MBA (PROJECT MANAGEMENT)

Marketing Management

Prepared by: Ikechukwu Ihemelandu

Date: Nov 8th, 2010

Word Count - 4337

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Introduction

In the year 1937, Toyota Motors Co.Ltd was founded by Kiichro Toyoda, as a subsidiary of Toyoda Automatic Loom Works a foremost manufacturer of weaving machinery. The first Toyota car was launched in 1947 in Japan, and subsequently in 1959 a production plant was established in Brazil. Toyota Motor Corporation is the world’s foremost automaker, and currently is regarded as the world largest manufacturer of automobiles with a combined sale of 7.23 million units in the year 2009, ahead of GM Motors and VW motors. The US market is Toyota’s biggest market, and it accounts for 30% of its total sales. Toyota motor Corporation offer a whole range of models ranging from mini vehicles to large trucks. The corolla range of product being their most sold model.

Evaluation of Toyota’s Marketing Strategy:

Marketing strategy dwells basically on avenues in which companies or corporations distinguishes itself from their competitions by leveraging on their unique strength to offer better value to its customers. Attributes of a good marketing strategy includes distinct market definition, a good correlation between the companies strength and the market needs, as well as a performance that betters that of its competition. Toyota Motors Corporation (TMC) operates a Multi-Market strategy as it does not limit its business to one segment. Toyota Motors Corporation offers a full range of product in different segments in the

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automotive industry.TMC offers cars in the compact, mini, and luxury as well as in the large truck segment of the automotive markets. Toyota motors marketing strategy would be analyzed using the Porters Generic Strategies framework, which makes the assumption that a corporation’s strength lies in its ability to essentially differentiate its product and services through low cost or by the uniqueness of their product, Porters (1980). He also made the assumption that a firm that combines both strategies would not gain any competitive advantage over its competitors. Toyota motors have successful combined two strategies cost leadership and product differentiation to gain competitive advantage over its competition to become the world biggest automaker. Toyota’s philosophy of having the right car in the right place has always guided its market segmentation and targets. Its target market has always been segmented using demographic and psychographic form of segmentations. Evaluating the marketing strategy of Toyota’s hybrid brand Prius, Toyota leveraged on its strong cost leadership and product differentiation strength to try and gain market shares in the American market. Toyota introduced the first Prius in the American market in the year 2000.Its initial target market was the early adopter of technology and the environmentalist, as the initial concept for developing the Prius hybrid brand was to have a more eco-friendly cars that conformed to the regulation and standards of environmental pollution. Toyota gained initial market shares by using a penetration pricing strategy; it set the initial price of the 0811867002532Page 3

first Prius at the same price as the original Prius, which was lower than the prevailing market price at that time. It leveraged on the effect of economy of scale and experience to lower production cost which could afford it they luxury of using the penetration pricing strategy to gain market shares. Also coupled with the efficient and effective Toyota’s production and distribution system, which is assumed to be the best in the world, it is able to meet up with anticipated increase in demand for the product. Toyota also used the product differentiation strategy to gain market shares, it hinged on its innovative and continuous improvement culture to develop a model that suited the American market. The Prius gained market share in the USA market because of its uniqueness, it stood out amongst other hybrid brands with its better product performance, and superior design and quality. The first generation Prius recorded considerable sale success however it had a market share of 32% as against the Honda civic Hybrid which had a market share of 55% .The first hybrid car to be sold commercially in the US market was the Honda insight hybrid in 1999,but the Civic Hybrid was its bestseller, Honda adopted the market positioning strategy to market the Honda Civic hybrid it targeted the mass market and based the design of the Honda Civic Hybrid on the brand equity of the conventional version of the Honda Civic which was at that time the best selling compact car in the USA.Honda Civic hybrid appealed to the early customer because they were already accustomed with the features it offered and the 0811867002532Page 4

additional benefit of increased mileage and eco-friendliness was a welcome add-on. After the initial launch of the first Prius in the US market Toyota started an evaluation based on the pricing, performance and social aspect of the Prius, this helped it to deduce some valuable facts about the design, performance and quality of the Initial Prius. All these anomalies were put into consideration during the production of next generation Prius. Due to the uniqueness of the new design which made it stand out, it differentiated its self from the other hybrid product. Its sales increased and it outsold all other hybrid cars. Toyota shifted from its initial target market of early adopter and eco-friendly inclined customer to the mass market. By the end of 2007 Prius had taken the greatest market share in the hybrid segment. By successfully combining the cost leadership and product differentiation strategies Toyota has been able to gain significant market share in the hybrid segment with its Prius brand and as at September 2010 it tops the list of highest hybrid car sold in the USA.

