Hondas Marketing Strategy: Keeping Local Dealers in Business - Research Paper Example

 Honda’s Marketing Strategy: Keeping Local Dealers in Business Honda Corporation, like other car manufacturers, uses a manufacturing and dealership business model. In difficult economic times, the company’s sales can remain relatively stable across all dealerships, but many individual dealers are challenged to maintain inventory and overhead—thus challenging their ability to remain in business. The purpose of this paper is to set forth a concise problem statement with a strategic question, the articulation of two concepts from management theory that can be applied to that question, and analysis or application of those concepts with supporting reasons, and specific recommendations to address the issues identified. This paper’s final section is intended to set forth the insights and lessons (learning) that I have gained as a result of the research and methodical application of the principles to the issues identified. Problem Statement. From my experience, I have observed what can happen when a car manufacturer does not provide marketing resources and support to its dealerships. A local dealer has a very dependent relationship with its brand, and this goes beyond simply maintaining a sufficient inventory of new and used cars to meet local market demand. In times of economic uncertainty, the dealership can face solvency issues if it is not able to maintain a minimal level of sales. This requires effective marketing; even if consumers are spending less on vehicles, the marketing focus must shift to offer reasons why the vehicles (in this case, Honda) are excellent choices. Whether emphasizing fuel economy, safety, ease of maintenance, low cost, or quality, marketing must communicate that Honda is the solution to whatever problem the car-buying market is experiencing. The problems faced by local car dealers in these economic circumstances are straightforward: Down market cycles negatively impact sales. Shrinking sales volume negatively impacts local dealership revenues. Low revenues mean cost-cutting measures and efficiencies must be employed. Low revenues also mean that marketing needs to be emphasized to increase sales volume—yet the cost cutting usually begins with marketing as managers focus on operational efficiency and most consider marketing to be somewhat disposable (or at least less priority). As a result of this dynamic, manufacturers are often called upon to assist their dealers in riding out tough times. Based on these facts, the strategic question I want to answer is “In what ways can Honda change their existing marketing strategy to help small car dealerships stay afloat?” Two Concepts. The two concepts that will assist me the most in finding the answer to this question are the SWOT/TOWS matrices and the Porter’s Five Forces of Competition Model. The SWOT analysis, applied to the local dealership, will assist me in understanding the specific elements and deficiencies that need to be mitigated, as well as outline the places where strengths and opportunities can be maximized. As the model considers internal issues (strengths and weaknesses) as well as external ones (opportunities and threats), I will use it to define the dealership’s position in an economic downturn to better understand the marketing strategies best suited to supporting the dealers most effectively. Once this is applied, the specific areas of need faced by the dealerships should be apparent and provide the basis for determining the best course of action by Honda Corporation in support of the local businesses. The Five Forces model can then be applied with regard to the Honda Corporation itself and, once those elements are identified, can drive the strategies needed to answer the question as well as provide a basis for the recommendations included herein. In considering the competitive landscape in which Honda Corporation—and by extension its dealers—operate, I expect to construct an analysis of Buyer and Seller Power, as well as overall Rivalry. This is what will be needed to make recommendations in Honda’s marketing mix and strategies to assist its dealers in surviving a negative market move. Simply stated, the micro-environment of the dealership region can be interfaced with the macro-environment of Honda Corporation’s marketing efforts and be assimilated into a workable plan that will benefit the dealers without weakening the competitive power of Honda Corporation. This analysis is set forth in the section below. Analysis. The first part of the analysis for the recommendations in the next section is to consider the various strengths, weaknesses, opportunities, and threats facing a local Honda dealer that is facing an economic downturn. In general, Olsen and Eadie (as cited in Liou (2000) note that the “development of strategic management is important because it corrects the preoccupation with strategy formulation in the early stage and gives special attention to strategy implementation and evaluation in the later stage of the overall strategic process” (p. 1621). In this analysis, it is the future (or later stage) of strategic management that will be determined by Honda Corporation’s marketing effort to assist its dealers. It is important to match the dealer’s resources and capabilities to the local region in which it competes. This analysis will begin with the strengths associated with being a Honda dealer: Strengths: The brand name