Reference no: EM132854442

Question - Honda Wave - Does a huge, global company such as Honda have the capability to outmaneuver ultra-low price competitors? Honda is the world market leader in motorcycles. It is also the leading global manufacturer of small gas- powered engines, producing over 20 million units per year.

Honda used to dominate the motorbike market in Vietnam, with a share of 90%. Its best-selling model, the Honda Dream, sold for the equivalent of around $2,100. Chinese competitors then entered the market with ultra-low-price products. Their bikes sold for between $550 and $700 each, or between a quarter and a third of the price of the Honda Dream. These extremely aggressive prices turned market shares upside down. The Chinese manufacturers moved over one (1) million bikes per year, while Honda's volume dwindled from about one (1) million to just 170,000. Most companies would have thrown in the towel at this point, or withdrawn into the premium segment of the market. But not Honda. Its initial short-term response was to cut the price of the Dream to $1,300 from $2,100. However, Honda knew that it could not sustain this low price over the long term.

Moreover, this price was still roughly twice the price for a Chinese motorbike. Honda developed a much simpler and extremely inexpensive new model, which it called the Honda Wave. The new bike combined acceptable quality with the lowest possible manufacturing costs. "The Honda Wave has achieved low price, yet high quality and dependability, through using cost-reduced locally made parts as well as parts obtained through Honda's global purchasing network," the company said. The new product entered the market with an ultra-low price of $732, which is 65% less than the former price of a Honda Dream. Honda reconquered the Vietnamese motorcycle market so successfully that most of the Chinese manufacturers eventually withdrew. This case proves that premium manufacturers such as Honda can indeed compete against ultra-low price suppliers in emerging markets, but not by selling their existing products. Success in the ultra-low price position requires a radical reorientation and redesign, massive simplification, local production, and extreme cost consciousness.

Required -

1. What type of price strategy/positioning is being employed by Honda based on the case study?

2. What is/are the factor/s that contribute/s to the success of the company using its price positioning strategy?

3. How can the company achieve success by using a different price positioning strategy?