Introduction
The Honda Motor Company first entered the
European market in the early 1960s through the sale of its motorcycles. The
company’s motor vehicles were introduced into Europe at a much later date.
Honda’s motor vehicle sales in Europe have been relatively poor, especially in
the previous five years. Despite its
huge success in the North American market, Honda is struggling to gain a
significant foothold in the European market.
Honda executives wonder why their global strategy is sputtering. Is global strategy just a pipedream, or is
something wrong with Honda's European strategy?
History of Honda
In 1946 Souichiro Honda
founded the Honda Technology Institute. The company started as a motorcycle
producer and by the 1950s had become extremely successful in Japan. In 1956,
Honda entered the US market and was able to position itself effectively,
selling small sized motorcycles. In the early 1960s, the company commenced
automobile manufacturing and participated in Formula-1 racing (F-1) to assist
its technology development. Thanks mainly to its F-1 efforts, Honda became
recognized, not only in Japan but in the rest of the world as well, as a
technological savvy company.
Up to the early 1990s the company had experienced
serious organizational mismanagement resulting from tension between the
technology side and the marketing-sales side. The situation became so dire,
that the technology biased president and founder, Souichiro Honda, was forced
out, due to his neglect in important marketing decisions. After Souichiro
Honda’s departure, the company became more marketing-technology balanced, and
by 1999 was second in sales only to Toyota in the Japanese market. The
underlying success of the company is best summarized in its mission statement,
“pleasure in buying, selling and producing”, and “Beat GM, not Toyota”. Honda
currently has 25 separate factories in the world, and its operations cover
automobiles, motorcycles, financial services, power products and power tools.
In the fiscal year 2001, 81% of Honda’s revenues came from its automobile
sector, as outlined in the table below.
Automobile industry
The automobile industry
worldwide is in the mature stage of its life cycle. By the 1990s, an oversupply
of motor vehicles became such a problem to the industry that a number of
mergers and acquisitions (M&A) and alliances took place. Industry experts
stated in the late 1990s, only 6 or 7 companies would remain global players
while other companies will be forced to sell in niche markets. In the last decade DaimlerChrysler acquired a
major share of Mitsubishi, GM became the controlling shareholder of Fiat and
Saab, Ford acquired Volvo, Jaguar, and a major share of Mazda; and Renault
became the controlling shareholder of Nissan.
Global scale production and sales became important as a way to cutting
cost through developing common platform or engines as well as global
procurement. Unlike their European and
American counterparts, Japanese automobile companies, including Honda, did not
adopt the M&A strategy for expansion. To remain as a global competitor,
Honda instead expanded its operations by setting up plants in regional markets.
The table below shows that Honda is currently ‘the number 7-car company’ in the
world.
Honda in Europe
Currently Honda has five
global operations, North America, South America, Japan, Asia-Oceania, and
Europe. The European operation covers Europe, the Middle East, and Africa.
Honda entered the European market in 1961 as a motorcycle manufacturer, with
its automobile operations following several years later. In 1986, Honda started
engine production in the UK, and 6 years later it launched its European
production at Swindon in Somerset, UK.
Honda opened production facilities in Turkey in 1999 to target the
Middle East and Eastern European markets.
The European operation accounts for a small portion of Honda’s global
operation, as shown in the table below.
Honda's Global Sales by Region
There are a number of reasons for the low sales in
Europe. Honda entered the European market rather late, and its first production
facility in the region was built in 1992, at a time when Honda was still only a
minor player in the Japanese market. Prior to 1992, Honda Europe was forced to
import its vehicles from the US, making it impossible for the company to
aggressively attack the European market. One of the most important reasons for
the lack of success was that the European market was highly saturated with
locally owned car manufacturers. Companies such as Saab, Volvo, BMW, Audi,
Volkswagen, DM, Opel, Renault, Peugeot and Fiat have been dominating the
European market for a considerable number of years. In addition, other foreign
companies, such as Toyota, Nissan, Ford and Hyundai make the European market
extremely competitive.
In 2001, Volkswagen was ranked number one in Europe with
17.6% of the market and Peugeot number 2 with 15.8%. Renault, Ford, Fiat, GM
had approximately 10% of the market each, and Toyota, BMW, and Audi had a
market share in the region of 5%. Honda captured only 2.4% of the European
market. The competitive industry map below shows Honda’s current position in
the European automobile market. The Honda
brand image in Europe is relatively weak and the product line is narrow
compared to the other major players in the market. The company needs to expand
its sales and production to survive in global scale competition.
