Honda Marketing Strategy Essay, Research Paper

The American Honda Motor Company was established as a subsidiary by

Honda in 1959. During the 1960’s the type of motorcycles brought by

Americans underwent a major change. Motorcycle registrations increased

by over 800,000 in five years from 1960. In the early 60’s the major

competitors were Haley – Davidson of U.S.A, BSA, Triumph and Norton of

the UK and Motto – Guzzi of Italy. Harley-Davidson had the largest

market share with sales in 1959 totalling a6.6 million dollars. Many of

the motorcycles produced were large and bulky and this led to the image

of the motorcycle rider as being one who wore a leather jacket and went

out to cause trouble.

The Boston Consulting Group ( BCG ) report was initiated by the British

government to study the decline in British motorcycle companies around

the world, especially in the USA where sales had dropped from 49% in

1959 to 9% in 1973. The two key factors the report identified was the

market share loss and profitability declines an the scale economy

disadvantages in technology, distribution, and manufacturing.

The BCG report showed that success of the Japanese manufacturers started

with the growth of their own domestic markets. The high production for

domestic demand led to Honda experiencing economies of scale as the cost

of producing motorbikes declined with the level of output. This provided

Honda to achieve a highly competitive cost position which they used to

penetrate into the US market. ” The basic philosophy of the Japanese

manufacture is that high volumes per model provide the potential for

high productivity as a result of using capital intensive and highly

automated techniques. Their marketing strategies are therefore directed

towards developing these high model volumes, hence the careful

attention that we have observed them giving to growth and market

share.” (BCG p.59 ).

The report goes on to show how Honda built up engineering competencies

through the innovation of Mr Honda. The company also moved away from

other companies who relied upon distributors to sell their bikes when

the company set up its headquarters in the west coast of America. The

BCG found that the motorcycles available before Honda entered the market

were for limited group of people such as the police, army etc. But Honda

had a “policy of selling, not primarily to confirmed motorcyclists but

rather to members of the general public who had never before given a

second thought to a motorcycle”( SP p.116 ). The small, lightweight

Honda Supercub sold at under 250 dollars compared to the bigger American

or British machines which were retailing at around 1000 to 1500 dollars.

In 1960 Honda’s research team comprised of around 700 designer and

engineer staff compared to the 100 or so employed by their competitors

showing the value which the company placed on innovation. Production per

man-year was 159 units in 1962, a figure not reached by Harley-Davidson

until 1974.

Honda was following a strategy of developing region by region. Over a

period of four to five years they moved from the west coast of America

to the east coast. The report showed the emphasis which Honda paid to

advertising when the company spent heavily on the advertising theme ”

you meet the nicest people on a Honda” thereby disassociating themselves

from the rowdy, hell’s angels type of people.

Essentially the BCG is portraying Honda as a firm dedicated to being a

low cost producer, utilising its dominant position in Japan to force

entry into the U.S market, redefining that market by putting up the

nicest people image and exploiting its comparative advantage via

aggressive advertising and pricing.

Pascale tends to disagree on many points of the BCG report. The report

suggests that there was a smooth entry into the U.S market which led to

an instant success. Pascale argues that Honda entered the American

market at the end of the motorcycle trade season showing their impotence

to carry out research in the new market. As they entered the market at

the wrong time sales were not as good as they should have been and any

success was not going to be instantaneous. Pascale also criticises the

assumption that Honda was superior to other competitors in productivity.

He says that Honda was successful in Japan with productivity but

circumstances indicate that the company was not superior. The lack of

funding from the ministry of finance and the ploughing back of profits

into inventory meant they had a tight budget to follow.

The BCG report shows that Honda had a smooth policy of developing region

by region, moving from the west to the east. Pascale response is that

this is partly true but reminds that Hondas advertising was still in Los

Angeles in 1963, four years after setting up their subsidiary.

The report to the British government showed that Honda had a deliberate

strategy of disassociating themselves from the hells angels type of

people by following the nicest people advertisement policy.

