In Automobile Industry Toyota As A Car Manufacturer Marketing Essay
In Automobile Industry, Toyota as a car manufacturer needs no introduction. Founded in 1937 by Kiichiro Toyoda, initially wanted to manufacture cars but was making military trucks as he was compelled by Japanese government. Toyota actually started attracting the world from 1980.The strange thing is none of Toyota cars have flashy designs or attractive performance. But they are engineered to excellence and refined quality integrated in them. These qualities asked the customer to come back when he thinks of his next car and a new customer to think of Toyota when he thinks of his first car. In fact these are the qualities which made money for Toyota when most of its competitors were almost bankrupt. Toyota
had framed such an image for itself, which the other car manufacturers only dream to achieve in a decade or two from now. Interestingly their approach to achieve this was strikingly simple. Taichi Ohno, the father of Lean management answered this question as "All we are doing is looking at the time line," he said "from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value-added wastes."(Taichi Ohno).Starting from this approach emerged many efficient manufacturing techniques which revolutionised the global manufacturing industry. According to Norman Bodek, The most important objective of this Toyota's production system is to increase production efficiency by continuously eliminating waste. And as a result
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Toyota was a runaway success. Be it the hybrid technology or Electrical fantasy or the much hyped Hydrogen generation. Toyota leads the way and acts as an example for others to follow. This report is a comprehensive analysis of Toyotas orientation towards the market place, its marketing mix, its strengths and weakness which influence its sustained competitive advantage.
Toyotas Production Line in 1968
Toyota's Drive to Success
Toyota is among the leading companies in the automobile industry. The quality, performance and the styling of their products reflect its brand name from other corporate giants. It mainly works with Japan as its base. It has its manufacturing unit in Japan which acts as a base for its various operations. It slowly expanded its presence to various parts of the world grabbing customers' attention. To slowly managed to pull itself above all its competitors by grabbing a better place in the automobile industry.
The current economic conditions affected various companies in the world and Toyota is one among them. The products developed by this industry are costly as they have additional special features and comforts. In the current economic crises customers are not looking forward to spend more money. In order to attract more customers Toyota must cut down its production costs and decrease its final product cost to gain lot of customers.
Customers are mainly attracted to Toyota due to its quality. But as they are concentration more on developing more and new products every year they are slightly distracting from their quality. Defects in the quality are affecting the components like warranty, service and performance which drop its brand value. This is driving away the customer's attraction from them.
The decline in its quality minimised its sales and ultimately the company lost its revenue at a high level. The current recession ignited this scenario. As the world is stepping out of recession and the economy is improving it is the best time for the company to move out of this situation by developing their products with high standards and reduced costs. This can help the company to capture the market. The product's promotion depends on the place as well as the standard of the product. This can help the company in retaining the top position in the market.
Toyota's main vision is to constantly win the admiration and trust of its customer worldwide and the "best corporate citizen".
They aim for long term growth with fairness and openness in all their corporate activities and strive hard for safer and cleaner car making.
Their mission is attract more customers and retain them by supplying them with high value services and products and become a successful car company
It strives for creating "automobile based society" where people can lead their lives with safety, comfort and ease.
It looks forward to become a driving force for the recycling and reuse of resources which can be achieved by implementing proper environmental technologies.
It is working hard for making each plant, design center, dealer, regional headquarters and suppliers all over the world the best in town. Thus the company can gain admiration and respect from all the communities they operate and share a good future for everyone.
It announced to move forward with high aspirations and with passion, and have a commitment to make reforms that are required to develop a positive society.
To provide unconditional customer support it is looking forward to develop exceptional partners and people
It aims at creating a corporate culture that enhances team working and creativeness with proper communication between the management and workforce.
It aims at strengthening its brand image by promoting its vehicles around the globe and earn support and respect of people across the world.
Recalls are quite common in Automobile Industry. But many of them go unnoticed and they are variety of reasons for it. The reason for Toyota attracting such huge attention is not just because the volume of recall was large it is because of the bastion Toyota holds for quality, Toyota has a built a brand image for itself which the other car makers only dream to achieve 2-3 decades from now.
