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importantly, what the customer can do without. e same seven success factors apply, but to
an even greater degree, when a company or one of its business units wants to go one step further and pursue an ultra-low price position. In his book e Fortune at the Bottom of the Pyramid, the late C.
K. Prahalad said that the ongoing growth in China, India, and other emerging economies means that every year, millions of consumers acquire enough purchasing power to a ord mass-produced products for the rst time, albeit at “ultra-low” prices.
eventually withdrew.
Large manufacturers such as Honda can indeed
compete against ultra-low price suppliers in emerg- ing markets, but not by cutting prices on their existing products. Success requires a radical reori- entation and redesign, massive simpli cation, local production, and extreme cost consciousness.
Asia, conceived for those markets. Yet they are now
e Wave, a motorbike manufactured by Honda
for the Vietnamese mar“ket, is clear proof that a huge, developed radically simpli ed medical devices in
global manufacturing company can win in the ultra- low price segment against local competitors.
selling those same ultra-low price products in the Honda once the art of marketing for United States and
dominated the Europe. ese devices motorbike market low-price companies do not necessarily
in Vietnam, with a cannibalize the much share of 90 percent. lies in understanding more expensive
Its best-selling model, precisely what a customer equipment used in the Honda Dream, hospitals or specialty sold for the equivalent practices. In some
of around $2,100.
Chinese competitors level of quality, and perhaps price products have then entered the more importantly, what the opened up entirely market with bikes new segments, such selling for between as general practi- $550 and $700 each. customer can do without. tioners, who can now
Ultra-low-price products from emerging mar- kets have already started to penetrate high-income countries. Renault’s Dacia Logan, originally meant for Eastern European markets, sells well in Western Europe. Siemens, Philips, and General Electric have
needs and wants, at what cases, the ultra-low
e Chinese man-
ufacturers soon sold over 1 million bikes per year in Vietnam, while Honda’s volume dwindled from about 1 million to just 170,000.
Honda cut the price of the Dream from $2,100 to $1,300, a price it knew it could not sustain pro t- ably. But this action did not signal a price war; it was the rst step in a change in Honda’s price position. At the same time, Honda was developing a much simpler and extremely inexpensive model called the Wave. e new bike combined acceptable quality with the lowest possible manufacturing costs.
e Dream may have been over for Honda,
but the dream wasn’t. Honda launched the Wave
at an ultra-low price of $732, which was 65% less than the former price of the Honda Dream. Honda re-conquered the Vietnamese motorcycle market so thoroughly that most of the Chinese manufacturers
a ord the cheaper equipment and can make some basic, preliminary
diagnoses themselves.
e price positions available to companies cover
a vast spectrum, from extreme luxury down to ultra- low. No matter what strategic price position a CEO chooses, he or she must still ful ll two additional and essential roles: aligning each function of the company with that price position, and then defend- ing it against threats from inside and outside the company. Only then can the company capitalize on the powerful link between price and pro t and create long-term value for shareholders. ■
Hermann Simon is the author of the newly-published “Confessions of the Pricing Man.” He is the Founder and Chairman of the consulting rm Simon-Kucher & Partners.
MarketiNg strategY
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