“We have to look which is the best ownership for Ducati. Either we find a way forward for Ducati, which provides some growth, some probably additional brands, or we have to look for new ownerships…I wouldn’t exclude that.”
Ever since Volkswagen CEO Herbert Diess said those words, I have been perseverating on their meaning. Many in the industry have taken Herr Diess to mean that Ducati is once again for sale, and that Ducati’s time within Audi AG is coming to an end.
As Diess says himself, we can’t exclude that possibility. But, what about the part of his statement that proceeds that notion?
How does one make Ducati Motor Holding more profitable? More sustainable? Better suited for the trends we are seeing in the motorcycle industry? In the changing world that transportation is facing?
How does the Italian company fit into all those questions marks, and more? This is the thought that has been burning a hole on my notepad recently, and I keep coming back to Diess’ thought that Ducati should have some additional brands.
The Problem with Being Single
Ducati is a strong motorcycle company. It offers a unique and powerful brand, which commands the top-tier of the motorcycle industry. The Italian outfit has been able to successfully move itself from being a superbike marque, to a brand that is comfortable building all sorts of motorcycles, though with some limitations.
That being said, Ducati’s Achilles heel is…well, Ducati. Not everyone wants an Italian motorcycle. Not everyone is performance focused. For as many strong attributes that the Ducati brand brings to a motorcycle, it also brings with it a history that some two-wheeled owners are just never going to look past.
Take for instance the Ducati Multistrada 1260 Enduro – a bike that I would argue is one of the best ADV machines on offer in the market – but in the fickle world of adventure riders, this “unreliable” Italian motorcycle will just never penetrate the minds that BMW and KTM built.
This is the problem when you create a hyper-focused brand, as owning a segment or niche means doing so at the peril of owning others. Ducati is the premier sport bike brand, but it also shouldn’t surprise us to see that Borgo Panigale is only a minor player in other segments – I again point to the adventure-touring segment for example.
This means that the fate of Ducati Motor Holding as a company is linked 1:1 with the Ducati motorcycle brand. A misstep by the marque means tough financials for the company.
Perhaps every short-term move isn’t a “bet the company” decision, but every choice made for the long-term certainly is, and that is a dangerous reality to face.
Like all good portfolios, diversification is key, and you make your bets on the aggregate, rather than the individual. A good example of this is Volkswagen itself, which owns a bevy of car and truck brands.
But while the German conglomerate has no shortage of four-wheeled endeavors, its foray into the two-wheeled space is limited, and as such it is vulnerable.
This is where I come back to Herr Diess, and his requirement for Ducati’s growth and stability. However, when I say “Ducati”, what really I mean to say is Ducati Motor Holding.
DMH Should Get Dirty, And Buy TM Racing
I will keep the key point of my article here short and sweet. Ducati Motor Holding should buy TM Racing.
While not one of the best known motorcycle brands outside of Europe (or should I just say Italy), TM Racing’s creations are dirt bikes for dirt biking connoisseurs.
As the name suggests, TM Racing focuses on the performance side of the category, and for a long time few brands could touch what this boutique Italian brand was bringing to the race track.
The motorcycle industry has caught up to TM Racing in many regards now though, but the brand is still strong, with an almost cult-like status. More importantly, the marque’s core values align perfectly with those from Ducati…oh, and it’s Italian.
The biggest thing holding TM Racing back is a mature dealership network, and the ability to invest in future engine/machine development – two things that Ducati could instantly bring to the table.
Imagine for a moment what a dirt bike from Ducati could be like, knowing the firm’s level of technology, building materials, and electronic wizardry.
House of Brands vs. Branded House
I want to get into why TM Racing is an ideal fit for Ducati Motor Holding in a second, but first I want to talk about a more basic concept, which goes to the core of corporate development strategy and multi-brand business.
The idea concerns whether a company should be a house of brands or a branded house.
For those not familiar with these terms, a great example of a house of brands would be Procter and & Gamble, which has too many brands to list, but you would recognize names like Gillette razor blades, Crest toothpaste, and Tide detergent.