Problems which lead to the recall
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In the new series of vehicles manufactured by Toyota there is range of vehicles which encounter the problem of accelerator pedal sticking abruptly which has resulted in many fatal deaths and injuries. Toyota had to face round about $2billion loss due to this problem of accelerator pedal sticking. This problem resulted in 43 fatal crashes, all were Toyota vehicles out which 52 fatal deaths and 38 injuries were encountered. This has cost Toyota a huge damage from all sides, as in its brand name reputation, huge losses to company's profit & also need to explain to media and government. Toyota decides a solution for this problem by giving a recall in which they will be providing solutions to all already sold vehicles in market involving this problem without any penny charged to their customers.
Root cause of the Problem
The cause of the problem is some kind a friction device used to provide the driver a feel of accelerating by adding a resistance material to gain stability of pedal. This friction assembly has a "shoe" which rubs against the adjoining surface during its operation. Due to wear and tear and environmental conditions this friction material may begin to get locked or stick instead of free release. Sometimes the friction may increase to such an extent that pedal returns very slowly to its idle position, even harder to depress and when the abrasion is very intensive the pedal may stick, leaving throttle partially open. Which leads to unintended acceleration which means that even after stopping accelerating the will be still accelerating.
List of Vehicles affected by this problem
Very few 2010 Highlander &Few 2009-2010 RAV4
Certain 2007-2010 Camry
Very few 2009 Camry Hybrid.
Some 2009-2010 Corolla
2007-2010 Lexus ES 350
2006-2010 Lexus IS 250& Lexus IS 350
Approach by Toyota to fix this problem
Toyota engineers have given very simple & effective solution towards it which is tested and executed first by them and than implemented. In order to eliminate increasing friction caused, a precision cut steel enforcement bar is installed in accelerator pedal assembly which will terminate this problem which is aroused in rare cases. This steel enforcement bar will reduce the surface tension between the adjoining surfaces and shoe thereby avoiding harder depression and sticking of pedal. Since this solution is already tested rigorously, Toyota assures their customers that it is safe and sound and nothing is more important to them than their customer's safety and satisfaction. The problem is encountered only in those accelerator pedals supplied from a particular supplier therefore is the reason for only few models to encounter this problem and not all manufactures products of Toyota.http://pressroom.toyota.com/pr/tms/toyota/artwork/0/2/5/7/2/102572/Pedal_Assembly-prv.jpg
DIAGRAM OF BRAKE PEDAL ASSEMBLY IN WITH AND WITHOUT REIENFORCED CUT STEEL
Crisis Management at Toyota
Due to this recall and supplier's insufficient quality supply Toyota has lost huge customers and market too. In order to gain back the market sales and customers Toyota has implemented following strategies during handling this recall which is the root cause of it:
Providing free service camps at their all dealership's for the effected customers.
Technicians and foreman's at dealerships have asked to double their working hours in order satisfy their customers.
First preference is given to those affected customers at dealership for service.
Extended warranties and number of servicing have increased in order to enhance their sales.
Home visits by technicians are given to customers who cannot afford time to fix the recall problem.
Toyota is one of those auto manufacturers who can step any mile for their customer's safety and benefits and surely will gain back their customer's faith and business.
Orientation of a Company
The Orientation of a company defines the direction of its marketing. It compares the interests of the company and decides the strategy on which the business will operate. Orientation plays a key role in profitability of a business. Orientation can be broadly be classified as
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This orientation is also known as 'push' type. Companies adopting this orientation assess there production capabilities and manufacture a product according to them and then try to sell this product to the customer. In the process these companies normally ignore customers and competitors and manufacture products at their own pace.
Tools for Product Orientation
Research on New Products
Testing of the products developed
Focus on how these products perform
This Orientation is also known as 'pull' type. Companies adopting this orientation first study the customer needs and competitors and form a list of requirements. They design the product exactly according to those requirements and market the product. A business following this approach tries creating superior customer value.
Tools for Market Orientation
Research on Market Proceedings
Testing the Market with trials
Constant Customer focus
Almost every company operates its business to satisfy its customer. Developing a product according to the customer needs will obviously attract the customer. It is not that the companies following the product oriented approach are not successful, companies like Gillette which follow the product oriented approach are also successful .The approach followed should actually depend on the nature of the business. An inappropriate approach followed may result in severe losses.
Toyota follows a market oriented approach right from the year 1957.The first car to come out from customer suggestion was 'Crown'.
Fig:- Toyota's first car to be developed on customers opinions
Later Taichi Ohno President of Toyota invented Lean Management and Toyota production system. According to which Toyota focuses on creating customer value by eliminating waste. For understanding customer value it defines customer needs first. Below is figure which shows Toyota Production System. According to the figure the first step of product development is defining customer value.
