Brief Essay on Toyota
Toyota is a leading Japanese automobile company, with sales operations carried out all five continents and with over 9 million cars sold in the year 2006. It also has itself listed within the top 10 companies according to the fortune 500 companies. (www.toyota.com)
Toyota first operations started in Denmark, and since then there has been no looking back for Toyota. From the year 1963 to 2006, Toyota has sold approximately 15 million vehicles and believes in the policy of localisation. This policy means that Toyota produces their automobiles within the area in which they are sold. Toyota believes that this policy will help better understanding the needs of different community groups.(www.toyotauk.com)
Toyota has also proved itself as a leader in technology by the introduction their hybrid car, Prius. This car was established as one of the most popular hybrid cars. However, looking at the current scenario, Toyota is facing problems with the 2010 model of the Prius. Estimations say that Toyota has called back around 8 million cars due to technical faults in these cars, some of the major problems dealing with their brakes.
‘All for one and one for all’ was the tag line for the Toyota Aygo which was launched in 2001. (Grundon, M, 2005). This car was supposed to be one of Europe’s smallest cars produced as a trio between Toyota and PSA- Peugeot Citroen. (Grundon,M., 2005). The car stands out because of the mobility and performance it delivers. It is sleek looking, easy to park and drive and thus caters to the needs of modern man and woman on the go. Toyotas drivers were estimated to be around 53 years old. However, with the Aygo they hoped to change this statistic and hoped that those using the Aygo would be new to cars/ new drivers. (www.carepages.co.uk)
Toyota became the no.1 automaker in the year 2007. They overtook GM, who was previously at the top. The reason behind this is the fuel-efficiency and economical cost. Toyota cars are not only reliable, but also user friendly. GM has had to lay back its employees and cut down operations, where as Toyota is expanding its teams and increasing production rapidly. (Grace, F., 2007)
Toyota in the current market of today is facing tough competition from car manufacturers such as GM and Ford. Toyotas sales fell by 16% in January 2010 while the sales of GM increased by 14% while Ford’s share grew by 25 %.( 7DAYS newspaper, 2010). According to Ferdinand Dudenhoeffer, a researcher from the German auto institute CAR, ‘in the next few months sales of Toyota will be negatively affected in the US’. (7DAYS newspaper, 2010)
Minicar segment has been existing in this automobile industry since a very long time but it has gained its popularity in recent years. Economic uncertainty, high unemployment and increasingly high fuel prices has led to the increase in demand of minicar segment. To grasp on the opportunity of increasing demand of minicar segment, competitors relied on minicars from low – cost countries which helped them succeed in implementing the low – cost strategy. Examples for such competitors are FIAT Panda from Poland, VW Fox from Brazil and Hyundai Getz from South Korea. In order to keep up with the competition and achieve a market share, certain competitors opted for long product life cycle such as Renault’s Twingo and Nissan Micra which was sold for over a decade. The average price for this segment was Euro 10,000 and would increase if purchased with additional features.
In the case of MCC Smart by Mercedes Benz, they choose to apply the differentiation strategy in their offerings by providing the customers the option of changing the color of the plastic exterior body panels completely in 90 minutes at a very reasonable cost of between Euro 825 and 1,225 depending on the color, but the statistics show that only 0.8% of the overall customers used this option which also included customer whose car met with a accident or any other damage. They also positioned their car as a fashion item to attract more customers. MCC Smart had to face a loss of Euro $ billion between years 2000 and 2005. (Thompson/ Strickland/Gamble, 2007)
Now talking about Volkswagen, they entered with 2 minicars of different strategic group which included Audi A2 and VW Lupo. The problem with Audi A2 was that they entered with an offering like technological advanced aluminum frame which turned out to be very expensive for which the consumers were willing to pay.
Whereas, VW Lupo came out with a 3 – liter version which mainly concentrated on fuel consumption but failed to capture the market as it lacked convenience features like power windows and power steering.
Lastly talking about BMW, they relaunched their mini model in 2001 with a stress on rich heritage and it succeeded as it sold about 200,000 units in 2005 and had also set a premium price of Euro 22,000.
