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DG-1507-E
Rev. 2/2017
This case was prepared by Jordan Mitchel, research assistant, under the supervision of Professor Bruno Cassiman, as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. November 2006. Revised in February 2017. Copyright © 2006 IESE. To order copies contact IESE Publishing via www.iesep.com. Alternatively, write to [email protected] or call +34 932 536 558. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of IESE. Last edited: 2/14/17
1
Ducati: In Pursuit of Magic (A)
On the first business day of January 2006, Federico Minoli pulled up and parked his Ducati
Multistrada motorcycle in front of the Ducati headquarters in Bologna, Italy. As he looked up at
the complex, which housed offices, the assembly factory and the Ducati museum, he reflected back
on the company’s history.
2006 would mark several anniversaries: 80 years since Ducati was established to produce electronic
radio equipment; 60 years since Ducati had been producing motorcycles; and ten years since Minoli
had become the company’s CEO. Minoli joined the then near bankrupt Ducati in 1996, and led its
turnaround by creating the “World of Ducati,” a world that involved superior engineering, Italian
heritage, slick design and an undeniable attraction for racing enthusiasts to “join the tribe” and
become “Ducatisti.”
See the video: Ducati’s advertising (length: 1’50”)
Revenues moved from €195 million to €380 million from 1996 to 2000. EBITDA improved from a
loss to €60 million in the same period. However, in the five subsequent years, business results
stalled: revenues fell 2.3% on a compound annual growth rate from 2000 to 2005, and EBITDA
fell to -€273,000 at the close of 2005.
In late 2005, an agreement was signed by shareholder Texas Pacific Group to sell its 30% stake
in Ducati to InvestIndustrial Holdings SA and a syndicate of other investors, with the
understanding that Ducati would pursue a capital increase of €80 million. Minoli was certain that
the new shareholders would demand certain changes to cut costs and get the company’s growth
back on track. In selling the concept of the capital increase to the shareholder base, he would need
to articulate a plan that would address the immediate financial concerns as well as longer-term
strategic considerations. Minoli stated:
“We had a very successful turnaround from 1996 to 2001. The issue with the turnaround was
the question ‘what’s next?’ Unfortunately for us, the ‘next’ already happened and it wasn’t
very pretty. There’s a big chunk of time, which goes from 2002 to 2005 when some bad things
Ducati: In Pursuit of Magic (A) DG-1507-E
2 IESE Business School-University of Navarra
happened at Ducati. What happened in between? I’m oversimplifying the issue but we faltered
on the product side. Internally, we had some issues with the product, and the product is at the
core of any company like ours. There were also some external factors – the primary one being
the decline of the U.S. dollar, which hit us very hard. We have to take that into account when
planning for the future. Our strategy is very much affected by what we can actually do as
opposed to what we’d like to do.”
See the video: What to fix? (lenght: 1')
The Global Motorcycle Industry
The global motorcycle market included motorcycles, scooters, mopeds and three-wheelers, and
was worth $48.3 billion as of 2004.1 Over the past five years, worldwide revenues of motorcycles
had grown at a compound annual growth rate of 2.5%, while units had grown at 3.3% in the
same period. In 2004, 28.2 million two wheel motorized vehicles were sold. High displacement
motorcycles (over 400cc) made up only a fraction of the overall worldwide market with annual
sales of 1.2 million units. The Ducati relevant market was estimated at 642,000 units and was
defined as motorcycles in the sports, sport touring and related categories.2 One industry source
predicted that the total number of two wheel motorized vehicles would grow by 4.7% year on
year, reaching 35.5 million units by 2009;3 meanwhile the high displacement market and the
Ducati relevant market would both grow between two and 3% over the next few years. However,
there was no universally accepted method of tracking motorcycle sales, and industry players
often disagreed as to the correct statistics. Exhibit 1 shows more information on the global
market for motorcycles.
Geographic Consumption
Asia-Pacific was the leading region, accounting for 56.1% of the global market’s value. The
U.S. overtook Europe as second-place region in 2004, holding 17.3% of the market – Europe
had 16.4% and the rest of the world made up the remaining 10.1%. Industry observers believed
that the rationale for Asia-Pacific’s high consumption of motorcycles relative to other markets
was because motorcycles were often the primary source of transportation since they were
cheaper to purchase and run than automobiles.4 In contrast, consumers in North America and
Western Europe often opted for motorcycles as a secondary recreational vehicle. As a result, it
was also more common that North Americans and Western Europeans purchased higher priced
and higher powered motorcycles.
In recent years, an emerging segment in “BRIC” countries (Brazil, Russia, India and China)
referred to as the “new rich” were looking to consume North American and European luxury
goods. For example, in China, Harley-Davidson was about to open its first retail outlet,
having been absent from the country since World War II. While the company was actively
promoting its motorcycles to the Chinese new rich, it was expected that it would face challenges
1 “Global Motorcycle Manufacturers,” Datamonitor, 2005, p. 9.
2 See the section “Motorcycle Categories” for a breakdown and description of the types of motorcycles in the Ducati Relevant Market.
3 “Global Motorcycle Manufacturers,” Datamonitor, 2005, p. 18.
4 Ibid., p. 8.
Ducati: In Pursuit of Magic (A)
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with government restrictions. For example, over 170 cities had limits or bans on motorcycle
use for reasons of safety, congestion and pollution. BMW had entered China in April 2003.
In 2005, it sold only 70 motorcycles due to motorcycle restrictions and the gap between
legally and illegally imported motorcycles.5 An official from the China Motorcycle Industry
Association stated: “Motorcycle riding fans are still eager to get top machines like Harley-
Davidsons, but the government policy seems not motorcycle-friendly at all.”6 See Exhibit 2
for country specific information.
See the video: What opportunities do you see in the BRIC countries? (lenght: 4'15")
Motorcycle Categories
Excluding scooters, mopeds and three-wheelers, motorcycles were often broken down into four
main categories based on use: touring, cruisers, sport bikes, and off-road. Touring bikes generally
had a comfortable upright seating arrangement and were designed for long distance travel. While
the seating of cruisers was similar to touring bikes, cruisers often had larger engine sizes
(above 750cc) and emphasized styling and chrome fittings. Sport bikes – also called performance
motorcycles – were characterized by forward seating and a lighter frame for higher speeds. Off-
road bikes had different tires to facilitate driving through mud and dirt and usually had an upright
seating position, thick pads and heavy-duty exposed shocks. While engine configurations and
regulations changed by country, engine sizes ranged in four categories from 50cc to over 1,800cc.
Ducati considered its relevant market to be the Sport segment over 400cc, which was estimated
to have annual volumes of 642,000 units in 2005. This was further divided into: Superbike
(256,000 units); Naked (239,000 units), Dual (116,000 units) and Sport Touring (31,000 units).
Riders
People rode motorcycles for several reasons. A major group of riders chose a motorcycle as an
affordable means of transportation and sought fuel efficiency, comfort, ease-of-use and safety.
However, motorcycles often transcended their form simply as an engineered method of transit
and represented concepts of coolness, freedom, rebellion and desire. Hollywood movies added
glamour and pizzazz to motorcycling, ranging from Marlon Brando’s use of a Triumph in the Wild
Ones in the 1950s through to Carrie-Anne Moss’s high-speed chase on a Ducati 998 Superbike in
Matrix Reloaded. Motorcyclists were characterized from gruff leather-clad groups to athletic high-
speed brightly colored sports aficionados. Somewhere in between fell the “weekend riders.”
All groups had their corresponding networks of clubs, ranging from the 600,000-member strong
H.O.G. (Harley Owners Group) to the D.O.C. (Desmo Owners Club). Many riders belonged to two
or more different riding clubs with different bikes for a particular occasion or use. Rider clubs
arranged frequent rallies or competitions – notably, the annual pilgrimage to Sturgis, South
Dakota attracted over 525,000 motorcycle owners (many of whom were Harley Davidson riders).7
5 Ryan Nakashima, “Harley-Davidson Plans China Dealership,” http://www.cbsnews.com/stories/2006/01/19/world/main1223010.shtml
Jan. 19, 2006.