Probably this is one of the main reasons why Toyota continues to make profit when all its competitors are incurring huge losses. A report from daily finance 2006 reveals that customers were willing to pay more for a Toyota car as they felt that they were well built and lasted longer. As a part of 'Build your Toyota ' program, Toyota operates an interactive website which allows a customer to design his own car according to your his specifications and delivers the car to the customer.
A Company with global Presence in more than 170 countries world wide.
A Strong brand name for quality, green cars and reliability
Scientific approach to management and Production with 'Lean Management' and 'Toyota Production System', which helps to develop good customer value and eliminate waste at every stage.
Adoption of 'Kaizen' or CANI (Continuous and never ending Improvement ) techniques which feature continuous improvement in Toyota production plants.
Ability to adopt 'JIT' Just in Time technology where production can be scheduled according to fluctuating demand of the customers.
Having a variety of product mix provides an advantage to Toyota to target vehicles to all types of customers.
Huge investments into Research and Developments helped Toyota to stay ahead of the competition as in the past decade R&D was reputed for producing competitive vehicles.
Owning a collection of brands or SBU (Strategic Business Units) like 'Lexus', 'Hino' and 'Daihatsu' which can help Toyota to target cars according to the brand image.
Deployment of quality in every activity of value chain through QFD (Quality Function Deployment) contributes to better quality, longer life and a consolidated brand image.
Focus on future technologies like Hybrid, Electric and hydrogen which helps to create a brand image among customers that Toyota cares for environment.
Differentiated management style where every employee is treated with great respect.
Good committed workforce in Japan which helped Toyota to emerge as number one car maker in the world.
Less production facilities in Europe and in many other countries .Which makes Toyota to import cars making it expensive for the customers.
Giving more importance to quality and reliability .Toyota lacks in the styling element of its cars.
Greater Dependence on suppliers may result in defective products come out .Which would further result in recalls and damage on brand image. As it happened with the latest gas pedal issue.
Less sales in Europe due to lower brand image when compared to 'Audi', 'BMW', 'Jaguar' and 'Mercedes'.
Late entry into developing countries like India than its competitors.
Greater dependence on US and Japan markets for revenue.
As Toyota produces cars in huge volumes, variation in sales effect Toyota badly
Presence of a luxury brand like 'Lexus' helps Toyota to differentiate its products better and aim them at specific segment of people.
Success in Hybrid Technology as Toyota Prius won the prestigious ECOTY (European car of the year) award untill the latest recall will help Toyota to invest in new technologies like Electric and Hydrogen.
Investment in future technologies which would replace the fossil fuels will fetch Toyota a sustainable competitive edge.
Ample opportunity of expanding operations in countries like India and China.
Presence of Toyota ownership website helps it to interact with its customers which can be used as an input for future product developments.
Adoption of innovative marketing strategies will succeed in creating the brand image.
The major threat that Toyota is facing right now is the recalls that are happening . These recalls damage the Toyota's brand image badly.
Toyota is facing greatest competition from German manufacturers like Audi and BMW and its Japan counterparts like Honda and Nissan.
Emergence of many new companies like Bertrandtt and Carbon which face threat to Toyota regarding future technologies.
Fluctuations in steel and other raw material and foreign exchange pose great threat as it cut the profit margin by a considerable difference.
Inconsistent economy poses threats to sales of the cars.
Inconsistent change in demographics implies changing the product mix continuously.
PEST Analysis on Toyota
Toyota as an automobile manufacturer has to meet many laws and regulations as it operates on international business these vary from country to country. As Toyota as has major manufacturing operations in US and Japan. It has to account various taxes like import duty etc. New changes in legislation will make Toyota to incur huge amount of expenses. The environment norms also vary in a great deal from country to country. For example India it is Bharat 1,2,3 and Europe it is Euro 1,2,3. There are also countries which impose heavy taxes on trading as Toyota has suppliers all around the world. These taxes will make Toyota incur heavy expenses. Crisis in politics or financial instability will further hinder the growth of Toyota.
Car sales of any company greatly depends on the economic condition of the company, buying power, demographics and the same applies to Toyota as well. It also depends on the foreign exchange fluctuations as many of the models are imported the price varies very frequently making it difficult to the customer.
