Honda Five Forces analysis
Honda is a renowned brand of automobiles and motorcycles. The brand has shown sharp growth in the Asian markets. North America is its biggest market followed by Asia. The Japan based brand saw its motorcycle sales increasing in 2017. Apart from automobiles and motorcycles, Honda also sells power products. Its 2017 revenue was around 14,000 Billion Yen. Apart from great products, the brand is also known for its extensive supply chain and distribution network. The brand is investing heavily in research and development as well as marketing for the growth of its brand. Honda is poised for faster growth by investing in innovation and sustainable technology. This is a five forces analysis of Honda that deals with the five important forces affecting Honda in the industry. Michael E Porter’s five forces model is an important tool for analyzing the competitive strength of any brand and how strongly it is positioned in the industry against competition.
Bargaining power of suppliers:
Honda has a worldwide supply chain and distribution network. It has partnered several suppliers across the globe for obtaining raw materials. Each Honda vehicle is made of 20,000 to 30,000 parts. The brand has formed long term partnership with several suppliers who can supply good quality raw materials to build its automobiles. despite the large number of suppliers, it is Honda that holds the higher bargaining power. The bargaining power of its suppliers is low because they are scattered all over the world and do not hold sufficient financial strength. Moreover, Honda holds bargaining strength because of its large size and financial strength. Apart from that the other factors that give the brand higher bargaining power are its brand image and trust. The overall bargaining power of its suppliers is low.
Bargaining power of customers:
The bargaining power of customers in the 21st century is high which is because of several reasons. First, it is because the customers have all the information they need to make a decision at their finger tips. They carefully evaluate any product before making a final purchasing decision. The level of competition has increased in the market and customers have aside range of products available before them to choose from. Not just this, in every category they also have several products from lower price range to luxury cars. Brands are investing in marketing as well as product safety so as to make better cars and attract customers. Several brands are competing to acquire the same customer which also makes the customers more valuable and gives them more bargaining power against the brand. In this way, the overall bargaining power of the customers is higher.
Threat from substitute products:
The threat from substitute products in case of Honda is moderate. Apart from the products by the other brands, there are means of public transport that also act as substitutes for Honda vehicles. However, there are some factors that moderate the thereat from substitute products. These factors include brand image, marketing capabilities, large product range as well as customer trust ad loyalty. The overall threat from the substitute products in this way remains moderate.
Threat from new entrants:
The threat from new entrants in the automotive industry is very low. It is because of the high entry and exit barriers. For any brand to enter the automotive industry, it will have to make a very large financial investment for the infrastructure as well as supply and distribution network. Apart from these things technology and a highly skilled workforce will also require a very large investment. Moreover, a new player cannot grow significant overnight. It will need to invest in marketing and build trust among its customers before it can grow into a large brand with a large customer base. All these factors prevent new brands from entering the market and thus keep the threat from new players minimised.
Competitive Rivalry among the existing brands:
The level of competitive rivalry among the existing brands is very high. While the number of large and global players may not be very large, still all of them have large product portfolios. They invest heavily in marketing as well as research and development. Still, there are a large number of factors that affect a brand’s competitive strength. These factors include the brand’s product portfolio, level of investment in innovation and technology as well as marketing and customer loyalty. Honda is an innovative brand whose cars as well as motorcycles are quite popular in the global market. Still, it is positioned against some very tough players like Ford, Volkswagen, Toyota and Hyundai which makes the situation intensely competitive. The brand remains focused on future and better technologies so as to find growth and remain competitive.