Market Structure of Honda Motors

Honda Motor Company is an oligopoly because the industry is only competing with a few other dominant automotive industries in Japan, such as Toyota, Nissan, Suzuki, Mazda, and Subaru. In Malaysia, it is competing with the Malaysian and other international companies, such as Proton, Perodua, Ford, Lexus, and Audi. The reason why Honda Motor Company is an oligopoly is because the change of price in the market shares, the results of advertising, and the outcomes of the problems solved in this company will be reflected in the sales of the other companies.

Also, the barriers to entry is very high, as a lot of capital is needed if a person wants to start up a business in this industry It is also a price setter instead of a price taker; therefore, the company is able to set the pricing of their automobiles.

Honda is considered as one of the largest manufactures in motorcycle and automobile industries with more than 14 million combustion each year Various products along with great after sale services and much more importantly the affordable price of its products have resulted in obtaining competitive strategy for the company as well as becoming a big competitor for companies such as Toyota and Nissan throughout the world.

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One of the most important challenging issues for companies such as Honda that tend to compete in the global market is the pricing decision, in which Honda has overcome the good and bad situations created successfully The reasons behind this success are adopting the best strategy for entering between Ethnocentric, Geocentric and Polycentric as well as good analysis of the environmental influences such as Inflation Rate and Flactuation along with the problems of Gray Market.

Each company or organization that wants to participate in the global market and actually wants to be significant parts of that market should follow significant structure and strategy. One of those strategies which means how this organization set the price for their product in the foreign country and global market in order to attract the consumer to buy their product and increase their profit we can explain these strategies in categories.

In general ethnocentric is the propensity to believe that specific ethnic or cultural group is mainly important and all another group of people is measured in relation one own. But in marketing ethnocentric means the price of each item will be the same in all parts of the world and there is no matter where the buyer is located and all of them will pay the same amount for the specific product there are some advantages by using this strategy but the important advantage is the extreme simplicity of this strategy which does not require information from rivals so such organization is not forced to change or reduce their price because of their competitors.

Another important pricing strategy is polycentric or sometimes called adaption This alternative is exactly opposite of ethnocentric and price of any item varies from one country to other Manager of such organization set their own price which depends on several factors such as wages, taxes, and advertising rate. Geocentric is more dynamic than other two geocentric pricing is based on the realization that unique local market factors should be recognized in arriving price decision, those factors including local market strategy as well as advertising rate.

According to these three strategies Honda’s pricing strategy is based on an ethnocentric alternative which means the price of the same product of Honda is approximately same all around the world it is true that sometimes because of some fluctuation in currency the price will vary in a different country but in general the base price of a similar product is same. Honda is also know for its pricing for entry level products the company sets price for low unit margin and high unit volume on an entry level product in order to gain high market share.

As companies decide to step in global markets they face many challenges, one of the biggest challenges for a global company such as Honda is to overcome the environmental changes which have a direct influences on their pricing decision and their financial position in the market The environmental factors are Currency Fluctuation, Inflation Rates, Government control and Competitive Behaviour .

Changes in currencies value has a huge impact on profit and cost for global companies which operate in foreign countries. As the value of currencies increases or decreases global companies face the different situation which they have to analysis and take an appropriate action to prevent any loss or losing their competitive position if home country currency appreciate relative to the host country this is an unfavorable turn for the exporter and if home country this is a favorable turn for the exporter Honda Motor is a case in point the company serves the entire European country with its single manufacture plant in the UK In 2006 the value of one £1 was equal to a, -1.03 on that time the price of Honda Civic a 1.8 engine car was set at a 20,633 Honda had to convert this British pound increased to £1 to £1.16 the unfavourable shift had a direct negative impact on Honda’s Profit because £20,633 now gives Honda company £17,787 which means £400 loss on each car sold as result the company had no other choice to increase Honda Civic in Europe to recover the change in its profit.

Inflation is an upward change in price levels if inflation rates increases in a country this would cause products prices to increase in order to cover the rising cost for companies and manufacturers. A good example is Honda Motors in India, in 2010 the inflation rate in India dramatically increased to near 16% in comparison with 10% in 2009 this fluctuation caused materials and energy price to increase.

Honda Motors which manufactures half of the motorcycles in India, was faced with high prices relative to last years the company had to pay more for material and energy for its manufacture plant in India, as a result Honda made a big change in its pricing decision and increased its product price nearly by 35%, this decision was made by Honda to maintain its operating margin.

Government policies and regulation in different countries have a huge effect on pricing decisions, government actions that limit manager’s ability to adjust prices can put pressure on margins. For example in Malaysia, the government has restricted price competition between car industries such as Honda, Toyota, and Kia. In addition, the government has also imposed high duties on imported cars based on their engine size. Since Honda does not have a manufacturing plant in Malaysia the company has to import cars into Malaysian market which means the company hast to pay duties to define by the Malaysian government. The imposed duties would increase the vehicle prices by 170% or even 300% in some cases. For instance, a Honda Civic which is priced at $16,000, if the car gets imported into Malaysia, the same car will have a price of $42,300.

Pricing decisions are not only limited by cost and the nature of demand but also by the competitive condition in different industries. For example, Honda has adopted a competitive-based pricing approach in some parts of the world like Europe a case in point, Honda Jazz price was priced according to the price of other competitors in Europe such as Peugeot, Renault, Ford, and Opel The Honda Jazz was pieced at £13,800 which was very close to the price of Honda’s competitors in Europe according to figure below.

Honda has brought several attractive product models to the market. It has also used a smart marketing strategy with focus upon creating a reliable image and trust among the customers It uses both traditional and digital methods of promotion to promote its brand and products The ‘Power of Dreams’ slogan features across Honda’s advertising and promotion campaigns and events. Advertising has always been a key component of Honda’s marketing and promotional strategy The brand has always spent heavily on promoting its car and bike models in local markets Whether it is the Honda City, Civic or Honda CBR bikes, they are always promoted heavily in newspapers and magazine advertisements.