Strategic Marketing Management in Toyota Motors - Case Study Example

Strategic Marketing Management Introduction: 4 2.Situation Analysis: 4 2.1Internal Situation: 4 2 1 Market Situation: 4 2 2Target Market- Consumer Buying Behavior: 5 2.1.3Marketing Mix: 6 2.1.4Supplier Situation: 7 2.1.5Internal Resources and Capabilities: 8 2.2External Situation: 9 2.2.1Competitive Situation: 9 2.2.2Macro Environment: 9 3.SWOT: 10 4.Strategic Actions: 11 5. Conclusion: 12 References: 12 Executive Summary: Toyota Motors is the market leader globally in the automobile market. It was fast to sense the demand for economical cars and was the first company to launch the hybrid vehicle way back in 2000. The report tries to analyze the various internal and external factors that affect Prius. It starts with an internal analysis which includes various factors like market situation, target market, marketing mix, supplier conditions and internal capabilities and resources. It has been found that the demand for hybrid cars is increasing at a rapid pace in most nations. The target market comprise of early adopters and technophiles. The marketing mix for Prius shows that it is a great product with superior technology. It has used great promotions and effective distribution channel in order to promote Prius. The internal resources of the company namely the production system, corporate culture, distribution channels and financial resources are the key factors which have helped Toyota attain market leadership. The report then analyzes the external situation in terms of competition and macro environment. There is intense rivalry among the major players namely GM, Ford, Chrysler, Honda, Nissan. Honda was the first company to launch hybrid cars after Toyota. The macro environmental factors include strict emission norms by the US government, efforts to save the domestic industry and so on. The report concludes with the SWOT analysis of the company and with strategic recommendations. 1. Introduction: Toyota first entered US in 1957. Today Toyota is the market leader in the global automobile market. The production system of Toyota is accepted worldwide and every company is trying to implement the production system of Toyota. Realizing the need for economical cars, Toyota was the first company in the world to come out with hybrid technology cars. It came out with the Prius in 2000. The share of hybrid vehicles in US is 2.5% which is the highest in the world. The report tries to analyze the internal and external situation that is affecting Toyota Prius. It tries to find out the market situation, target market, marketing mix, supplier situation and the internal resources and capabilities of Toyota. It then analyzes the external environment in the context of industry rivalry and the macro environment. Finally it does the SWOT analysis and provides strategic recommendations on what Toyota should do in order to fight competition. 2. Situation Analysis: 2.1 Internal Situation: 2.1.1 Customer Market Situation: The automobile industry in US was the largest in the world till 2009. It was the most attractive destination for all car manufacturers. However due to recession which has affected US the most, the sales has declined considerably. The sales of automobile industry slumped by 21% to 10.4 million vehicles, the lowest figures since 1982. China now tops the list of automobile market globally where the sales jumped 46% which is the highest globally. The sale of vehicles has been plummeting since 1999 on account of high economic growth of China (Bloomberg News, 2010). 2.1.2 Target Market- Consumer Buying Behavior: Consumers worldwide have become more conscious about economical cars and cars which cause minimum impact on nature. In US too, the trend is catching up but it is slower compared to European, Japanese and Asian markets. In America 33.9% of the cars fall within the category of 15 to 20 mpg whereas in Europe it is 0.28 % and in Japan it is 0.63 %. American buyers still prefer gas guzzling powerful vehicles. A primary reason for this is the fact that the price of fuel in America is still less compared to other nations of the world. However it is also interesting to note that the percentage of American’s who are inclined towards hybrid vehicles is more compared to Europe. In America, the market share of hybrids is 2.3% which is only 0.5% in Europe. Japan leads the chart of hybrid vehicles sales where hybrids have a market share 10.1% (Ashe, 2010). Toyota was the first company to come out with hybrid technology by introducing Prius. The target market for Prius was: Demographic: It was targeted towards middle aged male and female belonging to the upper middle class. Psychographic: Since Prius was the pioneer in hybrid technology, it targeted the early adopters, technology pioneers, pro environmentalist and value conscious customers. Geographic: The main geographic market for Prius was North America which was the most attractive market till last year for all auto majors followed by Europe. 