University of Dhaka

Department of MIS

EMIS-549 (Decision Support System)

Term Paper On

Honda Decides to Market Small Motorbikes in the

United States

Submitted to: Assistant Professor

Ashis Talukder Decision Support System

Submitted by:

Zakaria Hasan (61424-17-006)

1. INTRODUCTION

The word “Decision” originally comes from the Latin “decider” which means determine. Decision-

making can be regarded as the cognitive process resulting in the selection of a belief or a course

of action among several alternative possibilities. Every decision-making process produces a final

choice that may or may not prompt action. Decision-making is the study of identifying and

choosing alternatives based on the values and preferences of the decision maker. Decision-making

is one of the central activities of management and is a huge part of any process of implementation.

The process of 4-step decision making

1. Defining the problem

2. Constructing a model that describes the real-world problem

3. Identifying possible solutions to the modeled problem and evaluating the solutions

4. Comparing, choosing, and recommending a potential solution to the problem

Honda Motor Co., Ltd is a Japanese public multinational corporation primarily known as a

manufacturer of automobiles, motorcycles and power equipment. As a young man, Honda's

founder, Soichiro Honda had an interest in automobiles. He worked as a mechanic at the Art Shokai

garage, where he tuned cars and entered them in races. In 1937, with financing from his

acquaintance Kato Shichirō, Honda founded Tōkai Seiki (Eastern Sea Precision Machine

Company) to make piston rings working out of the Art Shokai garage. After initial failures, Tōkai

Seiki won a contract to supply piston rings to Toyota, but lost the contract due to the poor quality

of their products. After attending engineering school without graduating, and visiting factories

around Japan to better understand Toyota's quality control processes, by 1941 Honda was able to

mass-produce piston rings acceptable to Toyota, using an automated process that could employ

even unskilled wartime laborers. In October 1946, Soichiro Honda established the Honda

Technical Research Institute in Hamamatsu, Japan, to develop and produce small 2-cycle

motorbike engines. Honda hired engineer Kihachiro Kawashima, and Takeo Fujisawa who

provided indispensable business and marketing expertise to complement Soichiro Honda's

technical bent. Two years later, Honda Motor Company, Ltd. was born, and in 1959 Honda opened

its first storefront in Los Angeles with six industrious employees. From those simple beginnings

in Los Angeles, American Honda has grown to become a top manufacturer of motorcycles, power

equipment, ATVs, generators, marine engines, and of course, automobiles. In 2013, Honda

invested about 5.7% (US$ 6.8 billion) of its revenues in research and development. Also in 2013,

Honda became the first Japanese automaker to be a net exporter from the United States, exporting

108,705 Honda and Acura models while importing only 88,357.

The 75 Greatest Management Decisions Ever Made: ...and 21 of the Worst was described by Stuart

Crainer. One of the 75 greatest management decisions is- “Honda decides to market small

motorbikes in the United States”

2. BACKGROUND

In 1958 an internal group formed to study Honda's overseas marketing chose to bypass the US

because it foresaw little demand for Honda’s little motorcycles. Fujisawa took the opposite view:

attack the US first precisely because it is the most difficult. The maverick goes straight for the top.

Toyota had just failed with its Toyopet car. The Japanese Finance Ministry made Honda's

exporting efforts difficult. But in fact the USA had the roads and the disposable income. There are

many cultural differences between Japan and the US, due in part to physical size and population

density. Japanese groupism is due to having to work together, compared with the settler history of

the US, which promotes individualism. Japan is homogeneous, whereas the US is a melting pot.

However, the Japanese education system promotes fierce competition. Honda avoided traditional

Japanese trading companies and American distributors, not wanting to be restrained by their lack

of ambition. Company leaders do their own market research personally. A small team was sent to

California in 1959 with no fixed plan. They had a slow start. Mr Honda had promised them a

world-class product, but mechanically the motorcycles had problems because Honda had not

known about different riding conditions in the US. The problems were fixed very quickly indeed

(one month). While Honda tried to sell its biggest machines in the US, it was the Super cubs which

attracted attention (50cc). So Honda tried to sell these outside the traditional motorcycle market

(leather and grease), clean, and in shop windows (not so different from the distribution system in

Japan). Honda pushed good service too. An entire new market was created. Advertising

emphasized the friendly nature of the machines. By 1964 Honda controlled half of the entire US

market. Entering the automobile business was quite different because of the power of the Big Three

and because the automobile was a big purchase for customers. Honda’s first attempts to sell cars

in the USA came in 1969. A different distribution system was needed, because the Japanese and

American systems were so different. It was difficult to find dealers to take Honda cars. Not until

the mid-1970s were there any exclusive dealerships. The 1973 CVCC engine in the Civic was the

key to Honda's high-tech reputation in the US. A sales boom followed its introduction, and that of

the Accord in 1976. So in fact the products gained acceptance quickly.

