BS3100 – Strategy for Business

Week - 5

Module Leader: Dr. Senem Aydin

Ducati: In Pursuit of Magic
Case Overview

■In January 2006, Federico Minoli is about to request a

capital increase of €80 million from the company’s
shareholders to restructure and plan for the future
■While Minoli led a dramatic turnaround of the company from
1996 to 2001, the results in the last five years have been
relatively stagnant, with revenues declining slightly
■In 2005, the company experienced an EBITDA loss
■Now, Minoli needs to formulate and articulate a strategic
plan both for the short- and long-term
Ownership Structure
 World Ducati Week

■An event that gathers the Ducati

fans at the Misano circuit

■The event gathers numerous

enthusiasts with their bikes and
includes various on and off-track
events

■An important event for the fans,

as they can be in close contact
with the riders, mechanics and
the Ducati employees

https://www.youtube.com/watch?v=jKHHnE1KCDg
What do people actually buy when they own a
Ducati motorcycle?
Tangibles Intangibles
Racing/sport motorbikes Dream
Speed and performance Freedom
Power of motorcycles Sex appeal
Sound Italian heritage
Italian engineering and design Red image
Prestige
Link to racing past
Access to community
Thrill and Adventure
Iconic status
 REVENUES AND EBITDA - DUCATI (€MILLIONS)
Revenues EBITDA
400
379.5
362.4 366.7 363.4
350 344
320.8
300 294.5

250
240.1

200 195.6

150

100
78.5
50 50.8 60 59.2
46.5 45.2
33.4 36.4
0 -0.3
1997 1998 1999 2000 2001 2002 2003 2004 2005
-50
Exhibit 6
 REVENUES AND EBITDA - DUCATI (€MILLIONS)
Revenues EBITDA

400
379.5
362.4 366.7 363.4
350 344
320.8
300 294.5

250 240.1 The “Turnaround” The ”Next” Era

200 195.6 1996-2001 2001-2005
150

100
78.5
50 50.8 60 59.2
46.5 45.2
33.4 36.4
0 -0.3
1997 1998 1999 2000 2001 2002 2003 2004 2005
-50
Exhibit 6
Discussion Question - 1
■How has Ducati created and captured value focusing on the
role of internal resources over the last ten years (1996 to
2006)?
Value Creation: 1996 - 2001
World Ducati Week in
2018
■Record turnout for the tenth
edition
■91,596 Ducatisti attended
■Exceeded the previous record of
81,000 attendees set in 2016 by
13%
■60% of the riders were Italian,
the remaining 40% represented
73 countries
■Discounted day pass for 18 to
25 years old (40%)
 STRATEGY
=
VALUE
VALUE CREATION
CAPTURING
(for customers)
(uniqueness/
scarcity)
Value Creation
The total value created by a transaction is the
difference between the customer’s willingness to
pay and the supplier’s opportunity cost

 the perceived benefit to the customer

The concept of value creation says nothing about

the profit
 Value Creation: 1996 - 2001
Willingness-to-pay Reducing Costs

Invested in intangibles: • Outsourced a greater portion of their

• Museum Experience
• World of Ducati
• Community
 Strengthening the brand name
Invested in tangibles:
parts (1996: 80%; 2001: 90%)
• Shift to platform production with key
suppliers being responsible for
motorcycle parts
• Standardisation of parts
• Reduced number of suppliers

• R&D
• Racing
• Decreased time to market

 Increased willingness-to-pay & reduction in costs  value creation

 The VRIN Framework
Competitive
advantage

Yes
Yes Yes Yes Non-
Costly to
Valuable? Rare? Imitate?
substituta
ble?

No No No No

Temporary Temporary
Competitive Competitive
competitive competitive
Disadvantage parity
advantage advantage

Adapted from Rothaermel, F. T., (2017). Strategic Management, McGraw-Hill Education; 3rd edition, p.113
Ducati’s VRIN Resources

■VRIN Resources:

■ Highly skilled engineering

■ Customer Loyalty

■ World of Ducati
From Value Creation to Value Capture
■Ducati has found ways to increase the WTP while reducing
the costs
 created value

■However, a company can create value without capturing any

of it
■e.g. when prices are lowered too much, more value is created
but not captured

■Increasing WTP is expensive

 So how did Minoli capture value (i.e. getting customers to
spend more money)?
 Value Capture: 1996 - 2001
■The pricing and cost structures must accommodate
sufficient value capturing. If the value created by a company
is not sufficiently captured, there is no long-term viability of
the offering

■The selling price minus production costs determines the

amount of value that is “captured” by Ducati— that
contributes to the firm’s profits
Producer Surplus

■The difference between what the consumer would have

been willing to pay and the price:
Consumer Surplus
 Value Capture: 1996 - 2001

■Offering entry models in all categories of motorcycles

■Following a concept of lifetime customer
From beginner model towards premium segment
■Offering limited edition models at higher prices
■Increasing the sales of accessories and parts
■Releasing new models i.e. sports touring

But what did Ducati fail to do?

What did Ducati fail to do?
■Did not raise prices relative to competitors

 Growth phase in sales  the ‘Turnaround’

 Ducati captured the bulk of improvement in costs
 Customers captured a portion of the increase in value as well
 Consumer Surplus
Discussion Question - 2
■What went wrong in the following period of 2002 – 2006?
 What went wrong in the following period of 2002
– 2006?
Competition Internal Factors External Factors
• Competitors’ Product line and discontinuity in design • Market
entry-level (Superbike segment 999) slowdown
models are • Foreign
attacking • Superbike represented 70% of EBITDA Exchange Rate
Ducati’s value • 999 too radical from a design perspective
capture model
In the US, change of headquarters
 Mismanagement
 Lost all employees
Organisational: Change in management at the
top
Positive
New Multistrada model received strong sales
response  radical deviation

Increased accessory and apparel sales (20%)

Ducati Multistrada
Ducati - Competitive Advantage

■Competitive Advantage: Sell emotions

■Intangible assets:

■Heritage
■Community
■A dream
Decline and Problems from 2002 to 2006

■Customer Acquisition Model

Lower priced bike is competing with Japanese bikes with
superior technology

■Product Discontinuity
 999 failure to meet expectations

■Loss of volume in the US market

 Lost all employees
Discussion Question - 3
■What should Minoli do? What are the possible options for
Ducati to fix the immediate problems?
What are the possible strategic options?

■The cost level needs to improve, and Ducati management

believes that this can be achieved via global sourcing

■From the failure to replace the 998 with the 999, Ducati
learned to be less dependent on one product
■The best solution is to look for radical ideas by having external
designers pursue the “magic”

■Ducati already contracted a new manager for the US

business and has worked to restore the US distribution arm
What are the possible strategic options?

Scope Structure

• Geographic • Be Acquired
• Customers • Acquire a Brand
• Products

Activities
• Marketing
• Distribution
• Production
• Racing
• Alliances
Beyond the Case…

■£45m profit in 2017

■In 2017, almost 59,000 motorcycles were delivered (+0.8%
increase from 2016)
(2005: 35,000 | still a niche producer < 100,000)

■By the end of 2017, turnover had reached £653 million

increase in sales for the 8th consecutive year
sales have increased by nearly 30 per cent over the last
five years
2020 Ducati Streetfighter V4 with 208
horsepower at 178 kg
2022 Ducati Diavel 1260 S Black and Steel