Daraheg — YO vin Honda: Diesel Conundrum Honda Motor Co. enjoyed a protected market in the “commanded premium in the sedan category as Riches that it occupied. Some ofits bestselling cars hhave been Honda City, Accord, Civic, and CRV. All ofits cars commanded premiums in their respective segments. Honda, unlike Maruti, bas not been a volume player. The company sold fine-crafted cars that attracted its fans to willingly pay higher prices 35 compared to other competing products in the ‘oresponding segment. For instance, Honda City Jook diferent and they are works offine engineering and flawless craftsmanshi ‘The only thing constant about environment, however, is change. The fuel prices in India are regulated by the government, but mounting fiscal deficit created pressure on the government to free fuel prices from its control and link them with international markets. The rapidly increasing fiscal deficit often initiates a debate on the issue of fuel subsidy. Some people fiercely defend fuel subsidies on the ground that price de-control would be against the interests of the poor, while others want the fuel prices to be linked with world markets for the sake of| fiscal prudence. As a result, policymakers tend to be sensitive about fuel price changes. In a country where the price of diesel and petrol is a matter of political debate and there are strong pro-poor and left-leaning political partis, Honda found itself comfortably placed. It predominantly smanufactured cars that ran on petrol. Although, petrol always cost more than diesel but the price Ailference has never been significant enough to affect consumers’ car choice. Diesel cars come with a price tag that is significantly higher than petrol cars. These cars made more sense to people who drove more miles per day, which allowed them to recoup high inikal payment through fuel cost savings in the first couple of years. Diesel cars did not make sense to an average city dweller whose daily drive did not cross 100 kan. The high price of diesel carson the one hand and insignificant diflerence between the two fuels ‘made Honda enjoy a comfortable ride in the Indian market For Honda, Indian market was dreamlike. With great brand equity for quality and workmanship the company did not see anything adverse happening, “The fuel prices would continue tobe a political hot potato where no government would like to touch, Diesel though low in price will not become fe of cars as diesel cars were expensive and people traditionally preferred petrol cars. Diesel was perceived 0 be 2 fuel of commercial vehicles. Buses, trucks, and ‘commercial taxis are usually driven on diesel. Also, the perception created by poorly designed diese cars in the early history of automobiles in India created a bias against them. Diesel cars were perceived to be noiry, broke down frequently, and required frequent servicing ‘compared to its rival offerings from General Motors (GM), Maruti, Volkswagen, and Hyundai. The company’s faith in the quality ofits products, brand ‘equity, and customer trust made it inward oriented, Tebelieved that ‘a good product would automatically ‘create its customers, Honda being perceived as a quality leader would always have customers who ‘would follow the brand wherever it went. Honda cars Honda registered a good growth. Although the ‘competition in the car market was getting intense but Honda did not see any challenge for it never sought tobea volume player. It was comfortable in its niche cof high price low volume quality conscious buyer. Tes never a good idea to be closed to what is happening around notwithstanding how unassailable an organization is and what a strong position it ‘occupies in the market. Highs of any kind take you ‘up but chey simultaneously set you away from the ground. The mounting fiscal deficit created pressure con the government to link them with erude prices in a bid to reduce the burden of subsidy. As the price diference between the diesel and petrol went up, the car market subtly shifted in favour of diesel cas. In 2010, Honda faced a catastrophic decline, with sales plummeting by go per cent, For instance, it sold only 3,990 units in April 211 as compared (0 3,500 units in the previous year. Honda was hit further when parts from Japan could not arrive due to the Japan tsunami. The competition added to its miseries as the top selling brands ike City was overtaken by Vento while Accord trailed behind Skoda Superb. Tis assault came fom all sides—the tsunami in ‘Japan, increased price diference berween dicsel and ‘petrol, and hyper competitive activity. The need of the hour was to take charge of the situation and develop a fiting response to neutralize the threats and seize the opportunities. The solution was to develop diesel cars, Honda soon realized that nothing is permanent, not even a besteling product. A product is as good as its capacity to satisfy customer needs and wants. Any mismatch between the productvalue and what customer ‘wants is likey to consign it to ashes notwithstanding how formidable it had been once upon a time. There was no escape route available to Honda from the market reality it faced. A gearshift towards diesel seemed inevitable. The company could not continue to push its petrol cars against the evolving ‘consumer reality, which demanded that diesel engines are added to the current portfolio. High petrol price was making petrol cars expensive to drive. Petrol began to pinch people more and they started to move towards diesel cars offered by Honda's competition. The idea was to make slighty higher initial investment on a diesel car that could be recouped in three to four years. By then newer models would arrive and one could buy a new one in order to avoidTable 22 Amaze in comparison to its competitors 11961498 Capacity (<) 14197 120 1495 1,964 Price (Rsinlakt) 490-660 599-760 maintaining their diesel cars for long term. The reasoning was that diesel cars do not give touble in the first couple of years and they were to be sold before it had its first breakdown. ‘Therefore, diesel cars were a logical option to counter the high petrol price. Honda, therefore, went back to the drawing boards and engineering workshops to come up with a diesel engine for the Indian market. It would lose some precious years to develop the new diesel ‘engines and feared what will happen to the market by then. While the market grew at go per cent dur- ing 2010-n, Honda lost its market share, slipping from 5th position to nth position. Honda worked hard and in April, 2013 launched Amaze, a die~ sel sedan at a price that would give Maruti DZire ‘run for its money. The company bounced back ‘with a very competitive pricing and excellent speci- fications (sce Table 2.2). The new car’s price and appearance was a direct assault on the dominance of Maruti DZie. Honda Amaze seems to be a game changer for the company that suffered a setback on account of its over reliance on petrol engines. Amaze’s specifications, aesthetics, and Honda brand equity 492-6.44 599-750 545-708 670-815 rake it a forceful contender for gaining the lost ‘ground for the company. ‘Amaze competes in a segment where Hyundai Accent, Chevrolet Sail, Mahindra Verito, Toyota Exios, and Tata Indigo GS jostle with each other. This segment grew at 21 Per cent (2012) even when the car industry shrank. Maruti Swift and DZire models contribute to over 40-50 per cent of Maruti Suzuki’s profits. The challenge now for Maruti Suzuki is that if Honda Amaze eats into DZire’s market the profitability of country’s market leader ‘would be affected. What turned out to be a boon for Marut is likely to become a bane if Honda eats into its market share. Therefore, nothing can be taken for {granted in marketing. Everything changes and itcan cither provide an opportunity or pose a threat. Q1. What was the key problem (s) faced by Honda? (5) Q2. How did they face that problem and formulated their plan to solve the problem(s) at hand? (5) 3. What options were available to them and which one did they choose ? (3) (Q4. Why the solution implemented by ther was the most feasible one? (2) ‘Q5.Given the context of this case evaluate the robustness of this solution. (5)