What Is the Strategy That Has Allowed Honda to Be So Successful in the Motorcycle Industry in United States?

1. What is the strategy that has allowed Honda to be so successful in the motorcycle industry in United States?

Productivity based cost advantage

1. Small light weight motorcycle Honda Super Cub were sold for less than $250 (American and British motorcycles costed around $1000 - $1500)
2. Introduced a 444cc model to compete, at a lower price, with the Triumph 500cc

• Updated or Redesigned whenever a market threat or opportunity is perceived
• Prices are set at levels designed to achieve market share targets
• Marketing systems in all markets where serious competition is intended
• Plans and objectives look to long term payoff

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Marketing strategies

• Spent $150,000 (in 1961) on regional advertising to overcome unsavoury image of motorcyclists
• Followed a policy of developing the market region by region
• Appealed primarily to middle-class consumers
• Marketing campaign: You meet the nicest people on a Honda
• Outspent its competitors in advertising
• Market Share + Sales Volume -> Main marketing philosophy
• Grow sales volume at least as fast or faster than any of your competitors

Sales and distribution system

• Established largest dealership network in U.S.(125 dealers - in 1961)
• Willing to take short term losses to build up an adequate S & D system

2. How did Honda discover the strategy that allowed it to be so successful in the motorcycle industry and in particular, in United States?

Success in motorcycle industry

The following points illustrate the strategy that helped Honda in being successful in the motorcycle industry: -

• Advantage over competitors: Honda always maintained a strategy that helped it to be one step ahead of its competitors. When others were selling engines fitted to bicycles, Honda came up with a 2-stroke, D-type engine bike. Even when the competitors introduced a 4-stroke engine and Honda fell behind its competitors, it came back with a double horse power 4-stroke engine to reclaim the competitively advantageous position Honda had previously enjoyed. Thus, its strategy of being ahead of its competitors helped it to be successful in the market. In addition, it tried to remain abreast with f technological developments to ensure that the competitive advantage stays.
• Reduced dependency on suppliers: Honda reduced its dependency on suppliers and distributors by becoming a full-scale motorcycle manufacturer. It arranged several distributors for itself but still had a weak product positioning due to the distributors carrying Honda as a second line. Honda compensated this by going directly to the consumer with advertising.
• Identifying potential markets: One of the most important reason for the success of Honda was the identification of the right potential market at the right time. Honda identified a market for motorbikes in the form of commercial establishments that delivered goods and ran errands on a bike. This led to an overwhelming number of orders for their new bike: Supercub. This led Honda onto a path of success and helped it reach the first position among Japanese manufacturers.
• Right investment at the right time: Honda invested its money in the right opportunity at the right time. It built an automated plant with 30,000-unit-per-month capacity at a time when they had proficient technology, market and enormous demand. Thus, they considered all these factors before making the investment and that largely contributed to their success.

Success in U.S market

The following points illustrate the strategy that helped Honda in being successful in the U.S. market: -

• Study of the American Market: Honda studied the American market before entering it. It gave it an opportunity to know the kind of customers they were looking at and their attitudes with respect to motorbikes in general and Japanese in particular. This helped Honda gain a better understanding of the market.
• Lack of quantitative deadlines: Honda did not give quantitative deadlines for their venture into the states. They did not set targets, profits or breakeven as the goal. This helped their employees to better focus on making Honda survive and be successful in the States. It eased off the pressure and made them more focussed upon devising ways to penetrate the market and be successful in the same.
• Right Start: A key factor of Honda’s success was the knowledge as to where to start. Honda started with an area that they had more chances of being successful in i.e. they targeted a Japanese community with a growing population. Knowing the resentment of Americans towards the Japanese, this was a comparatively better position to start.
• Handling investment: Since the government had put restrictions on Honda about the amount of cash they can carry to the States, Honda strategically used that cash. They did not spend their funds on equipment but ran advertisements for dealers with these funds. They sold machines and reinvested in inventory to do business in the U.S.
• Advertising Strategy: Advertising also formed a major reason for the success of Honda. Its major advertising campaign, ‘You meet the nicest people on a Honda’ was a huge success and drove the sales at a great pace. This helped it to directly identify and target the large, untapped segment of the marketplace.

Does the story told by the Honda executives in the (B) case differs from the one you expected after reading the (A) case?

Honda’s Strategy - Expectations after case Honda (A)

• Case Honda (A) was based on a study conducted by BCG. According to them Honda executed a well-crafted strategy to capture US market.
• Honda’s success was attributed to its heavy commitment to R&D and leveraging its productivity based cost advantage.
• Honda was able to deliver a superior machine at a lower price.
• Advertisement campaign “You meet the nicest people on a Honda” targeted a new market segment – middle class defying the age-old attempt of targeting Black Leather Jacket riders.
• Honda was able to attract good dealers because of its sophisticated sales and distribution system.
• Honda’s emphasis on market share rather than short term profit goals lead them to this remarkable growth.

Revelations in case Honda (B)

• Case Honda (B) was based on interviews of Honda executives who reveals the challenges Honda faced during their growth.
• In late 1949 Honda was short of capital which urged them to partner with Takeo Fujisawa who brought in additional $7500 along with his financial and marketing expertise.
• Honda team stepped into US market on basis of mere deductions.
• They didn’t have any strategy other than attempting to “sell something”.
• Ministry of Finance brought in another hurdle by allowing them to invest only $250,000 in US out of which $110,000 should be in form of cash.
• Honda suffered a major setback when they encountered oil leaks and clutch failures destroying their reputation.

What went right for Honda?

• Innovative design provided a cost advantage and negated the need for manufacturing efficiently.
• Proprietary technology and enormous demand steered their growth initially.
• New submarket in motorcycle market was actually created by chance.
• They adjusted marketing to fit American culture.
• Direct involvement with the retailers led to the success of American sales network and sales campaign.
• Honda did not actually adjust its product to the US market, they just had to change the product a little and adjust marketing.

3. In 1975, how large is NVT competitive disadvantage with respect to Honda? What are the most important source of disadvantage?

Competitors

Lack of model profitability

Haven’t introduced any genuinely new models