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Motor Cycle: Industry Analysis Essay Sample

Motor Cycle: Industry Analysis Pages
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Motorcycle is one of human’s great inventions that add convenience to transportation problems. Here in the Philippines, the motorcycle market is growing. More Filipinos prefer motorcycles as their means of transportation because they find more convenience in motorcycle riding than commuting.

Transportation Vehicles is very important here in the Philippines. It allows Filipino people to have a more convenient and easy life. The Government Vehicle Assembly Program has 4 classifications: the Passenger Cars, Commercial Vehicles, Motorcycle and other Vehicle Assembly.

The graph below shows the historical sales and demand forecasts of motorcycle in the Philippines. The total demand expected to reach 0.941 M units by year 2013.

In the census of car and motorcycle registration made by the Land Transportation Office (LTO) in its 4 years of operation starting 2006 to 2009, 3,200,000 riders and 750,000 car owners were recorded. This shows that the motorcycle riders are four times greater than car owners. This only implies that motorcycle industry has been fast growing industry since then.

Areas of Competition
I.Product

In the world of transport the motorcycles are also very commonly used. They are used due to their sleek design and easy to drive. The motorcycles are also to maintain and look after. The motorcycles are also preferred by the people as they are an easy way to get out through traffic jams and through heavy traffic. Keeping this in mind, many companies make motorcycles and here are few of them. These all companies are Japanese and has their headquarters in Japan. Here are few differences and facts about these companies Yamaha motorcycles is a Japanese motor cycle company which is founded in the middle of 1950’s and is making racing, crossovers and trail bikes. It includes all types of motorbikes ranging from 50 to 1900 cc while Honda Motorcycles is the largest motorcycle producing company across the world and has its headquarters in Japan and is famous for making new, unique motorcycles.

The Kawasaki Motorcycles is the Motorcycle Company which is famous for its brands of making heavy weight motor cycles with the luxurious looks and heave on duty body type and Suzuki Motorcycle also produce motor cycles and is founded in the year 1909. It started the production in the middle of the 19th century and is also a part of the famous MOTOGP race. Different motorcycle companies use different strategies in selling their products such as providing every individual an appropriate motorcycles for their convenience. Their market target includes any type of rider, including women, teens, and aging baby boomers. This companies has different styles and distinctions in their product. Honda has been at the forefront with designing elegant, contemporary and powerful scooters and entry-level motorcycles.

College students or young women who do not want bulky bikes are the target of this company. The company has been able to remain extremely strong in the industry because of its ability to cater to the needs of its various consumers. It consistently advances the technology of the industry, such as the creation of the world’s first motorcycle airbag system. Honda has had considerable success against competition. Like its closest rival Honda, Yamaha, Suzuki and Kawasaki is present in many different motorcycle categories. They rely strongly on the success of sales in the motorcycle racing category. They compete in the market by emphasizing the on and off road capabilities of their bikes. They put emphasis on dirt and street racing, making the bikes seem young, fast, and fun.

Sample Products of the BIG 4 Motorcycle Manufacturer

II.Price
The prices of motorcycle depend on the feature, style and capabilities of the product. They have close competitions in terms of product’s price. Below is a sample price list of Suzuki and Yamaha.

III.Place of Operation
In terms of place of competition, this Big 4 Motorcycle Company have been known worldwide. They are selling quality products around the world through their thousands of branches and store worldwide. Here in the Philippines, these companies have been supplying motorcycles nationwide. They had their own main branch here in the Philippines and different stores nationwide. They make their product available to market as much as possible

IV.Promotion
These top Competitors of motorcycles had their own way of promoting their product. They venture on sports such as football, racing, and more. Also they promote their product through different media. They use television, newspaper, radios and internet in promoting their product.

PORTER’S APPROACH
1.Bargaining Power of Buyers
The majority of the motorcycle industry’s customer group consists of individual consumers. Motorcyclists tend to be between 25 and 65 years old and are likely to have been earning their own income. Majority of motorcycle buyers are men. Nowadays, female ownership of motorcycle has also increased. Usually, motorcycle owners are blue collar workers, or people who makes who do manual labors. Only few white collar workers or people who make administrative and managerial jobs desired to own a motorcycle. Generally, motorcycle buyers are people having an approximate income of Php20, 000.00 and below every month. This customer group does not have strong bargaining power over the motorcycle industry because it neither has power relative to industry participants nor emphasizes price reductions. The motorcycle industry customer group is scattered rather than concentrated since it consists of individuals. Switching costs for motorcycle owners are high.

