Product Development For Honda

The assignment is a collection of detailed analysis of the new product development for Honda Corporation, Japan.

It identifies the challenges in NPD by doing a PESTEL analysis and Porter’s Five force Model of the general market environment. Proceeding further we cover organizational arrangement that includes budgeting for NPD and organizing it.

NPD covers managing the development process by idea generation and screening. It is then moved from concept to strategy. We have done the business analysis by implementing marketing strategies like Ansoff’s Matrix, STP, Marketing Mix and Directional Policy Matrix.

The business analysis done by estimating total sales, costs benefit analysis, breakeven analysis etc.

Finally the product moves for commercialization after market testing. A feedback is also compulsory after market introduction.

A lot of data to support these theories and to arrive to a conclusion as been derived after extensive market survey research.

Introduction

We have developed a new car Honda Citra for Honda Corporation, Japan that will be launched in South East Asian Market (Indonesia, Malaysia, Thailand and Philippines) which is built according to the climate, road conditions and structure of the Market.

“In 1963, Honda entered the Japanese automotive market. It was the last major participant to enter the industry. Since then, by prioritizing environmental advances like the low-emission CVCC engine that became the world’s first engine to comply with the U.S. Clean Air Act in 1972 without use of a catalytic converter, Honda has produced cars that are critically acclaimed for their exceptional environmental performance. In its efforts to improve fuel economy, Honda goes well beyond the refinement of existing products.” (Source: http://world.honda.com/automobile/overview/index.html)

We are developing a new car for Honda to be introduced in Southeast Asia in order to suffice the customers and aim o be the market leader in the segment.

Analysis/Tasks

Task 1

The need for a NPD arises after studying the general market environment of South East Asia which is way different from other Asian countries.

PESTEL Analysis:-

Diagram Courtesy: “Oxford University Press”

We are doing a PESTEL analysis to study the environmental pressures on the new Business by Honda .it will ensure and external analysis of the macro-environment. Honda has no control over these factors but it’s necessary to be aware of while undergoing business strategy. The objective is to study the effect on business or trade policy because of external factors of the South East Asian region which is different from Japan, the home country.

Political and legal factor: The trade policy is highly affected by the country’s legal rule, regulation and their government. For all the SE Asian countries the government is stable and hence, less chance of risk because legal rule and regulation would not be changing in short time. Similarly, the labor force in SE Asian countries is much cheaper than Japan. No doubt Japanese’s productivity is more than these countries (Table-3).

All the SE Asian countries have higher lending rate than Japan. Thus, Honda has to pay more interest to the Government for the new Product launch which will eventually reduce their profitability.

Economic freedom in Japan is mostly free as compared to mostly not free in case of SE Asian nations. It tells that has better environment to do business and trading.(Source: “Index of economic freedom”, 2010)

Honda shall further strengthen its presence by taking advantage of a trade liberalization system established by the ASEAN to phase out an “intra-regional tariff among member countries, after India reached an agreement in principle with the bloc on an economic partnership accord” in 2008.

Economy Factor: The target countries’, per capita income is approximately four times lesser than Japan

(Table-1), So, Honda has to introduce a car that is wealthy, even with a low-priced model targeting Asian buyers.

In the same way their inflation rate and unemployment rate is less in these Asian countries which is a positive sign for GDP growth rate (Table-1).

Target nations invest almost one fourth of its GDP to develop the economy. They also have huge reserve of foreign currency. Moreover, the export is higher than import, except Philippines which shows that they have huge quantity of natural resource and robust good productivity.

So, considering these points, Honda unlike in Japan which is more suitable for company which produces luxurious cars, SEA region has huge market of middle class income people.

Social and Culture factor: All the countries have different culture for example Indonesia and Malaysia have majority of Muslims whereas Thailand and Philippines have Buddhists and Christians respectively more in number. So the promotional strategies adopted by Honda for the new product, must be different for all these countries.

These ASEAN nations have a literacy rate of more than 90%, which shall ensure that the people will have knowledge about latest technology which shall help Honda to maximize output at low cost with effective usage.

Also the median age of these is much lesser than Japan’s. Hence, the new car should be such that it appeals the youth segment.