Honda’s European
Marketing
The four largest markets
within the European market are that of Germany, UK, Italy and France. Honda's European marketing strategy in those
four countries is highlighted below.
Product. Honda’s European manufacturing plant
is located in the UK, and as result the country has more Honda models than any
other country in Europe, with a total of 20. Germany, the country with the
highest number of vehicle registrations, has the next largest number of models,
16. Italy and France, both similar in
size to the UK have 11 and 9 models, respectively. The products found in Italy
and France, are found in Germany and the UK.
The UK has a number of automobiles that cannot be found in the other
three countries including diesel-powered cars.
Price. The prices of Honda’s vehicles in Europe are
comparable to similar cars produced by local manufacturers. The table below
compares the price in euros of Honda’s new 1.4-liter Jazz with similar cars
offered in the European market.
Automobile Prices
Vehicle
|
Honda Jazz
|
Peugeot 307
|
VW Polo
|
Renault Clio
|
Opel Astra
|
Fiat Stilo
|
Price (euro)
|
13,800
|
13,250
|
13,930
|
13,650
|
13,400
|
13,500
|
The table clearly implies
that Honda is attempting to price its product at a similar level to
competition.
Distribution. The image of Honda’s vehicles and motorcycles
in Europe is aligned together.
Consequently Honda vehicles throughout Europe are distributed at the
same locations that their motorcycles are. Vehicles produced in the UK and
Turkey are distributed throughout Europe, the Middle East and Africa. Recently, due to the depreciating Euro
vis-Ã -vis the US dollar, cars manufactured in the UK have also been exported to
the US.
Promotion. The promotion of Honda’s motor
vehicles is essentially the same throughout Europe, whether in France, Germany,
Italy or the UK. The company spends very
little time and money in promotion, however.
It believes that its success in Formula 1 racing, together with its
ability to produce high mileage fuel efficient products that exhibit great
engineering is enough to make it a popular in the European market. It relies on word of mouth by its customers
to potential customers and to a lesser extent on the Internet and the company’s
various websites.
In the recent 2002 launch of the Jazz (known as the
Fit in Japan), the company relied heavily on word of mouth and on a website created
especially for the occasion. The
website, the same design for all European countries, promoted the car as
suitable for young workingwoman. The
website attempted to give the car a cool, ‘young’ image by associating it with
Feng Shui, Yoga and other relatively hip ‘activities’. A sense of fun was also
attached to the website, in an attempt to draw in the young woman. Once inside
the Jazz website, the user could easily find the nearest dealership to purchase
the vehicle.
European Sales
The table below shows the
sale figures for Honda’s eight most popular motor vehicles in the last six
years. Honda’s most successful year was
in 1998, however since then sales have been decreasing dramatically.
Honda’s motor vehicles have
been relatively unpopular in the majority of Europe, in particular Italy and
France. The company’s best sales have occurred in the UK and Germany as shown
in the table below.
Honda's Unit Sales in Europe by Country: 1994-2001
Country
|
1994
|
1995
|
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
U.K.
|
38,187
|
45,772
|
50,075
|
55,611
|
61,044
|
65,290
|
68,736
|
63,459
|
Germany
|
53,687
|
52,614
|
54,550
|
55,918
|
48,247
|
43,610
|
33,536
|
31,868
|
France
|
14,411
|
11,848
|
13,260
|
12,585
|
14,095
|
15,270
|
8,717
|
6,495
|
Italy
|
12,063
|
14,101
|
15,014
|
25,406
|
24,532
|
22,031
|
18,570
|
13,732
|
European Culture
The relative poor showing of
Honda vehicles in Europe may be explained by a number of reasons. The main
problem was that the company failed to truly understand the culture of Europe
and more importantly it treated Europe as one giant single market. Though
France, Germany, the UK and Italy are all European, cultural differences abound
between them. One theory that explains the differences between the four nations
is that of high-context versus low-context cultures. In a high-context culture, the interpretation
of messages depends on contextual cues like gender, age, balance of power, etc.
and not on physical written text. In a
high context culture there are things that are not said but are
understood. Countries considered to be
high-context cultures include China, Japan, Italy, France, Spain and the Latin
American countries.
Conversely,
a low-context culture emphasizes distinctive written text or spoken words,
where ideas are communicated explicitly.
Low context cultures expect others to say what they mean and do what
they say. There is far less emphasis on
contextual cues such as ranking and balance of power. Examples of countries
that fall within this category are the United States, the Scandinavian nations
and Germany. The figure below presents a
graphical view of high-context and low-context countries.