Also, the industry’s products, with numerous brands, styles, and price points, are very differentiated, so consumers cannot directly compare one product to the next. Most of the motorcycle customers are price sensitive. Since a motorcycle is a relatively expensive item, buyers are likely to seek a favorable price. The fact that most of the company dealers are offering promo such as installments and sales in order to attract more customers is evidence. Despite of this low price scheme it does not affect the low profit of the seller, it is just an scheme that prolong the agony of people in paying and delayin the profits received by the seller.

More importantly, customers are also sensitive to quality and brand image as much as its price. A motorcycle purchase is also a reflection of one’s identity and influences how others perceive them. Aside from price, one of the most important factors that have a big influence in a purchasing decision were style and design, brand name, performance, and handling. Only few buyers who are well educated and interested in motorcycle choose their bike based on engine capacity and type, such as cruiser, touring, sport, standard, trail, and racing. Despite the fact that Filipinos are after a low price but good quality product, it is not enough to affect the profitability of the sellers.

The customers in the motorcycle industry do not have much bargaining power to force down prices, demand higher quality or service, or play competitors off against each other.

2.Bargaining Power of Suppliers
Motorcycles are comprised of a significant amount of different components. The chassis, engine, cylinders, cooling system, transmission, clutch, gearbox, suspension, braking systems, and tires are just a few of those components. Some of these parts can be manufactured in-house by the motorcycle manufacturers, such as Honda, while it would be more cost effective to order other parts from outside suppliers. Motorcycle manufacturers need to choose which components they will manufacture and which parts of the production process will be outsourced based on what is most cost effective. We can deconstruct the two major manufacturing processes, in-house produced parts and parts supplied from outside companies, to analyze the source and strength of the suppliers for each production process. Parts deemed more cost effective to be produced by the motorcycle manufacturer itself will be supplied by suppliers of raw materials, such as aluminum, plastics, steel, and other various raw materials.

These resources are highly undifferentiated commodities. The switching costs are relatively low between different suppliers as a result of them being highly undifferentiated. Suppliers of a certain raw material will likely do everything in their power to keep a large manufacturer, such as Harley-Davidson or Honda, as their customer. Therefore, suppliers of raw materials to motorcycle manufacturers do not have significant bargaining power. The second major source of motorcycle parts comes from suppliers of components supplied by outside companies. These components will require a high degree of specialized labor and specialized equipment, which makes it more cost effective for these parts to be supplied from the outside. This is quite similar to the automotive vehicle industry, where nearly all major components are supplied from outside sources.

There are hundreds of automotive parts suppliers and a significantly larger work force within these automotive parts suppliers. All of the suppliers are competing for business from one of the few major manufacturers. This is the same situation in the motorcycle industry. Many suppliers are competing for the business of Honda, and Kawasaki. Due to the fact that are a significant number of suppliers and often times these suppliers are just providing the manufacturing of parts, not the design of parts. Therefore among these suppliers, they are highly undifferentiated and it is quite easy for a large motorcycle manufacturer to switch to one of the many overseas manufacturers of different parts. The suppliers of these components do not have significant bargaining power. Throughout both of the production processes of motorcycles, one major supply source with the highest degree of bargaining power is the supply of the manufacturer’s labor.

3.Threat of Substitute Products
When analyzing the competitive threats on the motorcycle industry as a whole, the motorcycle trade association members must keep in mind two main substitutes for motorcycles: bicycles, undersized cars. Each of these substitutes can be further broken down into subcategories. Each category is considered a substitute for motorcycles because it either satisfies at least one of three costumer needs that motorcycles satisfy, or it gives the costumer something that motorcycles do not offer. Though the levels of threats posed by each category of substitute differ greatly, the motorcycle trade association members must be sure to address each of them when deciding where to go from here. Most importantly, keep in mind that these threats are ever present, and if the various motorcycle manufacturers do not act soon, they will risk losing customers throughout the coming years.

