Toyota Marketing in China - Case Study Example

Toyota Marketing in China Order # 233910 In the past few years, precisely after its accession to the World Trade Organization (WTO) in 2001, China has seen an extraordinary growth in its automotive industry. As the country's economy is growing progressively and it has a vast customer support with increasing disposable income, changing way of life and rapid expansion in road infrastructure, China has become a well-known name in the worldwide automobile industry. It is estimated that China will add 33 Million automobiles during 2008-2010. Passenger car production in China is projected to cross 7 Million Units in 2008. Passenger car stock per 1000 population is likely to increase at a CAGR of 19.8% from 2008 to 2012 in China. Sales of marketable vehicle in the country are forecasted to grow at a CAGR of around 5.5% during 2008-2010. Based on the past performance, it is projected that passenger car sales will cross 11 Million Units in 2010. China is the world's second largest car market. It overtook Japan just last year and is challenging to become the world's largest automobile market. The industrial revolution in China has prompted development and growth in the middle-class of China and the automobiles have translated into a symbol of prestige. Toyota was a latecomer to the China market. Within its global strategies, North America is the top priority, followed by its home country Japan. China has been included in Toyota's top development strategy in recent years with its first China-made VIOS sedan produced in Tianjin in October 2002. Considering China as an immature auto market, the company had adopted a three-stage development plan -- first to establish a local sales network and launch brand promotions, then to build auto parts manufacturing bases, and, finally, to establish joint ventures (JVs) with local players and produce automobiles. Although a latecomer, Toyota has jumped to the front in terms of imported car volume -- 50,000 units annually (Jiang, 2004). The company stepped into the most important and critical stage -- speeding up the localization of its products, since its rivals, such as Honda and General Motors, started accelerating their saturation into China. After the market entry of the Prado and Land Cruiser with China's First Automobile Works, its manufactured goods with Guangzhou Automobile Manufacturing Co -- Camry, which was a great success in the Untied States, was also developed. Forbes magazine comments on Toyota's success in the US auto market, saying that once the company sets goals, it will manage to exceed the targets. What is more demanding to its rivals is Toyota's approach to realize these goals. That estimation may well apply to its China development. Although Toyota missed the first opportunities, it will likely catch up if it pays more attention to the China market and introduces high-end brands. Toyota may scale back its ambitious target of selling more vehicles in the United States this year than it did in 2007, as damage from an economic slowdown and high oil prices becomes more fully known. Toyota sold more than 4.8 million vehicles worldwide in the first half of this year, up 2% from the same period a year earlier, the Japanese automaker said Wednesday. That exceeded General Motors Corp.'s sales of 4.5 million vehicles in the same period, setting up Toyota to potentially end GM's 76-year run as the world's top automaker by sales (CNN Money, 2007) Toyota, the third-biggest foreign car brand in China, reported investing 3.6 billion Yuan ($526.8 million) to double the production capacity of one of its plants. This should boost Toyota's overall capacity in China to 830,000 units by the first half of 2010. Global requirement for light hybrid electric vehicles (HEV) is estimated to reach 4.5 million units in 2013. Increasing energy costs and greater than before emissions regulations are likely to increase demand for HEVs. The US is expected to experience the highest level of demand for HEVs, estimated at two million units in 2013. And, it is estimated that 23% of customers plan to purchase a hybrid vehicle in the next fiscal year. Hybrid engines are more fuel efficient and less polluting than conventional gasoline and diesel engines. Hybrid engines, already popular in the passenger car section, are likely to gain approval in heavy vehicle applications such as sports utility vehicles and commercial vehicles. Toyota Motor is also keen to take advantage of on the growing demand for hybrid electric vehicles. The company witnessed a large amount of money for the expansion of hybrid vehicles. For instance, in May 2007, the company launched Lexus LS600h and LS600hL1 hybrid