The success of the Super Cub in Japan prompted Honda to consider expanding its target market to

other geographic regions. The company had already experimented with local Southeast Asian

markets in 1957 and 1958, however, with little success. The European market, while larger, was

heavily dominated by its own name brand manufacturers, and their popular mopeds dominated the

low price, low horsepower market. Thus, Fujisawa decided to focus Honda's attention on the U.S.

market. Prior to 1960, the image of the motorcyclist in the United States was that of an unsavory

teenager who belonged to a group of unruly characters known by names such as "Hell's Angels"

and "Satan's Slaves." In general, the U.S. public regarded motorcyclists as troublemakers who

wore leather jackets. In the 1960s, however, Honda Motor Company worked to successfully

transform that image, and at the same time establish the company as the leading motorcycle

manufacturer in the world. In 1959 Honda established a U.S. subsidiary--American Honda Motor

Company, Inc.--an action which was in sharp contrast to other foreign manufacturers who relied

on distributors. Honda's strategy was to create a market of customers who had never given a

thought to owning a motorcycle. The company started its enterprise in America by producing the

smallest, most lightweight motorcycles available. With a three speed transmission, an automatic

clutch, five horsepower (an American cycle had only two and a half), an electric starter, and a step-

through frame for female riders, Honda sold its unit for $250 retail compared to $1,000--$1,500

for the American machines. Even at that early date, American Honda was probably superior to its

competitors in the area of productivity. Honda followed a policy of developing the U.S. market

one region at a time. The company started on the West Coast and moved eastward over a period

of five years. During 1960, 2,500 machines were sold in the United States. In 1961, 125 distributors

were established, and $150,000 was spent on regional advertising. Honda's success in creating a

demand for lightweight motorcycles was impressive. Its U.S. sales skyrocketed from $500,000 in

1960 to $77 million in 1965. Honda's advertising campaign, which was directed at young families,

included the slogan, "You meet the nicest people on a Honda." This was a deliberate attempt to

disassociate its motorcycles from the image many Americans had of motorcyclists. The slogan's

creation was an interesting story itself. In the spring of 1963 an undergraduate advertising major

at the University of California, Los Angeles (UCLA) submitted, in fulfillment of a course

assignment, an advertising campaign for Honda. Its theme was: "You meet the nicest people on a

Honda." Encouraged by his instructor, the student submitted his work to a friend at Grey

Advertising. Consequently, the "Nicest People" campaign became the impetus behind Honda's

sales, and as a result, by 1964 nearly one out of every two motorcycles sold in the United States

was a Honda. The success of the Super Cubs eventually translated into success with larger bikes,

and Honda went from no presence at all in the U.S. market in 1959 to 63% of the entire market. In

the process they took a hatchet to the import market, dropping the share of British bikes from 49%

in 1959 (when Honda started in the US) to 9% by 1973. By 1980, British bikes’ sales were less

than 2.5 million, down from a high of over 35 million less than ten years earlier.

2.1 The "Nicest People" campaign (1963)

In June 1963 in US media, Honda began the 12 year long advertising campaign "You meet the

nicest people on a Honda," created by Grey Advertising. Grey had bought the idea from a UCLA

undergraduate student, who had created the concept for a class assignment. The event marked the

beginning of the decline of domestic and British motorcycle brands in the US market, and the rise

of Honda and the other Japanese companies. In December 1965, Edward Turner said the sale of

small Japanese motorcycles was good for BSA, by attracting new riders who would graduate to

larger machines, not anticipating that the Japanese would advance over the next 5 years to directly

threaten British bikes with technically sophisticated models like the Honda CB750. As a case study

in business and marketing, the campaign is still remembered half a century later, with one strategic

management textbook saying, "Honda and the Super cub is probably the best known and most

debated case in business strategy." It was credited with having "invented the concept of lifestyle

marketing." Specific elements of the Super Cub's design were integral to the campaign, such as

the enclosed chain that kept chain lubricant from being flung on the rider's clothing, and the leg

shield that similarly blocked road debris and hid the engine, and the convenience of the semi-

automatic transmission. Presenting the Super Cub as a consumer appliance[16] not requiring

mechanical aptitude and an identity change into "a motorcyclist", or worse, "a biker", differentiated