The perception of a brand plays a key role in marketing the brand. This was one of the factor why Toyota has not been so successful as it was in other countries. Because of brand perception Mercedes, Audi, Daimler Chrysler and BMW has.
As it is widely prevalent Toyota imports most of its cars there exists as an opinion that they are costly and they will be paying more for the taxes than the product.
This is one such area where Toyota is way ahead when compared to its competitors. Toyota revolutionised green car segment with the successful launch of Prius and Lexus RX400h. It introduces concept cars on regular basis and majority of them are converted to mass production
Porters Five Force Analysis
Porters Five force analysis helps to analyse a sector in which the company operates and assess its competitive advantage over its suppliers. It focuses on five key areas like
Competition from new entrants
Bargaining power of suppliers
Bargaining power of buyers
Fear of substitutes
Automobile Industry is one differentiated sector in which every company tries to dominate with cutting edge technology round the clock. It is also associated with high entry and exit costs
Threat of Substitutes
Risk of substitutes is a matter of great concern for Automobile Industries. An example of how Toyota may loose market share with this substitutes is the launch of HSD(Hybrid Synergy Drive) system. Toyota has bought this system as an answer to growing concerns of oil prices etc. Observing the success its competitors Nissan and Honda came up with a similar kind of system .Though Toyota continue to top the list in this technology but it has a strong risk of loosing market share in future.
Power of Suppliers
Toyota follows a single sourcing strategy for supply chain management. According to which it operates with only a small group of suppliers concentrated in one area. Having a small group of suppliers concentrated in one area allows Toyota to cut costs and have more control over the prices they quote. This fetches Toyota considerable competitive advantage.
Threat of new entrants
Setting an automobile company involves huge investment and loads of technical expertise. So when compared to other sectors the threat of new entrants is comparatively low in this sector. This has comparatively less risk to Toyota as it has a glorious history of more than 70 years. In addition it is well known for its quality and reliability
Bargaining power of customers
This is comparatively less with Toyota. As Toyota provides vehicles with excellent quality and exceptional customer service. Customers tend pay more for aToyota Product.
Boston Consulting Group Matrix
BCG matrix was invented by Boston Consulting Group United States .The matrix helps us to take strategic decisions in business based on the market share and growth it has. These strategic decisions contribute significant competitive advantage
The matrix divides businesses into four groups namely
Dogs are a group of businesses which have low market share and low market growth. Having no growth signifies that there is no meaning in investing in the business any more. Having no market share signifies that there is no cash flow. Both factors point to the management to stop investing the business and look at other sectors
Cows are the business which have a high market share and low market growth BCG asks us to milk these cows and invest the revenue in other business.
Toyota has just followed the same strategy with its gasoline cars. As Toyota has fabulous market share in gasoline cars. It started investing on hybrid and future technologies
Question Marks are the business which low market share at present but high market growth in future. Business in this should be carefully considered as the predicted market growth may not happen due to uncertainity in business conditions.
Stars are the businesses which have a high market growth and relatively high market share.BCG advises us divest some revenue from the business to newer ones as there is no harm in doing so.
Toyota Motor Corporation also followed the same strategy it divested into variety of business like Housing, ITS, Financial Activities, Marine, Bio Technology etc.
Competitive Advantage of Toyota
Since its inception after the second world war Toyota has framed such a differentiated image for itself in the car industry. This image provided Toyota a sustained competitive advantage for about more than 70 years. Many authors attribute this success to 'Toyota Production System'. This system minimises cultural and physical differences which helped Toyota to explore new countries successfully.
According to Fred J.Borch corporate principles are the umbrella principles which guide the decisions and activites of an organisation. Toyota operates on a strikingly simple but powerful principle that is to build highest quality, safest an most reliable automobiles in the world. As Toyota operates on lean management principles its advantage further got maximised. They are many other car makers which have entered into foreign markets and established a global presence but none has succeded as Toyota.The other major advantage Toyota has it is human resources strategy .It engages an employee to such an extent that if any worker on the shop floor finds a problem with the production he can pull the andon cord which stops production. Toyota feels that engaging an employee to such an extent increases responsibility and creates a sense of belonging among the workers. Though its Japanese counterparts Honda and Nissan are also branded for producing high quality cars .Toyota maintains the competitive edge through its efficient. Competitive advantage in automobile industry is all about delivering high value to the customer and providing exceptional customer care. Toyota has mastered the art of competitive advantage as no other company it is reputed to provide world's most safest and reliable automobiles with lowest maintenance cost when compared to industry average. This is one of the main reasons why though Toyota operates on a cost leadership strategy it uses premium pricing policy thereby maximising its profits. Toyota is also well known for its attention to detail a classic example for this nature is launch of its mobility program. Mobility program is aimed at disabled customers to get inside the car easily. Toyota has noticed that the disable people are finding it difficult to get inside the car. So it has designed the seat to come outside seat the disabled customer and take him in.