6 Ibid.
7 Sturgis Motorcycle Rally, http://www.sturgismotorcyclerally.com/newsletter.html, Accessed March 13, 2006.
Ducati: In Pursuit of Magic (A) DG-1507-E
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At the other extreme was the Dakar Rally off-road event, where over 1,400 competitors drove
through dramatic desert conditions, commencing in a European city, to Dakar, Senegal.8 In
addition to frequent events and competitions, hundreds of ancillary products such as clothing,
magazines and music were available to support each branch of motorcycling. In the 1980s and
1990s, the predominant group of motorcyclists were men; however, women were increasingly
purchasing motorcycles. In 1990, women accounted for 2% of annual motorcycle registrations.
By 2005, it was estimated that 10% of riders were women.
Ducati’s History: The First 70 Years in Brief: 1926-1995
“People ask what’s the difference between a Ducati and another racing bike. It’s the same
difference as eating homemade pasta in a small Italian village versus eating processed pasta
in an Italian chain restaurant somewhere in New York. There’s no comparison.”
Livio Lodi, Ducati Museum Curator
In 1926 in Bologna, Italy, Antonio Cavalieri Ducati and his three sons set up Società Radio
Brevetti Ducati as a manufacturer of electrical components for radios. In the following
15 years, the company established offices in London, Paris, New York, Sydney and Caracas.
During the war, Ducati’s factories were occupied by German forces and then bombed by
American forces. At the end of the war, amidst the ashes, the family focused its attention on
engineering new products. Immediately following the end of the Second World War, in 1946,
the company launched “il Cucciolo.” The original “il Cucciolo” was a small auxiliary motor
that could be attached to a bicycle to provide enhanced speed. Eventually, Ducati began
producing “il Cucciolo” along with its own frame. The small-sized motorcycle became an
instant hit and spawned the development of the Cruiser 175cc and the 98cc.
In 1954, an engineer named Fabio Taglioni (known lovingly as “Dr. T”) joined Ducati and cut
through conformity by introducing new models and then participating in the races to show the
performance of his designs. Some of his designs broke previous records by surpassing
speeds of 162 kilometres per hour. He also implemented the Desmodromic valve distribution
system, which he had seen work in a race-win
ning Mercedes automobile in the mid-1950s.
The Desmodromic or “Desmo” system allowed for
more revolutions per minute and greater power.
The Desmo innovation was used in subsequent
models (it was still used as of 2006), winning
hearts with the 450cc Mark 3D, which hit speeds
over 170 kilometers per hour, and the twin
cylinder 750 Supersport, which signaled Ducati’s
dominance in motorcycle racing in the early 1970s
marked by Mike Hailwood’s win in the Isle of Man
and Paul Smart’s victory in the 1972 Imola race.
The racing success attracted attention from all over
8 Dakar Rally Website, http://www.dakar.com/2006/presentation/us/r2_chiffres_clefs_01.html, Accessed March 13, 2006.
Cruiser Scooter (1964-1967)
Ducati: In Pursuit of Magic (A)
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and was the subject of a David Cronenberg short movie entitled The Italian Machine. Besides
racing, the company had experimented in other sectors, such as submitting a bid to supply
police forces in the U.S. with the Ducati Apollo in the 1960s and a luxury scooter called the
“Cruiser” from 1964 to 1967.
In the early 1980s, the company was losing money. Its majority shareholder (a state-run
enterprise) diverted Ducati’s focus from motorcycles to other mechanical products such as small
diesel engines.9 However, the strategy was not successful. In 1983, Ducati was purchased by
the Castiglioni brothers under the umbrella of their company, the Cagiva Group. The brothers
steered Ducati back to motorcycle racing. A slew of new motorcycle models emerged. In 1993,
a Ducati designer Miguel Galluzzi developed the Monster, with the aim of cutting out all non-
essential components and creating a fun-to-ride street bike with the sensation of being on the
race track. The result was a sports racing bike without any of the front or side fairings.
A year later, the company released the 916, a high-performance sports bike emphasizing the
latest technology, style and performance. The 916 was awarded the “Motorcycle of the Century”
title in 2000 by the leading British magazine MCN. However, despite the success of the Monster
and the 916, the Cagiva Group did not have sufficient working capital funding to purchase
raw materials – this resulted in late deliveries and production delays.10 By 1996, Ducati was
on the brink of bankruptcy. A U.S.-based private equity firm, Texas Pacific Group, bought a
controlling interest in Ducati with the belief that the company had a strong niche position in
the global motorcycle industry.
The Turnaround Strategy: 1996-2001
“Any decision to change, even if well planned and analyzed, always leads to a new territory
that needs to be discovered and charted.”11
Federico Minoli, Ducati CEO and Chairman
Federico Minoli was hired by Texas Pacific Group as Ducati’s new CEO in 1996. Minoli had a
long list of accomplishments, starting in the Italian division of Procter & Gamble in 1974 and
later moving between consulting firms (McKinsey and Bain & Co.) and industry (as the CEO of
the U.S. division of Italian garment brand Benetton). Upon taking the reins of Ducati, Minoli
installed a new top-tier management team. However, instead of trying to put a new strict
organizational structure in place, Minoli left the largely unstructured company alone to
encourage creativity and teamwork. He believed that Ducati had three top-notch attributes:
a unique and differentiated product, a group of highly skilled engineers, and a brand with
high loyalty. The company had been historically oriented towards speed, performance and
innovation and some even described the engineers as fanatic “knee down” purists.12 It was a
9 Ducati Annual Report, www.sec.gov, 20-F, December 31, 2004, p. 16.
10 Gavetti, Giovanni, “Ducati,” Harvard Business School, March 8, 2002, p. 7.
11 Ibid.
12 Ibid., p. 8.
Ducati: In Pursuit of Magic (A) DG-1507-E
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common sight at lunch hour to see engineers in the factory parking lot debating technical
specifications and the customization of their own motorcycles.
See the video: What is Ducati’s competitive advantage? (lenght: 1' 55")
Minoli had set two goals: double-digit revenue growth and an EBITDA ratio comparable to
Harley-Davidson’s of 20%.13 In the first year, Minoli and his management team faced a major
decision of where to focus the company’s efforts. Minoli invested in the Ducati brand. The first
major investment was commissioning the building of a Ducati museum. Minoli reflected:
“Our workers were operating in an essentially obsolete plant. Conventional wisdom
suggested investing in the floor and upgrading the manufacturing capability of Ducati.
Much to the contrary, we decided to build the museum.”
Minoli wanted to send a substantially different signal to the company that an ideological change
had taken place. He wanted to communicate that Ducati was more than just a motorcycle – it
represented a dream. To reflect this change, Minoli and his management team created the “World
of Ducati,” which was a strategy aimed at all aspects of the Ducati experience and reinforcing
loyalty with the loyal “Ducatisti.” (See Exhibit 3 for a chart of the “World of Ducati”). As Minoli
stated: “we were moving from the mechanical to entertainment.”14 To take advantage of the
strong Ducati brand, Minoli purchased a controlling interest in Gio.Ca.Moto, an apparel and
accessories company that had been producing products for Ducati. It also formed a joint venture
with Dainese to develop and manufacture special riding equipment.
The company boosted research and development from €3.2 million in 1997 to €12.9 million
in 2000 to build up new products and the racing division. From 1997 to 2000, the company
introduced a number of new models under each family. The time to market for new models
was reduced from an average of 36 months to 15 months. In 1997, Ducati introduced a new
Sport Touring line targeted at an older crowd (over 70% were over 30 years old). The entry
into Sport Touring was considered a departure from the purist leanings of the past since
Ducati’s typical sport customer was 18 to 30 years old. Additionally, the company sought to
expand its offerings within each family of products. For example, it targeted the release of
entry-level and high-end models simultaneously. One example was the release of the Monster
Dark, targeted at new riders, timed with the launch of the high-end Monster Chromo, positioned
towards current Monster owners who wanted to upgrade. Exhibit 4 shows Ducati’s price
premiums over time in each of its product families.
The company continued to follow a policy of outsourcing the majority of its production to
third parties, the majority of which were located in the Emilia region. The Emilia region was
known for its automotive racing tradition, as it was home to Ferrari, Maserati and Lamborghini.
In 1996, the company was outsourcing 80% of its production. By 2001, this had grown to
nearly 90%. The company maintained the machining of two key components – crank cases
and cylinder heads – and assembled all bikes in its production facility in Bologna.
