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CSTR: Individual Assignment #3Honda

1. What is the strategy that allowed Honda to be successful in the motorcycle industry, and in particular, in the US?

Five Forces Analysis of the Motor Cycle Industry-US

Bargaining Power of

Buyers

Bargaining Power of

Suppliers

Threat of Substitute

Product or Services

Threat of New

Entrants

Rivalry among

Existing

Competitors

Who? Motor-Cycle Users Motorcycle parts

supply- Tyres, tubes,

Steel, etc.

Other Two-Wheelers,

Cars

Other Motor-Cycle

manufacturers

(from different

countries)

Other Motorcycle

Companies

What is the Power? A variety of bikes tochoose from

Middle income/High

Income

One Supplier mayhave many buyers

and one buyer may

have many suppliers

Can easily switchbetween substitutes

(Scooters, Cars,

Buses, etc.)

High CapitalInvestment, R&D

and low availability

of cheap labor

Competitors strivefor constant

innovation in

technology, easy to

switch brands

Relative Weight of

the Power

High Medium Medium Low High

The motorcycle industry was a difficult industry to enter (particularly in the US). The following strategic steps allowed Honda to besuccessful in the motorcycle industry:

1. In contrast to other foreign producers, who relied on distributors, Honda established a US subsidiary, giving it greater control and the

power to reach its end customers

2. Honda advertising addressed its appeal primarily to middle-class customers, overcoming unsavory image of motorcyclists

3. Significant product advantage through a heavy commitment to R&D and advanced manufacturing techniques

4. High productivity leading to cost advantage, allowing Honda to introduce new models at prices below those of competitive machines

5. Outspent its competitors in advertising

6. Established largest dealership network in the US

7. Willingness to take short term losses in order to build up an adequate selling and distribution network8. The fundamental philosophy of emphasis on Market Share and Sales Volume

Subhanjan Bhattacharya

PGID: 61410694

Section-J

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9. Relatively inexpensive Japanese Labor Cost

10. Product update and redesign whenever a market threat or opportunity was perceivedthus mitigating the threat of competitors

11. Effective Marketing Systems set up in all markets where serious competition is intended

12. Strategic Price Performance: Rate of price reduction most rapid of all in the largest Size ranges

13. Real prices declining over a period of time (with experience in the industry)emphasizing focus on market share and higher

productivity

14. Strategic Cost Performance: Consistent with the reduction in price, cost reductions have taken place parallel to real price reductions

15. Followed a policy of developing the market region by region (instead of one-go)16. Created a new market for the recreational uses of motorcycles through extensive advertising and promotions

Overall, the key levers to success were: Product differentiation through innovation, high productivity, strong emphasis on market

share, focus on a new segment of customers (middle-class) leading to high volume sales

2. What indications do you have, if any, that the strategy was planned in advance?

The following points indicate that the strategy was planned in advance:

1. Introduction of a lightweight motorcycle and expansion in presence in 1949

2. Beginning to depart from the traditional pattern of the Japanese motorcycle industry: investing in one winning design and milking that

product until it became technologically obsolescent, by:

a) Seeking to offer multiproduct line

b) Take leadership in product innovation

c) Exploit opportunities for economies of mass production by gearing designs to production objectives

d) Most notably, in 1958, Hondas market research identified a large, untapped market segment seeking a small unintimidating motorcyclethat could be used by small motorcycle businesses for local deliveries- Honda designed a product specifically for this application

e) Deciding to make this the product of the future, Honda invested in a highly automated 30,000-unit-per-month manufacturing plant-a

capacity 10 times in excess of demand at the time of construction

Hence Hondas bold moves set the stage for bolder decision of invading the US market in 1959.