Examining pricing decision at Honda

October 22, 2017 Marketing

Honda is considered as one of the largest maker in bike and automoblie industries with more than 14 million burning each year.various merchandises along with great after sale services and much more significantly the low-cost monetary value of it sproducts have resulted in obtaining compettive scheme for the company every bit good as going a large competitior for companies such as Toyota and Nissan throughout the universe.

One of the most of import challenging issues for companies such as Honda that tend to vie in the planetary market is the pricing determination, in which honda has overcome the good and bad state of affairss created successfully. The grounds behind this success are accommodating the best stratgy for come ining between Ethnocentric, Geocentric and Polycentric every bit good as the good analysis of the environmetal infuences such as Infaltion Rate and Flactuation along with the jobs of Gray Market Goods, Dumping and Transfer Pricing that have been taken into consideration. The mentioned selling straegies every bit good as good version of marketing mix elements has put the company in a profitable state of affairs and considerable repute. Counter trade issues such as swap, swich trading and offset in on manus along with mentioned pricing determinations issues on the other manus have been discuused in inside informations in this essay with good and effectual recommendations which have been given at the terminal of the study that can be considered as guildlines for obtaining more accomplishment for the company in the close hereafter.

1.0 History of Honda

Honda is one of the largest maker of bike since 1959 every bit good as universe ‘s biggest maker of burning engines by bring forthing more than 14 1000000s burning every twelvemonth. In the instance of car maker in the united province Honda is 4th largest car maker.Honda was founded by Soichiro Honda who had great involvement in car and bike. After many old ages of difficult working, eventually he successes to bring forth the first auto in August 1963 and named that auto T 360 with 4 gasolene engine and 366 milliliter power. The company headquarter is in Tokyo and there are many workss which is located in different parts of the universe such as Japan, Canada, England, India, Brazil, Belgium and China.

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Today Honda by offering different types of merchandise is one of the strong challengers for other maker like Toyota and Nissan and harmonizing to one-year study of company in 2008 ; Honda reported 1 % sale addition while other rivals such as Toyota reported dual figure losingss.

2.0 Three Worldwide Pricing Schemes

Each company or organisation that want to take part in planetary market and really desire to be important parts of that market should fallow important construction and scheme. One of those schemes which are really of import is monetary value scheme which means how this organisation set the monetary value for their merchandise in foreign state and planetary market in order to pull consumer to purchase their merchandise and increase their net income. We can explicate these schemes in three classs: 1. ethnocentric or extension 2. Polycentric or adaptation and 3. Geocentric.

2.1 Ethnocentric or Extension

In general, ethnocentric is leaning to believe that specific ethic or civilization group is chiefly of import and all other group of people are step in relation one ‘s ain. But In marketing ethnocentric means the monetary value of each point will be the same in all parts of the universe and there is no affair where the purchaser is located and all of them will pay same sum for specific merchandise. There are some advantage with utilizing this scheme but the of import advantage is utmost simpleness of this scheme which is non require information from challengers, so such organisation are non force to alter or cut down their monetary value because of their rivals. Manager of such company believe that they know what client privation and willing wage for that, as a consequence they are seeking to maintain monetary value invariable in different portion of the universe.

2.2 Polycentric or Adaption

Another of import pricing scheme is polycentric or sometimes called adaptation. This option is precisely opposite of ethnocentric and monetary value of any point is vary from one state to other. Manager of such organisation set their ain monetary value which depends on several factors such as rewards, revenue enhancement and advertisement rate.

2.3 Geocentric

Geocentric is more dynamic than other two. geocentric pricing is based on realisation that alone local market factors should be recognize in geting monetary value determination, those factors including local market scheme every bit good as advertisement rate.

2.4 Honda Pricing Strategy

Harmonizing to these three scheme, Honda ‘s pricing scheme is based on ethnocentric option which means the monetary value of same merchandise of Honda is about same all around the universe. It is true that sometimes because of some fluctuation in currency the monetary value will be vary in different state but in general the basal monetary value of similar merchandise is same.

3.0 Environmental Influences on Pricing Decisions

As companies decide to step in planetary markets they face many challenges, one of the biggest challenges for a planetary company such as Honda is to get the better of the environmental alterations which have a direct influence on their pricing determination and their fiscal place in market. The environmental factors are Currency Fluctuation, Inflation Rates, Government Control and Competitive Behaviour.