This is one aspect of Toyota which has contributed to such considerable success. Toyota has a strong eye on competition. This is one of the strongest quality which a car manufacturer should be having. The recent debacle of General motors also happened due to the same reason. According to Financial Times GM was concentrating on insensible designs and ignoring competition. Toyota provides an exceptional after sales support it infact maintains a owners club where owners can post their reviews, complaints, comments and suggestions. Which would be acted very promptly upon. Its supply chain management is also one of the main important factors which contributed this success, Toyota has a network of 300 component suppliers who provide Toyota with high precise quality. As they operate on JIT principles they can keep the inventory low maximising profitability.
Improvements to maintain competitive advantage
New Quality testing strategy
Toyota will have to adopt a better testing procedure in future so that recalls that have happened will not happen in future. Evidence shows most of the recalls have happened in plants situated outside Japan. The attention to detail which is widely inculcated in its Japanese plants should be bought to the other plants as well.
Senior managers at US should be sent to Japan to learn the quality procedures they adopt. Similar approach was followed by its Japanese counterpart 'Nissan'. Nissan UK has sent a team to Nissan Japan to study the quality procedures and have seen that the defective rates have fallen to less than 100 ppm(parts per million).
Another idea of improving these procedure may be outsourcing this function to a reputed testing agency like 'Lloyds'.Evidence suggest that many international manufacturing companies have improved their quality by many folds by using this strategy.
A consolidated supplier evaluation procedure
It is a well known fact that in every car on an average 60-70% of parts are supplied by suppliers.So understandbly suppliers are an integral part of success in an automobile Industry.A defective part supplied by an auto supplier would badly affect the reputation.Even the latest recall that badly affected Toyotas reputation because an of an incompetent supplier based in United States.This step is critical to business success in Auto Industry. Toyota should adopt more rigourous evalutaion procedure, strict norms of quality and maintain good relation with them as their success majorily contributes to Toyota's Success.
New and interesting Markets
According to the report of Pricewaterhouse coopers, the auto industry will see a incredible increase in sales in the next few years in Eastern Europe,India and China.
Researching further Stephen D Arcy of PWC suggested that the growth will be mainly concentrated around the small hatch segment.
Though there is presence of Toyota in these countries, As Toyota's major manufacturing activity is concentrated in US and Japan. Importing those cars and selling them would not be a wise idea .So it is better that Toyota invests in BRIC (Brazil,Russia,India and China).A strategic step may be launching its small car brand 'Daihatsu' in India and promoting a brand image for it.
There is a paradigm shift in the consumer behaviour as far car market is concerned
Above is a bar chart which supports the hypothesis .People stopped thinking about high profile gas guzzlers( premium cars mostly produced by GM and Ford).and are now increasingly concerned about environment and fossil fuels . This behaviour is highly prevalent across developed countries .Surveys and Expert opinions suggest that we would soon see it in developing countries also.Toyota already contributed to green car market with a masterpiece called the 'Prius'. Evidence shows thatit has already started its research on next generation electric cars which Toyota calls 'Plug in hybrid' and is also expected to launch its third generation fuel cell vehicle by 2015.
According to Micheal Porter a differentiated comany should invest heavily on Reseach and Developments.Toyota has to keep its momentum going as far as innovations on green cars are concerned.
Act according to the markets
The famous phrase 'Think Global-act local applies here ' This is a phenomenon which many experts in the auto industry suggest . Toyota should redesign its cars according to the markets. It should be adopting an international design and apply it using local constraints. A classic example of such a launch is Maruthi-Suzuki's 'Swift' in India. Swift is completely an European design and European styling inculcated into it.But Suzuki cleverly applied this to a segment called 'premium hatch' in India.As expected Swift caught huge attention and featured record number of sales in India.Swift mesmerised customers in India to such an extent that many were ready to wait six complete months for delivery.