Honda's offering, because, "the dedication required to maintain bikes of that era limited ownership

to a relatively small demographic, often regarded as young men known for their black leather

jackets and snarling demeanors." Rather than remaining limited to trying to convince traditional

downmarket male buyers to switch to Honda from other brands with the macho approach of most

motorcycle advertising at the time, Honda broke new ground. The ad campaign sought to improve

the image of motorcycling in general and expand the overall size of the motorcycle market by

attracting new riders. In a stroke of good fortune for Honda, Brian Wilson and Mike Love

composed the 1964 song "Little Honda", extolling the joys of riding the Honda 50, and even

inviting the listener to visit their local Honda dealership, in language that sounded as if it could

have been written, or at least paid for, by Honda's advertising copywriters, yet it was not a

commercial jingle.[9] The song was released by The Hondells in 1964, followed by the release of

the original recording by The Beach Boys. In 1965 The Hondells released "You Meet the Nicest

People on a Honda", another song promoting the Super Cub, which was actually used in Honda's

TV spots, as a B side to their version of "Sea Cruise. The long-running campaign, including the

slogan, the music, and the upbeat images of respectable, middle and upper-class people,

particularly women, riding Hondas became closely associated with the Honda brand ever since.

The image Honda created was contrasted with the one percenter "bad boy" biker and became a

focal point of Japan bashing boosterism of US-made Harley-Davidson motorcycles.

Aside from Harley-Davidson fans, the company itself had a more conflicted reaction to the

successful Honda "You meet the nicest people" campaign. At first they were offended at the

suggestion that Harley-Davidson riders were not "nice people." Harley-Davidson had, since its

founding in 1903, scrupulously cultivated an image of staid respectability, and would not begin to

tentatively embrace the "outlaw" demographic of their customer base for at least another ten years.

In 1964 they denied any association with one-percenter bikers, and so distanced themselves from

the implications of Honda's campaign. But they also "tried to have it both ways", and soon joined

Vespa and Yamaha in producing ads that were "suspiciously similar" to "You meet the nicest

people." Whether they were being offended by or imitating Honda, at the time Harley-Davidson

did not share the interpretation that Honda's advertisements, "added to the macho Harley image."

2.2 Honda 50 (Super Cub)

The Honda Super Cub, in its various versions C100, C50, C70, C90, C100EX, C70 Passport and

more, is a Honda underbone motorcycle with a four stroke single cylinder engine ranging in

displacement from 49 to 109 cc (3.0 to 6.7 cu in). Having been in continuous manufacture since

1958, with production surpassing 60 million in 2008, the Super Cub is the most produced motor

vehicle* in history. The Super Cub's US advertising campaign, "You meet the nicest people on a

Honda", had a lasting impact on Honda's image and on American attitudes about motorcycling,

and is considered a classic case study in marketing.

The idea for a new 50-cubic-centimetre (3.1 cu in) motorcycle was conceived in 1956, when Honda

Motor's Soichiro Honda and Takeo Fujisawa toured Germany and witnessed the popularity of

mopeds and lightweight motorcycles. Soichiro Honda was primarily the engineering and

production leader of the company, always with an eye towards winning on the racetrack, while his

close partner Fujisawa was the man of finance and business, heading up sales and formulating

strategies intended to dominate markets and utterly destroy Honda Motor's competitors. Fujisawa

had been thinking about a long term expansion strategy, and unlike other Japanese companies did

not want to simply boost production to cash in on the recent economic boom in Japan. A small,

high performance motorcycle was central to his plans. Upwardly mobile consumers in postwar

Europe typically went from a bicycle to a clip on engine, then bought a scooter, then a bubble car,

and then a small car and onwards; Fujisawa saw that a motorcycle did not fit in this pattern for the

average person, and he saw an opportunity to change that. Soichiro Honda was at the time tired of

listening to Fujisawa talk about his new motorcycle idea; Honda came to Europe to win the Isle of

Man TT race and wanted to think about little else. Fujisawa and Honda visited Kreidler and

Lambretta showrooms, as well as others, researching the kind of motorcycle Fujisawa had in mind.

Fujisawa said the designs had "no future" and would not sell well. His concept was a two wheeler

for everyman, one that would appeal to both developed and developing countries, urban and rural.