3.1 Currency Fluctuation

Changes in currencies value has immense impact on net income and cost for planetary companies which operate in foreign states. As the value of currencies additions or lessenings planetary companies face different state of affairs which they have to analysis and take an appropriate action to forestall any loss or losing their competitory place. If place state currency appreciates comparative to host state, this is an unfavorable bend for exporter, and if place state currency depreciates comparative to host state, this is a favorable bend for exporter. Honda Motor is a instance in point ; the company serves the full European state with its individual industry works in UK. In January 2006, the value of one ?1 was equal to a‚¬1.03, on that clip the monetary value of Honda Civic a 1.8 engine auto was set at a‚¬20,633, Honda had to change over this sum to British Pound in order to pay for its cost and disbursals in UK, after the money was converted it would give Honda ?18,127, which was what the company expect in order to maintain its net income border, nevertheless things changed on September 2006, the value of Pound increased to ?1 to a‚¬1.16, the unfavorable displacement had a direct negative impact on Honda ‘s net income because a‚¬20,633 now gives Honda company ?17,787 which means ?400 loss on each auto sold, as consequence the company had no other pick to increase Honda Civic in Europe to retrieve the alteration in its net income ( Zerotohundred, 2010 ) .

3.2 Inflation Environment

Inflation is upward alteration in monetary value degrees, if rising prices rates increases in a state this would do merchandises monetary values to increase in order to cover the lifting cost for companies and makers. A good illustration is Honda Motors in India, in 2010 the rising prices rate in India dramatically increased to approach 16 % in comparison with 10 % in 2009, this fluctuation caused stuffs and energy monetary value to increase. ( Continued )

Honda Motors which manufactures half of the bikes in India, was faced by high monetary values relative to last old ages the company had to pay more for stuff and energy for its industry works in India, as a consequence Honda made a large alteration in its pricing determination and increased its merchandise monetary value about by 35 % , this determination was made by Honda to keep its operation border ( Zerotohundred, 2010 ) .

3.3 Government Control

Government policies and ordinance in different states have immense consequence on pricing determinations, authorities actions that limits director ‘s ability to set monetary values can set force per unit area on borders. For illustration in Malaysia the authorities has restricted monetary value competition between auto industries such as Honda, Toyota and Kia. In add-on the authorities has besides imposed high responsibilities on imported autos based on their engine size. Since Honda does non hold a industry works in Malaysia the company has to import autos in to Malaysian market which mean the company hast to pay responsibilities specify by Malayan authorities. The imposed responsibilities would increase the vehicle monetary values by 170 % or even 300 % in come instances. For case a Honda Civic which is priced at $ 16,000, if the auto gets imported in to Malaysia, the same auto will hold a monetary value of $ 42,300 ( World Honda, 2010 ) .



Up to 1799 milliliter

140 %

1800 cc – 1999 milliliter

170 %

2000 cc – 2499 milliliter

200 %

2500 cc – 2999 milliliter

250 %

3000 milliliter and above

300 %

“ Duties for imported autos based on their engine size ”

Under certain conditions, authorities action poses a menace to the profitableness on companies such as Honda, which could ensue in fiscal jobs for those companies and their place in market. Other authorities constabularies and ordinances are dumping statute law, release monetary value malignancy statute law, monetary value ceiling and other general revision of monetary value degrees ( World Honda, 2010 ) .

3.4 Competitive Situation

Pricing determination are non merely limited by cost and the nature of demand but besides by competitory status in different industries. For illustration, Honda has adopted a competitive-based pricing attack in some parts of the universe like Europe, a instance in point, Honda wind monetary value was priced harmonizing to monetary value of other rivals in Europe such as Peugeot, Renault, Ford and Opel. The Honda Jazz was pieced at a‚¬13,800 which was really near to monetary value of Honda ‘s rivals in Europe harmonizing to figure below.

As it can be seen Honda used competitive-based pricing in Europe to be able to vie successfully with other challengers in Europe. Honda is besides known for its pricing scheme for entry-level merchandises, the company sets Price for low-unit border and high-unit volume on an entry-level merchandise, in order to derive high market portion ( Auto Spies, 2010 ) .

4.0 Nipponese vs. USA Pricing Decision

As mentioned in other parts of this study, companies in different states adopt different pricing determinations harmonizing to environmental alterations in that peculiar state. However some companies use their pricing determinations as competitory tool to keep their place in market as low cost supplier. In USA auto makers use top to bottom attack in finding their merchandise monetary value, while in Japan auto maker companies use bottom to exceed attack. The important difference between these two attacks is ability to offer product with lower monetary value than other rivals in universe ( Auto Spies, 2010 ) .

5.0 Issues in Pricing Decisions

Grey Market Goods, Dumping and Transfer Pricing can be considered as some of the most of import pricing issues when pricing determinations come into drama. In instance of Honda Company these mentioned pricing issues have contributed to the company ‘s success and sweetening in gross in some instances while the company have been dumped by other companies in other instances that have put the company in the unprofitable state of affairs which are traveling to be discussed in inside informations.

