Foundations of Corporate Success: Honda

Q1. What’s the strategy that allowed Honda to be so successful in the US market? It is a fact that Honda had experienced a remarkable success during the period from the late 50’s to the end of the 70’s. This success is a result of the strategy the company developed at that stage of its lifecycle. This strategy in principle is a technologically based strategy; where Honda established Honda Technical Research Institute (HTRI) in 1946. In the meantime, Honda developed manufacturing expertise to become fully integrated producer of motorbikes components.

In order to minimize the associated risk, Honda offered a multiproduct line, taking leadership in product innovation through the HTRI and exploiting opportunities for economies of mass production by gearing design to production objectives. How is possible that Honda’s many expensive investments lead to lower costs? The company achieved a significant product advantage through a heavy commitment to R&D and advanced manufacturing techniques.

Honda used its productivity-based cost advantage and R&D capability to introduce new models to the market very quickly and at prices below those of competitive machines. Over time, Honda had smoothly descending real prices. This price reduction is experience-based which means that as long as more experience is acquired, Honda is capable to develop new methodologies to produce motorcycles at lower cost. This was mainly due to high production volume and improved productivity of the Japanese labor. Q2. How did Honda come to have this strategy?

Honda’s strategy was a result of Honda’s underlying philosophy which is a marketing philosophy; i. e. grapping more market share and increasing the sales volume. Selling and Distribution system was a tool to implement this philosophy. What evidence do we have of forethought and planning in the company approach to production? Honda built a manufacturing plant with a capacity 10 times in excess of demand at the time of construction in 1958. Honda developed manufacturing expertise to become fully integrated producer of motorbikes components.

Honda minimized risk through: offering a multiproduct line, taking leadership in product innovation through the HTRI and exploiting opportunities for economies of mass production by gearing design to production objectives. Marketing? In the 1958 Honda’s market research identified a large untapped market segment seeking a small, unintimidating motorcycle that could be used by small motorcycle business for local deliveries. Honda advertizing concerted to change the image of motorcyclist through heavy campaigning towards middle class consumers. Distribution?

Honda followed a policy of developing the market region by region beginning with the west coast and moving eastward. Design? Honda designed the lightweight motors to match the market research results. In general, Products are updated or redesigned whenever a market threat or opportunity is perceived, prices are set at levels to achieve market share targets and will be cut if necessary, effective marketing systems are set up in all markets where serious competition is intended – regardless – of short term cost and finally plans and objectives look to long term payoff.

Q3. To what degree was the US entry strategy thought out in advance? Honda was already the world’s largest motorcycle producer. Honda established a US subsidiary and began its push in the market by offering very small lightweight motorcycles. Honda followed a policy of developing the market region by region beginning with the west coast and moving eastward until it established the largest dealership network in the US.