Honda rejigs pricing strategy

Over the last month, Honda took some steps which came as a surprise to many. It cut prices of its bestseller City and the premium hatch Jazz. For a brand which otherwise commands a premium, these steps were unexpected. On 14th June, Honda made an announcement of ‘new prices’ for the City. Prices were slashed by Rs. 44,000 for the top end version to Rs. 66,000 on the entry level one. While the increasing competitive pressure on the City from its peers Vento and the new Verna is quite apparent, Honda says that the price revision is due to the increased localization level in the model. Jnaneswar Sen, Sr. Vice President – Sales & Marketing, Honda Siel Cars India, said, “Our R&D function in India (HRAP-I) started working on localization and cost down activities for our volume models from year 2009. In anticipation of bigger volumes resulting in economies of scale from the second half of 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 of revising 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 15098 units as against 14870 units of the City during the January to May period. Lack of a diesel variant and the reduction in production level due to the earthquake in Japan has also hit Honda hard.

Jazz, which has been a slow starter so far, is also a beneficiary from Honda’s latest retail strategy. The car sold 1413 units during January to May, as against 1837 units during the same period last year. The price of the hatchback has been knocked off by around a lakh and a half rupees under a ‘limited period’ offer. Unlike in the case of 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 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” he says. Well, with names like Volkswagen and Hyundai as competitors, Honda’s latest move may not dilute its brand equity. Instead it has definitely brought in more customers to its showrooms.