Now moving on to the regulations set by the European Union, the automobile industry had to maintain the level of carbon dioxide emission from the cars. Minicar segment helped companies in improving their voluntary target of reducing the emission of carbon dioxide from their cars. The target was reduced from 175 grams/km to 140 grams/km, which was easily met by minicar segments as it had low fuel consumption. The problem the industry faced was the demand for air conditioner, more hose power and big SUV’s which would emit more carbon dioxide. PSA developed a 1.6 liter engine which would consume 10% less fuel, but this technology had come with a cost of Euro 610 million which was then shared between PSA and BMW. (Thompson/ Strickland/Gamble, 2007)
Now we will look at the Porters Five Force for this product,
Competitive Rivalry: – Major competitors for Toyota are VW, BMW, Fiat and PSA (the holding company that owns the Citroen and Peugeot brands). Toyota has been achieving consistent quality marks as it has a very loyal customer base.
New Entrants: – Minicar segment has been going thru a renewed growth due to economic factors. As it is a slow growing market, many entrants would be found with different offerings. Many new entrants tried to enter with various different strategies but did not find much success.
Buyer Power: – When looking at the European minicar segment, the buyer power is very low as the switching cost is high but at the same time average length of ownership is long. In Europe, customers concentrate on reputation and feature or services provided by the company, which makes the buyer power more weak.
Substitute Products: – In Europe, there are a lot of substitute products, but Toyota narrows down the substitute products with its advanced hybrid technology, environmental initiatives and quality.
Supplier Power: – Very few firms produce mini cars within the target price range of Euro 10,000 of which Toyota is a part of and also provides suitable features which allows a very strong supplier power.
We could conclude by saying that Toyota has a very high competition in the market, but rest of the forces look good and it overcomes the competition with its key competencies.
A Multi country approach is suitable for industries where multi-country competition is based on the fact that the competition dominates or rules. It is important that the local market is responsive. Whereas, a global strategy is more suitable for markets that are globalizing themselves or who are globally competitive (Hanan, 2008)
The competition in the mini- car segment of European automobile industry is described and a multi-country competition. Because:
1. Buyers in diverse countries look for different attributes and features
Tastes and preferences of people vary from person to person. A geographic location of an individual can affect the taste and preferences of the individual. For example, cars are owned by all individuals around the world but people have their own preferences. Some want fast cars some want economical cars and geographic locations do have major impact on these decision. If a person staying in a country where old prices are high he will go for an economical car.
2. Sellers vary from country to country
Sellers around the world are not similar. They may be selling the same product but some features or attributes may vary. For example, sellers around the world will not have same offers on products.
3. Industry conditions and competitive forces in each national market differ,
Industry conditions are vital in any market. It affects the price of products and other aspects too. Due to it affect on products, they also affect the decision of an individual while purchasing a product. On the other hand competitive forces also vary from county to county and they too affect decision of the purchaser.
TME uses the global strategy for its operations in its European countries. Global strategy is best described as a strategy where each function is executed in one place itself. In a global strategy the strategy is consistent for all countries. They follow the same strategy may it be low cost, differentiation, best cost etc. It has minimal response to local conditions and high response to global conditions. TME sell same products under the same brand around the world. They use the best suppliers available around the world. TME coordinates the marketing and distribution worldwide and also compete on basis of same technologies, competencies and capabilities.
To increase the sales in Europe, Toyota decided to enter a completely new segment that was concentrated on making a very small, economical and fuel efficient car.Toyota and PSA successfully joint forces in 2001 and opened up their factory in Kolin, Czech Republic. This was one of the biggest foreign direct investments made in the Czech Republic with a cost of 1.3 billion Euros. PSA which has it headquarters in Paris is the second largest manufacturer in Europe and was very well known because it manufactured and produced the two most popular brands in Europe, the Peugeot and Citroen cars. PSA was mainly attributed for its cost positioning in manufacturing. The main objective of this joint venture was to manufacture a ‘mini-car’ 93% of the parts that were similar between Toyota, Peugeot and Citroen cars so as to fulfil the needs and requirements of the target segment in Europe. Toyota coming from a Japanese business background and PSA from a European business background and having completely different company history and working procedures, they both had to overcome the language and cultural barriers and had to deal with production on a wider scale, with one main point of focus and that being to reduce costs.