The company’s turnaround strategy produced positive business results. Revenues climbed from
€195.6 million in 1997 to €379.5 million in 2000. EBITDA moved from €33.4 million in 1997
13 Ibid., p. 8.
14 Gavetti, Giovanni, “Ducati,” Harvard Business School, March 8, 2002, p. 8.
Ducati: In Pursuit of Magic (A)
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to €60.0 million in 2000. Near the end of the turnaround, Texas Pacific Group reduced its
holdings from 72% of Ducati to 34.8% in an initial public offering on the Milan and New York
Stock exchanges.15
The “Next” Era: 2002-2005
After five years of growth, Ducati’s financial performance stagnated. Revenues were
€362.4 million in 2001, €366.7 million in 2002, €344.0 million in 2003, €363.4 million in
2004 and €320.8 million in 2005. EBITDA decreased from €78.5 million in 2001 to -€273,000
in 2005. In 2005, the company posted an after-tax loss of €41.5 million in comparison with a
loss of €3.5 million in 2004. Exhibit 5 and 6 show the company’s financial statements and
Exhibit 7 shows the stock performance of Ducati Motor Holding. The worsening of results in
2005 was due to a drop in motorcycle volumes combined with an unfavorable mix. Revenues
from motorcycles decreased 13.1%. In addition, spare parts, accessories and apparel sales
dropped by 3.8%. Compounding the issue was the drop in the U.S. dollar against the euro,
which cost Ducati an estimated €19.3 million in EBITDA in 2004.
In assessing the period from 2002 to 2005, Minoli stated: “We achieved this great growth in
the turnaround period, but we also made many mistakes, which were embedded in that
growth.” Minoli believed that three major internal issues had contributed to Ducati’s lackluster
results from 2002 to 2005: product discontinuity, trouble with the customer acquisition model
and a halving of U.S. volumes due to local mismanagement and disruption. At the same time,
Ducati released the Multistrada to strong sales response and experienced increased accessory
sales and improvements in production efficiencies (see Exhibit 8).
At the heart of product discontinuity was Ducati’s top premium Superbike category. In 2004,
the company had replaced the popular 998 with the 999, which received tepid reactions from
the Ducatisti. Minoli commented:
“I may be over-dramatizing, but the 999 was too radical. The bike itself is more comfortable,
more technologically advanced and has better performance than the 998. We think, and all
the data points to the fact that is it is largely a style or look issue. There was continuity in
the performance, but there was a clear discontinuity in the look. And, in hindsight, you may
say why would you change the look of something that was so successful? If you go back
and look at the 998, people would say that was like a Michelangelo. So, why try and recreate
a Michelangelo? Instead, we created a Picasso, which is also beautiful, but in a different
way. It came across as too angular, too strange and people did not like it. This is a mistake
that we will not repeat.”
Claudio Domencali, head of Ducati’s product development and Ducati Corse racing division,
commented:
“A sportsbike is for customers who are more traditional and conservative. For a Ferrari, you
would never expect a space-moon futuristic car. These designs are an evolution of an
evolution. This is our conclusion and maybe we are wrong. Race bikes evolve themselves
15 Ducati Annual Report, www.sec.gov, 20-F, December 31, 2004, p. 16.
Ducati: In Pursuit of Magic (A) DG-1507-E
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without making strange steps. The race bike is about being aerodynamic, functional and having
certain flowing lines. The 999 was breaking these rules and was trying to create its own way
without looking at the racing track.”
See the video: What makes successful a product? (lenght: 1' 10")
While the superbike category did not produce the intended results, the company experienced
sales increases with the 2003 release of the Multistrada. In the first full year of production in
2004, Ducati sold 3,898 units. Originally, Minoli was hesitant about the production of the
Multistrada as some believed it was a move away from Ducati’s brand soul since it had an
upright seating position and larger windshield than Ducati’s other bikes. Some observers
wondered if the Multistrada signaled a future move into building a cruiser. Minoli commented:
“the Multistrada is nothing like making a cruiser. A parallel would be Porsche’s Cayenne.16
Mind you, if we were to build a cruiser, that would be like Ferrari building a truck!”
Instead of building a cruiser with the Ducati name, Minoli had made several attempts to purchase
Italy’s oldest motorcycle, the heritage cruiser MotoGuzzi. As Minoli said, “I see Guzzi as a lighter
European version of Harley.”17 Ducati’s interest in MotoGuzzi stretched back to 1998 when
MotoGuzzi was purchased by New York equity group Trident Rowan Group for US$8.2 million.18
For the year ending 1999, MotoGuzzi had sales of US$44.8 million per year and a net loss of
US$11.9 million. MotoGuzzi had experienced losses for 12 consecutive years. 19 Italian
manufacturer Aprilia purchased the brand for $66 million (including accumulated debt) in 2000
to complement its portfolio of racing and off-road bikes and scooters.20 When Aprilia went up for
sale in 2004, Ducati and Piaggio engaged in a year long public bid for the company. Ducati had
initially offered €40 million for the MotoGuzzi brand and Aprilia off-road motorcycle assets.21 In
February 2005, Piaggio emerged as the successful acquirer of Aprilia’s entire business. At the time,
Minoli commented to the press: “Guzzi is a great brand but it needs a lot of attention and a lot of
investment. Colaninno [the leader of Piaggio] has the intention and the money to do it and if he
does it will be good for all the sector. If he decides not to, we’re always ready to take it on.”22
Another challenge was the change in the customer acquisition model. The strategy that Ducati
had implemented during the turnaround period called for the Monster Dark, priced at €6,000, to
“open a door” to new Ducatistis, with the intention of capturing the customer and encouraging
an up grade in three to five years to a more expensive bike. As Minoli stated, “we liked the
strategy so much, we opened up two new doors in the superbike with the SS651 and the dual
with the 620.” See Exhibit 9 for a diagram of the entry strategy by segment. However, the two
16 The Porsche Cayenne was a sport utility vehicle (SUV) released by Porsche in 2003. The Cayenne caused some turmoil among
Porsche 911 and Carrera enthusiasts, as it was seen to move away from Porsche’s key customers. Some accused Porsche of trying
to sell to “soccer moms.” However, as of 2005, half of Porsche’s sales were Cayennes.
17 Tom Roderick, “The Italian job: Ducati’s Minoli remains patriotic on the Aprilia buyout,” Dealernews, February 1, 2005, p. 64.
18 MotoGuzzi Annual Report, 10-K, www.sec.gov, December 31, 1999, p. 7.
19 Ibid., p. 8.
20 “Italy Aprilia Moto Guzzi,” Associated Press Newswires April 14, 2000.
21 “Ducati Motor Holding confirms its interest in Aprilia Group,” Press Release, www.ducati.com, September 9, 2004.
22 Andrea Mandala and Jane Barrett, “Ducati goes it alone but CEO keeps eyes open,” Reuters News, January 13, 2005.
Ducati: In Pursuit of Magic (A)
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9 IESE Business School-University of Navarra
new entry bikes were met with new threats from the four Japanese competitors. Minoli explained
what happened:
“The Japanese unpredictably upped the technological content of the entry bike dramatically
in the superbike segment and at the same time they lowered the price. We could not increase
our price and we cannot compete on costs with the Japanese. Hence, the cost of the
maneuver became unbearable. We just scrapped the SS651 project. In the dual segment, we
will also have to reconsider the 620 since it’s dragging the profitability down.”
The third challenge was a major decline in the U.S. business. The company’s sales decreased
by 39% from an all-time high of 7,619 units in 2000 to 4,618 in 2003. In 2001, Ducati North
America’s head office moved from the east coast to the west coast. Minoli commented:
“The move caused major disruption. We lost 100% of our employees when we moved the
U.S. head office. In the meantime, we changed the IT system and basically we did not invoice
for four months. It was a major screwup. However, in 2001 we recruited a new CEO, Michael
Lock, from Triumph and after two years of suffering, we have been able to recover the lost
volume and in 2006 we’ll get back to previous levels. I predict that in two years, the U.S.
will become the biggest market.”
Ducati as of 2006
“In five words: Ducati is a sports bike.”
Claudio Domencali,
Head of Product Development and Ducati Corse Racing Team.
Products
As of early 2006, Ducati produced motorcycles in the Sport segment across six families: Superbike,
Super Sport, Sport Naked, Sport Touring, Multistrada and Sportclassic. (See Exhibit 10 for more
details.) Within each family, Ducati offered several variations on engine capacity, design and
color schemes. All families shared five common characteristics, which gave all Ducati bikes a
consistent look and feel. As Lodi stated: “You strip away the fairing on Japanese bikes and you
don’t know what brand it is. You can strip away almost everything from a Ducati and you still
know it’s a Ducati.”