5.1 Grey Market

Grey Market Goods can be defined as the act of selling the trademarked goods and merchandises by an unauthorised organisation or a individual which have been exported from the other state. There is a place statement which have been released by Honda Company sing the Acura Genuine Parts that have failed to mend the vehicles and safety criterions of the auto every bit good its public presentation have been declined as a consequence since the parts were sold in Gray Market ( Economictimes Indiatime, 2007 ) .

Harmonizing to American Honda the original parts are designed in a manner that optimal public presentation and safety criterions can be obtained merely if the original parts are used to work together and the Honda Company Executives highly insist on non purchasing the forgery or grey market goods even if they are compatible with the original 1s. It is besides necessary to advert that the guarantee sing the replacing of parts do apply merely to those parts that have been purchased from an authorised Honda trader, otherwise Honda will non take any duty of incurred costs that are as a consequence of using the parts from unauthorised organisations or in other word Gray Market. The act of selling the parts in the Gray Market resulted in approaching bad remarks from consumers sing the public presentation of the vehicles in which the Honda Company was non really responsible but took clip for them to stand for their repute every bit good as it was before in the car market ( Economictimes. Indiatime, 2007 ) .

5.2 Dumping

By definition, Dumping as one of the most of import pricing schemes issues is the act of selling the imported merchandises at a lower monetary value than the existent monetary value of the merchandise in the place state or even lower that what have cost the industry in the production procedure. After Honda Company introduced its autos to the US market, Volkswagen decided to dump its premium monetary values so that its vehicles could vie with the Nipponese autos in that specific section. Sing this instance, Toyota Corolla priced its entry-level autos 2010 at 16,200 after Honda Civic was introduced into the market for 16,405 including transit costs. The competition enhanced when Volkswagen dumped its premium monetary value to 16,000 dollars by the clip that the monetary value of its autos in the place state were much higher at approximately 18,435 dollars. This action resulted in bring forthing much higher grosss for Volkswagen when Honda was enduring from unprofitableness ( Auto Spies, 2010 ) .

5.3 Transfer Pricing

The last pricing issue that is traveling to be discussed is Transfer Pricing which played an of import function in the Honda Company ‘s success. Transfer pricing concerns intracorporate exchanges which can be defined as the act of pricing the goods and services that are sold and bought between Sellerss and purchasers that are working in different runing units and divisions of the company every bit good as different locations but are under the same corporate name. Honda ‘s subordinate in UK is a instance in point ; Honda works in London produces parts bing $ 2m with the market value of $ 7m, nevertheless the company make up one’s mind to sell the portion to other Honda subordinate in Russia at monetary value of $ 3m, intending the portion was sold under market monetary value, nevertheless in Russia, Honda ‘s subordinate sells the same portion at monetary value of $ 7m and pays a small revenue enhancement in comparison with UK for Honda ( See figure at below ) . By this attack Honda a made a immense net income both by paying small sum of revenue enhancement and selling the portion at market monetary value ( Economictimes Indiatime, 2007 ) .

6.0 Counter Trade Transaction

Counter Trade occurs when a sale consequences in merchandise flowing in one way to a purchaser and frequently fluxing in the opposite way is besides created. Counter trade consists of six different but comparative types. Different types of Counter Trade are barter, countervail, counter purchase, compensation trading, cooperation understandings and exchange trading. Barter is the direct exchange of goods and services between two parties.

6.1 Counter Trade

In order to understand this construct decently I will explicate two instances. These instances are about nutrient industry and are mentioned here for the intent of better apprehension of the construct. The first instance is Padiberas National Bhd. ( BERNAS ) Vietnam Southern Food Corporation ( VINAFOOD ) National Company for Vegetable Oils, Aromas and Cosmetics of Vietnam ( VOCARIMEX ) . This signifier of counter trade is one that involves 2 parties wholly from private sector. This instance is an illustration of this signifier of counter trade where Padiberas National Bhd. ( BERNAS ) entered into with 2 companies in Vietnam in order to execute antagonistic trade in palm oil and rice. The companies are Vietnam Southern Food Corporation ( VINAFOOD ) and VOCARIMEX. Base on the understanding ( VINAFOOD ) will provide Vietnamese rice to BERNAS while BERNAS Will Supply palm oil, including rough palm oil, petroleum thenar stearins and RBD palm oil to VOCARIMEX ( Economictimes Indiatime, 2007 ) .