Maruthi Suzuki Swift in India
Adopting such an approach in Toyota is not impossible for Toyota as it majorily operates on JIT (Just in Time) principles.It can easily adopt to the changes and improvements
Marketing mix is tool through which a company organises its marketing efforts towards approaching its goals.Mc Cathy classified these tools as
The Impact, Positive and Negative, of the Organisation's Marketing Mix
Price is the most crucial element of marketing mix as it is the only revenue earner for the business where as all the other elements of marketing mix are costs(Jobber, D. 2004:p.376).Toyota follows the value based method of pricing its cars rather than the usual way of pricing methods. In this methodology the price value of the car is determined by the customer's selection of the product for the choice he makes with its various advantages to the consumer. The various benefits of the product are clearly indicated to the consumer, competitive advantages to that of competitor's products is established and choice of the product consumer makes based on his judgement. Toyota is one of the best in automotive sector which fetched the name for their pricing strategies, they are also marked a title "world's largest automaker" in 2008 (Washingtonpost.com, 2009).
Toyota understands that customer, not the manufacturer sets price of a product (Ohno, 1988). Toyota uses their own set objectives in terms of their revenue; they do not follow the traditional methods of profit margins.
According to Toyota Traditional Profit equation: selling price=actual cost + profit (Ohno ,1988)
The Toyota follows a varying strategy in their production i.e. when there is a new product in their portfolio they do not want to increase the cost of production in manufacturing; instead they add the cost of additional expenses to the consumer base. They strategically make the operating cost low and do not worry about the selling price as they are keen in the production cost with improvisation of getting a maximum profit.
According to Toyota Profit equation: selling price - cost = profit (Ohno, 1988)
If we look at the both the equations the variables are believed to be the same. Toyota major objectives are to cut down the cost of manufacturing rather concentrating on selling price. With help of cutting down of cost considerably they can build a potential to gain more profit margins. They use simple straight forward strategy to reduce costs by reducing the waste. They achieved this by implementing strong Production system. With the help of the system they minimized the unwanted processing, transportation waste, stock wasted at the time of production, production defect product. They firmly believed that with these types of elimination is done would certainly reduce their cost and maximize the revenue. (Toyota, 2008).
Figure- Toyota's Production System (Toyota, 2009)
Toyota implements various pricing adjustments strategies to increase the sales.
The discount pricing strategy implemented by Toyota offers cash discounts, trade discounts and seasonal discounts and flexible allowances to its consumers. (Marketingfan.com, 2009).Toyota's discounted pricing helped them to increase potential sales. For example Toyota Prius make car was sold with a discount of $2000, which was one of the fast selling hybrid cars of them in the US for the year 2007 to achieve their annual targets (Iht.com, 2007). The other discounted offer introduced by them was leasing the car at lower price and financing the car interest free.
New product Pricing Tactics
This type of strategy is usually implemented to achieve the scale of economies. In other words the high quality product is marketed for the lower price to reach the consumer base and to attain maximum scale of economy. (Marketing teacher.com, 2009).Toyota implemented product penetration pricing strategy to enter automobile market of the US (Sitenet.com, 1997).
The pricing of their cars was less when compared to that of their competitors. When the product is penetrated in the market with help pricing strategy they were able to make an impact of capturing the market share. At once the scale of economies and market share is achieved the brand name is established. The initial phase of this strategic implementation will not make profit but in longrun the revenue is phenomenon.
Economy pricing: This type of pricing in which the low level or quality is being offered to the consumer at a lower rate. (Marketing teacher.com).Economy pricing strategy is implemented in the Toyota product called Toyota Corolla , which is economy cars ranks 13 in the US automobile market for the economically priced cars in 2009(Us news, 2009)
Premium pricing: This type of pricing in which high quality cars are offered at the higher rate (Marketing teacher.com).The best example of this type of Premium priced cars of the Toyota is Lexus. All the luxury branded cars of Toyota follows this type of pricing strategy. The quality, service and the price of the product makes the consumer to trust, believe that it reliable for its value, advanced in technology, feel special and good comfort.