First, all bikes used the Desmodromic valve control system, which allowed the engine to “breathe”
at high speeds, thereby increasing engine performance.23 The system allowed Ducati’s two-
cylinder bikes to perform as consistently as competitors’ four-cylinder engines (see Exhibit 11 for
more information on competitors). Ducati was the only bike on the market that used the Desmo
system, even though there was no legal restriction preventing competitors from using it. Some
individuals felt that the Desmo engine was a “self-imposed dogma” that should be reassessed for
other alternatives such as pneumatic and spring engines. Domencali commented:
“There’s a good debate inside the company whether the Desmo is necessary on all bikes. For
a high performance engine, the Desmo is quite good. Now, we may argue if it is compulsory
23 Ducati Annual Report, www.sec.gov, 20-F, December 31, 2004, p. 23.
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on some bikes. However, if we took it off the entry-level bike, people may feel that the bike
is on the cheap side from a quality perspective.”
Second, all Ducati engines were built in an L-twin design, which involved the two cylinders
of the engine mounted at a 90-degree angle. 24 The L-twin design provided improved
aerodynamics and lighter weight.25 Third, Ducati motorcycles had a signature low-hum engine
sound.26 Fourth, the Ducati frames were built around the Formula One-inspired tubular trestle.
Ducati engineers maintained that the tubular trestle frames gave greater rigidity, handling
power, enhanced speed and offered a more compact design architecture.27 Fifth, all Ducati
bikes were imbued with Italian styling. Industry observers frequently noted that Ducati was in
the very heartland of iconic automotive designers since it was in the Emilia region of Italy.
Others noted that the bikes generally had lower seating and a lighter weight making them
attractive for female riders.
New Product Development
Each new motorcycle, including the development of a corresponding engine, took three years on
average and cost €20 million. Ducati invested approximately €26.5 million in research and
development in 2005, representing 8.3% of revenues. This contrasted with €19.3 million (5.3%)
in 2004 and €12.9 million (3.7%) in 2000. In 2005, the company appointed Domenicali, who had
been the managing director of Ducati Corse Racing, to take over the development of all products.
Several individuals inside and outside of the company had wondered whether or not Ducati
would expand outside of its sports focus by entering the 500cc plus Cruiser segment, which
was enjoying growth in the U.S. Minoli commented:
“What makes Ferrari not build a truck? We’ve made a choice to be a racing bike and a cruiser
is the antithesis of that. It’s a bathtub on wheels. The cruiser market is dominated by Harley
Davidson. You cannot stretch the brand into a cruiser segment. However, we would like to
acquire a brand such as MotoGuzzi, which is a great cruiser. But, MotoGuzzi is not for sale.”
See the video: What about an off-road brand? (lenght: 1' 30")
Domenicali balanced the view:
“My personal opinion is that if we were to make a cruiser it would need to be on the sports
side of the niche. We can do it with the brand. But, it also depends on how you do it.
If you’re thinking of a big, comfortable, luxury cruiser then forget it. It would need to be
essential Ducati, which means that it would be fast with good braking ability. That’s what
would position the bike. At the same time, I think there is a lot of opportunity for us to
continue growing in our conventional market – the sports segment.”
24 Ibid.
25 Ibid.
26 Ibid.
27 Ibid.
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Ducati’s in-house design team was responsible for the design and engineering of all new models
and series, and all racing bikes for the Grand Prix and World Superbike Championship.
Traditionally, the internal design team had taken care of all aspects of designing completely
new models, which were not based on previous bikes. In 2004, Ducati had employed an external
designer to start from scratch and generate a rough design on paper for a radically new type
of bike. The rough design was then handed to the internal design team who engineered the
bike through the prototype stage to preparation for the production line. The first model
designed under the new method was the Hypermotard, within the Dual segment, planned for
release in 2007. Minoli talked about the role of the external designer:
“The question is: how do you predict what someone is going to want in three years? We
restructured the very initial part of design and put it outside the company with an
independent designer – his job is to come up with the magic!”
See the video: How can Ducati pursue that magic you talk about? (lenght: 2' 55")
In explaining the notion of “magic,” Minoli paralleled the design of motorcycles to the fashion
industry:
“There are two approaches in fashion right now. One is what Zara and H&M are doing, which
is to reduce the time to market. This is pure process and they have been very successful. The
other way is what I call the Italian way, which is a company like Dolce & Gabbana. I don’t
know why but for some reason, they are able to know what people want in the future. How
do they do it? It’s a mystery. They have something inside and it’s what I call ‘the magic.’ We
need that magic at Ducati.”
The Hypermotard was also an example of Ducati using
online surveys and a personal blog that Minoli himself
had set up to gain feedback. In the online survey,
Ducati received 28,000 responses, many from owners
of KTM off-road bikes. On the blog, Minoli asked
directly for feedback on the initial design and style.
Minoli stated: “many people blasted me for setting up
a blog and asking for direct feedback like that, but my
point is that it’s a community and we have to build it
together.”
Ducati Corse Racing
The company saw its participation in professional motorcycle racing as one of its most
important initiatives. The company talked about the importance of racing in its annual report:
“The performance of Ducati motorcycles on international professional racing circuits helps to
sustain and increase demand for Ducati’s products. Racing increases the visibility of Ducati
motorcycles through media coverage of the races and serves as a practical demonstration of
the high-performance characteristics of Ducati motorcycles. Our racing program also supports
Source: Company documents.
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12 IESE Business School-University of Navarra
our research and development function, as many features designed specifically for improving
performance on the racetrack are later introduced into production Ducati motorcycles.”28
The company managed its racing teams and the manufacturing of specific motorcycles in
competitions under the separate company Ducati Corse SRL (spun off in 2005). Ducati
competed actively in the World Superbike Championship, clinching 13 manufacturers’ titles
since 1990 and winning more single race victories than all other manufacturers combined.29
In 2003, the company re-entered the Moto Grand Prix Championship for the first time since
the 1970s and finished second-place amongst manufacturers.30
Accessories and Spare Parts
Ducati sold approximately €29 million of accessories and spare parts in 2005 to support the
existing fleet of 350,000 Ducati motorcycles. In 2004, the company outsourced the logistics
and storage of the spare parts business in Europe and the U.S. to reduce costs.
On average, owners that purchased a new Ducati motorcycle spent €1,600 within the first six
months and up to €3,000 for the top of the range bikes. The most common accessories that
were purchased within the first six months were carbon components, special mudguards,
aluminum chain guards and exhaust systems by Termignoni. Lucio Attinà, director of Ducati
Community, stated:
“Accessories are twice as profitable as motorcycles on the basis of margin. We are equal to
Harley Davidson in terms of the amount of accessories that we sell to Ducatistis. We would
like to offer accessories so that Ducatistis increase the customization of their bike to between
€1,000 and €3,000 at the time of purchase. Then, we hope that the customization will
continue within the first six months with expenditures of another €2,000.”
Apparel
As of 2006 the company collaborated with other well-known apparel brands like Oakley, Dainese
and Suomy to produce Ducati-branded suits, jackets, gloves, boots, helmets and other gear.31
Ducati also licensed its logo and name for a wide-range of products including other apparel,
umbrellas, video games, toys, model replicas and publishing.32 During the business decline from
2002-2005, Ducati had experienced growth in apparel sales. Attinà pointed to Ducati’s
participation in the Moto Grand Prix for widening the appeal:
“For the Superbike championship, a lot of the people that attended were Ducati riders. The
difference is that with the Moto Grand Prix, there are a lot of people that are big Ducati
fans even though they ride scooters. But, they buy Ducati keychains, T-shirts and leather
jackets because they aspire to ride a Ducati.”