sedans in Japanese market. The LS600h and LS600hL feature the world's first Two hybrid system combining a 5.0-liter V8 engine, a high-output motor and a full-time all-wheel-drive system. In the same month, the sales of Toyota hybrid vehicles reached approximately 1,047,000 units sold worldwide. The company's stress on hybrid technology and positive market trends in this segment will improve its market position. In China, Toyota Motor operates seven joint ventures and two completely owned foreign enterprises. Guangzhou Toyota Motor (GTMC), a joint vehicle production and sales company established with Guangzhou Automobile Group is one of the important joint venture for the company in China. In 2006, GTMC started the production of Toyota Camry ('Kaimeirui' in Chinese) sedan at the company's plant in Guangzhou Nansha. Also in 2006, GTMC announced the production of the Yaris (known as the Vitz in Japan), which will start in mid-2008. Earlier this decade, in a bid to boost its U.S. profits and market share, Toyota launched a big push into full-size pickup trucks and sports-utility vehicles, Detroit's remaining cash cows. Now, with soaring gasoline prices hurting sales of those vehicles, Toyota is stuck with more production capacity in the U.S. than it needs; a problem that has long afflicted the Big Three manufacturers. (Shirouze & Linebaugh, 2008, B1). The US sales of light vehicles have been weak since 2003. The demand for light vehicles (new cars and trucks) in the US slowed down by 2.6% in 2006 to reach the total number of vehicles to 16.52 million in 2006 from 16.95 million vehicles in 2005. During 2007, the demand for light vehicles is further expected to decline by more than 1% to reach the figure of 16.4 million. This decline in demand for light vehicles is primarily attributed to increasing durability of vehicles. The durability and quality of passenger cars has improved significantly in recent years. The median age of US passenger cars increased to nine years in 2005, up from 8.9 years in 2004, and only 8.3 years in 2000. Further, the US customers will age further in the next decade, with the introduction of new technology, better durability and longevity. As the vehicles become more robust and last longer, the substitution cycle will lengthen, potentially creating a decline in annual light vehicle sales. Toyota's marketing strategy in Japan is very dissimilar to that of its strategy in America. The reason is that Japan has an ageing population and the only comfort that Toyota can attain is by introducing new and improved range of cars. Furthermore, the Japanese market is aware of the brand name and the products offered by Toyota, whereas in United States and China there is a lot of potential to exploit. The Japanese market is more or less saturated which has prompted Toyota to manufacture in Japan and then supply out vehicles to the United States. On the contrary, United States and Chinese markets are in a state of growth, which has incited Toyota to develop more products. In 2003, Toyota launched its new Scion brand, aimed at a hip young audience of 20-something drivers, using a marketing movement intended above all to generate word of mouth. Sales reps in goatees and sunglasses were dispatched to bohemian neighborhoods in cities like New York and San Francisco to distribute Scion-branded CDs, clothing gift certificates, and copies of alternative lifestyle magazines like Urb and Tokion - all to encourage young people to take a test drive and talk about Scion with their friends. Toyota has retained and expanded this edgy marketing approach. When it introduced a new Scion model - the boxy Scion bB - in December 2005, the company initially pretended it was launching a new MP3 player to compete with Apple's iPod. Toyota even prepared salespeople at 54 HMV music stores in Japan with shirts and bags carrying the bB logo. The truth didn't come out until the car was unveiled on December 26, 2005 at a Tokyo club - complete with a new pop single that a local band dedicated to the vehicle. Now, Scion is going even further to generate buzz - into what online gamers call the metaverse. In July 2006, Toyota announced that the new Scion xB was being released, for sale in Second Life and Whyville, two popular online fantasy communities - the first automaker to infiltrate these worlds. Whether it's a general market spot or a spot intended toward a specific ethnicity, Toyota conveys the idea of helping people make the most of their lives. In keeping with the company's drive to improve their diversity efforts, much of the national creative work for the lead brand spots, feature people from a broad spectrum of ethnic backgrounds. Steve Jett, National Car