As with many house of brand companies, all of these recognizable brands serve basically the same market for P&G, but do so with their own names, not the parent company’s.
This is the inverse of a branded house, where the parent company’s name is used in a multitude of ways, leveraging the brand from one use to the next. FedEx would be a good example of this, with its various shipping services that are all branded under the FedEx name (FedEx Express, FedEx Ground, FedEx Freight, etc).
In the FedEx example, all of the brands reinforce the FedEx name as being the go-to shipping company for all your needs…a sort of one-size-fits-all approach; whereas with Procter & Gamble, the company fills your needs with different brands (sometimes multiple brands in the same segment), which serve in very specific and focused ways.
The House That Ducati Built
To-date, Ducati’s marketing strategy has been to be a branded house. Its most prominent brand (beyond the Ducati brand itself) is the Scrambler Ducati brand, with the company name right there in the sub-brand’s marque.
The Diavel/XDiavel has also be positioned as its own sub-brand, though with less effort and more subtly. It also remains more attached to the main Ducati brand.
55,000 Ducati Scrambler models have been sold since the sub-brand’s creation in 2014, which is an impressive figure, but I still think you can argue that the brand has underperformed for the Italians.
The Diavel and XDiavel have been even bigger flops, selling only a fraction of the mammoth sized total available market that exists in the cruiser segment.
The reason for these lackluster results is simple: they are not Ducati motorcycles. The Ducati brand has been hyper-focused to mean a certain thing to two-wheeled buyers, and when a product steps outside those norms, it feels inauthentic.
This is the part of the sword that cuts both ways when it comes to owning a niche. The history of Ducati means that the brand owns the Italian sport bike space, without question, but the company struggles when it moves outside that realm.
The market has collectively scoffed at a machine like the Ducati Multistrada 1260 Enduro though, but what if the Ducati logo wasn’t on that bike? What if the same machine had come from BMW or KTM?
That is essentially the case when it comes to the BMW R1250GS or KTM 1290 Adventure S. So, why do these bikes resonate better in the marketplace?
The answer to that question is why a “house of brands” strategy is the better choice for a company like Ducati Motor Holding.
The Dealership Problem
Because of the unique way that we buy motorcycles, branding strategies for motorcycle companies carry a particular weight for motorcycle dealerships, especially in the United States.
The dealership is the single largest point of contact that a motorcycle brand has with its customers. Now, talk to your typical two-wheeled enthusiast about how they feel about going to the dealerships near to them, and you can begin to understand why this is a huge issue for motorcycle manufacturers.
Because of poor dealer interactions, we have seen savvy brands try to exert greater control over the dealers in their network. This is done by homogenizing the sales experience, training sales and service technicians, and rewarding good dealer behavior.
This has also meant a push by OEMs for single-line dealerships, which while beneficial for the manufacturer and customer, it is often a difficult pill for dealers to swallow.
The reason for this is two-fold. First of all, a dealership’s success will be tied to the fate of a single brand, and if that brand doesn’t haven’t a strong product lineup, it means the dealer is going to suffer for it.
Second, it means that dealer is tied to the segments that a brand enters, and this is the point that hits Ducati particularly hard.
At the end of the day, Ducati is a large-displacement street bike brand. It doesn’t offer any true dual-sports (apologies to the Enduro and Desert Sled), no off-road models, and except for the Scrambler Sixty2 (worst name ever), not a single bike is under 750cc.
Right there by focusing only on the big bike street segments, Ducati has created a brand that doesn’t compete in roughly 30% of the US motorcycle market (off-road/dual-sport). And by not offering smaller displacement motorcycles, Ducati leaves close to 40% of the US market on the table as well when you look at engine size.
When you examine the seasonality of the sport, and where the growth is in the industry, a brand like Ducati is asking a lot of its dealers when it comes to ignoring those markets, which is effectively what you are doing by becoming a single-line dealership.
All of this is a real problem, and we haven’t even gotten to the part where the Ducati brand touches only a very specific type of motorcyclist, which only again further alienates a dealership of potential sales from a would-be customer.