The reason as to why TME chose the method of joint venture with PSA to enter the European mini-car segment of the automobile industry is because PSA was one of the biggest companies in the automobile industry in Europe and had all the information of the best suppliers, their contacts and was stored in their databases. They knew where and how to get their raw materials and equipments and moreover they knew which suppliers were trustworthy. If Toyota had to go through this plan of entering a completely new segment of the mini-car world, it would have definitely been very hard and more over time consuming in regard to the information they would need to collect about the various suppliers for the raw materials and other products.
This alliance has certainly strengthened Toyota’s position in Europe because with the joint venture with PSA they were able to understand the need of the mini-car in the European market for which Toyota had no clue about earlier. By joining with PSA, Toyota focused on the manufacturing process of not only the Toyota Aygo but also the Peugeot 107 and Citroen C1, according to the Toyota Production System (TPS). PSA was concerned mainly with buyer and dealer relations since they had the most knowledge in this area. Both companies play an important role in the manufacturing and production processes of the company.
Toyota motor Europe joined forces with PSA – the holding company for Peugeot and Citroen to enter the markets for minicars in Europe. The objective was to have 93 percent standardized parts in the three cars. The challenge here was Toyota’s sustainable competitive advantage and it’s advertising to make the car different from its siblings. The European approach of marketing the car was quite different from the traditional approach. Toyota approached 10 artists from different European countries to re design the look of the outside body of the Aygo. There were also early promotional strategies a few months before the launch of the product. Phase 1was about creating an online community called the Aygo community. People joined this community and posted blogs about the car however the fact that Aygo belonged to the parent company Toyota was a mystery. In the phase 2 of the promotional strategy Aygo trend scouts arrived at discotheques which was the most common hangout of the Aygo target segment and pointed out to the Aygo booths inside the venue to play video games. The video game winners were given prices like leather cow boy hats which were very common at that time and ecstasy pill shaped mints as trophies. Phase 2 also involved Toyota sponsoring a popular rap band- Fantastischen Vier wherein Aygo was promoted. As the time of the launch got closer Toyota involved itself in dealer training because the dealers weren’t experienced to deal with the target segment of Aygo(18-30). This involved teaching the dealers about how the generation Y lives, what they prefer, what kind of technologies are important to them. Aygo lifestyle magazine was an interactive magazine which also gave an opportunity to the target segment to know more and get involved with Aygo. It covered topics about fashion, lifestyle, sports and travel. It had commercials from Calvin Klien and fossil watches. The magazine was produced every quarter on European basis with some variations in accordance with other countries. The magazine spoke about the upcoming events on Aygo and the new colors, through which it communicated the product news. Toyota also launched the Aygo City Tour wherein it went to big universities and allowed students to test drive. Since Toyota targeted generation Y it studied that they spend most of their time on the internet studying the product and are heavy users of the cell phones. Target customers interested could text and receive the specifications of Aygo on their mobiles which also made them get involved in the product. The car came with full warranty for 3 years or 100,000 kms. The launch was successful and Toyota won the best media strategy award. (Thompson/ Strickland/Gamble, 2007)
REFERENCES:-
Grace, F.. (2007). Toyota Is World’s No. 1 Automaker. Available: http://www.cbsnews.com/stories/2007/04/24/business/main2720069.shtml. Last accessed 1 April 2010.
Grundon, M.. (2005). Launch Report Toyota Aygo. Available: http://www.carkeys.co.uk/launches/toyota/6121.asp. Last accessed 2 April 2010.
N.A. (2006). Introduction. Available:
http://www.toyota.com.cy/experience/the_company/index.aspx. Last accessed 25 March 2010.
N.A. (2005). The new Toyota Aygo. Available: http://www.carpages.co.uk/toyota/toyota-aygo-part-1-02-03-05.asp. Last accessed 1 April 2010.
N.A. (2010). Toyota’s recall has left rival car firms smiling. Business 7DAYS. 193 (–), 19.
N.A. (2006). Toyota in Europe. Available: http://www.toyotauk.com/main/download/pdf/Toyota%20in%20Europe%202007.pdf. Last accessed 1 april 2010.
Thompson, A, Strickland, A and Gamble, J, 2007, CRAFTING & EXECUTING STRATEGY, The Quest for Competitive Advantage
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