28 Ducati Annual Report, www.sec.gov, 20-F, December 31, 2004, p. 33.
29 Ibid., p. 34.
30 Ibid.
31 Ducati Annual Report, www.sec.gov, 20-F, December 31, 2004, p. 27.
32 Ibid.
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Marketing
The company had a number of marketing initiatives, all of which were aimed at broadening
the appeal of the “World of Ducati.” Ducati did not invest in paid advertising to the general
public and only placed ads in select motorcycle publications. Minoli explained the rationale:
“The idea with tribal advertising is that you don’t do major advertising. It comes with the
dream and it comes through with the racing. Traditional advertising under this approach is
blatantly wrong. We are in 60 countries and we will never have critical mass. A lot of people
here will disagree with me, but they also don’t understand the concepts of reach and
frequency. If you have an ad with no frequency, it’s wasted money.”
Ducati supported enthusiasts’ clubs and relied upon media coverage, events and racing to
support the brand name. There were 27 local Ducati clubs around the world in 1998, while in
2005 they had risen to almost 200, totaling an approximate figure of 50,000 members. Ducati
established the D.O.C. (Desmo Owners Club) as an umbrella organization to contact the
individual clubs and encourage participation in company-related events. One such event was
World Ducati Weekend, first hosted at the company museum in 1998 attracting 10,000 Ducati
fans. In 2005, the event attendance had risen to over 50,000.
Ducati’s museum and factory tour was another hallmark of the Ducati experience, where
visitors could see Ducati’s complete history. The museum had attracted over 500,000 people
since its opening in 1998. Lodi stated: “Some visitors have told me it’s like visiting Willy
Wonka and the chocolate factory! You can create Ducati fans by showing them the museum
and factory.”
The company also offered formal motorcycle training sessions under the name of Ducati Riding
Experience. In 2005, the company trained 1,300 individuals in the formal course. Other
events included: the Motogiro d’Italia, a tour of Italy on vintage Ducati bikes; the Centopassi,
a race through the Alpine mountains; and the Desmo Challenge, a competition for male and
female riders.
Other associations with the Ducati brand included art, design, luxury shows and fashion through
participation in museum exhibitions, select brand placement (a Ducati was used in coordination
with the launch of Zegna’s new cologne) and feature films (the Ducati Monster Dark was used in
the film Catwoman). Famous celebrities including Tom Cruise, Brad Pitt and Lyle Lovett had
made their affection for Ducatis publicly known. As Patrizia Cianetti, the head of Marketing and
Ducati.com stated: “We don’t actually give the bikes away to celebrities. They choose Ducatis
because they like them.”
Ducati.com
In addition to Ducati.com, the company had eight country-specific websites (Ducati.fr,
Ducati.de, Ducati.es, etc.). All Ducati websites strove to provide complete information on model
specifications while also allowing visitors an impression of a virtual tour of Ducati’s world
headquarters in Bologna. Since the web’s inception in 2000, the company had sold 3,000
custom bikes that were only available online. The company had 10 million unique visitors in
2005 and a database of 200,000 Ducati riders. Ducati frequently used its database to contact
riders through email, forums or Minoli’s personal “Desmoblog” to carry out questionnaires on
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14 IESE Business School-University of Navarra
new product developments and user satisfaction. Each year, the company conducted between
three and five surveys, with the last questionnaire about the Hypermotard bike generating a
record 28,000 responses. Cianetti talked about the value of Ducati.com:
“The website gives us a great communication and relationship opportunity with the Ducati
community. In the future, I’d like to do more with the concept of connecting different
networks of people and having microhubs within those. Perhaps something like meetup.com.
From an aesthetic point of view, we often look to Italian fashion websites.”
Minoli talked about the opportunities with the Internet:
“We’ve actually been able to measure the influence of the Moto Grand Prix on the Internet.
It has increased the dream. We have 10 million unique visitors on our website – that’s a
huge dream! We have 350,000 bikes, so we must be able to do something with those people
who have the dream.”
Sales and Distribution
Ducati’s sales network was divided between 800 multi-franchise distribution points in
61 countries and 151 independent mono-franchise Ducati retail stores in select markets such as
London, Vienna, Cape Town, Sydney, Hong Kong, Seattle, Paris, Tokyo and Frankfurt.
On the wholesale distribution side, the company sold its motorcycles through wholly owned
subsidiaries in North America, Germany, France, Benelux/Scandinavia, the United Kingdom
and Japan. Ducati’s management believed that wholly owned subsidiaries that managed
wholesale sales in foreign markets offered several benefits: direct contact with the end
consumers; more control over marketing initiatives; and, more flexibility to redirect products
throughout various distribution points.
In Italy and other countries, the company sold through a network of independent dealers.
Ducati had reduced the number of Ducati dealers from 165 in 1996 to 59 in 2005 in Italy, with
the intent of focusing on the strong performers and offering enhanced marketing and
merchandising support. Most of the Italian dealers sold only Ducati in a Ducati-store format.
Ducati encouraged dealers to invest in and upgrade the look and feel of the dealerships to
support the brand experience. The company was in the midst of restructuring the dealer
network in France, Germany and the UK by using a similar approach to that taken in Italy.
In the U.S., the company was working to improve the quality of distribution points through a
combination of Ducati-dedicated shops in select markets and multi-franchise dealerships
offering high-end European brands. The major challenge in the U.S. market was seen to been
the minimum required number of motorcycles necessary to make a single-brand outlet
profitable. Ducati management predicted that 200 bikes per year would need to be sold per
distribution point to make it profitable. The infrastructure costs of setting up the back office
of the distribution points in the U.S. was estimated to be $7 million. To share the costs of
setting up distribution points, Minoli had proposed that European brands band together to have
both a joint back office, which he estimated to cost $10 million if shared by three to five
brands, and a multi-franchise distribution point. He stated to the press:
“The reality is that none of the European brands have enough volume in the U.S. to be
represented by a network of single-line dealers. My idea is that Europeans should do
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something together in the U.S. The U.S. is such a fragmented and big market and because
the Europeans each have a very small share of that market they should team up and offer
The House of European Motorcycles and split the overheads and give to whoever does not
want to buy Japanese the choice of all the European brands… Of course, if Ducati had the
volume that Harley or Honda has in the U.S., I would not even dream of proposing what
I’m proposing.”33
Production
Located outside of Bologna, Italy, Ducati’s manufacturing facility consisted of 360,000 square
meters and had 1,000 employees. The factory was responsible primarily for engine and motorcycle
assembly and the machining of crank cases and cylinder heads. In 2005, the facility produced a
total of 35,000 finished bikes. Daily output ranged from 120 to 160 bikes with one shift and
approximately 250 working days per year. The production facility followed the Toyota Production
System, which had been implemented by Porsche Consulting in 1997. The Toyota production
principles called for “lean” manufacturing, including concepts such as kaizen (a method for just-
in-time raw materials to eliminate inventories) and statistical quality control.
On average, a motorcycle had 1,400 parts. The majority of parts and components were
outsourced to third parties. 80% of the value of outsourced parts34 was supplied by Italian
manufacturers and the top ten suppliers accounted for 45% of the value of all outsourced
materials.35 The company implemented a “platform” approach to 83 assembly groups whereby
key suppliers were responsible for a specific section of the motorcycle.36 The “platform”
approach had contributed to a reduction in the number of suppliers. Many components could
be sourced from multiple suppliers. Ducati aimed to have two suppliers for each component
and only relied on one supplier for hi-tech parts.37 Approximately 93% of the company’s cost
of goods sold were from parts and components and 7% was attributed to labor and research
and development. Ducati was in the midst of trying to build up suppliers in low cost areas such
as the Far East and India. Minoli commented:
“A bike has 1,400 components and there may be 20 parts that you don’t want to change.
Right now, 25% of the components come from this region, 50% come from other parts of
Italy and 25% from Japan for quality reasons – like electronics for example. However, there
is an opportunity for more global sourcing. An extreme example would be comparing a
fairing made in Florence, Italy for 82 euros and the same one made in Thailand for 8 euros.
However, other parts, may give you a reduction in costs of 20% maximum.”
33 Tom Roderick, “Moderating the negative: Ducati says Italy’s not all doom and gloom,” Dealernews, July 1, 2005, Volume 41;
Issue 8, p. 42.
34 80% refers to the monetary value of COGS. Later the case states that 75% of components came from Italy. 75% refers to the
number of actual components (1,400 X 75% = 1,050 components).
35 Ducati Annual Report, www.sec.gov, 20-F, December 31, 2004, p. 37.
36 Ibid., p. 36.
37 Ibid.
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Chasing the Magic into the Future
In preparing for the new investors, several options for a future growth plan had circulated
through Ducati’s management. Some had even predicted that the company in its current form
would be an attractive takeover target for companies in sectors outside of the motorcycle
industry, such as Bombardier or Red Bull.