The Importance and, use of Information in Toyota’s Marketing Strategy.

The importance and use of information in a company’s marketing strategy to gain competitive advantage cannot be overemphasized. Most companies have marketing information system that help them set procedures and practices which in turn enable them analyze and assess

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marketing information gathered. This information is used in making viable marketing decision in production development, product pricing and distribution. It also helps them in selecting the best ways for advertizing and promoting their product. Toyota uses market research and marketing intelligence activities to collect information from the market. It uses this information in analyzing the condition of the market, economy, consumer’s preference and buying capacity, this it uses in segmenting and targeting its market.

Prior to the launching of the first Prius in the US market, Toyota carried out market research and studies on the market preference of the consumers; it also studied the behavioral pattern of the American consumer., these research and surveys was done through direct consultation with customers, dealer’s reports and from questionnaires given to buyers of new cars. Toyota also conducted family demos in major cities in the United States, and used the internet to publicize and make available useful information of the Prius. Information gathered from these processes helped them devise an initial marketing strategy to penetrate the US market. Initial market research and intelligence show that the Prius was accepted by the more tech savvy focus group, and so the target markets for the Prius were the early adopters of technology and innovators. Also information gathered from research conducted revealed that they were an increase in demand for cars that had high fuel efficiency with the rising cost of fuel biting hard then.

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Toyota also realized that most American sourced information from the internet, thus the internet was used as a major medium for adverting and promotion of the Prius. The research also revealed that American wanted aside from environmental soundness, high technology, affordable pricing, quality and comfort. All these facts embodied Toyotas objectives for marketing the first generation Prius in the US market. The First generation Prius gained an appreciable market share in the US Market as it sold a total of 15,556 cars within the first year and reached a sale of 100,000 units worldwide by 2002. The first generation Prius Toyota was initially targeted for the early adopter and innovator focus group, but from information sourced from market surveys it realized that the mass market segment was more viable thus it shifted. With all these information about it customers and target market, Toyota launched the second generation Prius which was an instant hit. Toyota had incorporated all the features that the customers had initially wanted, as well making the Prius a more appealing model to its competitions. Also Toyota was able to gain competitive advantage over Honda with the new Prius by coming out with a very unique design which was one of the strong features of the Honda Civic Hybrid. Toyota also reverted to the traditional channel as against the web channel which was initially been used for the sale of the Prius. This ensured that customers received their orders on time, which was also one of the advantages the Honda Hybrid had over the Prius.

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Correlation between Toyota Motor’s marketing Strategy and Their overall organizational Strategy.

A company’s marketing strategy tends to dominate its overall strategy eventually. The mission statement of most companies usually states its corporate strategy explicitly. Toyota strategy is outlined in three different levels namely global, regional and national which are based on consumer’s needs and preferences. Toyota motor’s corporate strategy is to develop new products and services of high quality at a better price than their competitors, through effective and efficient modes by continuously improving on it product and services thus becoming the first choice for consumers. The market strategy of the Prius when it was first launched in the US Market correlates with Toyota’s overall strategy, in a lot of ways, this can be seen using the 4 P’s of marketing, which are the four vital areas that needs to be managed in order to gain competitive advantage.

It includes thus:

Product: Toyota has overtime successfully designed the Prius to be of high quality using the innovative hybrid technology which it developed from the scratch. This technology it has improved overtime since conception. The Prius also had revolutionary features and accessories as well as a very unique design making it stand out among its competitors. All these are in line with its overall strategy.0811867002532Page 8

Pricing: The cost leadership strategy of Toyota can also be related to the penetration strategy it used in launching into the US market due to the elasticity of the Prius demand, which was expected to rise as prices declined thus gaining mass appeal.