Cultural Context
Successful advertising in low context cultures differs from that in high context cultures. An advertisement for a high-context culture is based on an implicit style where the emphasis is on the overall feel and outlook rather than the feeding of pure information. In this type of advertisement, the actual product may not even be shown. The audience may be only given implied images and sublime messages. Honda’s Jazz website contained a large amount of information which would have been too much for high-context cultures such as the French and the Italians. In addition, high context cultures have been much slower than their low context counterparts when it comes to adopting the Internet.
On the other hand, the advertisement for a
low-context culture includes the actual product, together with a large amount
of information. Low context nations such as Germany would have most likely been
able to appreciate Honda’s Jazz website.
It is therefore unlikely that an advertisement/promotion campaign
created for a high-context culture will be effective in a low-context culture
country and vise versa. Since Europe
consists of both high-context and low-context culture countries, companies,
such as Honda, intending to expand its business should take into consideration
two separate market segments when planning its marketing strategy. The situation of Honda in France, Italy,
Germany and the UK in regard to their culture are outlined in the following
sections.
France. France
is a high-context culture where style and image is of the utmost importance.
The perceived quality of a product means that the French have a bias towards
the style and image of a product. The image of Japanese cars in France is
relatively poor, dating back to the 1930s when Japanese manufacturers entered
the European market with low quality products. Since that time, Japanese
carmakers, in particular Honda, have not understood the concept of style and
image in marketing. They appear to only show a car in a factual way, which is
extremely low-context. Japanese carmakers in France have recently tried to
alter their image, though with limited success.
Today,
France’s image of Japanese cars, and in particular that of Honda is that of a
small, low quality car, only suitable for a second car. Most buyers of Japanese cars are young career
women who have just entered the workforce and housewives with limited
cash. The main family car is likely to
be a Renault or Peugeot and is driven by the man in the family. In addition,
the French are risk averse people, who dislike trying new things. They are also highly patriotic, supporting
and purchasing their national products, such as Renault and Peugeot cars.
The patriotism, risk averseness of the
French, together with their low image of Japanese cars and the large number of
other European automobiles available in the market, makes it extremely
difficult for Honda to be successful in this market.
Italy. Italy,
like France, is a high-context culture where a great deal of emphasis is placed
on feeling and style. The Italian
culture is reflected in their daily lifestyle, which gives a sense of romance
to the people living there. As in France, the Italians view Japanese cars as
small low quality vehicles, suitable only as a second family car. The most
popular automobile in Italy, especially for families, is the Fiat. The
dominance of the Fiat is due to the Italians, like their high-context cousins
the French, being very patriotic.
Italians are
also risk averse and are not adventurous in sampling products outside of
Europe. Italians, like the majority of Europeans love to drive diesel
automobiles. Only the French enjoy
driving diesel cars more than the Italians. However, Honda produces very few
diesel cars and the only country that they are offered is the UK, where they
are relatively unpopular. The following table shows the 5-years diesel cars
market share percentage in the UK, Germany, France and Italy.
Market
Share of Diesel Cars by Country
Year
|
U.K.
|
Germany
|
France
|
Italy
|
Euro
Avg.
|
1997
|
16.17
|
14.9
|
41.8
|
16.9
|
25.2
|
1998
|
15.28
|
17.6
|
40.2
|
22.3
|
27.7
|
1999
|
13.8
|
22.4
|
44.1
|
32.1
|
33.1
|
2000
|
14.1
|
30.3
|
49.1
|
33.3
|
33.3
|
2001
|
17.7
|
N.A.
|
N.A.
|
N.A.
|
N.A.
|
The table shows that diesel cars account for 30 to 50 percent
of vehicles in France, Italy and Germany.
The reason for the huge popularity of diesel cars could be due to the
high gasoline price in those countries.
Diesel engine cars are cheaper to maintain in the long run, compared to
gasoline engine cars.
A large
number of European cars compete in Europe, particularly at the luxury end. BMW, Mercedes and Audi are very popular for
the very rich, as are Ferrari, Lamborghini and Porsche. It is difficult for
Japanese cars to enter the European market, especially at the higher end. The
only Japanese cars that are selling reasonably well are Toyota’s Yaris,
Nissan’s Micra and Jazz from Honda. All
three models compete in the 1.4 liter and under segment.
