How Honda Succeeded in the United States

If you happened to see the last episode of Mad Men then you'll have seen the scenes with the awkward meetings between the staff of Sterling Cooper Draper Pryce and Honda executives as they vie for the account (picture above courtesy AMC). In this time period, Honda had established itself in the US motorbike category (Pete mentions that they have 50% of the market) and was planning on marketing its small cars in the US too.

The story of how Honda rapidly dominated the US motorbike market is actually very interesting, and something of a classic in business management circles, though it's often given too much of a reverse-engineered sense of inevitability about it. The real story is much more interesting - and useful - for companies who are also planning on entering a new market.

For my book, Innovation X, I wrote up this case study but ended up not using it. Here's the "cutting room floor" version of the story of how Honda became highly successful - somewhat to its own surprise - in the US.

The Story of the Honda Super Cub

In the late 1950’s Honda contemplated a bold move: entering the motorbike market in the United States. We all know how this story turns out — today Honda is a dominant player in the US, selling a wide range of models in large numbers. But its start could not have been more improbable or less likely to succeed. It was only by staying flexible to an emerging understanding of what the problem — and the opportunities — were, that Honda succeeded in its long shot.

Honda had done well in its native Japan, leaping in a short amount of time to the number one position largely on the strength of its Super Cub model, which was based around a new lightweight, 50cc engine that Honda had developed. The engine was inexpensive which allowed the bike to be sold for a low price, an important factor in Japan’s struggling post-war economy. The Super Cub had also been designed with close attention to customers’ needs such as the ability to drive it one-handed to facilitate carrying a package in the other arm.

At face value, the Super Cub had little appeal for the American buyer. The motorbike market in the US at the time was quite small and dominated by entrenched players such as Harley Davidson, Indian, and imports like Triumph and Moto Guzzi. There were only 1,000 full-time motorbike dealers in the entire country (compared to some 10,000 today), and most bikes were either in the mold of Harley-Davidson — large, heavy, and built for noisy cruising, or were sportbikes made for performance, exemplified by Triumph. Motorbike riders were generally seen as nefarious outsiders, clad in leather jackets and riding in packs to terrorize small towns and cause trouble at funfairs, an image played up by Hollywood — think James Dean, Marlon Brando in The Wild One, and later Easy Rider. Furthermore, Japanese products with funny names were looked upon suspiciously by American consumers.

In 1958 Honda dispatched Kihachiro Kawashima (who went on to become president of American Honda) and his assistant, to spend time in the US and scope out the market for Honda’s bikes. Honda had no market research of any kind, and in fact knew very little about America at all. Kawashima’s reaction upon arriving in the US was, “How could we have been so stupid as to start a war with such a vast and wealthy country?”

Remember that at this time Japan was still a poor and resource-starved country emerging from the shadow of World War II and rebuilding its industrial infrastructure and consumer markets. Everything was done seat of the pants and with minimal budget, using people rather than machines wherever possible. Honda as a company had a strong entrepreneurial spirit that sprang from its namesake founder, Soichiro Honda, who restlessly experimented with new technologies and products, willing to take risks in order to grow his fledgling company.

Kawashima and his assistant traveled around the US visiting dealers and, realizing the long distances that Americans must travel compared to Japanese, concluded that Honda may have a shot at gaining ten percent of the import bike market, but only with their larger 250cc and 305cc machines. In a wonderful example of differing cultural imperatives, Mr. Honda felt that these larger machines also benefited from having handlebars that looked like the Buddha’s eyebrow, sure to be a strong selling point with the many American Buddhist motorbike gang members! The US initiative received some initial funding and they began lining up dealers.

They had some modest success selling these larger bikes, but the longer travel distances actually turned out to be their downfall — the engines were not up to the job, and began breaking down and leaking oil. This spelled disaster and sales fell off dramatically.

While engineers back in Japan worked to redesign the engines to avoid the failures, the staff in the US continued to hit the streets. They rode around doing errands in Los Angeles on Honda’s small lightweight bike, the 50cc Super Cub, which they had written off as being unsuitable for the US market. But the bikes attracted quite a lot of attention from locals, and one day Kawashima got a call from a buyer from Sears who wanted to start selling them. At first Kawashima demurred, but a combination of the buyer’s persistence and the big bikes’ sales drought made him relent.

The rest, as they say, is history. The Super Cub became a smash hit by opening up the motorbike experience to young buyers who had no interest in the black leather jacket and gang persona, but who just wanted inexpensive, convenient, individual transportation for short trips around town. The famous marketing slogan “You meet the nicest people on a Honda” reinforced the notion of wholesomeness, in contrast to the scary outsider image of Harley Davidson.

The success of the Super Cubs eventually translated into success with larger bikes, and Honda went from no presence at all in the U.S. market in 1959 to 63% of the entire market . In the process they took a hatchet to the import market, dropping the share of British bikes from 49% in 1959 (when Honda started in the US) to 9% by 1973. By 1980, British bikes’ sales were less than 2.5 million, down from a high of over 35 million less than ten years earlier.

What is striking about the story of Honda entering the US motorbike market is the lack of planning ahead of time. As Kawashima recalled, “In truth, we had no strategy other than the idea of seeing if we could sell something in the United States”.

It’s easy in hindsight to look at Honda’s growth in the motorbike market (and its subsequent expansion into cars in the 1970’s) as a carefully planned strategy that inexorably built market share based on low-cost products which undercut incumbents. In fact, this was much the conclusion reached by the Boston Consulting Group when hired by a group of British motorbike manufacturers to find out why their US marketshare was cratering. But BCG was forced to look at the events retroactively and as so often happens when seeing events from a distance the messy richness of the details gets lost, along with it much of the truth. BCG applied standard strategy consulting models and smoothed out the dynamism of the story to turn it into an orderly decision-making process on the part of Honda.

In fact, there was no grand plan at all. If they had doggedly pursued their initial course of pushing the larger bikes with Buddha-moustache handlebars, as directed by Mr. Honda, things could just as easily have turned sour and today Honda would be just a footnote in automotive history. Honda’s open and entrepreneurial approach is a perfect example of what Gary Hamel calls “lucky foresight”, arguing that new business concepts are always combinations of happenstance, desire, curiosity, ambition and need.

Richard Pascale argues that Japanese companies approach strategy in a fundamentally less dogmatic way than their American counterparts:

"Their success, as any Japanese automotive executive will readily agree, did not result from a bold insight by a few big brains at the top. On the contrary, success was achieved by senior managers humble enough not to take their initial strategic positions too seriously… The Japanese don't use the term "strategy" to describe a crisp business definition or competitive master plan. They think more in terms of "strategic accommodation," or "adaptive persistence," underscoring their belief that corporate direction evolves from an incremental adjustment to unfolding events."

Sources:

Strategy Safari (Honda case study described in detail in it)

Richard Pascale, "The Honda Effect Revisited", California Management Review, Vol. 38, No. 4 (1996)

AVP of Marketing Strategy Adam Richardson is the author of Innovation X: Why a Company’s Toughest Problems are its Greatest Advantage. His book is the manual for leaders looking for clarity about the emerging challenges facing their businesses. You can follow Adam on Twitter @richardsona.