Preparing for this paper was both educational and upsetting. My original plan was to compile information about the marketing strategies pertaining to my company, Golden American Life Insurance. In doing so, I retrieved information from the marketing department and the sales force. As I continued my research, I began interviewing upper management in both the marketing and sales departments; this is where I ran into a problem. It seems that the information related to the marketing strategy of Golden American Life is private and confidential; thus I would not be able to write my paper on what I had originally planned. My next thought was to write a fictitious paper on how I would handle the marketing strategies at Golden American Life. However, I decided against this because I don’t want to put my job in jeopardy in any way, shape or form. I personally feel this could compromise my job or at least the trust I have built up with my superiors and I feel it would be best to steer clear of this subject all together.
Having decided not to write about the marketing strategies related to the company I work for; the next step was to decide what I should write about. I started to look for some recourses that I had easy access to. My brother-in-law races motorcycles and has access to various marketing materials and personal knowledge about Honda motorcycles. I also was able to find information on the Internet about motorcycles and about Honda. I felt that because I had a personal interest in the subject, it would be educational and simulating to do my final research paper about Honda motorcycles. I also feel that the trust I have built with the company I work for will not be violated.
In 1948, armed with only $3200, Soichiro Honda opened The Honda Motor Company. Shortly thereafter, in 1959 he opened The American Honda Motor Company so that he could bring to pass his dream of building a high performance motorcycle and marketing it to the world. During the 1960’s the type of motorcycles bought by Americans changed considerably. The sales of motorcycles also changed; increasing by over 800,000 from 1960 to 1965. In the early 60’s the major competitors were Harley-Davidson of U.S.A, BSA, Triumph and Norton of the UK, and Motto-Guzzi of Italy. Out of these competitors, Harley-Davidson held the largest market share with sales in 1959 totaling 6.6 million dollars. Many of the motorcycles produced by these companies were large and bulky, which helped lead to the stereotypical image of a motorcycle rider; someone who wears a leather jacket and is looking for 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 were: market share loss and profitability decline; and large scale disadvantages in technology, distribution, and manufacturing. The BCG report showed that the success of the Japanese manufacturers started with the growth of their own domestic markets. The high production for domestic demand led Honda to experience economies of scale proportion as the cost of producing motorbikes declined with the level of output. This allowed 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. They also believe in putting capital back into production and using highly automated techniques. Thus, their marketing strategies are directed towards developing these high model volumes, hence the careful attention that we have observed them giving to growth and market share.
The report goes on to show how Honda built up engineering competencies through the innovation of Mr. Honda. They also distinguished themselves from other companies by deciding to set up their headquarters in the west coast of America and not relying on distributors to sell their product. The BCG found that the motorcycles available before Honda entered the market were designed and marketed toward a limited group of people such as the police, army etc. However, because Honda had a policy of selling, they marketed their product toward members of the general public, people who had never before given a second thought to a motorcycle, rather than toward confirmed motorcyclists. The bike designed for this part of the market was the Honda Super Cub. It was a small, lightweight bike that sold for under $250 dollars. Its leading competitors were the bigger American and British machines which retailed at $1000 to $1500.
Another distinguishing characteristic that helped Honda become the leading competitor in its field was the addition of staff members. In 1960 Honda’s research team consisted of about 700 design and engineer members; whereas its competitors staffed only about 100 employees. Honda’s willingness to hire so many employees shows how strongly they valued innovation. Production per man-year was 159 units in 1962, a figure not reached by Harley-Davidson until 1974.
Enlarging their staff was not the only strategy that Honda was using in order to increase sales. They were also 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. Along with expanding their market, they also began to place a great deal of emphasis on advertising. The company spent heavily on the advertising theme “you meet the nicest people on a Honda.” A theme that was meant to disassociate 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, utilizing 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 with many points of the BCG report. The report suggests that Honda made a smooth entry into the U.S market and this led to instant success. Pascale argues that Honda entered the American market at the end of the motorcycle trade season showing their inability to carry out research in the new market. Because they entered the market at the wrong time, sales were not as good as they should have been and any success was not instantaneous. Pascale also criticizes the assumption that Honda was superior to other competitors in productivity. He says that Honda was successful in Japan with productivity but evidence suggests that the company was not superior. This was due to the lack of funding from the ministry of finance and a tight budget caused by the plowing back of profits into inventory.
The BCG report shows that Honda had a smooth policy of developing region by region, moving from the west to the east. Pascale’s response is that this is partly true but reminds that Honda’s 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. Instead, it was the result of the director of sales persuading management, against their better judgment, that this was the best course.
The BCG report found that 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 because Honda felt that due to Americans preferring large items, they would be more likely to purchase a large bike. The bikes were unreliable which led to the promotion of the Super Cubs. These bikes salvaged the reputation of the company; therefore, the idea which brought them to pass was not one of inspiration but one of desperation. Overall, Pascale gives the impression that it was through an incidental sequence of events that led to Honda gaining a strong hold in the U.S market. This was 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 criticisms made by Pascale can be further analyzed by looking at the strengths of the Honda company. The strengths of Honda start with the roles which the founders played. Mr. 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 specializing in their own abilities, the two men were able to pool together resources and function effectively as a team.
Another strength of the company was the way they utilized their market position. Strengths in design advantages and production methods meant they were able to increase sales in Japan even though there was no organization within the company. Once there was a large enough demand for its products, mainly the Super Cub, Honda, both in Japan and in America, moved from a sale on consignment basis to one that required cash on delivery. At the time, this seemed to be a very risky decision. However, 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 organization 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 alternate route. If they had all the funds necessary, they may well have gone through the normal distribution channels. Honda entered the U.S. 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 Super Cubs 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 how the company is run and thereby influence its strategic position. It is this ability of an organization, to move ideas from the top to the bottom and back again, that the company values the greatest.
In conclusion, it is necessary to consider the theoretical side of Honda’s 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 organizational 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. Thus making all Honda’s plans and activities deliberate.
The second model, known as the emergent strategy, portrays a different image than the Andrews model and shows how Pascale viewed Honda. The model shows a realized strategy made up from 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 Honda’s case a substantial proportion or the companies corporate strategy was emergent and less was actually an intended strategy. In my opinion, Honda did not just follow one of these strategies by itself. Instead, actual strategy followed by Honda is likely to be a combination of both strategies together.
WORKS CITED
Minzburg, H., and J.B. Quinn. The Strategy Process. New York: Prentice Hall, 1991.
Murphy, Patrick E. Marketing. Glenview: Scott Foreman, 1985.
Sakiya, Tetsuo. Honda Motor: The Men, The Management, The Machine. New York:
Harper & Row, 1982.
Internet address: www.hondamotorcycle.com/heritage/mrhonda/index.html