Recession and Toyota's Pricing
Demand curve is a graph showing the relation between the price of goods and quantity demanded over a given period of time. Price is plotted on the Y axis and quantity demanded is plotted along X axis(Sloman,J.2001:p.58).Supply curve is a graph showing price of a good and quantity of goods supplied over a time period. Recession has reduced the income level of consumers due to lack of credit. If the price remained constant with the reduced income of consumers then the price would consume larger share of the income of the consumer. So price has to change accordingly. This is called Income effect (Sloman,J.2001:p.57).Equilibrium price is the price at which the demand and supply curves meet.
The place is the predominant factor that determines the effectiveness of supply chain management. Moreover it is the framework for locating distribution channels, positioning of outlet stores, and means of transport to make sure the required amount of finished products are available to consumers in accurate quantity in promised time and place. The architecture of distribution channel management is composed of wholesalers and retailers through which the finished products are transferred to the consumer (Jobber, D.2006, P.21). There are many different method of delivering the finished products to the consumers. Companies will have different supply chain management strategy based on their contractual and sales consideration. The major components of Toyota product distribution channel are
Electronic commerce clients
Direct sales to corporate customers
Merchandising dealers are the intermediate agents between company and end user. They maintain required inventory of vehicles and are responsible for after sales service. Toyota also sells vehicles through internet for online buyers, they can place order through Toyota's company website. And provides direct sales to privileged corporate customers. The company operates on just in time production principle, so maintains low level inventory of finished vehicles and have minimal number of merchandising dealers compared to its market competitors.
The finished vehicle from the assembly plant is dispatched to suppliers and dealers for distribution of vehicles to end user. Toyota deals with fleet customers directly without interference of dealers on the grounds that the fleet customers are big corporations.
The Toyota has manufacturing plants both in Japan and overseas for manufacturing products for Toyota Motor Corporation. The company has dealers to supply and service their products in Japan. The operation of suppliers and dealers in Japan is articulated by financial team of Toyota. For international customers the product is delivered to overseas distributors and they will disperse the product to overseas dealer, and the dealer delivers the product and services to the customer.
Toyota Sales channels can be classified into,
Dealership channel is responsible for inventory of vehicles and to sell vehicle and provide after sale service to valuable clients. In some complex areas the dealership is further divided as sub dealers to provide sales and service in almost all areas. And the delivery and after sales services of vehicles to corporate customers are provided by local dealers, although the sales is executed by international Toyota sales team. Ecommerce channel sales are executed through internet. Ecommerce wing is integrated with dealers (capon, 2007).
Toyota follows three main strategies for distributions. First it makes powerful brand perception among the clients by launching its core model. And secondly restructuring of the sales sector network. Due to increasing competition and raising of markets, Toyota divides its suppliers into subsidiaries and perform its operational activity much powerful from headquarters and expands the sales sector network. Then the next implementation is to strengthen the production and reduce the cost and maximise the production quality (Toyota, 2002) .
The distribution principle followed by Toyota is just in time. Integrating of total supply chain with sales and distribution is the principle followed by Toyota. It maintains good relationship with dealers and they are considered as business partners. Toyota encourages dealers to invest in domestic markets. The Toyota understands the frequency of local markets and has flexibility and liberty to invest in sales and marketing programs that will effectively perform in that area. Toyota's long term supply chain management strategy helps the company to provide the right car at the right time at the right place (Deloitte, 2007). The functional success of Toyota is mainly because of its reduced inventory system. The reduced inventory system is achieved by excluding spikes and reducing the over cost of supply chain. The Toyota maintains a lower amount of inventory and so they are able to manufacture vehicles in the order which customer buys them. The flexibility of demand in market has given potential to maintain minimum stock. The supplier should improve their operational activity in order to improve customer to customer cycle. Toyota teaches its supplier about lean manufacturing principles as a teacher (Martin, 2005).
S1 D2 D1 S2
Price P1 ------------------------
Figure : Price Elasticity diagram (Sloman,J.2001:p.57)
Toyota handled the recession impact by reducing their quantity, so that the demand supply gets reasonable and there is necessity for the price reduction. D1 and D2 are the initial and final demand curves.S1 and S2 are the initial and final supply curves. The meeting of the two curves is known as the equilibrium price. P1 is the initial price, once the reduction in the production is made at Q2 , resulting in the constant price P1.
It is one of the crucial elements in marketing mix. Effective promotions have a great impact on the sales. Promotion of products will induce the potential consumer towards the products. In other words, it is the effective communication medium between the consumer and manufacturer. Promotional activities involve public relation, advertising and e-promotion. Today, technology has played massive role in marketing the products. It has shown all the possible way to promote the products in the target market.