Promotion: To be the first choice of the customers, Toyota promoted the Prius using different means such as advertisements, sales promotion and endorsements of the product by celebrities. The Prius was featured in some block buster movies and TV shows to create awareness amongst its potential customers. It also used the internet by putting up reviews from the initial Prius and by posting information about the Prius.

Place: In line with its strategy to continuously improve on its product and services, Toyota setup a very effective and efficient production and Distribution system, popularly known as the Toyota Production system (TPS).This made it very convenient to meet up with customer’s demands and order.

An Analysis of how the global context has been incorporated into Toyota’s marketing planning.0811867002532Page 9

Toyota customizes its products as well as its services to meet up with customer’s preferences and demands in different countries, this strategy has helped it to break into foreign market away from its more dominant Japanese market. This has meant that new technologies and marketing plans, as well as a new supply chains have had to be created ,which in turns has further helped in maximizing the creativity of its worker. Toyota did not take the route of acquiring other manufacturer in order to enter the foreign market; this has helped it in retaining its financial assets as well as focus on just the Toyota brand, thus enabling it to establish itself as a global player. Toyota employs different strategies one of which is localization; here the production of its vehicle is based on where there is demand. By producing locally in host countries Toyota is able to stem the tide of currency exchange rate fluctuation, and also gain a higher degree of flexibility and thus speed up distribution. Toyota uses various regional strategies to gain global leadership, one of which is the home-based strategy which entails companies servicing the foreign market from its home base, the objective being to manufacture the product in the home country and then export it to foreign markets. This was the strategy used by Toyota when the first ventured into the international market as most sales were from direct export. This strategy was also used in the sales of the first generation Prius in the US market. However the recent surge in the demand for the Prius in the US market has made Toyota have a rethink and it has proposed localizing production of the Prius for the 0811867002532Page 10

US market by building a manufacturing plant in the US which should start production by late 2010.

Toyota’s use of e-business strategy in marketing.

Companies embrace e-business initiatives to improve the bottom line of their business through increased productivity and cost cutting. Toyota motors like most other companies have adopted this initiative; it has employed it in the bid to reduce the cost of ordering and tracking parts and supplies as well as to implement its most famed “Just in time” production system. When the first Prius was introduced into the US market, to mitigate uncertainty and enhance flexibility, it employed the use of the web to centrally stock up the Prius while at the same time taking orders. Dealers were made to provide orders fulfillment using the web, this helped reduce the cost of Prius. The high demand uncertainty then of the Prius made using the traditional dealer channel not as cost effective as it should have been, as a 90-day pipeline inventory would have been required to be filled before the cars get to the customer which would add an extra cost. The use of the web helped in mitigating the demand risk by reducing the lead time for the product to get to the customer, and this ensured that the Prius launch was a success. Though eventually, after the Prius market grew and there was a better insight on demands it reverted back to the traditional channel 0811867002532Page 11

because the web channel was viewed as not been competitive, because it meant having to maintain two channels for the Prius and other Toyota products which would have been tedious. However the web channel was still used in special occasion and was even used to launch the 2004 model. Toyota also were the first to use the social media marketing network as way back as in 2000 to reach out and attract the innovators and early adopter focus group before the launch of the Prius in the US market, and as the social media has gotten more popular it uses facebook and twitter the two most popular social network media to reach out to a wider mass audience. Toyota also the used the internet for its advertisement and publicities as it had already identified the internet as one of the major source of information of the US market.

Marketing Plan for a New Product.

Introduction:

The Nigerian Automobile market is reckoned to be the biggest south-west of the Sahara, it currently have no fewer than 30 Brand of cars which are all represented by franchised dealership. The Toyota Brand was initially launched by R.T Briscoe in Nigeria in 1965 as an exclusive distributor. Toyota Nigeria limited later came

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into being and it has several franchised dealers spread across the country. Toyota Nigeria offers a wide range of Toyota cars in the passenger and commercial vehicle models. Currently the Toyota brand accounts for 70% of the total import of new cars into the Nigeria market.

The Toyota Prius is full hybrid car and is considered as the most fuel efficient gasoline automobile in the world. It can be classified in the medium car segment and offer the same functionality and features as other non-hybrid car in the same segment.

The Market Segmentation: The market for the sale of the Prius would be divided into two different categories the Individual or private buyers as well as the Corporate or business buyers, the segmentation of the market would be based on the geographic as well as demographic and psychographic basis.