Get Surgical
Let me be really clear before we dive further down, I do not advocate for the dealership model that sees every brand under one roof.
Big box dealerships might be a one-stop shop for all things two-wheeled, but a duty owed to all is a duty owed to none, and it is these stores that do the most to propagate the negative dealership sentiment that most riders have.
But with that being said, there is an unquestionable amount of value to having a multi-brand dealership…but a multi-brand dealership doesn’t have to be a single-company dealership.
If Ducati was just one of several brands under the management of Ducati Motor Holding, the company could have its cake and eat it too: brands that own their niches, and a house of brands that own every niche. This is where TM Racing comes into play.
The Italian dirt bike company brings an off-road component that Ducati lacks…and quite frankly would have a difficult time creating.
For Ducati Motor Holding, this means more units sold, which means more revenue, which means the bean-counters are happy.
For the dealers though, it is an even more powerful acquisition, as it means that its sales floor is busy for more months out of the year (the dirt-riding season starting earlier, and last longer than the street-riding season).
It also means that a particular dealership can become the one-stop shop for a rider that enjoy a multitude of two-wheeled disciplines, which means a loyal customer isn’t getting wooed into a rival brand’s dealership – you know, one of those orange brands that has both dirt bikes and street bikes and likes to tout how it is “ready to race” all the time.
KTM’s success in the off-road segment (of which, it owns roughly half of the off-road sales in the United States) shows the market’s appetite for high-performance dirt bikes, and where there is a monopoly for sales, there is an opportunity to disrupt them.
The Elephant in the Room
I am of course not the only one thinking in these terms, as a Ducati acquisition of TM Racing wouldn’t look all that different from what MV Agusta is planning with the Cagiva brand.
MV Agusta is under the same pressure as Ducati – an Italian brand with a heritage in sport bikes. Rather than extend MV Agusta into segments unknown, but still recognizing the trends for smaller displacements, electrics, dirt bikes, Giovanni Castiglioni set out a plan to use the Cagiva brand to go where the MV Agusta brand could not.
This allows MV Agusta to be MV Agusta, and Cagiva to be something else, while at the same time providing the most value for MV Agusta Motor S.p.A – parent company of both brands.
For the Varesini house – a company that needs to expand its dealer network worldwide – it now has a stronger foothold as well. This is because it is easier to convince a dealer to take on a brand like MV Agusta, when it is getting the Cagiva lineup as well.
A full range of models, across all the riding segments and riding disciplines is a strong proposition for a dealer network developer to offer a potential dealer, and it is a component that Ducati Motor Holding sorely lacks.
With Cagiva, MV Agusta Motor can bolster its dealer network both in size but also in strength, and with TM Racing (and other brands), so could Ducati Motor Holding.
Evolve or Die
The motorcycle industry is staring down the barrel at very uncertain times.
A new generation of rider is starting to command attention; the thermic engines that we have loved for over a century are giving way to electrics and hybrids; how we own vehicles going forward is primed for disruption; and autonomous vehicles can up-end the very concept of transportation as we know it.
How does a brand like Ducati adapt to that changing landscape? Here is a better question: how does a brand like Ducati adapt to that changing landscape while still being “Ducati” in its actions? That’s a tougher path to follow.
It gets easier though if the Ducati brand isn’t the only brand shouldering the responsibility for Ducati Motor Holding, and this is where we come back to the words of Herbert Diess.
The future of Ducati may not resided solely in the Ducati brand. A company like TM Racing adds an off-road component to Volkswagen’s two-wheeled holdings, and there is still room for other brands to cater to newer riders, electrics, e-bikes, scooters, mopeds, and so on.
Instead of trying to dilute the Ducati name to fit all those industry pressures, a house of brands strategy could solve all of Ducati’s problems, the biggest of which is keeping Herr Diess and the Volkswagen board happy.
If I was going to build a new house for Ducati, I know what brand I would use to lay the first bricks of that new foundation.
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