Pascale shows that this was not an intentional move since there were

disputes within the company with the director of sales eventually

persuading to management against their better judgement. The BCG report

found Honda pushed into the U.S market with small lightweight

motorbikes. However Pascale says this is again not true. He argues the

intended strategy was one of promoting the larger 250cc and 350cc as

Honda felt that this was what the market wanted since Americans liked

all things large. The bikes were unreliable which led to the promotion

of the supercubs. These bikes salvaged the reputation of the company. An

idea which hardly came from an inspired idea but one of desperation.

Overall Pascale gives the impression that it was through an incidental

sequence of events which led to Honda gaining a strong hold in the U.S

market, mainly through the unexpected discovery of a large untapped

segment of the market while at the same time trying to retain the

interest of the current market.

The criticism made by Pascale can be further analysed by looking at the

strengths of the Honda company.

The strengths of Honda start with the roles which the founders played.

Honda was an inventive genius with a large ego and a volatile

temperament. His main concerns were not about the profitability of the

company or its products, but rather to show his innovative ability by

producing better engines. Fujisawa on the other hand thought about the

financial section of the company and how to market the ideas. He often

challenged Honda to come up with better engines. By specialising in

their own abilities the two of them were able to pool together resources

and function effectively as a team.

Another strength was the way the company utilised its market position.

Strengths in design advantages and production methods meant they were

able to increases sales in Japan even though there was no organisation

within the company. Once there was a large enough demand for its

products, mainly the supercub, Honda both in Japan and in America, moved

from a sale on consignment basis to one that required cash on delivery.

This seemed a very risky decision to make at the time but within three

years they had changed the pattern within the motorcycle industry by

shifting the power relationship from the dealer to the manufacturer.

Mr Honda had cultivated a “success against all odds” culture into the

company. This was tested when he sent two executives to the U.S with no

strategy other than to see if they could sell something.

The weaknesses within an organisation can become irrelevant if the

strategy is strong and there is good leadership.

An element of luck also helped Honda follow an emerging strategy.

Restrictions placed on funds by the government for the U.S venture

forced Honda to take an alternative route. If they had all the funds

necessary they may well have gone through the normal distribution

channels.

Honda entered the us market right at the end of the motorcycle trade

season. When leaking oil and clutch problems occurred on their bikes it

did not affect Honda as hard as it would have had they entered in the

beginning of the season. Also people noticing the Supercubs led the

company to produce a bike which was not at first supported by senior

management.

The success of Honda was not the result of senior management coming up

with all the answers. In fact senior executives in most Japanese

manufacturing companies do not take their strategic positions too

seriously. Salesman, cleaners and those working on the manufacturing

floor all contribute to the company is run and thereby influence its

strategic position. It is this ability of an organisation to move ideas

from the tom to the bottom and back again in continuos dialogue that the

company values the greatest.

As a conclusion it is necessary to consider the theoretical side of

Hondas strategy and see whether the company was in fact following a

model. The first model is the Andrew’s model. Andrew came up with the

idea that there were two stages to corporate strategy, formulation and

implementation. Formulation involved looking at the market, competitors

and resources and formulating a corporate strategy which would be

implemented throughout each process of the organisational structure.

This model was also supported by Porter. This is how the BCG saw Honda,

as a corporation, who had looked at the market, formulated a strategy to

cope with the environment and competition pressures and implemented it,

making all Hondas plans and activities deliberate.

The second model known as the emergent strategy portrays a different

image to the Andrews model and shows how Pascale viewed Honda. The model

shows a realised strategy made up from a an intended strategy together

with an emergent strategy which is not planned but emerges in relation

to activities within the environment. Pascale seemed to think that in

Hondas case a substantial proportion or the companies corporate

strategy was emergent and less was actually intended strategy.

The actual strategy followed by Honda is likely to be a combination of

both.

BIBLIOGRAPHY

Minzburg, H. & Quinn, J.B. ( 1991), The strategy Process. Prentice hall.