Environmental factor: The South-Eastern Asia being between the Indian Ocean and the Pacific Ocean is hot and humid unlike Japan which is near Northern part of Pacific Ocean. Hence, Honda’s new car must have parts that have special attributes like corrosion free, anti-rain coatings etc.

Conclusion and objective of NPD: After doing PESTLE analysis of these countries we understand that ASEAN nations are way different from Japan. Hence, it’s important for Honda to develop a new car for this part of the world. Post the market segmentation we also managed to identify some of the attributes that the car must possess. Honda doesn’t have a control over these external factors but an analysis would ensure the right strategy for the new car development. A different market means different target segment, attributes, brand positioning, marketing communication etc. thus, resulting to a new product.

Important Features of the new Car:-

Size & Shape: Honda will launch its “new small car” in Thailand as per schedule, priced at under US$10,618 as part of its Thai “eco-car” production plans. The Thai-made model will also be exported to the Association of Southeast Asian Nations (ASEAN) countries.

(Source: IHS Global Insight)

The shape of the car will be modern and sporty in order to appeal to the majority of youth population.

Fuel economy: Honda shall focus on upgraded technologies to improve the fuel efficiency of gasoline (petrol) engines and shall start renewing the engine and transmission line-up so as to achieve improved fuel efficiency in the latest car.

Emission: Advanced environmental technologies shall result to low-priced quality engine that shall emit reduced carbon dioxide. ASEAN countries earn lot of revenues through Tourism. Hence, this becomes an important attribute that consumers may look at.

Suspension: The Hatch back rides lower than Honda Jazz and the double-wishbone front and rear multi-link suspension setups have been tweaked to enhance handling.

Engine capacity: This will be a lesser premium hatchback car and will equipped with a 1.2L, 1198cc, 4-cylinder power plant that will produce 90PS power @ 6200 rpm and 116 Nm torque @ 4900 rpm. The powerful engine shall produce great acceleration and enable it to cross the mark of 100kmph in just 11.2 seconds and attain the top speed mark of 165kmph. The car will be launched with a 1.3L and a 1.5L engine options.

Wheels and other attributes: The new Honda car will be a high-performance all-wheel-drive Hatch back, positioned below Jazz. It will come in two trim levels: Sport and Grand Touring. Looks very similar to Jazz, it will have an all-new front and rear fascia, hood, front fenders and taillights. The hood sticks out so that the intercooler and a hood scoop get accommodated. It has been integrated to inlet the outside air into the engine. Extended side skirts, twin tailpipes, a lip spoiler and lightweight 15-inch alloy wheels with high-performance tires shall complete the aerodynamic look to the body as this part of the world being windy.

Market Analysis Tools to understand market competitively and activity:-

The market structure analysis for Honda Citra shall be done using Porter’s Five Force Model.

Bargaining power of customers:

Customers of ASEAN countries have choices like i10, Getz, Matrix, March, Latio Sport and Spark from the segment in which the new car has been targeted at. In case the buyers can integrate upgrade to cars like i30, Yaris, Murano, Aveo and low cost sedans such as Accent, Vios, Sentra, Latio, Sylphy, Vios, Pyrus, Kalos and Optra.

If Honda’s new car doest appeal the customers, then car manufactures like Hyundai, Chevrolet, Toyota, Nissan, Isuzu can replace it.

Looking at improvement in the economic condition of South Eastern Asian countries, the purchasing parity of the customers is gradually increasing, it is important to serve the customer by end of 2011 or else they may upgrade to the next segment of cars. Also it is important to attract the current two wheeler users or else they may shift to other brands or keep continuing with two wheelers.

Customers cannot be dissatisfied at such neck to neck environment.

Bargaining power of Suppliers:

Honda’s domestic facilities will focus on up-gradation of production so as to accommodate manufacturing of small-to-medium-sized low-priced fuel-efficient models and strengthening the support functions for Honda plants in South East Asia. In response to the global shift towards smaller vehicles, Honda will begin production of hatchbacks at its Suzuka factory in 2012. Honda will accelerate its efforts to either increase localisation rates or localise production by sourcing local products in South East Asian market. It will strengthen its cross-factory/cross-border supply chain by accelerating the flexibility of its manufacturing system.

Threat of new Entrants:

The likeliness of Indian car manufacturers like TATA Motors, Maruti Suzuki etc is very high. TATA Motors is already into the plan of exporting its ultra low cost car Nano in the South East Asia.