Germany. Of the four main European
countries that Honda is sold in, Germany has had the second highest sales
volume. Germany is a low-context culture where
practicality and durability is one of the main concerns of a product. Consumers are concerned with every detail
regarding a product and wish to know all relevant information before making a
purchase. The style of promotion used by
Honda on the Internet, bursting with information on their automobiles seems to
be an appropriate form of promotion for the low-context nature of the Germans.
Another
factor that should place Honda’s products in a better position in Germany is
that Germans are more willing to take risk and purchase new products. As a result, Honda would not have to spend
additional resources to change the image of their vehicles in Germany, as it
should probably do in France and Italy.
However, in reality, Honda’s sales have been dropping rapidly in the
past five years, 50% of what they were five years ago. If Honda’s promotion is in line with the
German’s low context nature, there must be another reason for the decrease in
sales. The most logical is the perceived nature of Honda’s quality. The company
needs to use its marketing to promote quality because competitors, such as
Mercedes (under DaimlerChrysler), Audi, Volvo, Jaguar (under Ford) and
Volkswagen, to name a few, are seen as high quality carmakers.
The United Kingdom. The English are a
moderately high-context culture, who focus on tradition and class. Accordingly, the type of advertising and
marketing promotion that will appeal to the English is similar to that popular
in France and Italy but more conservative in nature. On the other hand, the English are more
individualistic and less risk averse than the French and Italians. Hence, it should be easier for Honda to
introduce its range of cars in the UK and improve sales. The fact that the manufacturing plant is
located in the UK helps in the promotion of the cars. The construction of a second assembly plant
should also help Honda’s position in the UK.
The
existence of the assembly plant, together with the risk taking nature of the
English has increased the number of Hondas sold in the UK in the last five
years to such a level that they are easily Honda’s best market. The number sold
in the UK as of 2001 is twice that of Germany, which only five years ago
recorded more sales than the UK. However, no Honda vehicle has entered the top
ten cars sold in the UK, as shown in the table below for 2001.
Top 10 Cars Sold in Europe
1.
|
Ford Focus
|
2.
|
Vauxhall
Astra
|
3.
|
Ford Fiesta
|
4.
|
Peugeot 206
|
5.
|
Vauxhall
Corsa
|
6.
|
Ford Mondeo
|
7.
|
Renault Clio
|
8.
|
Renault
Megane
|
9.
|
Volkswagen
Golf
|
10.
|
Citroen
Xsara
|
Possible
Entry Wedge
A possible entry wedge exists in Europe
that could help Honda recover some of its lost ground. The European automotive
industry is committed to a voluntary agreement to reduce CO2
emissions by 25% from the 1995 levels by 2008 for all new cars. As an incentive for individuals to drive low
emission cars, special tax brackets will be given to drivers of low emission
cars.
In
2001, Honda’s Insight produced the lowest levels of CO2 emission of
any car in Europe. The following table
shows the 5 cars with the lowest CO2 emission.
Top 5 Cars with the Lowest CO2 Emission
Rank
|
Car
|
Engine
|
Gas Type
|
CO2 g/km
|
1
|
Honda Insight
|
1 liter
|
Gasoline
|
80
|
2
|
Peugeot 206
|
1.4 liter
|
Diesel
|
113
|
3
|
Toyota Prius
|
1.5 liter
|
Gasoline
|
114
|
4
|
Renault Clio
|
1.5 liter
|
Diesel
|
115
|
5
|
Audi A2
|
1.4 liter
|
Diesel
|
116
|
The ranking is an excellent opportunity for
Honda to promote its cars in Europe, where people (especially in Germany) are
obsessed with the environment and are burdened with high taxes. In addition,
Honda is introducing the Civic Hybrid in 2003.
It is a gasoline-electric power train, fuel-efficient car with a low CO2
emission level. Although the car has an
electric engine, it does not need to be plugged in and recharged. The battery pack recharges itself
automatically as the car is running.
The Issue
Honda is currently at the crossroads of
its European expansion in the automobile market. Honda has been successful in managing to
market essentially the same cars in many parts of the world, particularly in
the North American and Japanese markets.
Honda executives are wondering whether they should adopt more localized
product development in Europe or not.
Discussion Questions
1.
Does adapting the promotion of
its motor vehicles to suit each country’s culture make sense for Honda?
2.
Is it wise for Honda to market
its products the same in every country?
3.
Is pricing its vehicles similar
to the competition, a good strategy for Honda?
4.
Should Honda change its product
mix from country to country?
5.
Is distributing their motor
vehicles together with their motorcycles a good strategy for Honda?
6.
Is the European market too
competitive for Honda?
0 comments:
Post a Comment