Honda

Topics: Motorcycle, Honda, Marketing Pages: 6 (530 words) Published: January 23, 2015
Honda (A) Case Analysis
Submitted By:

GROUP 11 | SECTION 2
Rachit Bhatnagar

|DM 15244

Sarvagya Nayak

|DM 15250

Seerat Ghuman

|DM 15251

Vaibhav Agnihotri

|DM 15262

Keerthi P.

|DM 15267

Case Background
• Success factors for Honda:
– 1950:
• Offered a multiproduct line
• Leadership in product innovation
• Exploited opportunities for economies of mass production

– 1958: Market researched revealed an untapped market for small motorcycles to be used for local deliveries
– 1959: Entered US market and set up American Honda Motor Company – 1961: Huge advertising spend to change the image of motorcycles “You meet the nicest people on a Honda” U.S. sales rose from $500,000 in 1960 to $77 million in 1965

– Largest dealership network in US
– Heavy commitment to R&D and manufacturing techniques

US Market
• US competitors:
– Sears, BSA Ltd, Harley Davidson
– Believed that motor cycle market was not for light weight vehicles, and was more suitable for sports rather than transportation

• Honda’s US entrant: small lightweight motorcycles (51-125 cc) • Sold at a very high premium compared to the price of same products in the domestic market:
– For CB750, the US price to distributor was $1373 whereas the Japanese equivalent was $986. Even after taking into consideration the packing and freight charges, the prescribed price is $1149. – Thus, it was selling at a 20% premium

• By 1974 Honda had reached a formidable position in the market: – Highest advertising expenditure: $8.1 mn
– 43% market share
– 1,974 dealers selling 220 units each
– Sales and distribution expense to the tune of $90-100 mn

• Harley-Davidson’s sales increased from $16.6 million in 1959 to $29.6 million in 1965 • Honda in 1965: Sales of $129.56 million

Japanese Motorcycle Industry: Price Experience Curves, 1959–1974 Average

Price in Yen
(1,000s)
51-125 cc Class

100

Value of
Experience=

80

80000*10mn=
800 billion yen
appox.

60

= $2.75 billion
40
20

1

10

Volume
in
Millions

BCG Report Findings


“Learning curve” economies was responsible for Honda’s success from the mid1950s: Reduced costs
significantly





Pursued highvolume production

Wiped out the
competition

Extensive selling and distribution systems
High productivity based cost advantages: Outperformed Western competitors by as much as four times
Suggestions:
– Focus on market share and volume
– Invest heavily in selling and distribution systems
– Build mass-production factories in advance of demand
– Price below cost initially
– Sell aggressively based on the assumption that costs will drop as volumes increase  Learning occurs  Productivity rises.

Honda’s Strategy


Superior competence in engine design which it
continuously harnessed to develop products
that outclassed those of competitors



The company first experienced success with
the 50cc in Japan before planning to enter the
U.S. market



After its success in the U.S. market, the
company gradually extended from smaller
bikes to larger bikes.



Realised the value of market share and volume
in enabling firms to move along the experience
curve and generate sizeable cost advantages



Dedicated to low cost



Ability to discount significantly and still remain
profitable as evidenced by the 20% premium in
US markets

Continuous
Continuous
product
product
development
development
and
and innovation
innovation
–– rapid
rapid
replacement
replacement

Continue
Continue to
to
expand through
expand
through
product
product
extensions
extensions and
and
geographic
geographic
expansions
expansions

Successful
strategy
for the
coming
years

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