The new motorcycle needed to be technologically simple to survive in places without up to date

know how and access to advanced tools or reliable spare parts supplies. The common consumer

complaints of noise, poor reliability, especially in the electrics, and general difficulty of use would

have to be addressed. Because Honda was a large company growing larger, it need a mass appeal

product that could be produced on an enormous scale. The design had to be sorted out before

production began, because it would be too costly to fix problems in the vast numbers that were to

be manufactured. The scooter type nearly fitted the bill, but was too complex for developing

countries to maintain, and the small wheels did poorly on badly maintained or nonexistent roads.

Another of Fujusawa's requirements was that it could be ridden with one hand while carrying a

tray of soba noodles, saying to Honda, "If you can design a small motorcycle, say 50 cc with a

cover to hide the engine and hoses and wires inside, I can sell it. I don't know how many soba

noodle shops there are in Japan, but I bet you that every shop will want one for deliveries." Once

interested, Soichiro Honda began developing the Super Cub on his return to Japan. The following

year Honda displayed a mockup to Fujisawa that finally matched what he had in mind, Fujisawa

declaring the annual sales would be 30,000 per month, half again as many as the entire monthly

two-wheeler market in Japan. His goal was export on a scale yet unseen in the economic disorder

of postwar Japan, when most companies' halting trade efforts were handled through foreign trading

companies.[10] Honda would have to establish its own overseas subsidiary to provide the

necessary service and spare parts distribution in a large country like the United States. To this end

American Honda Motor Company was founded in 1959. In 1961 a sales network was established

in Germany, then in Belgium and the UK in 1962, and then France in 1964.

The Honda Juno had been the first scooter to use polyester resin, or fiberglass reinforced plastic

(FRP), bodywork, and even though production of the Juno had stopped in 1954 as a result of Honda

Motor's financial and labor problems at the time, Fujisawa continued to encourage research in

polyester resin casting techniques, and these efforts bore fruit for the Super Cub. The new

motorcycle's fairing would be polyethylene, the most widely used plastic, which reduced weight

over FRP, but Honda's supplier had never made such a large die cast before, so the die had to be

provided by Honda. The Super Cub was the first motorcycle ever to use a plastic fairing.

Motorcycling historian Clement Salvadori wrote that the plastic front fender and leg shields were,

"perhaps the Cub's greatest contribution; plastic did the job just as well as metal at considerably

lower cost." The technology developed in the Isle of Man TT racing program was equally vital to

the new lightweight motorcycle, making possible 3.4 kilowatts (4.5 hp) from a 50 cc four-stroke

Honda engine, where the first engine the company built a decade earlier, a "fairly exact copy" of

the 50 cc two stroke war-surplus Tohatsu engine Honda had been selling as motorized bicycle

auxiliary engine, had only a 0.37–0.75 kilowatts (0.5–1 hp) output. Honda's first four stroke, the

1951 E-type, had just a little more power than the Super Cub, 3.7 kilowatts (5 bhp), with nearly

triple the displacement, 146 cc (8.9 cu in). To make the new motorcycle, Honda built a new ¥10

billion factory in Suzuka, Mie to manufacture 30,000, and with two shifts, 50,000, Super Cubs per

month. The factory was modeled on the Volkswagen Beetle production line in Wolfsburg,

Germany. Until then, Honda's top models had sold only 2,000 to 3,000 per month, and observers

thought the cost of the new plant too risky an expenditure. Edward Turner of BSA went to Japan

to see the motorcycle industry in September 1960, and said that investments the size of the Suzuka

plant were "extremely dangerous" because the US motorcycle market was already saturated. When

completed in 1960, the Suzuka Factory was the largest motorcycle factory in the world, and was a

model for Honda's mass production facilities of the future. The economies of scale achieved at

Suzuka cut 18% from the cost of producing each Super Cub when Suzuka could be run at full

capacity, but in the short term Honda faced excess inventory problems when the new factory went

into operation before the full sales and distribution network was in place.

