Masstige : A Public Service Announcement

BEWARE OF THE MASSTIGE TRAP! A cautionary tale of boutique motorcycle brands that venture downmarket in search of volume, broad public appeal and the mythical ten-fold exit.  Warning : The following contains graphic descriptions of branding failures that may cause irritation, changes to PowerPoint decks and in some cases the need for several alcoholic beverages with senior members of a motorcycle organization.  Reader discretion is advised. 

This, is MV Agusta. A small, cheeky sport motorcycle company nestled in the Italian Alps, MV has it all: a magnificent history full of international racing glory; a suite of beautiful, hand-made motorcycle models desired around the world; and of course, a brand reputation suggesting that it is “the Ferrari of motorcycles”.

Over here is EBR, also known as Erik Buell Racing, previously known simply as Buell Motorcycles. EBR is a proud American manufacturer of boldly designed bikes that are respected by small cadre of esoteric motorcyclists around the globe.

Both of these brands were founded by maverick innovators who dreamed of re-imagining the motorcycle, and both have small but devoted followings. All looks well for our two motorcycle companies.

But wait! What’s this?

EBR, so recently restarted and reinvigorated by new money, is swerving dangerously close to masstige territory. And look over there! MV Agusta is out of cash again, having committed to masstige themselves.

Oh dear. I’m afraid our friends have succumbed to the siren-song of masstige, and it’s irresistible promise of exponential growth without brand sacrifice. EBR and MV have discovered, only too late, that this is the primrose path towards motorcycle brand destruction.

The Count, The Tinkerer and the Venture Capitalist

MV Agusta was founded by some crazy Italian nobles who wanted to make exotic motorcycles. Like many rich and bored European aristocrats, Count Agusta had a penchant for fast and pretty things. His company initially built sport airplanes but the Allies banned a defeated Italy from aerospace construction after the second world war so the company turned to bikes.

Wanting to make the best motorcycles in the world required the best people in the business, reasoned MV, so they hired away the entire Gilera research and development team (who had pioneered the first winning transverse, twin-cam, four cylinder engine) and set them up in a new factory.

MV’s golden years would be from the mid 1950’s until the mid 1970’s, where they would go on to win an amazing 37 world championships in Grand Prix motorcycle racing. Sadly, the street bikes didn’t sell well in modern times forcing the company to close, but it was reanimated a number of times to much fanfare.

Finally, in this century MV found itself in the unusual position (for MV) of being both liquid and possessing of a solid cadre of highly desirable consumer motorcycles. They were exotic and expensive as motorcycles go, but still within the reach of anyone with a decent job who wanted something special. Among investment bankers, Hollywood celebrities and moto-philes, MV was the aspiration.

What could go wrong?

Erik Buell is motorcycling’s Captain America. A quiet man, he was raised on a farm in Pennsylvania then moved to the midwest to work as an engineer for Harley-Davidson, where he discovered his super-power: he could make Harleys fast.

Leaving the safety of corporate work to found a motorcycle company, he followed in the tracks of countless American entrepreneurial tinkerers like the Dodge brothers and indeed, the Davidsons. The Buell Motorcycle Company would grow slowly but amass a cult-like following who believed in brother Erik’s prognostications on motorcycle chassis design.

Buell later sold out to his old bosses at H-D, but he remained at the helm of the technical office. Like MV, the Buell Motorcycle Company was closed when the money got tight, but Erik rose anew with the help of foreign investors and a shiny superbike prototype. Erik Buell Racing, known simply as EBR, was born.

In 2011, the year of the EBR launch, the little company claimed to have sold 65 motorcycles at the eye-watering starting price of $50,000. Within a few years Indian motorcycle guggernaut Hero Motors invested tens of millions for nearly half of the company, while Erik announced racing plans. But by 2014, it was all over. Drained of money, lacking sales and left with an acrimonious split with Hero, EBR closed.

But then it re-opened. And now they are promising to build more bikes with Erik at the designers table.

What could go wrong?

Somewhere, in a glossy high office tower sits Venture Capitalist man. He is, in this new guilded age, the master of the universe. He and his MBA army seek out companies with “brand equity” that they can exploit for monetary gains. Once found, a weak, once great brand is courted and pumped full of money and consultants, none of which have any understanding of motorcycles or the vaguarities of the fickle motorcycle market.

By the fourth quarter after the initial investment, Venture Capitalist Man is hungry. His investment is growing slowly. Some engineer has the temerity to tell him that the new chassis program needs at least four months of road testing. What nonsense! These hillbilly motorcycle people may be pretty good, but compared to the technicians at his Silicon Valley investments they are positively medieval.

“Why, those 23 year olds running my new parking software app hacked together a beta model and delivered it to the market in three weeks!” Thinks Venture Capitalist Man.

Meanwhile, the marketing department is saying something about some kind of motorcycle show on a cricket lawn in England, where they connect with their affluent customer base. What these biker folks need is a dose of reality, concludes Venture Capitalist Man. Enough with these exotic marketing channels and paying homage to some grey beard in leathers, this company is about making cheap models available to the masses that suggest luxury.

What could go wrong?

What Goes Wrong

Discovered at the dawn of the industrial revolution by such brands as Royal Doulton and later perfected by Apple, AUDI and Starbucks, masstige has become the holy grail of product market placement. Derived from combining mass market and prestige, the masstige concept postulates that if the right balance of design, quality and price are found, consumers will buy mass market quantities of semi-luxury goods, sending profits soaring.