2.1.3 Marketing Mix: The marketing mix consists of the 4 P’s of marketing. They are product, price, place and promotion. The marketing mix for Prius is discussed below: Product: Prius is the first car to have hybrid technology. It is highly economical and gives a mileage of 50 miles per gallon. It has the features and comforts that a passenger expects from a pricier car like BMW (for example, trunk space and ample leg room). It has a distinctive styling and design. Promotion: The Prius was targeted towards the technophiles and hence it used the internet to target its buyers. A website was developed for Prius two years prior to the introduction of the vehicle. It also created an online brochure along with a video clip of 17 seconds which was sent to almost 44000 people. The print and television advertisements focused on the new technology and freedom from oil. In addition to this it also used various celebrities to endorse the new Prius. The Prius has featured in many Hollywood movies like CSI Miami, Evan Almighty, Weeds and Superbad. Place: Toyota came out with an innovative strategy for distributing the cars. In order to accelerate the purchase, the buyers who requested for information regarding the Prius was given the option to pre order the cars which were later finalized by the dealers. As a result of this even before the cars were made available to the dealers in the year 2000, 1800 cars already got sold. Toyota spent a lot on developing and educating new as well as existing dealers on the new technology. It coordinated with almost 900 dealers to run a “rental program which gave a prospective customer to keep the car for a one day trial. Price: The first generation Prius was priced high since it was the first car to have hybrid technology. The prices were acceptable by the target market because the comfort and features offered by Prius were comparable to high end cars like BMW. However the prices were reduced when Honda launched its Civic hybrid. The Honda Insight which is the latest hybrid from Honda is priced much low than Prius. Prius II is priced $23550 whereas the base model of Insight is $20,550. Even the next upgraded model of Insight which is Insight EX is priced lower than Prius II at $22,050. Insight EX which has navigational features is priced at $23,850 which is slightly higher than Prius II (Honda, n.d.). The current price of the latest Prius V, 2010 model is $28,070 (Toyota, n.d.). 2.1.4 Supplier Situation: Toyota believes in maintaining long term relationship with its suppliers. Toyota Production System which is famous worldwide focuses on vendor development as a key to gaining competitive advantage. It is due to the effective vendor network that Toyota has developed over the years which have helped it achieve Just in Time manufacturing success. In US it has a website Toyotasupplier.com which is an extension of Toyota’s commitment towards the North American suppliers. Toyota Motor Engineering & Manufacturing North America (TEMA) is a group which works with hundreds of suppliers in North America to build quality vehicles. Toyota has recently been facing major problem from the suppliers. It had to recall more than one million vehicles because of problems in the gas pedal which it procures from one of its suppliers. Most car makers procure hundreds of parts from suppliers. These suppliers supply the parts to more than one company. The auto makers are dependent on the suppliers because manufacturing a part requires a completely different manufacturing set up. In spite of efforts by Toyota to partner with the supplier and build long term relationships, it is facing a major problem which has lead to its brand image getting tarnished (Ryssdal, 2010). 2.1.5 Internal Resources and Capabilities: One of the most important factors which have helped Toyota in becoming the global market leader is its internal resources and capabilities. The internal resources and capabilities of Toyota are as follows. Structure: Toyota has a relatively flat structure of management and is highly decentralized compared to American firms like GM and Ford who follow a centralized management approach. Toyota follows a bottom up approach where every member of the company is allowed to put in their views regarding new product development and other key decisions. All employees share the same cafeteria, parking space and uniform in Toyota America which fosters a strong culture. This increases employee loyalty. Toyota Production System (TPS): The TPS is a benchmark for quality across the world. TPS focuses on optimal utilization of resources and waste avoidance. The TPS system helps Toyota to manufacture a vehicle in 21.63 hours which is much lesser compared to GM and Ford which takes 32.58 hours and 24.87 hours respectively. Just in Time is a part of TPS which helps Toyota reduce cost of inventory which it passes to the customers by lowering the price of its cars. It also focuses on long term vendor development in order to achieve JIT manufacturing. Distribution: Toyota has excellent distribution system all across America which helps it in distributing its cars locally. It has excellent relationship with its dealers and spends a lot of money on training the dealers. Toyota strives to deliver better customer satisfaction and hence provides great service through its dealers. Financial Strength: being the market leader in the automobile industry, Toyota has great financial muscles. The financial strength of Toyota helps it offer lucrative schemes like vehicle leasing schemes, interest free loan and other credit facilities to its customers. 2.2 External Situation: 2.2.1 Competitive Situation: The major players in the automobile industry are known as American and Japanese Big Three. General Motors, Ford and Chrysler are the American Big Three whereas Toyota, Honda and Nissan are the Japanese Big Three. There is intense competition among the players with every company fighting to get the maximum chunk of the cake. Chrysler and BMW have tied up with GM for developing hybrid technology. As far as Prius is concerned its biggest competitor is Honda Insight. Honda has launched Insight at a lower price than Prius which is a big threat for Toyota. 