Bombardier – Montreal, Canada
Bombardier was the largest manufacturer of railway equipment and systems in the world. It was
also involved in the production of aircraft, being the third largest producer of civil airplanes
behind Airbus and Boeing and the second largest business jet manufacturer. In addition to trains
and airplanes, the company had a vibrant recreational vehicle business including Ski-Doo and
Lynx snowmobiles, ATVs (all-terrain vehicles), and Sea-Doo jet ski watercraft.
in millions of euros (ending Jan 31st) 2005 2004 2003
Sales 12,151.7 12,906.4 14,314.3
Operating income 39.9 148.9 368.4
Net income after taxes (65.2) (118.0) (370.3)
Cash 1,806.8 980.0 630.9
Total assets 15,405.4 15,477.9 17,547.0
Long-term debt 5,296.7 4,887.5 5,332.0
Total liabilities 13,642.4 13,510.6 15,889.1
Employees 59,550
Source: Compiled by case writers from Hoovers.com.
Red Bull – Fuschl am See, Austria
Founded in 1987 by Dietrich Mateschitz, Red Bull was the worldwide leader in the energy
drinks category, dominating approximately 80% of the global market. Red Bull was available
in 120 countries and focused on five user categories that spanned all age groups: students,
drivers, clubbers, business people and sports people.38 While the Red Bull mark was well known
in clubs and stores, the company had closely associated itself with alternative and extreme
sporting events such as downhill skiing, snowboarding, cliff diving, street luge, paragliding,
and hang gliding. In 2004, the company purchased all of the assets of Jaguar’s Formula One
motorsport racing team and aimed to inject a youthful, fun spirit into the competition.
Privately Held Company
in millions of euros (ending Dec 31st) 2004
Sales 2,000.0
1- Year Sales growth 22.0%
Employees 1,850
Source: Compiled by case writers from Hoovers.com.
38 Claire Phoenix, “Red Bull – Fact and Function,” Softdrinksworld, Feb. 2001, p. 26-35.
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However, the immediate concern was inoculating the company to get back on a path of
sustainable and profitable growth. Minoli summarized his intentions:
“Ducati grew very fast from when we took over in 1996 to about 2001. On a worldwide basis
we went from 11,000 motorcycles per year to 40,000 motorcycles. Whenever you grow this
aggressively you definitely stretch the organization, and we have been retuning the company
in the past two or three years under difficult conditions. We have one more year of stability;
then we are planning to start growing again in an aggressive way… We will remain a niche
producer, loyal to the sports enthusiast. We do not want to grow to 100,000 units, that is not
our strategy.”39
39 Tom Roderick, “Moderating the negative: Ducati says Italy’s not all doom and gloom,” Dealernews, July 1, 2005, Volume 41;
Issue 8, p. 42.
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Exhibit 1
Global Motorcycle Industry Information
Global Motorcycle Market Share: % Share, by Value in US$, 2004
Honda 17.8%
Yamaha 10.0%
Harley-Davidson 9.6%
Kawasaki 9.6%
Suzuki 7.4%
BMW 2.6%
Ducati 0.7%
Other 42.2%
Total 100.0%
Ducati Relevant Market: Market Share % by units
Suzuki 25.0%
Honda 19.9%
Yamaha 18.6%
Kawasaki 14.0%
BMW 9.1%
Ducati 4.4%
Triumph 3.2%
Buell 1.5%
Aprilia 1.2%
KTM 1.3%
MV Agusta 0.5%
Source: Ducati Company documents.
2001 2002 2003 2004 2005E
United States Motorcycle Market Units (milions) 0.850 0.936 0.996 1.026 1.073
Value (US$ billions) 6.800 7.600 8.200 8.600 9.100
Europe Motorcycle Market Units (millions) 2.067 1.942 1.900 1.866 1.871
Value (US$ billions) 8.659 8.265 8.199 8.157 8.158
Asia-Pacific Motorcycle Market Units (millions) 15.700 17.400 18.600 20.300 21.600
Value (US$ billions) 9.600 10.300 11.00 12.100 12.900
Source: “Motorcycles in the United States”, Datamonitor, December 2005, p. 9 & 10. “Motorcycles in Europe”, Datamonitor, 2005, pp. 9 & 10. “Motorcycles in Asia-Pacific”, Datamonitor, 2005, pp. 9 & 10.
Source: “Global Motorcycle Manufacturers”, Datamonitor, 2005, p. 13.
Note: The above market share refers to the total market value in US$ of motorcycles over 100cc. This does not refer to units. Ducati’s share is the case writers’ estimate.
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Exhibit 2
Information on 'BRIC' Countries
Motorcycle Sales
Value in US$ (millions)
2001 204.4 189.5 1,700.0 5,500.0 2,250.7 6,800.0
2002 195.0 209.0 2,100.0 5,900.0 2,097.3 7,600.0
2003 192 231.9 2,500.0 6,100.0 2,090.5 8,200.0
2004 199.5 263.6 2,900.0 6,800.0 1,986.9 8,600.0
2005 (e) 207.9 304.8 3,200.0 7,300.0 1,894.5 9,100.0
Units (thousands)
2001 107.9 95.3 4.300,0 10.300,0 594,0 850,0
2002 98.5 98.1 5.100,0 11.200,0 558,4 936,0
2003 99.9 106.4 5.600,0 11.800,0 525,6 996,0
2004 105.4 117.4 6.500,0 12.600,0 482,6 1.025,9
2005 (e) 109.0 128.8 7.200,0 13.300,0 467,0 1.073,0
Source: CIA World Fact Book, www.cia.gov , Accessed May 12, 2006, by country.
Global income per capita Growth taken from: http://www.finfacts,com/biz10/globalworldincomepercapita,htm , Accessed July 15, 2006.
HNWI information from "World Wealth Report", Capgemini and Merrill Lynch, 2004, p. 31.
Motorcycle information from Datamonitor Reports, by country, Motorcycles, pp, 9 & 10 of each report, December 2005.
in US $ Brazil Russia India China Italy U,S,
People
Population 188,078,227 142,893,540 109,535,1995 1,313,973,713 58,133,509 298,444,215
Age structure
0-14 years old 25.8% 14.2% 30.8% 20.8% 13.8% 20.4%
15-64 years old 68.1% 71.3% 64.3% 71.4% 66.5% 67.2%
+65 years old 6.1% 14.4% 4.9% 7.7% 19.7% 12.5%
Median age 28.2 years 38.4 years 24.9 years 32.7 years 42.2 years 36.5 years
Population growth % 1.04% -0.37% 1.38% 0.59% 0.4% 0.91%
Economic
GDP Growth rate 2.4% 5.9% 7.6% 9.3% 0.1% 3.5%
GDP/capita 8,400 10,700 3,400 6,300 29,200 41,800
Global income per capita growth rate (03-04) 12.0% 30.7% 14.8% 17.3% 21.1% 9.3%
GDP by sector
Agriculture 10.0% 5.0% 20.6% 14.4% 2.1% 1.0%
Industry 39.4% 35,0% 28.1% 53.1% 28.8% 20.7%
Services 50.6% 60,0% 51.4% 32.5% 69.1% 78.3%
Distribution of family income: Gini Index* 59.7 40,00 32.5 44,00 36,00 45,00
Number of high net worth individuals (HNWI)** 80,000 84,000 61,000 236,000 not avail. 2,272,000
HNWI growth rate - 1 year 6.0% 5.0% 22.0% 12.0% not avail. 14.0%
HNWI as % of total population 0.04% 0.06% 0.01% 0.02% not avail. 0.76%
* The Gini Index measures the inequality of a distribution - 0 is perfect equality (everyone has the same income)
and 100 is perfect inequality (one person has all the income).
** High net worth individuals (HNWI) are defined by those who hold over US$1 million in financial asset wealth.
Comparisons
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Exhibit 3
World of Ducati
Source: Company documents.
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Exhibit 4
Ducati's Price Premiums vs. Competitors' Comparable Products
Year Hyper-Sport Super-Sport Sport-Touring Naked Dual
1997 31.0% 8.0% 30.0% 13.3%
2001 31.4% 7.2% 20.4% 13.0%
2006 E 33.9% 8.0% 20.0% 28.4% -11.6%
Source: Company documents.
