Brand Improvement Strategies of Toyota - Case Study Example

Brand Improvement Strategies of Toyota – A Research Proposal 1. Abstract Toyota has recalled more than 8 million cars across the globe and this has impacted the sales as well as the image of the company. This proposal focuses on the impact of recent recalls on the reputation of Toyota. An assessment of the marketing strategies that the company must adopt to re-establish its image in the market has been discussed. Introduction The brand ‘Toyota’ represents quality, innovation and reliability. Right from the company dealers and associates to customers and suppliers the company continuously thrives towards improvement thereby manufacturing an excellent line of automobiles (Toyota-a, 2010). The company has a diverse portfolio. An effective marketing strategy has enabled the company to emerge as a highly successful car maker. This has been possible through a varied product range and the expansion of the company to different market segments. Recently the company has been grappling with issues relating to faulty accelerators. This led the company to recall millions of cars worldwide. An application has been submitted by the company to recall more than 75000 RAV4 vehicles in China. The latest recall involving 2.3 million cars has raised concerns about the severity of the problem as this is being ranked as the largest ever. This has come at a time when US is yet to recover from the recent financial fiasco and domestic sales of the company remain subdued. It has adversely impacted the image of the company tarnishing its reputation as the world’s leading car. Certain faults have also been detected in Lexus, Toyota’s premium car segment. Considering the market size and the present market position of the company this can take a heavy toll on its overall (Bailey & Krolicki, 2010). 2. Objective Back in 2007, very few carmakers “were more talked about in business and media circles than Toyota” and Magee (2007) has observed that “the company made headlines earlier that year when it announced an annual production and sales objective which, if met, would make the company the largest carmaker in the world” (Magee, 2007, pp.1). In its attempt to overtake two of the strongest companies among the famed Detroit Three – General Motors (GM) and Ford, Toyota rose to the apex and “turned heads from Detroit to Denver to Dubai” (Magee, 2007, pp.1). However, the successful journey of Toyota had started way back in 2003 when its share prices took a 24 per cent hike over 2002, and it market capitalisation – pegged at $105 billion – was “higher than the combined market capitalisation of Ford, General Motors, and Chrysler” (Liker, 2004, pp.4). The Japanese automobile giant had created numerous milestones, such as achieving a return on assets (ROA) that was “eight times higher than the industry average”, and setting an illustrious example by making “a profit every year over the last 25 years” (Liker, 2004, pp.4). Over the years Toyota has established itself as the greatest car manufacturer of the world and this is justified by the fact that “Toyota employees are sought out by companies in almost every industry through the world for their expertise” (Liker, 2004, pp.5). However, the company’s image has taken a blow when Lexus, one of its prominent divisions, announced its “intention to recall certain U.S. market vehicles to replace engine valve springs” (Toyota-b, 2010). As the brand name of Toyota is almost synonymous with astounding quality, “consumers know that they can count on their Toyota vehicle to work right the first time and keep on working” (Liker, 2004, pp.5) – hence this news has sent out ripples of shock to the world. Although “Lexus estimates that the likelihood of a customer vehicle experiencing this condition is two-tenths of one percent (0.2 %)” (Toyota-b, 2010), its decision to recall vehicles has enough potential to wane off the company’s brand image to a considerable extent. In the light of this incident, the primary objective of the current research will be to identify and evaluate the strategies that Toyota will adopt in order to augment its brand image. Attempts will be made to identify the marketing strategies that the automobile major is most likely to adopt in order to revitalise its tarnished image. As there is a high chance that sales figures of Toyota will plummet significantly following the recall decision, the research will also analyse the sales strategies that will be best suited for the carmaker under the present circumstances. The aspect of industrial competition will be addressed in recognition of Toyota’s position ahead of the Detroit Three (GM, Ford and Chrysler). During the course of research, substantial efforts will be made to provide theoretical support to its fundamental premise through an extensive literature review which in turn will be correlated with the findings from primary as well as secondary sources. After analysing the data, the report will be comprehensively concluded following which a set of recommendations will also be provided in a bid to help Toyota overcome the unfavourable situation that it has unfortunately run into. 3. Research Questions a) What will be the branding strategies that Toyota may adopt in order to augment its tarnished brand image? b) Given the chances that Toyota's sales figures might crash down following the recall decision taken by Lexus, what should be sales strategies that the company should develop in order to maintain steady sales of its vehicles? c) Should Toyota embark on corporate level restructuring in order to reorganise its production and operations? 