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Friday, 15 July 2011

Honda Rejigs Pricing Strategy

Honda, over the past month, has made some surprising moves. The brand, which otherwise commands a premium, sharply re­­­­duced the prices of its bestselling City and the premium hatchback Jazz. On June 14, the carmaker announced ‘new prices’ for the City, slashing the price tag by Rs 44,000 for the top-end version to Rs 66,000 on the ­­­entry level one.
The growing sales of new rivals like the VW Vento and Hyundai’s new Verna have clearly driven this uncharacteristic move on Honda’s part. But the Japanese carmaker says that the price revision is due to the increased localisation level in the City. According to Jnaneswar Sen, senior vice-president – Sales and Marketing, Honda Siel Cars India, “Our R&D function in India started working on localisation and cost down activities for our volume models from 2009. In anticipation of bigger volumes resulting in economies of scale from the second half of the current year, we have achieved considerable cost reduction and are happy to pass on the benefit to the customers with immediate effect." An industry source said that with the development of a local vendor base for the Brio, Honda has managed to increase local content for the City too.
Honda’s decision to revise the City’s prices comes within months of the car losing the top slot in the segment to Volkswagen’s Vento. The German competitor, thanks to the option of a diesel variant, sold 15,098 units as against 14,870 units of the City during the January to May period. The absence of a diesel variant and the reduction in production level due to the earthquake in Japan has also hit Honda hard.
The Jazz, which has been a slow starter so far, is also a beneficiary from Honda’s latest retail strategy. Honda sold sold 1,413 units during January to May, as against 1,837 units during the same period last year. The Jazz’s price has been cut by around Rs 150,000 under a ‘limited period’ offer. Unlike the City, this is not a ‘new price’ but a sales scheme. Dealers say the strategy has worked well. “Almost all the cars we had with us have been sold off, thanks to the offer,” says a Mumbai-based dealer.
With these unprecedented price cuts by Honda, could there be an adverse impact in the Japanese major’s brand equity? “Perhaps not,” says a leading brand consultant. “The brand equity remains intact if the price cut is to counter a strong competitor and without any compromise on quality.” Well, with Volkswagen and Hyundai as competitors, Honda’s price-cutting move may not dilute its brand equity. Instead, it has definitely brought in more customers to its showrooms.
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