Analysis of Toyota’s Marketing Strategy Essay

Surendra Bhandari1 [available at: http://papers. ssrn. com/sol3/papers. cfm? abstract_id=1624068 ] Abstract Toyota was established in 1937 in Japan. First time it introduced its product Corona in the US in 1965. By the 70’s, Toyota was the best-selling import brand in the US. During the 80’s, it started manufacturing vehicles in the US. In 2006, it had globally become the second largest car seller and third largest car sellers in the US having more than fifteen percent market share. It is estimated that by 2008 it is going to be the number one car producer and seller both in the US and across the world. This profound success of Toyota is associated with its most proficient market strategy. The case of Toyota notably proves that how important is market strategy in the life of a company to be a market leader. 1. Mission Toyota’s mission statement is as follows: â€Å"To sustain sustainable growth by providing the best customer experience and dealer support. † (Toyota, 2007) Customer satisfaction is the driving force for Toyota, which inspires it to provide the highest quality products and services. â€Å"Kaizen† is a word that Toyota upholds, which means â€Å"continuous improvement† of its technology, products, and services. In short, Kaizen for customer satisfaction is Toyota’s mission. Toyota further explains its mission as follows: 1 Dr. Bhandari can be contacted at: bhandarisurendra@gmail. com â€Å"Around here our values are just like yours. We are hard working. We are active in community. We are creating jobs. We celebrate our diversity. We are building cleaner greener cars. And this is just the beginning. † (Toyota, 2007) 2. Distinctive Competencies Among others, three distinctive competencies of Toyota are remarkable. These distinctive competencies appeal the consumers, build trust with them, and make them satisfied. These competencies are as follows: i. Popular Economy Car: Toyota is best known for ‘popular economy car’. It has successfully branded the concept of ‘popular economy car’, by producing cars matching to the concept. It has garnered its success by selling the concept to the consumer. It has also become profoundly successful in segmenting, targeting, and positioning. As a result, based on the pricing reports generated by over ten million visitors, out of top ten cars, three are Toyotas – Toyota Camry (No. 2), Toyota Corolla (No. 4), and Toyota Avalon (No. 8). (Kelly Blue Book, 2007) It produces eight varieties of cars. Among them, the prices for the four varieties cars range 10,000. 00 US $, three varieties range 15,000. 00 US $, and one variety ranges slightly over 20,000. 00 US $. ii. Cutting-edge Technology: Toyota simply did not stop to the concept of ‘popular economy car’. This concept could have easily turned into product maturity and decline. But Toyota continuously engaged in improving technology – design, looks, comfort, fuel efficiency, environmental friendliness, and other technical improvements. For example, Toyota Corolla was first introduced in Japan in 1966 and in the US in 1968 as a first generation Toyota Corolla. Since then roughly in every three years it is being developed and marketed in a new model. By 2006, tenth generation of Toyota Corolla was already launched with significant technological improvements. Toyota’s hybrid cars can be taken as another example. It started producing hybrid cars in 1995 however till 1999 Japan was 1 the only market for its hybrid cars. Coming to 2005, it became successful to capture a large chunk of US market. Today, it is selling almost seventy five percent of its hybrid cars alone in the US market. iii. Low Operating Cost: Why consumers purchase Toyota? The simple answer is that Toyota’s cars are distinctive with the properties of low operating cost. For example, a survey carried out by Toplin Strategy Group in 2007 has revealed that 73% of Prius owners had bought Toyota Prius because of financial incentive to purchase the vehicle such as lower sticker price or lower operating cost than other choices. (Marketing Green, 2007) Similarly, based on 45% highway driving and 55% city driving with annual 15,000 miles Toyota Prius has been proved to be the most fuel efficient car than any of its competitors such as Honda Civic Hybrid, Ford Escape Hybrid, and Lexus GS 450. (Fuel Economy, 2008). 3. Trends / Conditions Among many other factors, demand for energy efficient and greener cars, demand for low operating cost, and demand for high level of safety and comfort are the most significant factors that are influencing the trends and conditions of automobile marketplace. Today’s automobile sector can be best described as one of the sectors that are trying utmost to respond these important marketplace demands. Based on these demands, there is both good and bad news for the auto industry, including for Toyota. Good news is that there is surprisingly robust vehicle sale in the market. The bad news is that some of the leading automakers are shedding thousands more jobs. Some of the automakers are also projecting downward market trends. These trends are important because, automobiles are responsible for 13. 