4. Literature Review Bill Gates, the Chairman of Microsoft, Inc. has testified his liking for Toyota by saying that “I’m not surprised when a company grows rapidly in the space of five years, but I’m extremely interested in companies that consistently generate superlative results over a twenty- or thirty-year period” (Hino, 2006, pp.xv). It goes without saying that a company needs to be extraordinarily successful in order to receive such an accolade from Bill Gates – a business personality notable for his strategic acumen. Though it has been observed that Toyota has been impressively exhibiting a stellar “success at constantly bringing to market excellent products, build market share globally, and make profits year in and year out”, Liker (2004) has opined that the automobile behemoth centres its business philosophy on “three core competencies – manufacturing, sales, and product development” (Morgan & Liker, 2006, pp.11). Toyota also stands out “with respect to speed to market and product freshness”, as it can “bring a new body with carryover chassis and powertrain (the most common type of automotive product development) from styling freeze to start of production in just 15 months” (Morgan & Liker, 2006, pp.12) and that too time and again. It is interesting to note that while basic models of Toyota, e.g. the Corolla, take just a year to be developed and marketed, “most of the company’s competitors require 24 to 30 months to accomplish the same task” (Morgan & Liker, 2006, pp.12). Toyota bases its operations extensively on research and development (R&D) and the same is reflected through the fact that “Toyota is lowest in the ratio of R&D to sales”; however, as has been opined by Morgan and Liker (2006), “by combining its lean production capabilities with common architecture strategies, standard processes, and component sharing, Toyota achieves an incredible overall cost advantage”, and it has also been reported that the Japanese automobile giant “achieves speed and quality by minimising variation and increasing the potential for predictable outcomes in an unpredictable environment” (Morgan & Liker, 2006, pp.12). Spear and Bowen (n.d.) have identified that the production system adopted by Toyota serves as “the source of Toyota's outstanding performance as a manufacturer”; they have further reported that “the system’s distinctive practices – its kanban cards and quality circles, for instance – have been widely introduced elsewhere” (Harvard Business School, 2008, pp.30). This also points at the fact that companies across the world have identified Toyota as an undisputed business leader and hence they learn from it on a continual basis and try to incorporate the same within their organisational framework in order to excel. Toyota has been able to stamp its mark as an unfaltering organisation that not only strives to better the quality of its products but also cares about its customers like very few other companies. That the company is a global industry leader in the highly competitive automobile sector is proven by the valuable piece of information that says “following their own internal efforts to benchmark the world’s best manufacturing companies, GM, Ford, and Chrysler have independently created major initiatives to develop Toyota-like production systems”, thereby justifying the position of the Japanese player well ahead of those of its Detroit based counterparts. Like all other innovative organisation, Toyota loves to take challenges, and it had taken a huge physical challenge while manufacturing the Lexus vehicles “by having Lexus and Toyota models in the same production line”, although in reality “the best assembly processes for Lexus and Toyota were quite different” (Kohlbacher & Herstatt, 2008, pp.411). Even though “the former emphasised avoiding scratches, while the latter put the priority on manufacturing efficiency”, the challenge proved to be worth taking because “in the end, priority was given to the best process for the Lexus models, which logically resulted in improved overall quality for Lexus cars” (Kohlbacher & Herstatt, 2008, pp.411). Despite the fact that this had resulted in elevating the manufacturing expenditures for Toyota vehicles, the company improved its processes on a continuous basis in order to “be able to lower the manufacturing costs and produce Lexus cars without scratches at a lower cost, and Toyota cars at the Toyota cost without scratches” (Kohlbacher & Herstatt, 2008, pp.411). Furthermore, Liker (2004) has observed that the principle that is fundamental to Toyota’s operations is innovation, i.e. “never getting complacent and always staying a step ahead of trends in the market” (Liker, 2004, pp.42). He has further found that “the creation of the Lexus spawned an entirely new luxury division of Toyota and placed their image in the elite of the luxury market” apart from giving “rise