Once Nano, enters the market, it is likely that the majority of Honda’s Suspect customers (the two-wheeler riders) shall upgrade to this ultra low cost hatchback.

Threat of substitute Product:

Honda may see its profitability threatened by two wheelers.

Competitive Rivalry:

The automotive industry is South-East Asia contains numerous strong aggressive competitors like Hyundai, Nissan, Toyota, Isuzu, Mitsubishi etc. Also with the entry of European, American and Indian car makers like General Motors, Ford, TATA Motors, Mahindra & Mahindra, Bajaj the completion becomes fierce. Although the industry is not stable or declining, the plant capacity additions are done in large increments, fixed costs and exit barriers are high and competitors have high stakes in staying in the segment. These conditions will result to price wars, new product developments, and advertising battles and so on.

NPD combining with Project Lifecycle:

Illustration: Project Lifecycle Management (Source: http://www.method123.com/project-lifecycle.php)

Concept and Initiation:

Idea Generation, Screening, Testing and Selection:

Honda is ready with the set of specific research objectives:-

Does Honda need to introduce a new car?

If yes, then which is the target segment for the new car?

Identify those features of the car that will appeal to the target segment

Designing a research plan calls for decisions on data sources, sampling research approaches etc. The secondary data has already been studied in the PESTEL analysis and Porters’ Five-Force Model of the market environment that tells us where there is a void in the market and a small car can fill this gap. We have also seen the demographic, geographic, psychographic and behavioral segmentation of the market.

In order to obtain the primary data we had adopted Focus Group research approach, using questionnaires as research instrument. The contact method was online interview. The sampling plan involved Survey on 300 South-East Asian male and female drivers’ license holders between the age of 20 and 49 who live in one of these four targeted nations for three weeks.

Research Results:

The 3 most popular types of vehicles:

No.1: Hatchbacks – 35%

No.2: Sedans- 30%

No.3: MUVs – 40%

Most popular attributes of a car:

Lower price (20%, Technicians & clerical staff))

Small but spacious inside (20% Sales & customer service)

Great design and well equipped (30% Technicians)

Most popular car: Nissan March – 6.6¼…

Reasons for choosing NISSAN MARCH:

Cute, compact and petite(30%,Clerical staff and students, Civil servants, House wives)

Fast and easy to drive(20%,Part-time worker)

Compact types are more popular among the female respondents. The two main reasons for choosing this car are that it looks cute and it seems easy to drive

The 3 least popular cars (Male=150)

No.1: Mitsubishi Pajero – 10.6%

No.2: Any Mitsubishi cars – 10%

No.3: Mercedes-Benz – 2.6%

Reasons for choosing the Mitsubishi Pajero

Looks unsafe.(20%,Sales)

Expensive, safety problems and high fuel consumption(30%,Part-time worker, Clerical Staffs)

Non trustable company (30%, Technician, Creative jobs)

Due to the incident concerning Mitsubishi cars reported in the media, all Mitsubishi cars were unpopular among male respondents.

Thus, we understand the segment, target audience and the attributes they are looking for the car.

Cost & Benefit Analysis:

Overall market share of Honda= Customer penetration X customer loyalty X customer selectivity X price selectivity

S.No.

Particulars

Estimation from Year 0 to Year 5

1

Sales Revenue

2

Cost of Goods sold

3

Gross Margin

4

Development Costs

5

Marketing Costs

6

Allocated Overhead

7

Gross contribution

8

Supplementary contribution

9

Net contribution

10

Discounted contribution

11

Cumulative Discounted Cash flow

Breakeven analysis and Risk analysis are a must.

Future projections: South-East Asia’s automotive industry is booming. Easily available credit and low interest rates, teamed with a strong increase in consumer lending by banks and availability of new, low-priced models assembled locally, have triggered car boom.

Figures show that around 483,000 cars were sold in Indonesia in 2004, rise by 36% on 2003, with sales growth next only to China. Thailand is second largest car market in Southeast Asia followed by Indonesia, where an estimated 620,000 cars were sold, and Malaysia, with some 485,000 cars sold last year. This year’s first-quarter car sales shot up by 38.5% to 93,627 from 67,595 and its projected that 530,000 units will be sold by the end of the year. Increased demand could see sales touch 1.3 million cars a year by 2011.

