Ducati feedback
Q1. I wanted you to begin by recognising that this was a turnaround situation, with Ducati in 1996 close to bankruptcy. A new management team led by Minoli changed strategy with clear objectives of aggressive growth within a niche of the sports segment and competing as a focussed differentiator. The logic of the turnaround can be conceptualised as follows
(a) Ducati reduced costs without affecting the WTP for the physical product (i.e. the quality and reliability of the product has increased despite reduced costs). Major reductions were in motorcycle material costs (from 68.2% to 59% of unit costs, exhibit 12) and can be attributed to the following factors: (1) rationalised suppliers from 200 to 130 with the effect of increasing the quality of suppliers and Ducati’s bargaining power (2)Ducati increased its outsourcing from 80% to 90% and thus tapped more the potential of the Emilian mechanical district (3) Ducati further increased its bargaining leverage by instituting dual sourcing for the major components of the motorcycle and adopted short-term contracts (4) Ducati enjoyed economies of scale by increasing output from 12000 bikes in 1996 to 39000 in 2000 (5) Ducati increased the standardisation of its products (parts) and thus increased the bikes produced per worker from 76 to 87 in 200 (14% increase) (exhibit 13).
(b) Ducati increased costs to boost WTP for the product’s intangible aspects (i.e. sport character, community, design, exclusivity, Italianess, tradition etc). The essence of the turnaround was the decision to focus on the intangible attributes while not compromising the physical ones. (1) Ducati increased fixed sales costs by creating the ‘world of Ducati’ and investing in Ducati owners clubs (increased sense of community), the museum (emphasised the sport character and tradition), targeted advertising and co-marketing initiatives