to a new spirit of innovation in Toyota’s engineering” (Liker, 2004, pp.50). While enhancing Toyota’s potentiality to innovate its products, “Lexus broke the behavioural mould and engineers who had known only the conservative, risk-averse Toyota suddenly were working on a bold, new, challenging project” (Liker, 2004, pp.50). Thus, time and again Toyota has implemented a host of well established principles as well as those that it has creatively improvised in order to retain its position as an unparalleled carmaker and the company has never failed to satisfy its global customer base with the best cars that have rolled out from the assembly lines of late. As an obvious result of these initiatives, Toyota has multiplied the expectations of its patrons who believe that Toyota cannot deliver anything but the very best. 5. Data Collection For the purpose of conducting the research the primary as well as secondary sources have been used. The primary research involves framing a questionnaire and interviewing the company officials as well as the officials of the key rivals. For secondary sources, journals, new and websites have been used. In order to retain its image as the world’s leading car manufacturer Toyota has revamped its marketing programs. As reported by ‘The Wall Street Journal’, Toyota Motor Corp. reorganized its marketing organization in order to salvage its reputation after recalling its cars across the globe due to defects relating to dangerous acceleration (Ramsey, 2010). The company has also allocated funds for sprucing up its image. The company has demarcated nearly $1 billion to boost it sales in US. Besides this, the company has plans to widen its line of “gas-electric hybrid models” under the name “Prius”. This strategy, directed towards reviving its key operations in North America, has been proposed by the company President Akio Toyoda and tops US personnel at a company meeting in Las Vegas. A step towards turning around the company’s North American operations is needed after the company acknowledged reporting a loss in the current fiscal (Linebaugh, 2009). The recall, accompanied by a halt in the company’s sales and manufacturing operations in North America of the best selling model of the company have shaken its record for reliability and safety. According to the opinion of an auto dealer, the company has sufficient resources to make a come-back from the present crisis, but this seems to be the biggest crisis faced by the company (The Economic Times, 2010). In the opinion of analysts the actual damages to Toyota from the recent recalls depends on the time period for which the company has to withhold the manufacturing of its key models and the extent to which the consumer confidence is affected as evident from the pricing of its used and new cars. The recall of more than eight million vehicles has battered the brand image of the company. To make amends to this massive recall the company is making an adjustment in the advertising strategy. The company has pulled its “Portfolio” campaign that advertises its cars’ qualities of reliability, dependability and safety, according to an ad firm in charge of the company’s advertising. The conformance to these qualities has failed as is evident from the global recall following which the company has decided to withdraw the advertisements promoting them. This stands as a proof of the attention paid by the company towards customer satisfaction. The culture of the company revolves around operational excellence eliminating wastages and their people thrive towards bringing about an improvement in the products (Liker et al., 2007, pp. xxvii). This has induced many companies to adopt the “best practice” methods as practiced by Toyota. The companies belonging to various industries are trying to minimize their wastage is line with policy of ‘wastage elimination’ as practiced by Toyota. 6. Analysis The primary data will be analyzed only after the interview is conducted. Based on the secondary data it is clear that the company is trying hard to revitalize its operations through advertising and reviving its marketing strategies. Already the company is reputed for outstanding quality and customer-centric approach. The worldwide recalls have no doubt tarnished the image of the company but the revised business strategies of the company are aimed at restoring its market position. 7. Conclusion Toyota the leading car manufacturer in the world is currently passing through a tough time. The faulty accelerator has made the company recall many of its car models and even its premium car segment has not remained unscathed from this. This no doubt has adversely affected the image of the world’s largest automobile company. But the prompt action taken by it by recalling the cars corroborates to its culture of delivering quality. Toyota accounts for the best designed production and technologically advanced vehicles. In fact the company has its own research unit that works round the clock to keep at par with the advancement in technology. This recall has coincided with the financial crisis when the company is already grappling with reduced top-line in US. The domestic demand for vehicles is yet to gain momentum. Together with this the recalls have lend a huge blow