and market presence of Honda Corporation. The dealership’s reputation in the area for service and support of customers. Cost advantages of the Honda brand when compared to domestic dealers and other competitors. Exclusivity in terms of there being no competition from other Honda dealers (dealership territories are firmly established and protected). As a car dealer in an economic downturn, there are weaknesses inherent to the market position. The likely vulnerabilities for a dealership are: Weaknesses: Inability to sustain operations without making minimum sales goals. Cost structures that prevent price competition with dealers whose cars have similar characteristics. In the midst of these, the external environment can demonstrate some opportunities for the dealership to exploit with the proper support from the parent company. Opportunities: Given the cost consciousness of consumers in an economic downturn, the Honda dealership has the opportunity to emphasize the fuel economy advantages of owning a Honda. Again focusing on cost concerns, the dealership can promote its lower-priced vehicles rather than SUVs or luxury models. Even in hard times, today’s consumers care about the environment. Honda dealers have the opportunity to stress the environmental advantages of Honda Corporation’s hybrid vehicles. As with all external analyses, the opportunities are not the only part of the consideration; there are also threats which, if exploited by other dealers, could damage the market share and competitive advantage of a dealership. Threats: Changes in consumer preferences toward vehicles in the dealer’s inventory. If the dealer has too many SUVs on the lot, and gas prices are moving the consumers to small vehicles, the dealer is threatened with inventory that cannot be turned over. The competitors of the dealerships will likely respond to the economic downturn in similar ways; cost cuts, incentives like rebates, and the marketing of more affordable vehicles. This analysis allows for me to assess the complimentary advantage points between the dealership’s strengths and opportunities. It is equally important to consider competitor’s capabilities within the same region for the purposes of comparison (Bloodgood & Bauerschmidt, 2002, p. 418). In terms of Honda Corporation’s position, the company has stated that it is committed to “building a dealer base that represents the communities where we do business” (American Honda, 2009, n.p.). in pursuit of this, Honda maintains a commitment to assist its dealers in achieving their sales objectives through dealership incentives, rebates, and marketing. This is where the Porter Five Forces model can be instrumental in determining ways to increase Honda’s ability to help its dealerships weather economic storms. Porter developed a model to assist managers with understanding industry forces relevant to market participants and their characteristics. In terms of Honda and its dealerships, the application of Porter’s model is shown in the table below: Supplier Advantage Buyer Power Degree of Rivalry Threat of Substitutes Barriers to Entry Supplier Concentration Importance of Volume to Supplier Differentiation of Inputs Switching costs of industry firms Presence of substitute inputs Threat of forward integration Bargaining Leverage Buyer Volume Buyer Information Brand Identity Price Sensitivity Product Differentiation Buyer Concentration Exit Barriers Industry Concentration Fixed Costs/Value Added Industry Growth Brand Identity Diversity of Rivals Switching Costs Buyer inclination to Substitutes Price Performance Trade-off of Substitutes Absolute Cost Advantages Proprietary Learning Curve Access to Inputs Capital Requirements Brand Identity Access to Distribution Proprietary Products While these general categories of analysis are useful, they need to be combined with the specific elements of the SWOT analysis to be helpful in making and supporting the recommendations that follow. Rivalry is simply the competition that occurs between businesses with similar products. In this case, Honda is technically a rival with every car manufacturer that sells vehicles in the United States. In reality, however, it has more of a competitive match with Toyota than, say, Jaguar. In those industries where rivalry is relatively low, there is general market stability unless an untoward market entrant was to attempt a major penetration. In the auto industry, however, competition is fierce and the rivalry among firms is intense. While there are a variety of ways for Honda to attempt market leadership, only a few have the added benefit of protecting its dealerships. Pricing, differentiation, and distribution are all ways to gain overall market share, but these are not going to be effective if the dealers go out of business while awaiting an economic turnaround. The primary solution to this is in the marketing mix; where dealers can rely on a consistent brand image focused on the needs of their demographic profile. The second of Porter’s forces is the threat of substitutes. If a consumer has $ 15,000 with which to purchase a vehicle, and rival Nissan can offer either a superior vehicle for that price or the same vehicle as Honda at a lower price, the consumer is going go with the substitute product. While this often presents as price competition, price is not the only threat in this area. In the American market, the image presented by the marketing efforts of the company can offer a threat as