3 million US jobs, and US $ 675 billion revenue in the US economy. 2 On a year-on-year basis, Toyota sales has surged 10. 5%, General Motors Corp. has showed a year-on-year improvement posting 12. 1% sales gain, and Chrysler has taken a 15% year-on-year sales dive, whereas Ford Motor Co. has stayed mostly flat, down 0. 5%. In terms of global sales, Toyota is in second position following GM. In terms of sales in the US market, Toyota is in third position having 14. 9% of market shares in 2006. Union of concerned scientists in their 2007 report state that Toyota has regained second place overall in the environmental rankings as well and is the only automaker to make consistent improvements on its global warming score since 2001. Toyota has the best global warming performance in six out of ten classes and better than average performance in the rest. If past trends continue, Toyota may overtake Honda’s global warming score within two years. Doing so will require continued investment in hybrids. Globally, 53 millions new cars are sold in 2007. Out of them, 15. 9 millions are sold alone in the US. In 2007, around the world, it is estimated that there will be 806 million cars and light trucks on the road, out of them 244 million will be in operation in the US alone. Currently, these vehicles burn nearly 260 billion gallons of fuel yearly and by 2020, the number of cars and light trucks is estimated to reach above 1 billion. The years of 2004 through 2007 will long be remembered as a pivotal period in the automobile industry as during this period gasoline prices started a sea change among US consumers that is finally creating a significant demand for fuel efficient vehicles. As a result, this has lead to the phenomenal demand for Toyota’s Prius hybrid car. Responding to the demands of consumers Toyota has expanded its investments in Georgetown, Kentucky plant to enable to manufacture 48,000 hybrid cars yearly. Ford launched its first hybrids, and other carmakers, including GM, were greatly encouraged in their own efforts to bring more hybrids to the market. However, response to hybrids from U. S. makers has been lukewarm at best. Consumers 3 generally aren’t as impressed with U. S. hybrid technology as they are with that of Toyota models. In short, while the US based Big Three struggle, Toyota is being more strategic. It has increased its capacity to manufacture over 1. 5 million vehicles yearly in North America. On a global scale, the company plans to sell 10. 4 million vehicles by 2009, up from 8. 8 million in 2006. The big news is that Toyota is most likely surpassing GM in global sales by 2008, making Toyota the world’s largest carmaker. 4. Organizational Objectives Toyota has set seven fundamental objectives. Among them, to dedicate in providing clean and safe products and enhance the quality of life everywhere through better production and services is the main objective of Toyota. Similarly, its other objectives are: to honor the law, language and culture of every nation with fair corporate activities; contribute to economic and social development of communities around the world through corporate activities; create and develop advanced technologies and provide outstanding products and services to customers; foster individual’s creativity and teamwork value; pursue growth through innovative management; and work with business partners for mutual benefits. To achieve these objectives and their effective implementation, it has clearly set fourteen principles that are widely considered as Toyota’s Ways. Based on these principles, Toyota takes management decisions on a long-term philosophy, even at the expenses of a short-term financial goal. It believes in a continuous process flow to bring problems to the surface, uses visual control so that no problems are hidden, uses pull system to avoid overproduction, and works like tortoise and not the hare. It standardizes the tasks and processes as the foundation for continuous improvement and empowers employees by which it further enhances its ability to use only reliable and thoroughly tested technology that serves the customers. 4. Similarly, its organizational objectives are further substantiated by its idea of developing exceptional people and teams who follow the philosophy of Toyota, respect the network of partners and suppliers, and learn from the practices. It believes in making decisions slowly by consensus thoroughly considering all options and once the decisions are taken, it implements the decisions rapidly. On top of that, by becoming a learning organization through relentless reflection and continuous improvement of its products and services, Toyota can be exemplified as a case that has achieved its organizational objectives successfully. 