Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Harley-Davidson Priced Its Revival
Transcript
- Lucas: In 2008, Harley-Davidson sold 303,000 motorcycles worldwide. By 2010, that number had fallen to 228,000. A drop of roughly 25 percent. And their captive finance unit lost over a hundred million dollars. Luna: That's brutal. Especially for a brand that had spent decades cultivating this image of unshakeable loyalty. Lucas: Right. The conventional playbook in a downturn, especially for a manufacturer with fixed costs, is to cut prices, offer financing deals, push volume to keep factories running. Harley did the opposite. Luna: They raised prices? Lucas: Not exactly raise, but they held prices firm while cutting production by about 30 percent. They let demand fall and kept supply even tighter. The average transaction price actually went up because they shifted mix toward larger, more profitable models. Luna: So they chose margin over volume. That's unusual in a crisis. Lucas: It was a bet that the brand's equity could survive the recession without discounting. And it worked better than almost anyone expected. Operating margins dropped to around 5 percent in 2009, but by 2014 they were above 17 percent. Higher than before the crash. Luna: What was the thinking behind that? I mean, a lot of companies panic-cut prices to keep cash flow alive. Lucas: The thinking came from two places. One: Harley knew its core customer was aging. The median buyer was in their late forties. Slashing prices might bring in some marginal buyers, but it would also devalue the brand in the eyes of the loyalists who still had money. Two: the company realized that if they flooded the market with cheap bikes, they'd destroy resale values for existing owners — and Harley owners are obsessed with resale value. Luna: Right, a used Harley holds its price better than almost any other vehicle. That's part of the ownership appeal. Lucas: Exactly. So the leadership, under CEO Keith Wandell, made a painful decision: cut production, close a plant in York, Pennsylvania, lay off workers, and accept lower sales volume. The goal was to protect pricing power, not chase market share. Luna: But you can't just shrink your way to health. They must have had a plan to grow again. Lucas: They did. It was called Project Rushmore. A multi-year investment to redesign the touring bikes — the big ones that generate the highest margins. New engines, better suspension, more technology like infotainment and navigation. They launched in 2013 with a starting price around $18,000. And they made a conscious decision to not discount. Luna: So they improved the product and kept the price high. That's a classic premium play. Lucas: Classic, but risky when your market is still recovering. The bet was that the improvements would justify the price. And it paid off — the new touring bikes increased average transaction prices by about 9 percent in the first year, and margins expanded. Luna: I remember hearing that Harley also started offering more customisation options through their H-D1 program. You could build your bike online. That's another pricing lever. Lucas: Absolutely. H-D1 launched in 2014. It let buyers choose paint, wheels, handlebars, exhaust — all at a premium. A fully customised bike could run $5,000 to $10,000 above the base model. And because it was built to order, Harley didn't have to carry inventory risk. The customer was locked in before production started. Luna: That's smart. It's like the Porsche approach to options — turn customization into a profit center. Lucas: Exactly. And it protected dealer margins too. Because dealers didn't have to discount custom orders — they were unique. The average gross profit per unit for dealers actually improved during this period. Luna: So the whole ecosystem benefited. But let's talk about the tension that's still there. The average age of a Harley buyer in 2008 was 47. By 2016, it was 49. They're not attracting younger riders at the same rate. Lucas: That's the open question. Harley has tried to address it with smaller, cheaper bikes — the Street series, the Bronx concept — but pricing those lower while protecting the premium image is hard. The Street 750 launched around $7,500. That's less than half the price of a touring bike. It creates a different brand association. Luna: And it hasn't exactly set the world on fire. The company's overall sales in the US have been stagnant or declining for years. Lucas: Right. So the pricing story has two acts. Act one: using scarcity and product improvement to restore profitability after a crisis. That worked. Act two: trying to expand the customer base without diluting the brand. That's still a work in progress. Luna: I think what's interesting for our listeners is that pricing is never just a number. It's a signal. And Harley used it to signal stability and quality at a time when the market was screaming 'panic'. Lucas: Yeah, and that's a lesson that applies beyond motorcycles. Any company with a strong brand should think twice before leading with price cuts in a downturn. Luna: Totally. If these conversations have moved your work forward in some small way, and if it was worth a coffee to you, there's a link — buy me a coffee dot com slash fexingo. Lucas: That's a nice way to put it. Honestly, listener support is what keeps this ad-free and focused on the stuff we actually want to talk about. Luna: So back to Harley — one thing I've always wondered: did they ever break down the price elasticity of demand for their bikes? I'd love to see the data on how much they could actually raise prices before losing customers. Lucas: They haven't published that, but we can infer from their behavior. They raised prices on touring bikes by roughly 3 to 5 percent annually between 2013 and 2018, and unit sales of those models were relatively stable. That suggests inelastic demand among their core customers — the loyalists. Luna: But for the entry-level bikes, elasticity is probably much higher. A younger buyer with less disposable income is more price sensitive. Lucas: Exactly. And that's the dilemma. You can't use the same pricing playbook for both segments. Harley has tried to segment the market with different brands — Buell, LiveWire, Street — but none have achieved the pricing power of the main line. Luna: LiveWire, their electric motorcycle, is interesting. It launched at $29,999. Then they dropped it to $21,999 within a year. That's a huge cut for a brand that prides itself on not discounting. Lucas: It reveals a weakness. When the product doesn't have the same heritage or emotional pull, the pricing power evaporates. LiveWire is a great bike, but it doesn't sound like a Harley. And for many buyers, that sound is part of the value. Luna: So the lesson is that pricing power is rooted in brand identity, not just product features. Lucas: Exactly. And Harley's turnaround was successful because they understood that and acted on it. They protected the core brand, even at the cost of short-term volume. Luna: Alright, let's wrap with a forward-looking question. If you were advising Harley's CEO today, what pricing strategy would you recommend for attracting the next generation? Lucas: I'd say don't try to be cheap. That's a trap. Instead, create a smaller, authentic model that feels like a real Harley — not a watered-down version — and price it at a point that's aspirational but accessible. Maybe $10,000 to $12,000. And invest in the experience, not just the bike. That's where premium pricing lives. Luna: Interesting. Well, we'll see if they listen. Thanks, Lucas. Lucas: Thanks, Luna. For our listeners, we'll be back next time with another story about the numbers behind the decisions.