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Assignment 3: Pricing

Honda uses different type of pricing for different segments all over the world.

It uses the following pricing strategies:

Market Skimming Market Penetration Premium Pricing

Premium Pricing: Honda cars usually price their products at a higher level than their

competitors. It believes that the customers should be provided the comfort level they deserve

and launch their cars for people of upper middle class. On the same time, Honda is believed

to be a ethical company and hence provide a genuine product and hence price higher. They

started using this strategy in US and then used in Europe as well.

Market Skimming:Honda always prices their products more than their competitors so that

whenever the need arises they can decrease their prices or can offer an discount to lure

people. This has worked well for them all over the world. This strategy is only used by

Honda when they establish in a market.

Market Penetration: This strategy has been usually used by Hondawhen they enter a new

market. Honda two wheelers is using this strategy in India after their alliance broke with

Hero. Now they are launching many two wheelers at a very low price to penetrate into the

Indian market again and to regain the leadership they had earlier in alliance with Hero.

Example of Skimming Pricing Strategy used by Hondas Luxury Brand (Acura):

Acura's management realized that their new products had already obtained a strong foothold

by the end of 1986, and a slight increase in price would not hurt the demand. Another

argument was that higher price tags would contribute to the image of luxury. It was further

learned that low prices compared to German prices undermined the status the customers were

seeking. Therefore, Acura started in 1987 with a 2.3% price increase on its cars. By 1988,

Integra had been selling for $10,915 (+3.5%), and the flagship Legend carried the price of

$23,675 (+2.5%). However, sales data indicate that this price increase did not push the sales

down. In fact, through the entire period of the late 1980's, prices kept rising, bringing new

revenues to Acura. At the end of 1989, after some modifications, Legend carried the nominal

price of $30,840 but, nevertheless, was still able to keep up with the pace of sales. By

undertaking the described measures, Acura management gradually began to move from a

penetrating pricing strategy to a market share strategy. By 1988, Acura already had a 7.2%

share of the regular luxury car segment (Wall Street Journal 1989). The end of the penetrating

strategy characterized Honda's start. With the introduction of the new model in 1991, Acura

moved away from a market share pricing strategy to a skimming pricing strategy. It is

positioned as the "ultimate" luxury car, and uses TV ads depicting ultra luxury to back up its

claim. Acura becomes the number one imported luxury car in the U.S. surpassing M-B.

Rohit Oberoi

MBA Marketing and Finance

Global Marketing Management

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