Exhibit 5
Ducati Motor Holding S.p.A. Financials (€ millions)
1997 1998 1999 2000 2001 2002 2003 2004 2005
Revenues 195.6
240.1
294.5
379.5
362.4
366.7
344.0
363.4
320.8
EBITDA
33.4
46.5
50.8
60.0
78.5
59.2
45.2
36.4
(0.3)
EBIT
16.4
27.3
26.4
30.4
25.6
14.7
4.3
(4.5)
(33.6)
Net income
2.7
(1.2)
8.9
10.5
2.0
(3.0)
(5.4)
(3.5)
(41.5)
Source: Company documents.
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Exhibit 6
Ducati Motor Holding, S.p.A. – Performance Details
2004 2005 Ch %
Net Revenues (in euros)
Motorcycles 284,566 247,236 -13.1%
Spare parts, accessories, apparel 73,191 70,397 -3.8%
Other 5,602 3,215 -42.6%
Total 363,359 320,848 -11.7%
Motorcycle Shipments (in Units)
North America 5,298 7,070 33.4%
Main European Market 21,862 18,158 -16.9%
Japan 2,351 2,575 9.5%
Rest of World 7,049 6,733 -4.5%
36,560 34,536 -5.5%
Motorcycle Product Mix (in Units)
Superbike 10,213 6,094 -40.3%
Supersport 1,426 1,030 -27.8%
Sport Naked 18,026 16,585 -8.0%
Sport Touring 2,997 1,397 -53.4%
Multistrada 3,898 6,156 57.9%
Sport Classic - 3,274
36,560 34,536 -5.5%
Unofficial Motorcycle Registrations (in Units)
North America 5,600 7,040 25.7%
Main European Market 21,752 18,961 -12.8%
Japan 2,914 2,754 -5.5%
Rest of World 5,621 5,876 4.5% 35,887 34,631 -3.5%
Source: "Ducati Motor Holding Announces 2005 Full Year Results," PR Newswire, February 15, 2006.
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Exhibit 7
Ducati Motor Holding S.p.A. Stock Performance - Milan Stock Exchange
Source: BigCharts.com, Accessed May 26, 2006.
Exhibit 8
Production Statistics
2000 2001 2002 2003 2004
Volume produced units 39,549 40,665 41,392 36,661 35,538
Plant efficiency1 n/a 0.935% 0.942% 0.956% 0.957%
# of bikes produced/# of employees units 80.4 87.1 89 89.5 98.2
# of bikes produced/# direct employees units 84.5 91.8 105.6 107.2 112.8
Throughput time hours 14.5 10.5 10.3 10.2 10
WIP stock days 4.7 4.1 4 3 2.9
Material stock days 31.2 27.9 23.1 27.4 20.3
1 Plant efficiency equals the ratio between the total human hours spent at producing versus the total amount of hours of presence in the company.
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Exhibit 9
Entry Bike Strategy
Source: Company documents.
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Exhibit 10
Product Lines
Superbike The Superbike was Ducati’s flagship motorcycle and
was used in high profile races such as the World Superbike
Championship. The first Superbike was introduced in 1987 and
the company had gone on to release subsequent models such as
the award-winning 916 and the 748. From 2001 to 2005, the
company had replaced the 916 with the 996 and had introduced
a total of five new superbikes. Each subsequent model typically
had greater aerodynamics and a more powerful engine than its
predecessors.40 All motorcycles within the Superbike category
could reach speeds over 250 kilometers per hour and were
recognizable for their compact and slim design. 41 In 2005,
Ducati released a new Superbike design, which had a new front fairing, front shield and new mudguard, substantially
changing the look of the bike from prior models.42 Top Superbike models sold for between €17,000 and €32,000.
The category sold a collective 6,094 units in 2005, representing 17.9% of the company’s unit sales, down from
27.9% in 2004. Due to the high value of the bikes, the category made up 30% of the company’s revenues in 2005.
Super Sport The first Ducati Super Sport offering emerged in
1973. Super Sport bikes were lightweight, allowed for
delicate handling and were equipped with a two-valve twin
engine lovingly called the “Pompone” (“strong pump” in
Italian) by Ducatistis.43 The company expanded the category
to range from 750cc to 1000cc engines with its most popular
color being the matte black 750cc and 900cc versions. In
2004, the company eliminated all models in Super Sport
except the 1000cc due to soft demand and sales declines.44 As
of 2006, Super Sport bikes sold for between €9,000 and
€10,800). The company sold 1,030 units in 2005, making up
3.0% of total sales.
Sport Naked/Monster The Monster hit the roads commercially in
1993. The aim was to offer a stripped-down bike for the urban
rider with the performance of a sports bike.45 The Monster did
not have any fairing, leaving its engine exposed for a “bare”
aesthetic. Ducati had brought out over 15 variations of the
Monster since 1993 including the Monster City for commuters,
the Monster Dark for younger consumers and the premium priced
Monster Chromo. 46 Monsters sold for between €7,500 and
€14,500. The category accounted for 48% of total motorcycle unit
sales in 2005.
40 Ducati Annual Report, www.sec.gov, 20-F, December 31, 2004, p. 24.
41 Ibid.
42 Ibid.
43 Ibid.
44 Ibid, p. 25.
45 Ibid.
46 Ibid.
Ducati: In Pursuit of Magic (A) DG-1507-E
26 IESE Business School-University of Navarra
Exhibit 10 (Continued)
Sport Touring Ducati launched the Sport Touring line in
1997. The category was targeted towards customers who
wanted the performance of a Ducati combined with a more
upright seating arrangement for longer rides.47 The Sport
Touring also included a passenger seat and two side bags. The
products were priced between €11,200 and €12,700. As of
2005, the Sport Touring category accounted for 4.0% of unit
sales (1,397 units), down from 8.2% (2,997 units) in 2004.
Multistrada Ducati introduced a prototype of theMultistrada in
2001 and the first bike rolled off the production line in 2003.
The Multistrada category was a multipurpose sportsbike with
an upright seating position and a powerful 1000cc engine.48
It was priced at approximately €12,000. The company
increased its unit sales from 3,898 units in 2004 to 6,156 units
in 2005. The category accounted for 17.8% of total unit sales.
Sportclassic Announced in late 2003, the Sportclassic line
became available in 2005. The intention of the line was to
recreate the splendor of past “retro” bikes with modern
technology. Ducati released the line after multiple requests and
online research conducted with Ducati enthusiasts. The first bike
in the category was the Paul Smart 1000 Limited Edition, a bike
inspired by the 750 Super Sport that rider Paul Smart rode to
victory in the Imola 200 race in 1974.49 The bikes sold for
between €10,000 and €14,500. In its first year, Ducati sold 3,274
units in the Sportclassic category, making up 9.5% of the
company’s unit sales.
Source: Company documents
47 Ibid.
48 Ibid.
49 Ibid., p. 26.
Ducati: In Pursuit of Magic (A)
DG-1507-E
27 IESE Business School-University of Navarra
Exhibit 11
Competition
Suzuki – Japan (Date Founded: 1909). Sales in 2005: US$21,995.1 million. 1-year sales increase:
5.7%. Employees: 13,760. Suzuki Motor Corporation manufactured small cars, outboard motors,
scooters and motorcycles. The company competed in all categories with engine sizes ranging from
400cc to 1400cc. Prices ranged from €6,000 to €14,000 for sportbikes in Europe. Suzuki was heavily
involved in racing, participating in all of the major motorcycle events. It had won seven World
Championship manufacturer titles and five individual titles since it began entering motorcycles in
the World Grand Prix in 1960.50
Kawasaki – Japan (Date Founded: 1896). Sales in 2005: US$11,544.3 million. 1-year sales increase:
5.1%. Employees: 28,682. Kawasaki Heavy Industries was involved in the manufacturing of ships,
submarines, industrial plants, tractors, trains, industrial robots, military aircraft, jet engines,
satellites and aerospace components. With its cut-line, “Let the good times roll,” the company’s
consumer products included ATVs (all-terrain vehicles), water craft, utility vehicles and
motorcycles. Prices ranged from €4,500 to €13,500 for sportbikes. Adorned in bright green, the
Kawasaki team had won nine superbike championships and seven supersport contests within
the road racing team.51
Yamaha – Japan (Date Founded: 1887). Sales in 2004: US$9,657.8 million. 1-year sales increase:
14.2%. Yamaha Motor Co. was partially owned (23%) by Yamaha Corporation – the musical
equipment manufacturer. Yamaha Motor Co. made motorcycles, ATVs, recreational boats,
snowmobiles, golf carts, helicopters, electro-hybrid bicycles, generators, motors and motorcycles.