5. Strategic Business Unit Toyota offers energy efficient, green, and popular economy cars, SUVs/Vans, hybrids, and light trucks with safety and comfort measures in place. It produces more than two dozen varieties of products. All of its products are globally very popular. Its products are sold in over 200 countries across the globe. On top of that, the US is the biggest market for Toyota. For example, till 2006 it had sold more than 7 million Toyota Corollas alone in the US. In the financial year 2006-07, in consolidated terms, it sold its products of 226. 06 billion US $ (23,948. 00 billion yen) and earned net income of 15. 17 billion US $ (1,644. 0 billion yen). (Toyota, 2006) In 2006, Toyota was engaged in a variety of projects designed to solidify its foundations while continuing to grow. On the product front besides its two dozen already launched products, Lexus has launched its new flagship model, the LS, and the new global Camry went on sale. In manufacturing, several new projects were started around the world. In May 2006, manufacturing of the Camry began in Guangzhou, China, while in the United States, the Kentucky plant, which in October 2006 celebrated 20 years of production, has started manufacturing the first Toyota hybrid vehicle to be made in North America, the Camry Hybrid. In November 2006, the Texas plant began producing the new Tundra truck, a key vehicle in Toyota’s North American lineup. 5 In Japan, Toyota Motor Kyushu, Inc. has begun full-scale operations at its engine factory, and Toyota Motor Tohoku Co. , Ltd. has increased its manufacturing capacity. In human resources development sector, following the establishment of the Asia Pacific Global Production Center in Thailand in August 2005, Toyota has established the North American Production Center in the U. S. in February 2006, and the European Global Production Center in the United Kingdom in March 2006. Established as branches of the Global Production Center in Japan, these were created to spread Toyota’s manufacturing knowledge and skills throughout the world in pace with the rapid growth of Toyota’s overseas manufacturing. In R&D side, Toyota has focused its efforts on three key areas: environment, safety, and energy. It has made a special effort in the area of the environment by expanding its lineup of hybrid vehicles, and has worked on R&D relating to plug-in hybrid. In addition, as part of Toyota’s efforts to respond to the diversification of energy, in 2007 Toyota has introduced a flex fuel vehicle in the Brazilian market that will run on 100% bio-ethanol fuel. From this point on, based on the philosophy of providing â€Å"the right car, in the right place, at the right time,† and in accordance with the infrastructure and customer needs of each region, Toyota is striving for promoting efforts to develop environmentally friendly technology and vehicles. 6. Boston Consulting Group Matrix Based on the Boston Matrix, the market situation of Toyota is Healthy. To support this statement, three products are chosen here – Camry, Prius, & Corolla. These all fall into the category of Star as they are holding high market share and high market growth. All these three products are well established and the growth is exciting. These are creating fantastic opportunities. The only challenge is Toyota needs to maintain its Stars. And, it seems that for at least a couple of years Toyota will maintain its Stars. 6 Toyota Corolla: It is a compact car, very popular throughout the world since it was first introduced in 1966. In 1997 it became the bestselling car in the world; in 2004 it was the number one selling car in the US in its segment with over 30 million sold as of 2007. In the US alone, more than 7 million Toyota Corolla cars have been sold. Over the past 40 years, one Toyota Corolla car has been sold on average every 40 seconds. Today, it is manufactured in 16 countries in the world. It has been almost steadfast in face-lifting each generation after two years, and replacing it with an all-new model every four year. As a result, it has brought in market its 10th generation model in 2006 in Japan and has been introduced to the US market since October 2007. This product strategy of Toyota Corolla has helped it to be continuously in the Star quadruple. Toyota Camry: It is a mid-size car manufactured in the US, Australia, China, and Japan. In some markets, the top range Camry models are seen as executive cars. The Camry has been the bestselling car in the US, its largest consumer market, for nine of the last ten years starting in 1997, with the only exception in 2001. The first generation Camry was introduced in 1983 and in 2007 the sixth generation Camry has been introduced. The sixth-generation Toyota Camry is the first generation in which it has been available as a gasoline/electric hybrid. EPA fuel economy estimates for the 2007 Toyota Camry Hybrid 38 MPG in city and 40 MPG on highway. Toyota Prius: It is a hybrid electric vehicle and one of the first such vehicles to be massproduced and marketed. The Prius first went on sale in Japan in 1997, and worldwide in 2001. By the end of 2003, nearly 160,000 units had been produced for sale in Japan, Europe, and North America. The Prius has won several awards, including the Car of the Year Japan in 1997/98, the North American Car of the Year 2004, and the European Car of the Year 2005. EPA has recently revised environmental standards and the Prius 2007 has been acknowledged as the most fuel efficient car sold in the US. Its market share in the US is growing each year. In 7 2000, Prius market share in the US was very negligible but by 2005 out of its total sale the US alone had consumed about seventy percent. 