advertising and event Marketing Manager is pleased with the multi-level application of Toyota's diversity ads and with the response those ads have received. "The Camry is the best-selling car in America, and two ads that have received a good response feature a young, African-American man and his girlfriend, as well as her father," said Jett. Toyota runs the ethnically-flavored Camry ads during general market programming - apparently to much success. "The ads are entertaining and effective, and have been well-received by many different audiences." (Jett, 2005) Toyota's efforts carry over to the Hispanic market, as well. For example, the official web site (http://www.toyota.com) also features a full, Spanish-language version (http://www.toyota.com/espanol/) so that people can choose which language they prefer. Aside from its promotion efforts, Toyota has other programs and partnerships dedicated to creating inroads to different ethnic communities. By working with important public and social organizations such as the Los Angeles (L.A.) Urban League, the United Negro College Fund (UNCF), and the American Indian College Fund, Toyota seeks to build up a positive status in key local markets as well as nationally. Toyota also helped set up the L.A. Urban League Automotive Training Center, an organization that helps jobless and under-employed residents of Los Angeles obtain precious automotive skills - skills that can help them find careers in the industry. To date, Toyota has dedicated more than $9 million to the effort. This has boosted Toyota's public image. Toyota also launched its "Why Not" ad campaign which is the biggest in its history, in order to counter the loss of recommendations from Consumer Reports (Linton, 2007) Similarly, Toyota has started to contribute in the same manner in China. In February 2006, Toyota has held a Safety Forum in Tianjin, where it introduced Toyota traffic safety initiatives to the Chinese media through presentations, technology exhibits and live crash testing. Toyota held the meeting against an environment of growing vehicle safety awareness in China. For its presentations and technology exhibits at a local conference venue, Toyota used actual vehicles and other displays to introduce, among other initiatives, its advanced GOA (Global Outstanding Assessment) collision-safety body and a pedestrian-injury-lessening vehicle body structure. To demonstrate the high level of safety inherent in Toyota vehicles, Toyota performed live crash testing of the locally produced Reiz at the China Automotive Technology and Research Center (CATARC), also in Tianjin. In addition to improving vehicle safety performance, Toyota has actively taken measures to reduce traffic accidents in China through such activities as offering safe-driving courses. China CSR (2006) reported that Toyota established the Toyota Study Assistance Fund in conjunction with the Soong Ching Ling Foundation to provide assistance to students in mid-western China who for financial reasons would otherwise have difficulty entering university or advancing their tertiary education. Apart from this, Toyota has also launched a number of initiatives such as planting trees, Chinese awards and donations to earthquake relief in order to promote its image as a social corporate entity. China is a growing economy and Toyota's Marketing strategy in the United States can prove to be an ideal solution for creating Goodwill as well as becoming a leader in China. These initials can improve Toyota's capital, enhance its brand image, increase sales, develop employees, sharpen decision-making, improve risk management and reduce costs. Reference List Jiang, Y. (2004). Toyota adopting three-stage plan, Retrieved Dec 22, 2004, from http:// www.chinadaily.com.cn/english/doc/2004-10/22/content_384782.htm CNNMoney.com (2008). Toyota set to beat GM in sales this year, Retrieved Jul 23, 2008, http://money.cnn.com/2008/07/23/news/companies/toyota.ap/index.htmeref=aol Shirouze, N. & Linebaugh, K. (2008). Toyota Shifts Gears to Build Prius in U.S., B1, Retrieved Jul 11, 2008, from http://s.wsj.net/public/article_print/SB121568096095042261.html Jett, S. (2005). Toyota Ads powered by Diversity, Retrieved Jan 2005, from http:// www.diversityinbusiness.com/dib2005/dib20501/Adv_Toyota.htm Linton, L. (2007). Toyota launches "Why Not" ad campaign, the largest in the company's history, Retrieved Nov 5, 2007 from http://www.autobloggreen.com /2007/11/05/toyota-launches-why-not-ad-campaign-the-largest-in-the-compa/ ChinaCSR.com (2006). Toyota Establishes Study Assistance Fund In China, Retrieved Mar 24, 2006 from http://www.chinacsr.com/2006/03/24/381-toyota-establishes-study-assistance-fund-in-china/ Read More