6.2 Barter

Second instance that describes the term swap is Padiberas National Bhd ( BERNAS ) /Federal Flour Mill Bhd. ( FFM ) /China, P.R National Cereal Oils and Foodstuffs Import and Export Corporation ( COFCO ) . Malayan companies, viz. , BERNAS and FFM Bhd. , have entered into counter-trade agreements with China, P.R National Cereal Oils and Foodstuffs Import and Export Corporation ( COFCO ) to purchase rice and corn ( maize ) in exchange for palm oil. This exercising has helped China, P.R to export some of its excess rice and corn. The import quota for this exercising was over and above the normal one-year ( import ) quota given to handle oil by the Chinese Government. Second type of counter trade is Counter Purchase and Besides Called Parallel Barter is distinguished from Other Forms in a manner That Each Delivery in an Exchange is paid For in Cash. The illustration that we have chosen for this portion is Malayan Railway Berhad / Ministry Of Transport ( KTMB / MOT ) ( Economictimes Indiatime, 2007 ) .

This instance is related to our subject HONDA in a manner that it is about the transit industry and one of Honda ‘s replacements. In this instance there was an understanding between KTMB/MOT and General Electric transit systems. They agreed KTMB / MOT has agreed to buy engines from General Electric Transportation Systems, valued at US $ 64.5million ( RM 244.9 million ) . At the same clip, PGEO Group Sdn. Bhd. , on behalf of the Malayan Government and a pool of Malayan thenar oil exporters concluded a parallel counter-trade understanding with GE Trading. Under this counter-trade trade, payment will be made by GE Trading to the nominative pool of Malayan thenar oil exporters by purchasing palm oil and thenar meats oil to the tantamount value of the engines.

6.3 Offset

Offset the 3rd signifier of counter trade merely means a mutual Arrangement whereby the Government in the Importing Country Seeks to Recover Large Sums of Hard Currency. To understand this term better instance of Ministry of Transport ( MOT ) / MPOB /IRCON that happened between authorities of Malaysia and India Railway Company can be truly helpful. This counter-trade trade involved the engagement of the authorities of Malaysia and its related agencies/corporations. In this respect, MOT, on behalf of the authorities of Malaysia, agreed to offer the building of a railroad nexus in Tanjung Pelepas, Johor to the Indian Railway Company, i.e.IRCON International Ltd. ( IRCON ) , a authorities of India project. This rail building undertaking, valued US $ 120 million ( RM 450 million ) , is to be completed within 30 months. Payments to IRCON will be done by providing palm oil with the same value equivalent of the contract ( Economictimes Indiatime, 2007 ) .

The Ministry of Primary Industries ( MPI ) , on behalf of the Malayan Government involved in implementing this undertaking, has appointed the Malayan Palm Oil Board ( MPOB ) as its managing agent for pay outing payments to be made to selected Malayan thenar oil exporters for palm oil bringing to IRCON. Payments are disbursed based on work advancement carried out under the works understanding. In order to hold an efficient operation of the understanding MOT had to reassign equal financess based on advancement payments into MPOB ‘s history and MPOB, in bend, had to pay six selected Malayan thenar oil providers the tantamount value in Ringgit Malaysia.

6.4 Compensation Trading

Compensation trading is when one house provides another with goods or services, and the other house repays through the sale of those goods and services. One illustration of compensation trading would be when in 1980, German, Italian, Gallic and British authoritiess subsidized the fabrication of a grapevine in the former Soviet Union. In order to counterbalance for this, the Soviet Union repaid the authorities by providing them with the natural gas produced.

6.4 Copperation Agreements

Cooperation understandings occur when one state or company can bring forth goods or services more expeditiously than another. Therefore, each party in the understanding will sell equal value of their merchandise or service to the other as per the agreed sum. For illustration, Moscow had superior infinite engineering expertness and decided to indulge in an understanding with Malaysia. Harmonizing to this understanding, Malaysia would supply Moscow with palm oil and rubber tantamount to the value of expertness provided. This manner both states benefit with services that they were missing antecedently ( Economictimes Indiatime, 2007 ) .

In switch trading, largely 3 entities are involved. In this instance, when company A provides services to company B, and is non interested in company B ‘s payment, it can airt those goods to a 3rd party to unclutter their outstanding with the 3rd party. For illustration, Brazil had a big recognition excess with Poland as a consequence of old trades. When Brazil traded with UK, it financed the trade with the export of Polish goods to the UK, which the UK required.


To sum up, it can be concluded that pricing decesion is critical component of markiting mix that rflects different factors including cost, competitory factors and client perciption sing the valuse of the merchandise. Most of planetary companies adopt constructions and schemes in prosecuting their concern to acchive profitableness in their relevent industry. Global companies are faced with many issues in their pricing schemes, hence managmers have to see all possibilities and hazards to be able to keep their competetive place.


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