First of all, it is important to understand what motorcycles do for buyers because this sets up a framework for the underlying motivation behind the purchase of any type of motorcycle. Since the motorcycle industry is responsible for designing and manufacturing about seven different kinds of motorcycles, or other automatic two-wheel vehicles, several customer needs are met by each category: means of transportation, low fuel costs, environmentally friendliness, recreational activity, and “cool factor.” In addition, we will analyze another factor that motorcycles lack Bicycles are also a threat to the motorcycle industry based on a few critical factors. First, as two-wheel transportation vehicles, they are similar in basic function to motorcycles, satisfying the consumer need of basic transportation from point A to point B. On a more practical note, bicycles do not usually travel much faster than 25 mph, and many roads are not very bicycle-friendly or safe to ride on. An additional reason why bicycles make viable alternatives to motorcycles is related to the consumer’s need to spend less money. Bicycle owners incur zero gas mileage costs, making this alternative the most environmentally friendly option.

To be technical, the only real costs associated with bicycles are the upfront purchase, maintenance, optional accessories, and human labor. In addition, bicycles satisfy the consumer’s need for recreational activity similar to motorcycles. Anyone from the average consumer to the avid biker can use a bicycle as an alternative means of outdoor recreation. However, bicycles are not generally associated with the “cool factor” that is associated with motorcycles, and this is one of the most influential factors for the motorcycle industry. According to motorcycle enthusiasts, “The [cool] factor is one important element and one of the reasons why many are riding a motorcycle.” Similar to motorcycles, bicycles are not as safe as cars, and accidents happen more frequently on bikes than in cars. Despite the downfalls, bicycles are viable substitutes and pose a moderate threat to the motorcycle industry. Compact cars and hybrids are the final and most influential classification of substitutes that pose an immediate threat to the motorcycle industry.

Overall, both types of cars present high switching costs to the consumers. Although motorcycles are more fuel-efficient than even the best hybrid or smallest car, the safety factor makes compact cars and hybrids more attractive to some consumers. Compact cars and hybrids are safer than motorcycles because they generally have seatbelts, airbags, and a shell that protects the driver. For many consumers, increased safety is a motivating factor in buying a compact car or hybrid over a motorcycle. In addition, compact cars can be substitutes for motorcycles due to their compact size, measuring just a few feet long. Much like motorcycles, these small cars can fit into the tiny parking spaces and squeeze through tight spots. Compact cars are also becoming very trendy in some areas because of their novelty. In this respect, the two somewhat compete on image-related consumer needs. Overall, we perceive fuel efficiency and safety to be the most important factors on which compact cars and hybrids pose threats to the motorcycle industry.

4.Threat of New Products
The maturity, large number of competitors, and high capital requirements needed to enter the motorcycle industry make it a fairly unattractive industry for new competitors to enter. A more complete and detailed analysis of the seven barriers to entry will show the motorcycle industry to be a hostile, unreceptive environment for new entrants. As a mature industry, current competitors enjoy the benefits resulting from economies of scale. Established motorcycle producers have the luxury of lower costs per unit because they can allocate their fixed costs to a larger number of products. New entrants do not have as large of a demand and must distribute their costs over a smaller quantity. Because of this, individual costs per unit are larger, resulting in a higher product price. Large suppliers have an advantage over small, new entrants based on the network and brand association connected to the large supplier. By purchasing a large supplier’s product, the consumer belongs to an expansive network of consumers.

Another benefit of scale enjoyed by the suppliers is the consumer’s assumption of quality attached to a brand. Buyers have a tendency to place a higher level of trust in companies with high brand recognition. They correlate high brand recognition with high quality, a key factor when purchasing a bike. For example, an uneducated consumer looking to purchase a high performance street bike would be more inclined to purchase a Honda or Yamaha over a Buell bike because they recognize the other two as leaders for performance bikes and would be more certain of the quality and performance of those products compared to Buell. Another factor favoring current industry participants is the high switching costs for consumers. Especially for consumers who purchase motorcycles for more than the average price, the purchase is a long term investment.

This makes it difficult for new entrants to steal market share from current consumers in the motorcycle industry. Besides the difficulty new entrants find in attracting customers, another deterrent to entry are the high capital requirements demanded by the industry. Characteristic of a mature industry, price is no longer a differentiating factor among similar product offerings by different competitors. Leaders in the motorcycle industry, such as Yamaha, now differentiate their products by providing “high-value-added products” at their own dealerships. For new entrants to enter the market and take away current market share from existing competitors, high capital investments in infrastructure, dealerships, development of new products, and promotions targeting specific customer segments are required. An overarching trend concerning distribution channels within the industry are producers who primarily distribute their product through their own dealerships.

A major contributing factor to this trend is the brand loyalty demonstrated by consumers The brand power possessed by current competitors within their target markets are being utilized in multiple ways, including their distribution channels. New entrants have not had an opportunity to increase their brand loyalty, making that distribution channel not as efficient and have few options other than independent retailers. An increasing trend in the cost of raw materials needed for production adds value to the long term relationships many current competitors have with raw material suppliers.

Incumbent companies with established histories with suppliers may have existing contracts with costs lower than current market prices due to recent price increases. Once again, the new entrants will have to pay the current higher cost rather than the discounted cost paid by incumbents. High capital requirements, increasing demand, and specialized products are factors contributing to the high barriers to exit the industry. Current competitors holding the majority of the market share are hesitant to leave the industry because of the positive industry outlook and niche markets each have carved out for themselves. With few companies leaving the industry, it leaves very few market segments untapped and available to new entrants.

5.Intensity of Competitive Rivalry
Rivalry among competitors in the motorcycle industry is relatively intense. While each major competitor has its own market niche, price discounting, new product introductions, advertising campaigns, and innovations in motorcycle technology consistently fuel rivalry between firms. Rather than competing based on price, the major players in the motorcycle industry tend to compete based on services and features. Each major company offers different types of products targeted to different consumer segments. There is a high level of differentiation between classes of products and brands, causing high switching costs for consumers. Accessories and parts are produced for one specific brand. In addition, margins are not low, and the product is not perishable. Because of these factors, competition does not tend to gravitate towards price as much as other factors. Even though price is not the main basis of competition in the motorcycle industry, the intensity of competition is very high. The industry is composed of five distinct leaders, each of which is large and has high brand equity. Because the industry lacks a definitive leader, rivals end up poaching each other’s business.

Additionally, the sheer number of competitors in the market in addition the main five creates an abundance of purchasing options for the consumer and cause heavy competition. Rivals in the motorcycle industry have diverse approaches and ideas on how to compete. While one company might believe that adding new features to their products will help boost sales, another company might believe that increasing speed capabilities will be more beneficial. Another company might believe that offering easy financing is the key. Companies are constantly competing against each other to create the “next big thing” and attract as many customers as possible. This clash of ideas and techniques creates an industry where diverse personalities and approaches sometimes clash or create intense competition. Despite high levels of competition, the motorcycle industry has been growing steadily since the 1980s. In the past, motorcycles were considered to be a form of recreation or entertainment.

Typical motorcycle owners used their motorcycles as a complement to their cars. However, many people are now considering them as an alternative to cars. Because of high gas efficiency, the ability to maneuver around traffic, and the price of a motorcycle compared to a car, the motorcycle industry continues to grow. The main strategy used by motorcycle companies is product segmentation. There is a bike available for any type of rider, including women, teens, and aging baby boomers. While there are many competitors in the motorcycle industry, the five most significant are Honda, Yamaha, Kawasaki, and Suzuki. Hondahas been at the forefront with designing elegant, contemporary and powerful scooters and entry-level motorcycles.

It tends to target college students or young women who do not want bulky bikes. Honda consumers tend to be between 25 and 65 years old and have a middle-high household income. Honda has been able to remain extremely strong in the industry because of its ability to cater to the needs of its various consumers. It consistently advances the technology of the industry, such as the creation of the world’s first motorcycle airbag system. By advertising its strength in innovations and building upon its already established brand name, Honda has had considerable success against competition. Like its closest rival, Honda, Yamaha is present in many different motorcycle categories. All three companies rely strongly on the success of sales in the motorcycle racing category. They compete in the market by emphasizing the on and off road capabilities of their bikes. They put emphasis on dirt and street racing, making the bikes seem young, fast, and fun.

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