(Source: http://www.kellogg.northwestern.edu )

Design and Development:

Product Development, Prototype and Market Testing: Honda will launch its “new small car” in Thailand as per schedule, priced at under US$10,618 as part of its Thai “eco-car” production plans. The Thai-made model will also be exported to the Association of Southeast Asian Nations (ASEAN) countries.

(Source: IHS Global Insight)

The shape of the car will be modern and sporty in order to appeal to the majority of youth population. Honda shall focus on upgraded technologies to improve the fuel efficiency of gasoline (petrol) engines and shall start renewing the engine and transmission line-up so as to achieve improved fuel efficiency in the latest car.

Advanced environmental technologies shall result to low-priced quality engine that shall emit reduced carbon dioxide. ASEAN countries earn lot of revenues through Tourism. Hence, this becomes an important attribute that consumers may look at.

The Hatch back rides lower than Honda Jazz and the double-wishbone front and rear multi-link suspension setups have been tweaked to enhance handling.

This will be a lesser premium hatchback car and will equipped with a 1.2L, 1198cc, 4-cylinder power plant that will produce 90PS power @ 6200 rpm and 116 Nm torque @ 4900 rpm. The powerful engine shall produce great acceleration and enable it to cross the mark of 100kmph in just 11.2 seconds and attain the top speed mark of 165kmph. The car will be launched with a 1.3L and a 1.5L engine options.

The new Honda car will be a high-performance all-wheel-drive Hatch back, positioned below Jazz.

Implementation

Test Marketing and Feedback of first wave from Market: A survey sampling is done in order to understand the response of the customers towards the new car. The survey details have been mentioned in Task 2.

Commission & Handover

Handing over the New Product to Marketing and Operations department for Commercialisation

Completion the project of NPD:

Physical Distribution: Heavy taxes in Southeast Asia have prevented strong growth of dealer infrastructure, resulting in drab dealer settings and inadequately trained salespersons. Honda shall adopt the Mercedes-Benz strategy that includes young, attractive saleswomen and upscale events including wine, art, and luxury items such as Louis Vuitton bags. Although there can me exception in Malaysia, where the majority of residents are Muslims. Such a Brand Centre would help cultivate a strong brand for Honda.

Market Segmentation:

Geographic segmentation: This Region in world has been segmented as The Southeast Asia which again consists of four major counties, Malaysia, Thailand, Indonesia and Philippines. Their respective capitals have been mentioned in Table 3. The Southeast countries have similar climatic conditions, terrains, etc.

Demographic segmentation:

(Source: CII website)

The Southeast Asia has approximately 4,000,000 km2 of area. As of 2009, more than 593 million people live in the region. Indonesia is the most populous country with 230 million people. Nearly 30 million overseas Chinese also live in this region, prominently in Malaysia, Philippines, Singapore, Indonesia and Thailand.

Islam is the most widely practiced religion in Southeast Asia, with approximately 240 million adherents which is about 40% of entire population, with majorities Indonesia and Malaysia. Mainland Southeast Asian countries like Thailand practice predominantly Buddhism. Due Spanish colonization, Christianity is predominant in Philippines.

These ASEAN nations have a literacy rate of more than 90%, which shall ensure that the people will have knowledge about latest technology which shall help Honda to maximize output at low cost with effective usage.

Also the median age of these is much lesser than Japan’s. Hence, the new car should be such that it appeals the youth segment.

The gender ratio is also 100%.

Psychographic segmentation:

(Source: http://www.strategicbusinessinsights.com/vals/presurvey.shtml)

After taking the VALS survey Southeast Asia market can be mainly segmented as Innovators (“successful, sophisticated, active people with high self esteem whose purchase reflect relatively upscale, niche products”), Thinkers (“matured, satisfied and reflective people motivated by ideas, values, knowledge and responsibility who favour durable, functional and value products), Believers (“conservative, conventional and traditional people with concrete beliefs; favor family, religion, community, and the nation, choose familiar products and loyal to established brands) and Experiencers (“Young, enthusiastic, and impulsive consumers who seek variety and excitement, spend a comparatively high proportion of income on fashion, entertainment, and socializing”).