7. Organizational Strategy for Growth Toyota has already got market over 200 countries across the globe. Only in 2006, it sold 8. 52 million of its products and has planned to be a number one car producing and selling company by 2008. This ambitious strategy of market penetration is associated with its proficient demographic and psychographic segmentation and targeting. It has successfully got high level of positioning in the mind of the consumers with its brand and distinctive competencies as discussed above disseminating through integrated market communication (IMC) techniques. Toyota has diversified its product with a brand of right car in the right place. For example, it has introduced a flex fuel vehicle in the Brazilian market that will run on 100% bio-ethanol fuel. It has introduced hybrid electric car (Prius) mostly for the market in the US, Japan, and EU. On top of that in each two year it improves looking of its product and in each four year transforms model into new one. By upholding this strategy of product development, Toyota has become successful in managing product life cycle, more specifically it introduces product and keeps the product growing without letting them to be matured and decline. Its exceptional organizational strategy for growth is importantly nurtured by its strategy working with around 522 subsidiaries around the world and successfully creating a wider market chain around the globe. Another way of Toyota’s organizational strategy for growth is that it reads the public mind through its research department that monitors the industry and keeps tabs on demographic and economic developments. Its mission: to predict consumer trends and create a lineup of cars and trucks to capitalize on them. Each professional is expected to spend time out in the field talking 8 to car buyers. The Japanese have a name for it: genchi genbutsu – go to the scene and confirm the actual happenings. 8. Market Share While looking at the market share of Toyota in the US market since 1980 to 2006, it is realized that its market share is continuously growing. For example, in the 80s Toyota’s market share in the US was about 5% and that has risen to above 15% by 2006. So in a twenty-five years time Toyota has outstandingly tripled its market share in the US. On the other hand, market share of its three major competitors GM, Ford, and Chrysler is gradually declining. In the 80s GM’s market share in the US was above forty-five percent. But by 2006 GM’s market share has shrunk to 24%. Similarly, in the 80s Ford had more than twenty-three percent market share but by 2006 its market share has come down to sixteen percent. By being successful in increasing market share, Toyota has become the world’s most profitable automaker. In 2006, it sold 2. 5 million cars and trucks in the US market alone. Because, Toyota is already bigger than Chrysler in the US and is about to pass Ford by 2008, Toyota’s presence in the US is now so prominent that the 3,322 business leaders surveyed by Fortune have named Toyota as one of America’s most admired companies. On the financial side, Toyota’s net revenue for the fiscal year 2007 is 23. 94 trillion yen, which is an increase of 13. 8 percent compared to the fiscal year of 2006. In 2007, its operating income has increased by 19. 2 percent to 2. 23 trillion yen. Its net income has increased by 19. 8 percent to 1. 64 trillion yen. All of these figures marked record high. It is estimated that the consolidated vehicle sales for the fiscal year 2008 will be 8. 89 million units. The revenue for the fiscal year 2008 is estimated to be 25. 00 trillion yen. While we compare its net income from 2004 to 2006, it is clearly shown that its net income is increasing each year. For example its net 9 income for the year 2004 was 1,162,998 million yen that increased to 1,171,260 million yen in 2005, and in 2006 that further increased to 1,372,180 million yen. 9. Elements of Marketing Strategy Toyota’s segmentation and target market is guided by its philosophy of ‘right car in the right place’. Toyota has employed both demographic and psychographic form of multiple segmentations and targeted its market on that basis. For example, it has segmented all the countries across the globe as its market. But has also identified its focused market such as the US, Canada, EU, Australia, China, India, and Indonesia. On top of that US is its first priority being the biggest market. It is because, US consumes almost 30% of its products. Its products range with different prices from US $ 10,000. 