Manufacturer profit margins on luxury goods are much, much higher than those on mainstream, mass market goods. However, being expensive both to make and to buy, this obviously limits the existing pool of potential customers. Mass market goods are accessible to the bulk of consumers, which explodes sales, but the profit on each unit is proportionally smaller. Also, the commonality of mass market things reduces product desirability, and allows many competitors into the same place, which commoditizes them further reducing their perceived value.

What Royal Doulton chinaware figured out over a century ago was the selling slightly nicer, slightly more expensive plates with an aire of luxury hit all the buttons. Victorian middle class consumers could afford the Royal Doulton products while feeling like they were indulging themselves with upper class products normally unreachable to them.

These days, you buy a $5 coffee from Starbucks instead of one for $2.50 from Tim Horton’s because simply by entering Starbucks’ premium environment, with its soft lighting, curated indie music soundtrack, and deep chocolate leather sofas, one feels rewarded with an experience that worth the added cost.

It is also hugely profitable. The cost to make a Starbucks cappuccino is not double that of Tim’s, just as an iphone does not require three times the resources than a generic device. The prices, designs and brands create a perception of superiority and prestige which millions of consumers are willing to pay extra for.

All this adds up to a virtuous cycle of colossal profits, soaring share prices and an ever increasing luxury market position that becomes harder and harder for competitors to match.

MV and EBR : The Mass Effect

New owners mean new directions when companies are in trouble. But when it comes to luxury brands, expansion is always fraught with dangers.

Both MV and to a lesser extent ERB are perceived as being exotic. When they are seen from across the street or mentioned in media, the context is always as outside the mainstream, products that demand a discerning customer. In the harshness of mechanical reality, both manufacture motorcycles that cannot compete with common, less expensive rivals.

But that is irrelevant. The market for both MV and Buell is so small, their brands so unknown, that their very rarity and anonymity are their unique selling point.

In a motorcycle market saturated with amazing products from universally known brands and that all look the same, an MV Agusta or an EBR 1190 RS stand out. They are unicorns in a field of horses.

When MV last found itself in good financial standing, they continued along with the overall expansion plan that previous owners Harley-Davidson had mapped out: go broad on models and go downmarket. The 675cc, three cylinder motor (now bored out to 800cc) was to be launch platform for a large family of products that could be priced near mainstream rivals, but without a lot of added cost.

The F3, Brutale 800, Turismo 800, and Dragster all share common motors, chassis elements and ancillary parts. In theory this, combined with the decline in Euro currency value, should make them economical to produce and extremely attractive to the consumers in the $12,000 – $18,000 street bike market, traditionally the fattest portion of the profit pie.

But it didn’t.

Attractive as they are, when confronted by a strange exotic motorcycle from a virtually unknown brand alongside a competitor from a mainstream brand that is known to be just as good but cheaper and safer, consumers chose the latter. And this is precisely what has happened to MV. Despite new product launches every six months and getting featured on every motorcycle magazine cover in existence, the average motorcycle consumer went with the average motorcycle.

EBR suffered the same fate. In 2011, when the company was a handfull of dedicated employees working around Erik Buell and assembling $50,000+ track-only, American muscle bike exotica, they sold out. Once they started to lose that feel, and the bikes traded hand polished carbon fibre for injection moulded plastic, and retailed for $14,999 at your local dealer, sales evaporated.

The value of the exotic motorcycle brand is in being exotic, not flogging the brand name around. Venture capital and big business leaders from outside sectors have completely failed to see this not once, but nearly every time they dipped their toes into exotic motorcycle waters.

Indian Motorcycles, Norton, AJS, Laverda, and so many others have been pushed into the murky masstige waters and pimped their once proud names on low cost products in the hopes of bringing in the mass market volumes at prestige pricing. All have failed.

Very few motorcyclists want new MV Agustas at Honda prices. Fewer still desire EBR’s volume products at any price.

Price Check

There is good news. Both MV and EBR can have wonderful, successful and profitable futures ahead of them, if they adopt this one simple prescription: stay boutique.

The global motorcycle market is growing and the segment that is growing fastest is the middle market that both MV and EBR tried to play in. However, that segment is full of mass market brands that offer reliable service, vast dealer networks and frankly, superior motorcycles at lower prices. To compete with them directly is to invite corporate suicide, by going against the most basic tenets of common sense.

But in the rarified air at higher elevations occupied by the likes of the Harley-Davidson CVO Road Glide Ultra ($49,000), Ducati Panigale R ($38,000) and Vyrus (don’t ask), these machines will find worthy customers and handsome profits. Bimota, a tiny company with an almost non-existent distribution network and atrocious reliability managed to stay independent and healthy for 25 years, building at their peak only about 3000 bikes a year. With prices starting at $35,000 in 1995 dollars, that represented a tidy little business.

 

Of course, at those prices and small volumes overall profits would be tens of millions instead of billions generated by mainstream manufacturers. But for a small privately owned company with less than 30 employees, it can represent the difference between being a strong, vibrant boutique manufacturer of cool motorcycles, and oblivion.

The idea of scaling up to a masstige model, a concept that Venture Capitalist Man views like others view religion, is not one that can applied to boutique motoring brands. Exploding volume and marching downmarket only cheapens exotic motor brands, destroying the only virtue that they have in the first place.

Harley-Davidson, one of the world’s best managed and most profitable motorcycle companies failed to do it with both MV Agusta and Buell.  So why should it be any different now?

Stay small, my friends.

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About the author

Michael Uhlarik is an international award-winning motorcycle designer with over 16 years of experience creating bikes for Yamaha, Aprilia, Piaggio, Derbi and many others.  He is a seasoned motorcycle industry analyst and part-time industrial design lecturer.  He is based in Nova Scotia.