Behavioral segmentation: People play five roles in a buying decision: Initiator, Influencer, Decider, Buyer, and User. After the survey it is observed that in car that has to be bought by a family women play 60% of role in terms of deciding the car. For a single working people it’s generally themselves or their friends or peers.

Developing Sales strategy: Heavy taxes in Southeast Asia have prevented strong growth of dealer infrastructure, resulting in drab dealer settings and inadequately trained salespersons. Honda shall adopt the Mercedes-Benz strategy that includes young, attractive saleswomen and upscale events including wine, art, and luxury items such as Louis Vuitton bags. Although there can me exception in Malaysia, where the majority of residents are Muslims. Such a Brand Centre would help cultivate a strong brand for Honda.

The sales strategy of Honda will be to optimize selling by focusing on premium but value for money car with high fuel efficiency family car. Honda’s sales team will focus on informing the customer of the benefits to driving their vehicles. Sales prospects will be finalized in person, through mail-order, over the phone, and via the Internet. Sales people shall be compensated with a four percent commission per car sold. They shall be trained in Web-based publishing and database management for optimizing order processing. Prices, delivery and conditions of sale will negotiable in order to offer flexibility to the customer but within the bounds of profitability.

Sales Forecast & Setting Sales Target:

Beginning in January 2011 of the first year sales Honda shall concentrate on the early-adopters because the general market for small cars has already been developed. Moreover Honda is already an established brand in Southeast Asia.

As visibility and acceptance of the new car increases, sales among the younger generation, especially women buyers will increase by 20% each month thereafter. Due to word of mouth, this rate of steadily increase for at least next ten 5 years because the younger generation, one of our key target markets, shall continue to grow.

This high rate of growth is practical because the Southeast car industry is in its start-up stage for the lesser premium hatchbacks and may not reach saturation till for quite some time to come. Moreover, if gasoline prices will continue to rise, Honda’s highly fuel efficient car will only become more attractive.

Sales Forecast (Has roughly been obtained from undisclosed source)

Year 1

Year 2

Year 3

Sales

$989,513

$1,187,415

$1,424,898

Direct Cost of Sales

$791,610

$831,191

$997,429

Milestone

Start Date

End Date

Budget

Department

First Thousand Vehicles Sold

1/1/2011

1/1/2012

$0

Management

First Marketing Campaign

1/1/2011

15/1/2011

$5,000

Marketing

Publishing Website

15/1/2011

15/2/2011

$2,000

Web

Receive First Internet Sale

15/2/2011

15/3/2011

$0

Web

Develop Employee Policies

1/1/2011

15/1/2011

$0

Legal

Service First Customer’s Vehicle

1/1/2011

15/1/2011

$0

Mechanic

Refuel First Customer’s Vehicle

1/1/2011

15/1/2011

$100

Photovoltaic

First Consumer Protection Review

1/1/2011

15/3/2011

$0

Management

Second Marketing Campaign

15/2/2011

15/3/2011

$3,000

Marketing

Hire Sales and Mechanic

1/1/2011

15/2/2011

$0

BOD

Totals

$10,100

Market Feedback and Short term Plans: Conducting survey at various kiosks from existing customer base of the new car, Honda’s existing and prospective customer and users of other small vehicles and two wheeler users. Depending on the responses future short term marketing plan shall be designed.

Task 2

i. Research method for testing potential of Honda Citra:

Simulated Test Marketing: In order to obtain the primary data we had adopted Focus Group research approach, using questionnaires as research instrument. The contact method would online interview. The sampling plan b involve Survey on 80-100 South-East Asian male and female drivers’ license holders between the age of 20 and 49 who live in one of these four targeted nations for three weeks. This is to question them about their brand familiarity and preferences in a car.

They are then invited for both existing and new commercials and print ads detailed promotion for the new Honda Citra. They are given a questionnaire on similar lines and to analyze if there has been any change in their preferences.

This method fairly gives accurate results on advertising effectiveness in lesser time and cost.

Beta testing: This shall be done at car Trade shows, Malls and existing dealer points by providing a display, test drive, distributing brochures at these points.

Honda can observe how much interest buyers show in the new car, their reaction to various features and terms and how many of them express interest purchase intention.