3. OUTCOMES

The major outcomes of the decision regarding to market small motorbike in the United States

are:

Honda went from no presence at all in the U.S. market in 1959 to 63% of the entire

market in 1963

By the end of the year, Honda had sold more than 100,000 units in the U.S., more than all

other motorcycle manufacturers combined

by 1964 nearly one out of every two motorcycles sold in the United States was a Honda

Its U.S. sales skyrocketed from $500,000 in 1960 to $77 million in 1965

The success of the Super Cubs eventually translated into success with larger bikes

4. THE REASONS BEHIND HONDA’S SUCCESS

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 was the market

share loss and profitability declines and the scale economy disadvantages in technology,

distribution, and manufacturing. The BCG report showed that success of the Japanese

manufacturers started with the growth of their own domestic markets. The high production for

domestic demand led to Honda experiencing economies of scale as the cost of producing

motorbikes declined with the level of output. This provided Honda to achieve a highly competitive

cost position which they used to penetrate into the US market. According to BCG’s report the

major reasons are:

Honda started with the growth of their own domestic markets

Irrational target market & Entry strategy

Innovative production engineering

Environmental Analysis

Everything went according to how they planned

Clear strategy and goal

A deliberate advertising campaign

A deliberate approach on how to reach to their market.

Richard Pascale (born 1938) worked as a consultant at McKinsey & Company in the late 1970s

alongside Tom Peters at a time when Americans thought they were being overwhelmed by Japan's

industrial superiority. Pascale became even better known for another Japanese company that he

looked at closely, where he uncovered what is now known as the “Honda Effect”. Disputing the

Boston Consulting Group's view that the Japanese car company's success in North America was

due to its long-term focus and planning, Pascale went and talked to a number of Honda executives

about the company's entry into the United States. And he found that it had been the result more of

a series of miscalculations, rapid readjustments and chance than of any clear rational progression

along a planned strategy. According to Pascale, the key factors are:

Low-cost high-quality product

Emergent strategy

Cutting out extra costs

The 50cc success of Honda as a no other option

Detecting untapped market

The result more of a series of miscalculations, rapid readjustments and chance

No specific strategy

4.1 FINDINGS & ANALYSIS

Most frankly speaking I have found the decision making in this regard & Honda’s success is so

much fascinating, interesting & in some ways confusing. The key factors of their success,

according to my analysis are:

Different Marketing & Distributing Strategy

i. Willing to take risks

ii. Creative advertising campaign

iii. Faster Decision Making & readjustments

iv. Precognition

v. Moving forward the organization as whole

vi. Providing Superior Service

vii. Respect for the Individual

viii. The Teamwork Factor

ix. Quality Efficiency and Productivity

x. People Involvement

xi. Two-way communication

xii. Long-term Relationships

xiii. The Honda Way

5. CONCLUSION

It’s easy in hindsight to look at Honda’s growth in the motorbike market (and its subsequent

expansion into cars in the 1970’s) as a carefully planned strategy that inexorably built market share

based on low-cost products which undercut incumbents. BCG was forced to look at the events

retroactively and as so often happens when seeing events from a distance the messy richness of

the details gets lost, along with it much of the truth. BCG applied standard strategy consulting

models and smoothed out the dynamism of the story to turn it into an orderly decision-making

process on the part of Honda. In fact, there was no grand plan at all. If they had doggedly pursued

their initial course of pushing the larger bikes with Buddha-moustache handlebars, as directed by

Mr. Honda, things could just as easily have turned sour and today Honda would be just a footnote

in automotive history. Honda’s open and entrepreneurial approach is a perfect example of what

Gary Hamel calls “lucky foresight”, arguing that new business concepts are always combinations

of happenstance, desire, curiosity, ambition and need.

REFERENCES

I. http://designmind.frogdesign.com/blog/how-honda-succeeded-in-the-united-states.html

II. http://world.honda.com/history/challenge/1959establishingamericanhonda/index.html

III. http://www.earnhardthonda.com/honda-history/

IV. http://en.wikipedia.org/wiki/Honda

V. http://www.studyworld.com/newsite/reportessay/science/Social%5CHonda_Marketing_S

trategy.htm

VI. http://en.wikipedia.org/wiki/American_Honda_Motor_Company

VII. http://www.ukessays.com/essays/business/two-accounts-of-hondas-entry-into-the-us-

business-essay.php

VIII. http://www.economist.com/node/12676998

IX. http://www.referenceforbusiness.com/history2/67/Honda-Motor-Company-Limited.html

X. http://en.wikipedia.org/wiki/Decision-making

XI. http://world.honda.com/history/challenge/1959establishingamericanhonda/page08.html

XII. http://en.wikipedia.org/wiki/Honda_Super_Cub

XIII. http://www.honda.com/news/local_news_content/%5B5032%5D_Honda_in_America.pd

f

XIV. http://gerpisa.org/ancien-gerpisa/actes/13/fiche-13-2.pdf