Geographic Segmentation: The Prius would be sold throughout the country but more emphasis would center in Lagos and the Capital city Abuja, these cities are locations to most corporate business establishment and government parastatals as well as the middle and upward mobile class. The population in each of these cities would be in the range of about 12million and 6 million respectively. The problems of congestion and air

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pollution especially in the Lagos area would be another attribute.

Demographic Segmentation: Both the individual and corporate buyer would be vital to the market. The age range of the Individual buyers would be between the age of 25 years and 65 years and could either be male or female, the age range fall within the working class of the Nigerian society and the comprise of elites, the highly informed and educated adults. They would be able to appreciate the features the Prius has to offer as well as be able to afford to buy it. The disposal income of this group would be in the range of between N2.5 –N30M per annum.

Psychographic Segmentation: The early adopter and Technology pioneers would be the most likely to purchase first. Most Nigerian both literate and otherwise love being the first own new product especially automobile, this can be attested to number of latest models of most cars gracing the Nigerian roads. Also with the high cost of fuel and incessant fuel scarcity that plagues the Nigeria society most people are looking for alternatives and they would not mind purchasing the Prius which would afford them a car with high fuel efficiency which translates to a lower cost maintenance in the long run. With the clamors everyday in the media of global warming a lot of Nigeria are becoming aware of the need to make the environment more friendly, Nigeria been a country with a high degree of CO2

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pollution, because large volume of cars that pile the roads.

The Target Market:

The target market for the Prius in Nigeria would be the individual as well as the corporate buyers. The corporate buyer would be the various multinational, banks and government parastatals.These establishments would be very interested in acquiring the Prius into their car fleets as this would help them reduce their opex cost due to its low operating and maintenance cost.

Differentiation and Positioning of the Prius in the Customers Mind

A SWOT analysis would be done on the Nigeria market to determine the internal and external factors that may affect the introduction of the Prius into the market.

Internal Strengths:

Toyota is the largest automobile makers in the world

Toyota cars are of high quality and very reliable

Toyota’s efficient and effective Just-in Time Production

Toyota brand is the bestselling brand in Nigeria with the corolla being its highest selling brand.

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Internal Weakness:

Understanding the mindset and culture of the Nigerian market as it is very diverse.

Weak Distribution Network and Car dealership, the distribution network is not as robust as that in the United states and they might not be able to caters for very large demands.

External Opportunities:

The Nigeria market is very large and greatly untapped with a population of about 150 million people 25% of these being able to afford a car.

Introduction of the Hybrid technology which has already being a success in the United States and Japan. And with the incessant fuel scarcity and high cost of petroleum product this would suffice.

External Threats:

Competition from cars in the non-hybrid segments

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The recent recall of some Toyota Prius in the oversea markets which has generated a lot of negative press.

Competition from other hybrid makers like Honda.

Positioning and differentiating the Prius in the mind of the customer would help Toyota do away with excessive advertizing and promotion of the Prius, it would help give context to message on the product. It would also help in preventing a situation where the customers would have to position the Prius based on information received from competitors. Using the following product positioning strategy this can be achieved i.e;

Benefit strategy: The benefits the Prius offer to the consumer would be the focus, this benefits would include a cleaner atmosphere due to the reduced CO2 emission making for a healthy environment this would be one of the high selling point. The air pollution in the big cities in Nigeria is already a case for concern and environmentalist and the enlightened amongst the target market would embrace the offer.

Also the reduced fuel consumption and low cost of maintenance would appeal to the target market, as most Nigerian both individuals and corporate bodies are looking for ways to reduce their operating cost especially when it has to with energy because of the

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fact that they have to fuel not only their cars but also generators and home as well as in the offices due the poor energy generation in the country.

The Prius is new in the Nigerian market with no known competitor in the same product category, but with competition from cars in other product category even within the Toyota brand. The Prius would differentiate its self from the rest with its unique design that stands it out, as well as with it novel hybrid technology, which is innovative, revelotionary and pioneering. Also the Prius has a proven efficiency and reliability track record in the US and Japan. Even the recent recall in the US market of some of the Toyota models won’t affect the sales as similar models in Nigeria were not affected.