We cannot use other testing methods like Sales Wave Research, Controlled Test Marketing or Full Blown test markets because a car is an expensive good involving costly new technology. These tests are fit for fast moving consumer goods.

Type of data: Data must be both secondary and primary. Secondary data are data that are already present somewhere like in internet, research journals. Primary data is data will be freshly gathered for this purpose of testing and gathering feedback. It’s wise to start with rich variety of secondary data to test whether the problem can be solved partially or completely without collecting expensive primary data. Secondary data will also act as a starting point. The normal procedure of collecting primary data is to interview people either individually or in group.

Research Approach can be Observation, Focus Group Surveys, Survey research, behavioural data and Experimental research. Observational research involves gathering fresh data by unobtrusively observing consumers at current Honda showrooms as they shop, make an enquiry 006Fr test cars.

A focus group is a gathering of 10-12 people carefully selected based on certain geographic, demographic, psychographic and behavioural aspects to elaborately discuss on topics given by the researcher. Potentially useful insights are tracked down to discern actual motivations of consumers and the reasons for saying or doing certain things.

Although this type of research has been proven to be useful, generalization of reported feelings must be avoided as the sample size is too small and has not been drawn randomly.

Survey research can be conducted to learn about people’s beliefs, knowledge, preferences and satisfaction and to measure these in the population. Honda can either put the questions to its existing consumer panel or rival company’s customer database.

Various research instruments like questionnaires, qualitative measures and mechanical devices. Questionnaires shall consist of set of both closed and open ended questions. Its a most common instrument used because of its flexibility. They need to be carefully prepared, tested and debugged before applying to a larger scale. “Closed end questions specify all possible answers that are easier to interpret and tabulate. Open ended questions allow respondents to answer in their own words and often reveal about how people think.”(Courtesy: “Marketing Management” by Philip Kotler and Kevin Keller)

Qualitative Measure is relatively unstructured that permit a large range of possible responses which helps in creatively ascertaining consumer perceptions that may be difficult to uncover. The techniques used here would be Shadowing (observation), Behaviour mapping (photographing), Consumer journey (track of interactions existing consumer has with the car or related service), Camera journals (maintain visual dairies), Extreme user interviews, Storytelling and Un-focus Group.

Mechanical device like galvanometer can measure interest or emotions aroused by exposure to certain picture or situation.

Sampling Plan is a must design after deciding on the research instruments. This will involve decisions on Sampling unit (who), Sampling size (How many) and Sampling procedure (way of choosing).

Contact Methods shall comprise of mail questionnaire and telephone, personal and online interview. Online is one of the cheapest and the mode by which maximum people can be reached out in very less time.

Data Analysis Techniques: The category of data analysis used here are Narrative, Descriptive and Statistical. For example Abstraction of population phenomena has been used to study the Association (e.g. σ1,2.3 = 0.75), Tendency (left-skew, right-skew), Causal relationship (e.g. if X, then, Y), Trend, pattern, dispersion, range, non-parametric analysis (e.g. chi-square, t-test, 2-way anova)

(Source: Harvard Business Journal)

In order to measure “influence” of a variable (age) on another (look of the car) Regression Parameter need to be used. For finding the “relationship” between one variable (psychograph) and another (attributes of car) Simple Regression Coefficient must be used.

To evaluate whether a model fits data better than the other, Box-Cox c2 test for model equivalence should be implemented.

Hold-out sample’s MAPE has been used to evaluate accuracy of prediction.

Two-way anova, c2, Z test to compare difference between two groups.

Manova regression to determine whether a group of factors “significantly influence” the observed phenomenon.

Nature and Type of Resources:

Physical resources: Honda shall be using its existing “Honda R&D Southeast Asia co. Ltd.” for its research and development of the new car. After the development of the new car, once the idea is provided for commercialization, a manufacturing unit is required. Efficient production of the car will require strengthening the support functions for Honda plants in Southeast Asia. Honda shall accelerate its efforts to increase localisation rates, localise sourcing and production. It will strengthen its cross-factory/cross-border supply chain by offering more flexibility of its manufacturing system.

Currently, “Honda produces its vehicles at approximately 7 facilities in these four countries, with components sourced from some 2,200 facilities worldwide. The automaker reportedly procures each component from eight different suppliers; it pl