to its sales growth. This has strengthened the position of its competitors like Hyundai and Ford. The company has been forced to halt its production facilities of some of its models temporarily. But the prompt action taken by the company in recalling the faulty car models bear a testimony of the cultural practices of the company. The company has consistently worked towards delivering quality services to its customers. Moreover the company leads the market in customer-service. In such a situation the recent recalls can be regarded as a onetime incident that should not alter the market positioning of the company. This is merely an accident and the initiative taken by the company by recalling the cars globally is commendable. Being aware of the consequences the company took the initiative of a global recall this goes to show how much the company is concerned about ‘quality’ and its ‘image’. 8. Recommendations The recent recalls by Toyota have raised questions about the reliability and dependability of the company. Therefore the company has to firstly work towards improving its image. This can be possible by ensuring that all the aggrieved customers are adequately compensated. It will cost the company in terms of resources but then this will go a long way in establishing its market image. This will lessen the miseries of the aggrieved parties to some extent and send out the message that they do really care for their customers. It will restore their faith in the company that has faltered due to the present situation. The company needs to advertise its products more aggressively as this will enable it makeup for the lost sales in the current market conditions. It can enter into brand endorsements with celebrities. The celebrity can reach out to the mass audience and thus hiring one will ensure that the company will be able to reach out to the masses. Toyota can also enter into contracts with the dealers by offering them higher margins. This will make them focus on the Toyota brand. Lured by the higher margins the dealers will concentrate on sale of Toyota models thus boosting the sales of the company. Other than this the company can opt for online marketing. In today’s world internet is the medium of reaching to the global audiences. The company may not have its operations in a particular region but through effective internet marketing it can create demand for its cars. This is the most cost effective way of reaching out to the customers. The company need not incur heavy operational expenditure towards setting up of factories. This will raise the revenue of the company without having to set up factories or passing through the regulatory hassles. The cost of internet marketing is minimal but the benefits derived from it can be immense. Toyota must try and work towards developing internet marketing facilities as this will enable it to have a global footprint. References 1. Bailey, D. Krolicki, K. 2010. TOYOTA BROADENS MASSIVE U.S. SAFETY RECALL. Reuters. [Online]. Available at: http://www.reuters.com/article/idUSTRE60K6J420100122 [Accessed on July 06, 2010]. 2. Harvard Business School. 2008. HARVARD BUSINESS REVIEW ON MANUFACTURING EXCELLENCE AT TOYOTA. Harvard Business Press. 3. Hino, S. 2006. INSIDE THE MIND OF TOYOTA: MANAGEMENT PRINCIPLES FOR ENDURING GROWTH. Productivity Press. 4. Kohlbacher, F. & Herstatt, C. 2008. THE SILVER MARKET PHENOMENON: BUSINESS OPPORTUNITIES IN AN ERA OF DEMOGRAPHIC CHANGE. Springer. 5. Liker, K. J. 2004. THE TOYOTA WAY: 14 MANAGEMENT PRINCIPLES FROM THE WORLD'S GREATEST MANUFACTURER. McGraw-Hill Professional. 6. Liker, K. J., Hoseus, M. & Center for Quality People and Organizations. 2007. TOYOTA CULTURE: THE HEART AND SOUL OF THE TOYOTA WAY. McGraw Hill Professional. 7. Linebaugh, K. 2009. TOYOTA SETS A BIG SALES DRIVE. The Wall Street Journal. [Online]. Available at: http://online.wsj.com/article/SB125314822606718211.html [Accessed on July 06, 2010]. 8. Magee, D. 2007. HOW TOYOTA BECAME #1: LEADERSHIP LESSONS FROM THE WORLD'S GREATEST CAR COMPANY. Portfolio. 9. Morgan, M. J. & Liker, K. J. 2006. THE TOYOTA PRODUCT DEVELOPMENT SYSTEM: INTEGRATING PEOPLE, PROCESS, AND TECHNOLOGY. Productivity Press. 10. Ramsey, M. 2010. TOYOTA REORGANIZES MARKETING EXECS. The Wall Street Journal. [Online]. Available at: http://online.wsj.com/article/SB10001424052748703866704575224660025281410.html [Accessed on July 06, 2010]. 11. The Economic Times. 2010. TOYOTA EXTENDS MASSIVE SAFETY RECALL TO EUROPE, CHINA. [Online]. Available at: http://economictimes.indiatimes.com/news/news-by-industry/auto/automobiles/Toyota-extends-massive-safety-recall-to-Europe-China/articleshow/5509296.cms [Accessed on July 06, 2010]. 12. Toyota-a. 2010. TOYOTA MOTOR SALES, U.S.A., INC. (TMS). Sales. [Online]. Available at: http://www.toyota.com/about/our_business/sales/ [Accessed on July 06, 2010]. 13. Toyota-b. July 02, 2010. LEXUS ANNOUNCES INTENTION TO RECALL CERTAIN U.S. MARKET VEHICLES TO REPLACE ENGINE VALVE SPRINGS. [Online]. Available at: http://pressroom.toyota.com/pr/tms/lexus/lexus-announces-intention-to-recall-161319.aspx [Accessed on July 06, 2010]. Bibliography 1. Besser, L. T. 1996. TEAM TOYOTA: TRANSPLANTING THE TOYOTA CULTURE TO THE CAMRY PLANT IN KENTUCKY. SUNY Press. Annexure Read More