well. If Toyota is marketed as more fuel efficient, or Hyundai is branded as having higher quality—regardless of the truth of these images—the public will respond to the image and the threat to Honda is just as real. Buyer power, the third of Porter’s forces, is concerned with the ability of the buyers to exercise force on the industry or company. It is generally understood that buyer power is higher if there are fewer buyers with significant market share, or if specific buyers are responsible for a significant portion of the output. In the auto industry, these conditions do not exist in force, and so buyer power need not be considered here. Similarly to buyer power, supplier power (the fourth of Porter’s forces) is predicated upon concentration and distribution advantages. While there is supplier power in the auto industry, it is not relevant to the dealership assistance recommendations being analyzed here. Accordingly, it merits no significant analysis. The same concept applies to the fifth of Porter’s forces, Barriers to or threats of Entry. For the local dealership looking to survive while the economy is in a downturn, these elements are not significant. Certainly, they are to Honda Corporation on an industry basis, but not to local dealership assistance programs. What will assist the local dealerships is an appropriate product development and diversification strategy in combination with advertising and marketing support. In terms of each distributorship, there four general areas for marketing focus. These are: Geographic—based on the area of the country, its climate, population, growth rate, and affluence. Consider the different marketing needs between Honda’s dealer in Denver, Colorado versus Miami, Florida. Both need effective marketing assistance—but the product promotion will necessarily be different because of the geographic differences. Demographic – based on the population of a region, such as age, gender, or income. Honda’s dealership in Beverly Hills will likely be able to market the higher end of the product line than a rural dealership in Southwest Missouri. Psychographic – based on consumer’s attitudes and lifestyle perceptions. If the Billings, Montana dealership is likely to do well with the SUV market in spite of the economic turndown, the same can be expected for the economy models in San Francisco or New York. The analysis presented here demonstrates the strength of Honda assisting its dealers in riding out hard times. It can generally focus on economy and fuel efficiency across the board, but will likely want to allow dealers to differentiate model type for the segmentation of their regional markets. Honda can also spread the risk of slower sales across all of its dealerships by offering rebates and manufacturer-sponsored incentives to all dealers. Through the combination of national targeted marketing, manufacturer incentives, and regional dealership segmentation, Honda can ensure that its network of dealers maintain their economic viability so that, when better economic times come, they are still around to take advantage of it. Recommendations. Given the analysis related above, Honda Corporation needs to immediately employ the following three recommendations: 1. Initiate a marketing campaign emphasizing economy and fuel efficiency. 2. Initiate manufacturer rebates to assist local dealerships in maintaining sales quotas and goals. 3. Employ a segmentation strategy for regional dealerships that will allow them to target the demographic and regional markets for the highest possible advantage. Learnings. After working on this research and analysis, I have learned several things about strategic decision-making. The first is how important it is to take the time and gather the necessary information to make the decision. If I had not reviewed the various strengths and weaknesses, opportunities and threats, of the dealership, I would not have an organized source of information for making a strategic recommendation. The second lesson was that taking both the dealership analysis and augmenting it with the Five Forces analysis for Honda Corporation, I was able to see a much better picture overall than either model provided by itself. Each was important to the process, but taken together the whole was greater than the sum of its parts. Finally, I learned that there is more to strategic decision-making than just having a creative idea. Recommendations for action should not be based on a concept; they should have a strong foundation of analysis and balance. There has to be a logical reason for the strategic plan, one that can be backed up by data and thoughtful consideration of the situation. References American Honda Motor Co., Inc. (2009). Dealer Diversity. Retrieved 28 January 2009 from http://corporate.honda.com/america/diversity.aspx?id=diversity_dealer. Bloodgood, J.M., Bauerschmidt, A. (2002). Competitive Analysis: Do Managers Accurately Compare their Firms to Competitors? Journal of Managerial Issues, 14, (4), 418-425. Hiam, A. & Schewe, C. D. (1992). The Portable MBA in Marketing. New York: John Wiley and Sons. Liou, K.T. (2000). Applying Strategic Management to Economic Development: Benefits and Challenges. International Journal of Public Administration, 23, (9), 1621. Olsen, J.B., & Eadie, D.C. (1982). The Game Plan: Governance with Foresight. Washington, D.C.: Council of State Planning Agencies. Porter, M.E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press. Read More