00 to 30,000. 00 plus. The economy class cars are targeted to lower and middle level income people and the luxury cars are targeted to higher middle and higher income group people. With a variety of product attributes it targets different age group and professional groups of people. For example, for sport people it has sport cars. For environmentally sensitive people it has Prius – environmentally green car. Likewise, it has offered 100% bio-ethanol fuel car in Brazil, where is bio-ethanol potential. Likewise, those who are truck lovers or professional who need trucks, it offers them different variety of trucks. In fact, its marketing strategy – segmentation, targeting, and positioning is nurtured by its variety of offers and product attributes. Further, it has designed its market strategy at different levels – global level, regional level, and national level based on the assessment of customer needs and choices. Toyota focuses its products in market with comfort, kindness, and excitement. Toyota claims that its products harmonize ecology and emotions. One of the key factors for designing segmentation and targeting, Toyota’s analysis is always based on the condition of market, economy, purchasing 10 capacity, and consumers’ choices. Based on these factors Toyota is launching its global motorization strategy with leading-edge technology. Likewise, Toyota has upheld a very strong promotional strategy using integrated market communication (IMC) tool. On top of that, Toyota blog (http://blog. toyota. com) is another very successful mechanism of advertising and promotion. On its blog, Toyota closely pays attention to the voices of its customers and provides responses to a large amount of inquiry. 10. Elements of Market Planning Toyota has adopted three important elements in its market planning – green, safety, and low operating cost. Being based on these three important factors, Toyota has become successful to garner the market opportunity. On the whole, there seem more opportunities for Toyota than threats. However, there are some threats that cannot be denied. Opportunities: Toyota’s market share is growing each year. From about 5 percent market share in 1986, it has acquired more than 15 percent market share in the US in 2006. Its competitors’ market share is declining each year, which is the biggest opportunity for Toyota. Toyota and its competitors have similar segmentation and targeting but in creating positioning Toyota has come off much ahead than its competitors because of its products’ attributes. Further, it is also ahead of its competitors in technology front. For example, it is the first automobile producer that introduced hybrid in the market. Today, the market share for its hybrid is growing exponentially. At the same time, hybrid products of its competitors are not successful. Threats: Besides opportunities in the marketplace, Toyota’s most illustrated product – Prius has not got much success in Europe and its market share is declining in Japan itself. Further, its competitors – GM, Ford, and Chrysler have become more strategic and are being focused on 11 from cutting-edge technology to leading-edge technology. Toyota is growing with ambition to pass the GM but still GM is the number one automobile in the US and the globe. 11. Conclusion From the perspective of marketing strategy, Toyota can be taken as a company that has successfully achieved its mission statement, successfully branded its distinctive competencies, and profoundly achieved its organizational objectives. This success is based on its successful market strategy. This is corroborated by the fact that all of its products studied in this paper (Toyota Corolla, Camry, and Prius) do fall into Star quadruple under the Boston Matrix. In quintessence, it can be said that Toyota is an outstanding case for learning how to build and implement market strategy, get penetration in the market, manage product life cycle, uphold market positioning, best use of integrated market communication (IMC), and branding its product in the mindset of the customer. In short, Toyota is a notable example that proves how important is marketing strategy in the life of a company and managers. References CNNMoney, (2007), America’s Best Car Companies, Mrach 7, 2007 available on http://money. cnn.com/magazines/fortune/fortune_archive/2007/03/19/8402324/index. htm visited on Nov. 20, 2007. Fuel Economy, (2008), 2008 Hybrid Vehicles, available on , http://www. fueleconomy. gov/feg/hybrid_sbs. shtml , visited on Nov. 22, 2007. Kelly Blue Book, (2007), The Most Researched Sedans, available on http://www. kbb. com/kbb/ReviewsAndRatings/default. aspx? trid=3&gclid=CKrS8rHMgI8CFTa oGgodgyqT2w#ManufacturerId=49&ModelId=286 visited on Nov. 27, 2007. 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