Toyota has adopted different promotional strategy to market their products. It opted to use television as the most effective advertisement channel to market their products. However, it also advertises its products on several ways like internet, individual customer focus and more.
Toyota has been spent more money on advertisement. It strongly believes that advertisement has direct influences on sales and that affects its operations. It has used television as an advertisement mode but it is not quite enough to reach its products on target market. Besides, it also promotes its products through online. Advertisement not only increases the sales but also strengthens the brand images. Moreover, it has its own advertisement wing and collaboration with some advertisement agencies. It has joined with Saatchi and Saatchi for promoting Toyota Prius in US market. However, current economic downturn forced them to go for prudent way of advertisement. In this case, online promotion has helped them to do in a frugal way. Toyota has its own website where it provides information about all of its products. Now, it is working towards to ensure all the information about their products to be available in the online. It has emphasized on the importance of going online because internet plays integral part in the society as a source for gathering knowledge.
Personal selling is a method of promotion by making oral communication with the potential customer. It initially focuses on maintaining relationship with customer but always end with attempt to sell the products. There are certain advantages in this method. It is not a prudent way of promotion but it has to be done in certain markets where it matters. This type of promotion is entirely different from other modes. In this mode, potential consumer has to be induced by individual approach and this approach should satisfy the consumer. This has been achieved by allowing them to test drive. When Toyota launched Prius, it had implemented this strategy as one of its marketing techniques.
It is also one of the elements which used for increasing the sales. This technique is very helpful in certain times like constant decrease in sales and more inventories. Moreover, this technique is used to stimulate the market demand and improve the product availability. There are several aspects of sales promotion such as discounts, free gifts, vouchers and loyalty cards.
Moreover, Toyota operates its business all over the globe. So, revenues from those are very important for its advancement. During credit crunch, sale of its products in USA, Japan and North America had been dwindled. It affected its revenues to some extent. In that situation, Toyota started to offer a lot of things to its consumer like reduction in price and discounts to reduce the inventory.
It is considered as one of the elements in promotion. This activity includes creating awareness about their product in the society. It is also seeking as effective tool for strengthening the brand image. Often, it has been organised through media, that is, internet, newspaper and television. There are series of activities involved in public relation like analysing trends, predicting the external factors associated with trends, and implementing the planned actions according to the knowledge gathered from those analyses. These series of action should be used for communication between organization and publics.
Toyota emphasize on maintaining better relationship with media. Media is a very important tool for advertising its products and transmission medium of providing information about the company, products to the public. For instance, its products and decision about various issues are delivered to the public by media. Moreover, integrated marketing communication is used to synchronise the several communication medium to oscillate sales. Toyota very effectively implemented integrated marketing communication in its promotional activities.
It is one of the cost effective modes of promotional activity. It is used to increase the sales by creating awareness amongst the potential consumer. This method of advertisement has been implemented by distributing leaflets, communicating consumer through E-mail or telephone to sustain sales to some extent. There are two types of activities involved in direct marketing such as sends message directly to the consumer and gets response from the customers. In other words, tracking, monitoring and get feedback from the customer to ensure that they reached sales margin. This method allows targeting customers with higher accuracy than any other method of advertisement. If this method has been implemented successfully, it offers positive great return on investments.
As a leading car manufacturer, Toyota has implemented direct marketing concepts several times whenever they introduced new products. For instance, during the launch of Prius, it has gone for this concept for tweaking the sale of Prius. Peter Evans, head of Toyotas marketing communication, said in 2006 that Toyota will increase budget for direct marketing by seven times in the following years and will mostly rely on the internet, direct promotions and the press for advertising new coming products such as Orion and new Camry to cut costs(Fairfax digital,2007).
Toyota 's Unique Promotion Strategy
In the year 2002 Toyota came up with a unique marketing strategy to promote its new car 'Scion' . Its target in this strategy is indeed unique, it was actually targeting a segment called Generation 'Y'. Generation 'Y' comprises of age group '8-25' years old. According to the strategy, Toyota was not using traditional methods like TV, newspapers and other media. Instead Toyota was organising parties, fashion shows, rock shows and was promoting Scion at the shows. The bottom line of this strategy is simple but superb Toyota doesn't want to find people it wants people to find Toyota.
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