The company held the number two position for its motorcycles and scooters in its native Japan,
behind Honda. Retail prices for sportbikes ranged from €7,500 to €15,500. Yamaha’s racing team
had been led by racer Valentino Rossi to capture the Moto GP championships in 2004 and 2005.
Honda – Japan (Date Founded: 1948) Sales in 2005: US$80,705 million. 1-year sales increase: 3.2%.
Employees: 137,827. Honda was the world’s largest manufacturer of motorcycles. The company also
made a full line of automobiles, ATVs, watercraft, electrical generators, marine engines, and lawn and
garden equipment. The company had models in every category of the motorcycle and scooter market.
The price ranged between €5,500 and €16,000 in Europe for the majority of sport bikes. The
company’s racing team, known as “Honda Red Riders,” competed in all segments of off-road,
motocross and road racing. Honda’s road racing team had clinched 14 titles in the Grand Prix 500cc
segment and five number one finishes in the World Superbike championship.52
BMW – Germany (Date Founded: 1913). Sales in 2005: US$55,254.7 million. 1-year sales decrease:
(8.6)%. Employees: 105,798. BMW (Bayerische Motoren Werke) was one of Europe’s most prominent
automobile and motorcycle manufacturers. 60% of its sales were derived from car sales. The company
sold approximately 95,000 motorcycles around the world as of 2005. BMW competed in the touring,
cruiser, performance and off-road segments. BMW had a reputation for innovative designs and
components and was often touted as being reliable, comfortable and safe. Prices were between €8,000
and €21,000 depending on the model.
50 Suzuki Website, http://www.suzuki-motogp.com/pages/common/crescent.aspx?art=20, Accessed May 26, 2006.
51 Kawasaki Website, http://www.kawasaki.com/motorsports/road_racing.asp, Accessed May 26, 2006.
52 Honda Red Riders Website, http://www.hondaredriders.com/roadracing/racinghistory.asp?bhcp=1#Series5, Accessed May 26, 2006.
Ducati: In Pursuit of Magic (A) DG-1507-E
28 IESE Business School-University of Navarra
Exhibit 11 (Continued)
Triumph – United Kingdom (Date Founded: 1936) Known as “British Steel,” Triumph Motorcycles
had been revived in 1991 after going bankrupt ten years earlier. The company focused solely on
motorcycles, which were equipped with liquid-cooled, three- or four-cylinder engines ranging from
650cc to 2,294cc. The company emphasized its nostalgic engine technologies and frame design.
Prices ranged from €8,000 to €18,000.
Piaggio (Aprilia & MotoGuzzi) – Italy (Founded: 1884) Piaggio Sales in 2005: €1,451.8 million.
Sales increase: 25.3% mostly due to Aprilia acquisition. Aprilia’s sales in 2005: €351 million.53
Piaggio manufactured scooters under the Piaggio, Vespa, Gilera, and Aprilia brands and
motorcycles under Aprilia, MotoGuzzi, Laverda and Derbi brands. The Piaggio Group was controlled
by an industrial and property holding company called Immsi S.p.A., which was listed as a public
company. Aprilia’s bikes ranged from 125cc to its 1000cc flagship RSV Mille. Aprilia actively
competed in both the off-road and sports segments. The company had been victorious in several of
the smaller engine category motorcycle racing championships since it began participating in
1985.54 Prices for Aprilia sportbikes ranged from €7,000 to over €17,500. MotoGuzzi competed
largely in the Touring and Cruiser segment with average prices between €7,500 of €14,000 (with
one product at €24,000).
MV Agusta (MV Agusta, Cagiva & Husqvarna) – Italy (Founded: 1907) Originally established as
an airplane manufacturer in 1907, the company released its first motorcycle in 1945 and became
known for its high quality racing bikes during the 1950s. The company stopped producing
motorcycles during the 1980s, and in the 1990s the MV Agusta brand was resurrected by the
Castiglioni family’s Cagiva Group (former owners of Ducati). Husqvarna, an off-road motorcycle
brand was included under the umbrella from its native home of Sweden. In 2004, the company was
loss-making and was sold to Malaysian industrial and car manufacturing group Proton for €70
million, only to be sold a year later to an Italian investment group for a token euro. The company’s
flagship bike was the Brutale and was priced similarly to Ducati’s range between €8,000 and
€15,000. In 2005, MV Agusta released the Tamburini after designer Massimo Tamburini, who had
worked at both Moto Guzzi and Ducati to great acclaim in the motorcycle community. Cagiva
produced bikes between 125cc and 1000cc that aimed to balance style, technique and price.
Husqvarna made off-road bikes only in the 250cc, 450cc and 510cc range and sold between €3,000
and €10,000+. The Husqvarna name boasted 42 world titles.55
53 Piaggio Group Website, http://www.piaggiogroup.com/_vti_g2_nwArt.asp?rfrsh=8548657&idnews=99, Accessed May 26, 2006.
54 Aprilia Website, http://www.racingaprilia.com//campioni.asp, Accessed May 26, 2006.
55 MV Agusta Website, www.mvagusta.it, Accessed July 15, 2006.
Ducati: In Pursuit of Magic (A)
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29 IESE Business School-University of Navarra
Exhibit 11 (Continued)
KTM – Austria (Date Founded: 1934) Kronreif, Trunkenpolz, Mattighofen (KTM) manufactured on
and off-road motorcycles and was best known for its dominance in supplying motorcross bikes for
the off-road Dakar Rally. The company sold approximately 80,000 motorcycles per year and its
engine designs were based on either the LC4 (a single-cylinder, four-valve, liquid-cooled engine)
or the LC8 (eight-valve, two-cylinder, 75 degree V-twin, liquid-cooled engine). Engine size ranged
from 400cc to 999cc. Prices of KTM off-road motorcycles ranged from €3,000 to +€10,000. In 2004,
the company forged an agreement with Polaris Industries, a U.S.-based company that manufactured
Victory motorcycles, ATVs, watercraft, snowmobiles and ranger Jeeps. The partnership was aimed
at expanding the reach of both businesses – Polaris products in Europe and KTM in North America.
In 2005, Polaris purchased 24% of KTM for €66.6 million.56
Harley-Davidson – United States (Date Founded: 1903) Harley-Davidson was generally considered
to be one of the most profitable motorcycle manufacturers in the world. It was the largest U.S.
motorcycle manufacturer and held 48.9% of the U.S. heavyweight motorcycle segment (defined by
bikes over 650cc).57 In 2005, the company’s revenues increased by 6.5% to US$5.34 billion from
the prior year. The increase was due to an increase in unit sales (329,017 shipments of motorcycles)
and a favorable mix. The company was targeting a volume between 348,000 and 352,000 units in
2006. The company had 33 models across five product groups: Sportster, Dyna, Softail, Touring
and VRSC. Each design was primarily in the touring and cruiser segment. Engine sizes ranged
between 883cc and 1690cc. Retail prices in the U.S. ranged from $6,595 to $20,685 and in Europe
from €8,000 to over €31,000. The average Harley-Davidson consumer was in his mid-forties, had
a household income of $83,000 and used the motorcycle for recreation.58 In 1998, Harley-Davidson
entered the sports segment with its acquisition of Buell Motorcycle Company. As of 2006, Buell
manufactured and sold seven heavyweight models and one lightweight called the Blast.
Buell motorcycles were equipped with engines ranging from 984cc to 1203cc and were air-cooled,
twin-cylinder engines in a 45-degree “V” formation. Prices ranged from $8,695 to $11,495, with
the exception of the Blast, which was 492cc and sold for $4,965.59 Like its parent, Buell also had a
full line of accessories and related products.
56 “Polaris, KTM in $80 million deal,” Powersports Business, July 25, 2005 issue, http://www.allbusiness.com/periodicals/article/494610-
1.html, accessed May 26, 2006.
57 Harley-Davidson Annual Report, www.sec.gov, 10-K, December 31, 2005, p. 3.
58 Ibid., p. 4.
59 Ibid.