Assignment I Ducati

Shobhit Saxena
Section – I
PGID: 61920058

1
Ducati – Strategies for Profitability
From one step from going bankrupt in September 1996, Ducati was able to transform itself as one of the most profitable
motorcycle manufacturers in the world through successful planning and execution of strategy in the areas of Sales,
Production as well as Marketing and Distribution
Total Revenues
 The topline of the company grew at CAGR of 21.2% over the 500
period 1997 to 2001E driven by high volume
 Focused on Hyper-sport segment which derived premium and 400

Revenue generated margin grew at CAGR of 26.6% of during this period

IN EURO MILLION
300

Strategy  Diversified its sources of revenue through channels such as 200

Racing and apparel
 Supported by increased R&D and established new design 100

center which reduced time to market significantly 0

1997 1998 1999 2000 2001E
 Implemented several initiatives that enabled company to EBITDA Analysis
decrease its COGS, increase EBITDA and derive margins 80 25%
70
 Aggressively outsourced production activities for non-strategic 60
20%

components

In Euro Million
50 15%
 Focused on product standardization which increased efficiency;
Production
40

number of motorcycles produced per worker increased from 76 30 10%

Strategy in 1997 to 87 in 2000

20
5%
10
 Decreased number of suppliers and concentrated towards 0 0%
increasing the quality and reliability of Ducati, which in 1996 1997 1998 1999 2000 2001E

were known for their mediocre reliability and high maintenance EBITDA EBITDA Margin
COGS Components as a % of Sales
costs
4%
Indirect Personnel
4%
 Focused on new distribution strategy which revolved around
vertical integration and cost optimization Direct Personnel
5%
6%

Marketing &  Established its own subsidiaries in major global markets which 7%
Related Products
Distribution generated synergies with the parent 2%

Strategy  Improved the average quality of the dealers while reducing the Motorcycle Materials
43%
56%
overall number of retailers throughout the world thereby 0% 10% 20% 30% 40% 50% 60%
reducing cost in form of commissions
2000 1996

2
Ducati – Moving from Mechanical to Entertainment
The Core Logic of Ducati’s Turnaround Strategy was to position itself as not only a motorcycle company but also as a
global brand that would appeal to a broader spectrum of customers
Product Portfolio Advertising Racing Others
Strategy Strategy Strategy Strategy
• Enhanced its product portfolio • As part of its strategy to build • Due to the sport orientation of • Museum: In order to exhibit
to expand its end market and brand equity, launched its first the brand, Ducati focused on the legacy of the brand,
diversify its clientele aspect of Racing in order to Ducati opened museum in
global advertising campaign
drive sales and customer 1998 reflecting history of the
• In 1997, Ducati entered the entitled “Ducati/People”
loyalty company, its achievements,
Sport-Touring segment and and its racing tradition
• Positioned itself as a brand • Unlike its competitors, Ducati
sold ~3,500 units within its
through tie-ups with luxury allowed members of Ducati • Ducati Owners Club:
first year of launch
retailers such as Neiman club to participate in dinners Although small as compared
• Introduced several highly Marcus and designers such or social events preceding to to club of Harley- Davidson,
successful models in various race day the company started a series
as DKNY
segments with price bands • While the repeat purchase of initiatives to establish a
that served varied customers • Showcased its brand through intention declined between direct link with the Clubs
• Outsourced, acquired as well launch of “Ducati Stores”, a 1995 to 2000 for most of its • Events: To build its brand
established JVs to expand its unique retail environment competitors, it increased for further, Ducati organized
product portfolio in the emphasizing the distinctive Ducati Ducati Weekend event in
category of spare parts, traits of Ducati’s brand 1998 and in 2000
Sustainability
accessories and apparel • Ducati.com: Focused on
Sustainability • Not Sustainable: They can reaching and understanding
Sustainability be replicated by other customer and their needs
• Not Sustainable: They can producers as they can also
• Sustainable: The company instead of doing business
be replicated by other run similar promotions. Also,
has the R&D infrastructure, producers such as Kawasaki, Sustainability
manufacturing capabilities, there is uncertainty regarding
BMW, Honda in long run brand loyalty if Ducati team • Sustainable: Above listed
and distribution network to
which in turn may dilute does not do well in Racing initiatives are very unique to
enter new categories as per
Ducati’s brand equity events Ducati and can not be
market demand
replicated by its competitors

3
Recommendation
With recent turnaround of the company and the opportunity in the 400,000 units Cruiser market, it is recommend to Ducati
to enter the Cruiser market
Ducati – Strong Fundamentals Cruiser Market – Highly Attractive
 Company Performance: Since the execution of the turnaround
strategy in 1996, Ducati has been performing exceptionally well and is Threat of Entry Bargaining Power of Buyers
poised to expand into new categories such as Cruiser Motorcycles Low Moderate
– The topline of the company have grown significantly with substantial • High Capex requirement • Buyers are generally
improvement in margins • Significant supply chain individuals with not much
– With expected EBITDA of ~€70 million in 2001, the company has sufficient capabilities needed ability to negotiate terms
cash flow to make additional investments of ~€17 million, and additional costs
of ~€ 26 million • Major companies already • However, low switching
in the market with BMW as costs gives them ability to
 Management: The current management has the experience of
last entrant seek alternatives
successfully launching new categories as they did in the Sport- Touring
category in 1997
 R&D: To support designing of Cruisers, company has an established Industry Rivalry
internal design division (Ducati Design Center).
Moderate
 Production: As production is heavily outsourced, Ducati does not need
• Rivals include leading
develop end-to-end capabilities and can seek ideal partners to motorcycle manufacturers
manufacture components for cruiser motorcycles • Focused towards product
 Distribution: Recent turnaround has allowed the company to have a differentiation instead of price
vertically integrated distribution channel which includes subsidiaries and war
exclusive retail stores that can be used as a platform to showcase
Ducati branded cruisers
 Brand: Due to various initiatives, Ducati brand has generated Bargaining Power of Supplier Threat of Substitutes
significant brand equity and brand loyalty which can drive initial cruiser Low
Low
sales • Any mode of transportation
• Industry heavily outsourced
 With more than 500,000 monthly hits and 300,000 emails along with with many suppliers can be substitutes
Ducati club, company has tools to identify the expectations of • However, relevant market
• Emilian District itself a
customers for a “Ducati Cruise” and develop its own version of Cruiser is focused is on styling
specialized hub
instead of comfort