Marketing Objective: The marketing objective for the Prius would be set bearing in mind the activities of the company like production sales and purchasing.

The marketing objectives would be as follows:

To introduce the Toyota Prius into the Nigerian Market, and educate the target market of the benefit within 12 months, this would be done by having various mini motor fair in Abuja and Lagos the initial target market; this would help showcase the Prius. Potential customers would be allowed to do a test drive of the Prius so as to get a them a firsthand feel

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Gain market penetration within 24 -36 months, a projected sales target of 5,000 units should achieved within the first year of launching into the market, and a subsequent 10% increase for the next year. The asking price for the Price would be $23,000 (N3, 507,500) for the standard option and $30,000(N4, 575,000) for the full option.

The Prius would be customized to suit the Nigeria environment, and it would be readily available to cater for demand. The just in production system of Toyota would be able to handle this.

The Prius would be promoted using different media i.e. the internet TV adverts and radio jingles. A sum of N150m who be set aside for the promotion of sales.

Market Mix: To market the Toyota Prius model the 4P’s technique would be used to draw up an operational strategy to be able to make decisions that center on the customers in the target market in order to create awareness and generate sales. The four P’s are;

Price: The Pricing strategy to be used would be the market penetrating strategy. The Prius would be introduced into the Nigeria market at a very competitive price probably at a price commiserate with that of the corolla which is currently the best selling model in the Nigerian market, and possible it

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major competitor. This would be a unique selling proposition, and would encourage sales. Also financing and Lease options would also be introduced to encourage the corporate customers that buy in large quantities.

Product: The Prius offers the customer features not available in other cars, which makes it very distinct and coupled with its unique design it stand out amongst other car. Also the Toyota brand is synonymous with quality and reliability the world over and is a mainstay in the Nigeria market and the Prius would hinge on that to gain insight. The additional features the Prius offers would be used as a unique selling proposition.

Place: The Toyota dealership in Nigeria which spreads across nine cities would be used for the sales and distribution of the Prius. Lagos and Abuja with the highest concentration of urban dwellers would be the first place the Prius would be sold. Order processing would be done through the internet to help facilitate sales. Dealers would be encouraged to promote sales through personal sales to customers and organize presentations on the Prius to get the potential buyers accustomed to it.

Promotion: The initial promotion of the Prius would involve the education and the creation of awareness of the product which will then be followed up with generating some sort of excitement about the Prius

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at the same time focusing on selling the unique features to customers. The PUSH strategy would be used this would ensure that every available channel of distribution would be used to push the Prius into the market. Discounts would be offered to encourage the various channels to promote the Prius aggressively, and this would in turn reduce the need for excessive advertizing. Buzz advertizing would also be used to spread the word by word of mouth.

An indication for the cost of the marketing strategy would be put at about N240million this involves the cost of the marketing campaign for the promotion of sales of the Prius and this is estimated at about N240million, which would be spread across a 12months period starting from January and ending in December.

A return on investment would be expected in about 2 years.

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iREFRENCES

iSubash C.Jain 6th Edition September 16, 1999 Marketing Planning &Strategy. South-Western Educational Publishing

Kenichi Ohamae 1978 Effective Strategies for Competitive Success Mckinsey Quarterly

Hirotaka Takuchi, Emi Osono and Norihiko Shimizu.June 2008 The contradiction that drive Toyota’s Success Harvard Business Review.

Pankaj Ghenawat December 2005 Regional Strategies For Global Leadership Harvard Business Review.

Thomas .A Stewart and Anand P.Raman July –August 2007 lessons from Toyota’s Long Drive Harvard Business Review.

Forrest L. Reinhardt, Dennis.A.Yao, and Masako Egawa December 2006 Toyota Motor Corporation: Launching Prius. Harvard Business School

Michael E.Porter; November –December 1996, What is Strategy? Harvard Business Review.

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Michael E.Porter; March 2001, Strategy and the Internet Harvard Business Review.

Michael E.Porter and Victor E.Millar; July –August 1985, How information gives you a competitive Advantage Harvard Business Review.

Roland T.Rust, Christine Moorman and Gaurav Bhalla,January – February 2010,Rethinking Marketing, Harvard Business Review.

www.toyota.com

www.toyotanigeria.com.

RDI LECTURE MODULE, Marketing Management

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