliers, which in turn caused greater efficiency in acquiring new supplies, leading to greater profits. This approach also minimized the steps in assembling the final product hence reducing the production time tremendously. Ducati also practiced high degree of component outsourcing, that resulted in shifting of expertise to the suppliers. They standardized the products such as crankcases and cylinder heads which eventually led to the number of motorcycles produced per worker to increase from 76 in 1997 to 87 in 2000 (Exhibit 3). Ducati was proximate to the Emilian District of engineering talent that comprised of a large number of component suppliers who possess profound levels of expertise in the kinds of technology Ducati exploited for its motorcycles. Ducati then developed supplier relationships with their mission of quality and high-performance in mind. Ducati also radically rationalized its network of suppliers and reduced the number of suppliers from 200 to 130 and with the exception of a few key suppliers, formed short-term contracts with their component suppliers to keep them hungry and competitive for the firm’s business. As a result, in a few short years from 1996 to 2000, Ducati’s reputation shifted from being one of mediocre reliability to one of high quality.  The fundamental economic logic of Minoli’s turnaround brings about the ideas of discovering the core competencies of the company and improving the production process as a whole. Minoli acknowledged that Ducati had a group of top-notch engineer who possess the potential to defeat the Japanese and hence are the main driving force for the company. Some other ideas mentioned about Minoli’s turnaround is to improve the motorcycle design, along with building up the brand that Ducati has created. In major European markets, Ducati’s brand loyalty ranked among the highest in the motorcycle industry, with about 55% of its small customer base expressing repeat purchase intentions.

Ducati is capable of sustaining its position in the sports segment. They have a strong brand presence because of their motorcycle achieved rapid success in the international racing circuits. These achievements were fueled by technological superiority and continuous innovation. This alignment to their mission of being passionate about the racing competitions would help keep good performance, sustain and increase the demand for the company’s products. Ducati emphasized on the quality of dealer and also got into single franchise agreements. They viewed it as an opportunity to position their brand well in the market by dealing with customers directly. Honda and other Japanese manufacturers cannot stop its growth in this segment, however, In order to do that they have to invest more time and money than they already do on R&D specifically for the sport segment. Honda and most other Japanese companies compete in all segments of the motorcycle industry, but haven’t capitalized on the specific sport segment yet. They also differ from Ducati in the usage of their distribution channels. They believe in “maximize reach” which is why they use retailers to market their products. This approach will not strengthen their brand name as Ducati’s brand name.

Minoli joined Ducati with two objectives: double- digit growth, and equaling Harley-Davidson’s profit level, which was by far the highest in the industry. To meet these goals strategic alternative available to Minoli in 2001 are as follows:

• To enter into the cruiser’s market where Harley Davidson had a monopoly
• To spread the business and market the products in the foreign unexplored markets
• To maintain the competitive advantage in the sport segment but also gear up to enter the off Road market

To decide on which strategy to take to meet Ducati’s objective, it is important to conduct an industry five forces analysis.

• Power of buyers is low as there is not much competition in the sports segment which matched the quality and services provided by Ducati.
• Power of suppliers is low as there is a high volume of manufacturing firms who need to compete to become Ducati’s key supplier.
• Threat of new entrants is low because Ducati has a strong brand presence and a very good competitive advantage in its relevant market.
• Threat of substitutes is low because Ducati provided high quality and reliable product due to their innovation driven production processes
• Rivalry between the competitors is high because of wide variety major motorcycle companies like Harley Davidson, Honda, Yamaha compete to gain the maximum market share in US and foreign markets. This however, does not lead to price war because of extreme product differentiation.

To finalize on an alternative, I would first identify the value chain of Ducati. The activities that lead to product differentiation for this motorcycle company are: