Ducati, Phase Two
OEM urges dealers to tap into its retooled market success and lure in those other riders
The introduction last year of the 1098 and the Hypermotard cemented Ducati's position as one of the more highly coveted European brands in the United States.
Consumers were further lured in by the company's retooled image. Ducati claims to have gone from being a manufacturer of high-dollar, high-performance and high-maintenance motorcycles to one that builds more accessible and reliable — yet no less premium — bikes.
It's upon these successes, and the subsequent sales increases they generated, that dealers must build the value of the Ducati franchise, said CEO Michael Lock in early September during the company's national sales meeting in Monterey, Calif.
"We're on more people's shopping list than ever before. ... We've done the first part, but it is only the first part. Generating demand is not easy ... but it's really only the first piece of the puzzle," Lock said. "It's what you do with this demand."
The goal now is to bring in the buyers of other brands who may have been fantasizing about buying a Ducati, Lock said. He cited a Monterey-based dealership's success of selling 50 Ducatis in the first seven months of 2007 as an example of what's possible for dealers who fully embrace the company's brand and culture.
"We don't have to sit down with the little guys. We don't have to accept that we're another small European brand. We don't have to be those guys," Lock said.
Not only is growth needed for success, it's also what's going to fuel investments in the OEM's business and manufacturing infrastructure, which in turn will support the additional sales volume.
Narrowed and Focused
For 2008, Ducati is narrowing its market focus by eliminating the ST touring models from its lineup. This will allow the company to focus its energy on a narrow market segment — sportbikes and traditional — what it calls the Ducati Relevant Market. It's against this definition that the company measures its sales goals and results.
To help dealers nail this market, Ducati launched a retail insurance program, an extended warranty service now available to customers, and a mystery shopper program that uses a prospect satisfaction index.
The company will also cover 100 percent of the cost of dealers participating in Ducati Management Groups. These are 20 groups run by the RPM Group. Prior to this, Ducati only subsidized those who signed up for the peer-review business program.
"For some of our smaller dealers it's giving them a backbone of support that we can't give them as manufacturers," said Nick McCabe, business development manager.
The Ducati Foremost Motorcycle Insurance Program allows dealers to offer a variety of insurance programs to consumers, with discounts available for new buyers and members of the Desmo Owners Club. The program allows dealers who meet certain requirements to become licensed insurance agents and write Foremost Motorcycle policies, as well as the insurance company's other insurance products.
McCabe said the insurance program will help the company's dealer network bolster its F&I offering — something that was needed given that many dealers don't have F&I departments, he added. Allowing dealers to become insurance agents will help them boost sales even if unit sales are flat.
GE Money-Warranty Services backs Ducati's new extended service contacts, which allow dealers to sell customers additional coverage on their factory warranty.
With much of the focus of the coming year being the business of doing business, Ducati offered no whizz-bang product offerings to the 300 or so assembled dealers and dealership employees. As with most Italian motorcycle companies, new model revelations are reserved for November's EICMA show in Milan.
Coming off a great year for apparel — sales leaped 140 percent from 2005 — the company added 110 new pieces to the Ducati collection. It is also continuing its branding deal with Puma footwear.
In his presentation to dealers Lock pointed out that despite challenging economic times and slumping sales figures the motorcycle market in general is still at one of the strongest points in its history. Much of the retail drop has come from the sluggish cruiser market, which doesn't have much of an impact on Ducati's target demographic, he added.
In this framework, Ducati is doing remarkably well. "We are now officially the fastest-growing brand in the motorcycle market in the U.S. And now by some distance," he said. "I think the only other company that's recording numbers like ours is Piaggio with the scooters."
"We need to keep growing this. I don't mean rabid, number-led growth. I mean quality growth," Lock said. "If we grow the quality first, the volume will follow."
Lock Eyes Custom Street Market
During CEO Michael Lock's address to Ducati dealers, he ticked off the company's successes and results in each of its regional markets. As expected the big motorcycling states were doing well, and there was some nice growth in most regions.
The big shocker was what was happening in Ducati's southeastern selling region, an area that includes many Southern states. While the general sportbike market is up 21.3 percent in this region, Ducati sales have increased by 63.9 percent in three years.
This region is also the epicenter of the custom sportbike trend, a scene that revolves mostly around big Japanese liter bikes and superbikes. But this can change, says Lock, and Ducati would be happy to be part of it.
The main hurdle the company faces is one machined out of billet and heavily chromed.
"For us a sportbike comes from the racetrack, has racetrack geometry, has racetrack-style suspension and brakes that's designed to get in and out of corners as quick as possible at minimum lag time at top speed," notes Lock. "That's not what this market is.
"We do not have any heritage for this subset, because no one does. It's come from the street. But I think it would be a shame if we didn't respond to it, and if we didn't express our interpretation of that, so look out a couple of years from now," he adds.
The company has already talked about the market internally, and he's given input to Italy on the phenomenon that is decidedly North American. In fact, Lock sees little difference between what riders in Florida are doing with their Hayabusas and what riders everywhere have been doing with their Panheads.
It's not about the product; it's about the customer, and that customer wants a cool bike that's going to attract attention when he cruises it out on bike night, Lock says.
Much like the long-ago custom V-twin market before the OEMs grabbed it and ran, the custom sportbike scene is filled with business opportunities.
"On the basis that no one has stepped into this street class, it's up for grabs. I'd be surprised if no one else is working on it," Lock says. "I think the sports side of the motorcycle industry has an opportunity to step up here.
"Two years from now you take a look at what we've got."
Could an OEM entry into the hyperexotic world of custom sportbikes make sense? Maybe. With bikes like the Monster, the 999R and the Desmosedici RR, Ducati has some experience heading into areas that other OEMs don't tread. Even the Hypermotard is an exercise in far-out production bike design.
During Lock's presentation at the dealer meeting, he pointed out that the super-powered supermoto was the best "toy" Ducati has ever made and that the bike "really doesn't take itself too seriously." In fact, he predicted that the Hypermotard could be pushing itself into the lead of a market segment that it has formed.
"The Hypermotard so far has been kind of elusive when it comes to nailing it down to a category. Which is both great and a bit of a challenge. The bike doesn't fit into anything existing. I guess the closest thing is the Monster," Lock says. "I am fully expecting that there will be a category. You can well imagine KTM saying, 'Hey, we've been doing that for years.' But they've been doing something differently for years."
He adds that the bike isn't so much competition-bred as it is an "urban nightmare bike," a canyon-carving machine, and he fully expects the industry to respond with something similar.
Lock told dealers that it was now up to the dealerships to take what Ducati is offering and make it their own. He cited Erico Motorsports in Denver and MotoCorsa in Portland, Ore., as examples of those doing it well.
Four years ago Ducati North America figured out that it had to raise sales levels for the company and for its dealers. Profits were low on both sides, and there were infrastructure plans that needed to be paid for.
Instead of increasing the size of its dealer network, DNA worked to increase the level of sales per dealer. It also started weeding out the nonperforming dealerships. While the past 12 months have been quiet on this front, the prior 24 months saw the company change 40 dealers.
At the same time, there was an effort to refocus the brand to something that was more affordable and less maintenance-heavy. These two perceptions about Ducati were major issues with both the public and dealerships.
DNA had its own problem with pricing in that Ducati Motor Holding's price structure had been globally based. What a bike cost in Tokyo is what it cost in Italy and the United States. And this was on top of the company's premium brand pricing. "Our price premium in Europe was about 25 percent over the mass market," Lock says. "Our price premium in America was 75 percent over the mass market."
The company started by looking at what the right price should be for each model, beginning with the 1098, which was priced at $14,995, or about three or four grand more than the GSX-R1000. DNA also got a hand — for the first time — in Italy's R&D process.
The company also launched an advertising campaign that touts the decreased maintenance cost of owning a Ducati.
Based on this, dealers got a small up-front margin on the 1098 but were all but promised they would never have to take less than MSRP on the bike. DNA also took in a lower margin, but also created customers, Lock says. In a way the company has switched from a push method to a pull method of production.
Given the new strategy, orders last year for the 1098 and the Hypermotard were staggering, Lock says. For this year, they'll be offering dealers 75 percent of what they ordered, thus building a value into a bike that won't be so easily lost to discounting.
DNA will do this to a lesser or greater degree with each new model and expects sales to blow past the best markets in Europe in the next 18 months, another first, Lock adds. The company already has 6 percent of the U.S. sportbike market (which leaves 94 percent more to grab, he notes).
This is likely good news for dealers now focusing on the overall cooling of the United States' motorcycle market. Ducati might be showing promise, but for a multiline there's the worry about the other brands underperforming.
DNA is also banking on this. After all, if one of its dealers is being pulled down by its other brands or the market in general, it doesn't have the liquidity to order more products and invest in the Ducati experience.
"We're telling them be confident. Invest. Think strategically," Lock says. "We've got the coolest product in the market. We've got the best communication. You're going to get people coming in the store. Just don't let them out."