“Toyota: Developing Strategies for Growth”
December 23, 2006 5 Comments
“Toyota: Developing Strategies for Growth”
In order to have a successful strategy for growth, businesses must first find, evaluate and select a strategy to capture a potential market. Since it entered to American car market in 1967, Toyota has developed a diverse business portfolio with its existing line of cars as well as brands such as Lexus and Scion. It became a successful car manufacturer by having an effective marketing process that allowed it to attract customers and expand its product range to other market segments.
When Toyota and other Japanese carmakers entered the American market, they were not considered a threat to the American auto industry because it was believed their cars had no appeal to American consumers. However, in the 1970s, due to problems such as the 1973 Oil Embargo, environmental regulations, and quality control issues with American cars (Ford Pinto), a good number of American car owners began searching for alternatives to their gas guzzling, poorly made American cars. In response to these changes, Toyota and other Japanese carmakers aggressively marketed their cars to Americans as being fuel-efficient, environmentally friendly, and having better build quality than American cars. In addition, Toyota marketed their cars as being hip and fun with memorable slogans like, “you asked for it, you got it, Toyota,” and with commercials involving young Toyota drivers jumping in the air. As a result, the Japanese’s marketing campaign along with continuing problems from the Big Three auto manufacturers, allowed import cars to make up about 20 percent of the US car market by 1980.
After successfully gaining a sizable market share in the US, Toyota decided to create the Lexus brand in 1989 to target the luxury-car market segment, which was dominated by Mercedes-Benz and BMW. They decided to create a new brand because of their reputation at the time for being a company that only offered fun and fuel-efficient compact cars and because the introduction of luxury models into their existing lineup would dilute the Toyota brand. Therefore, Toyota marketing strategy was to market Lexus as a separate company with almost no references to Toyota, a heavy emphasis towards quality customer service and it had a separate dealership network from Toyota. This marketing strategy has allowed Lexus to become one of the best selling luxury cars in the US by 2000 and it encouraged Nissan to sell luxury cars with the Infiniti brand.
Despite the successes of both Toyota and Lexus, it began to face a new problem: age. Presently, Toyota’s new customer base is 47 years old, which is higher than the industry average of 45 and placed Toyota’s average customer base with the likes of Buick, Mercury, and Lincoln. In response to their aging customer base, Toyota formed a study group called Project Genesis to develop a marketing campaign to attract younger buyers to Toyota. The result of Project Genesis was the introduction of sportier and “youthful” models to the US: the Celica, MR2 Spyder and Echo in 2000. Unfortunately, Project Genesis was a failure because it had a dull marketing campaign that failed to create a common theme for the different cars, sales for each of the models did not reach Toyota’s expectations and the entire study group failed to realize that Toyota had developed a reputation for making generic cars. As a result, Toyota Motor Sales USA has decided to phase out the Celica and MR2 Spyder by 2005.
Although Project Genesis proved to be a failure, Toyota made another attempt to capture the youth market by creating a third brand called Scion in 2003. Unlike Lexus, which was created to sell luxury cars, Scion’s purpose is eventually attract American youth into becoming Toyota customers by first introducing them to relatively cheaper and radically designed cars. Scion currently has three cars in its lineup: the xA and xB, rebadged Japanese-only cars whose design does not fit the Toyota and Lexus brand philosophy, and the tC, a newly designed car based on the preferences of American youths. In addition, Toyota focuses mainly on the youth market by advertising through youth-oriented media (Rolling Stone, MTV, late-night programming), creating a flashy website to highlight their brand philosophy, and sponsoring live concerts. Not only does it specifically target the young buyers, but they also simplified their sales tactics by offering no-haggle pricing, which means that Scion dealers will not be allowed to negotiate prices or pressure a potential customer into buying, and giving their customers a high degree of vehicle customization. Because of these marketing tactics, Toyota was not only able to bring in younger customers but it also encouraged Honda and Nissan to consider introducing youth-oriented cars into their lineup.
Toyota’s successes are due largely to its ability to identify growth opportunities and develop market strategies to capture them. First, they achieved greater market penetration by marketing their cars as fuel-efficient, well-built alternatives to the gas-guzzling, problem-prone American cars, which eventually allowed them and other Japanese companies to take a sizable market share away from the Big Three carmakers. Second, Toyota was also able to identify new opportunities for market development and spent time on product development to tap into these markets. The results of Toyota’s product development were the creation of Lexus and Scion, brands that both offer a unique lineup of cars, a unique brand philosophy, and services that target the luxury and youth market. Third, in spite of their successes in capturing new markets and achieving greater market penetration, Toyota occasionally downsizes their products such as the Celica and MR2. To sum up, Toyota is a great case study on how a company should develop, identify, and evaluate market opportunities and how to develop the right products and marketing tactics to capture such markets.
http://www.popularmechanics.com/automotive/new_cars_trucks/2000/1/century_of_cars/ – A Century of Cars
http://www.autocluster.com/autobrands/l/lexhistory.html – Lexus History
http://www.latimes.com/business/la-fi-lexus7sep07,0,2703046.story?coll=la-headlines-business -Toyota’s Lexus Plans a Redesign of Its Lineup
http://www.detnews.com/2003/autosinsider/0304/21/a01-141863.htm – Toyota turns edgy to grab Gen Y buyers
http://www.autoweek.com/news.cms?newsId=100464# – Toyota will drop Celica, MR2 Spyder in U.S. after 2005
http://www.autointell-news.com/News-2001/January-2001/January-2001-2/January-24-01-p5.htm – Toyota statement regarding Reuters story on possible third brand