2.2.2 Macro Environment: The macro environment can be studied using PEST analysis which is given below. Political: Strict restriction has been imposed by the US government on foreign car manufacturers to protect the domestic car manufacturers like General Motors, Ford and Chrysler. The Big Three is being supported by the US government with all kind of fiscal benefits so that they are able to revive and fight competition. Economical: US are the worst affected country by recession. There is huge unemployment since most big companies have filed for bankruptcy. Almost 400000 people have become unemployed because of recession. Although the steps taken by government are helping the economy to improve yet it is going to take long before it comes back to pre recession levels. Social: After recession the customers are gradually becoming conscious about economical vehicles. There is an increasing awareness towards green cars which cause minimum impact on nature. Customers have realized the need for protecting the environment since the effect of global warming is being felt all across the globe. Technological: There is an increasing demand for cars with hybrid technology. In addition to this customers are also looking for superior technology features like automatic parking. 3. SWOT: Strength Superior Manufacturing Process accepted worldwide popularly known as Toyota Production System It has become the market leader globally Being market leader it has great financial muscles which makes it possible to provide interest free loans and other financial rewards to the dealers. Excellent distribution system which helps it to better serve the customer. Toyota was the pioneer in hybrid technology and was the first to implement the technology in Prius. Weakness Tarnished brand image because of recall due to problems in gas pedal. Problems with the supplier Opportunity Demand for hybrid cars is increasing in US and worldwide. Strict emission norms set by US government gives Toyota an upper hand since it was already developing cars with greener technology. Threat Big stimulus packages being given by US government to boost the local manufacturers namely Ford, General Motors and Chrysler. In January, 2010, Ford overtook Toyota as the market leader in terms of sales. Intense rivalry in the market particularly with Honda which has launched Insight at a lower price than Prius. 4. Strategic Actions: The most important issue for Toyota at this moment is to revamp its tarnished brand image. In order to do so it must try to regain the lost confidence of customers. This can be achieved through effective marketing communication. Toyota should try to communicate to the customers that it is highly concerned about the security and safety of those who trusted Toyota. It should thank the customers for sticking to the company in their tough times. It should use the internet especially social networking sites like Face Book, Twitter and Blogs for communicating with the customers. Secondly it should come out with lucrative finance schemes since the US economy is suffering from recession. It is already providing interest free loans but it should also provide free accessories to woo the customers. Finally it must make sure that it repairs the recalled vehicles at the earliest. It needs to exploit its distribution channel and improve the facilities at the supplier place so that customer complains can be handled efficiently. 5. Conclusion: The internal analysis shows that China has replaced US in the current year to become the most attractive destination for the automobile industry. Customers are becoming increasingly conscious about eco friendly cars although US is lagging behind Europe, Japan and Asian nations in terms of preference for economical cars. Toyota Prius was the first car with hybrid technology and was targeted towards early adopters and technophiles. Competitors were first to react with Honda launching its hybrid Civic to compete with Prius. Honda has recently launched Insight to compete with Prius. Toyota has been facing problems from supplier which has resulted in problems in its gas pedals and this has lead to its brand image getting tarnished. A key to success for Toyota is its internal resources and capabilities. Its strengths lie in its structure, manufacturing process, distribution and financial strength. Toyota should utilize its strengths to exploit the opportunities that are available in the market and to fight competition. References: Ashe, S. N. June 17, 2010. U.S. car market lags behind Europe, Japan in green fuel. cnet reviews. Retrieved on June 17, 2010. From http://reviews.cnet.com/8301-13746_7-20007956-48.html Bloomberg News. Jan 11, 2010. China Ends U.S.’s Reign as Largest Auto Market. Retrieved on June 17, 2010. From http://www.bloomberg.com/apps/news?pid=20601087&sid=aE.x_r_l9NZE Honda. No Date. Insight vs Prius, It’s all about value. Retreived on June 17, 2010. From http://automobiles.honda.com/insight-hybrid/insight-comparison.aspx Ryssdal, K. Jan 28, 2010. Toyota recall highlights supplier issues. American Public Media. Retreived on June 17, 2010. From http://marketplace.publicradio.org/display/web/2010/01/28/pm-toyota-supplier/ Toyota. No date. Prius 10. Retreived on June 17, 2010. From http://www.toyota.com/prius-hybrid/trims-prices.html Read More