Week 3: Creating a PIC – Case Honda Element

Task: Create a Product Innovation Charter (PIC) for the Honda Element. Use the structure
from the lecture slides. Shortly refer to your learnings of this case to another industry. What
could be learned from this case for a firm in another industry?

The Product Innovation Charter (PIC) comprises the following four elements, which are applied
to the case of the Honda Element.
1) Background: Honda started developing the Element in 1998 as they observed increasing
market potential of light weight trucks within the male, “Generation Y” demographic segment.
Starting point of the car concept was extensive market research, e.g. ethnographic research
at the X-Games to better understand the potential customer segment. Beyond the objective of
high growth prospects, Honda based the idea of the Element on achieving customer loyalty
early on, i.e. starting with the first car purchase, to leverage future up- and cross-selling
potential.
2) Focus: From the early development phases on, the concept of the Element was bespoke to
a cleary defined customer segment: single “Generation Y” males (age 19-29), first-time car
buyers, who value flexibility, functionality (for example to carry sporting equipment or bulky
items), authenticity and attitude matching their unconventional lifestyle. This targeted customer
segmentation helped Honda to distinguish the Element from other product lines, such as the
CR-V, and prevent internal product cannibalization. Besides the strategic fit in terms of the
product portfolio, Honda was applied its platform technology to the Element. Thus, the OEM
could leverage existing knowledge, maintain flexibility in the product development process and
ultimately save costs.
3) Goals: Honda set the goal to sell 50,000 units in the first year, which they exceeded.
Therefore, the main objective in the short run was unit sales. In the long run the realization of
up- and cross-selling could have been another measure to evaluate the success of this project.
4) Guidelines: Bounding guidelines for the development of the Element were given along three
dimensions: timing, quality and cost. As for the timing, Honda set the launch date for late 2003.
Therefore, the development cycle comprised 5 years, which is consistent with industry
averages of 5-7 years. The quality of the Element needed to be aligned with the overall quality
standards of Honda along performance, safety and value. This is an important aspect to
consider in order to maintain a unified brand image and set the foundation for customer loyalty.
The costs were bounded by competitor’s prices ranging at $20,000. Leveraging Honda’s
platform strategy, the use of existing powertrain technology was one example to control for
costs.
The case of the Honda Element stresses the importance of extensive market research to
understand the target customer segment and tailor the product concept to it. Understanding
the habits and needs of potential customers is an element that is often neglected in the
development process leading to the failure of new product ideas. One example for this is the
software industry, e.g. IBM or SAP, where roughly 80% of new software products used to fail
in meeting customer expectations. This was, among other things, a reason for the emergence
of the SCRUM methodology, which incorporates constant review cycles with customers as a
focal element.

05/05/2019