TOYOTA: Driving the mainstream market to purchase Hybrid Electric Vehicles

Pr. Leila Hamzaoui Essousi

Amira Athimni Meriem Ben Yedder Myriam Belaifa Reem Nassar Rym Belhadj

Mediterranean School of Business

Outline
I. Situation Analysis ................................................................................................................................ 3 a. b. c. The Market:.................................................................................................................................... 3 The micro environment:................................................................................................................. 3 The Macro environment: Based on PESTEL analysis: .................................................................. 4

II. Assignment questions .......................................................................................................................... 4

1) What are the size, growth and evolution of the auto industry? How has the Japanese auto manufacturers led to the category innovation? What is Toyota motors market position in the USA for the hybrid vehicle category?.................................................................................................................................................. 4 2) What impact do government environmental legislation, regulation and investment have on the auto industry? What are the advantages of the leading technologies (hybrid electric vehicles), compared with the conventional internal combustion engine? ............................................................................................................ 5 3) What advantages does Toyota have for sustaining leadership in this category? How has it addressed the cost disadvantage of HEVs, relative to conventional engine cars? What steps has Toyota undertaken to ensure it will have sustaining competitive advantages over competitors as the category becomes more popular? .......... 6 4) How is Toyota introducing and sustaining the Prius brand entry through marketing communications? What are the US consumer attitudes toward fuel-efficient vehicles? .................................................................... 7 5) What decisions do the Toyota and Prius marketing managers face, and what recommendations do you have to address their marketing challenges moving forward? ............................................................................... 7

III. Key marketing issues and expected results: ...................................................................................... 7

I.

Situation Analysis

Toyota is aiming to develop its consumers attitudes toward the HEV and to transform this market from a niche to universal mainstream acceptance. Under the existing market conditions, this would be a real challenge. What is the right marketing plan and communications strategy that Toyota should apply to achieve it?

a. The Market: Automobile industry has had a huge impact on society, culture, communities and other industries. Since 1950s, it achieved a globally high growth rate in sales. In addition, the forecasted sales for the year 2050 are around 3 billion vehicles. Furthermore, since the fuel crisis in 1970, the demand for fuel-efficient vehicles increased which lead to changes and evolutions in the automobile industry. In 2003, the industry was in a mature stage; therefore automobile manufacturers invested more on marketing and focused on identifying and targeting new market segments. Moreover, oil dependency, global warming issues and environmental friendly communities made legislations and regulations towards CO2 emissions unavoidable. It created a new challenge for automobile companies that had to develop vehicles that provide performance, design and reliability while respecting the environment. Under these conditions, Toyota as a leader in HEVs market had to take the opportunity and led the industry into a new era.

b. The micro environment: Competition is the serious threat that Toyota is facing. Its main competitors are General Motors, Ford, Daimler Chrysler and especially Honda. In fact, Honda is the strongest competitor because it is the only one with Toyota that has already produced HEVs and has the ability to adopt the technology into their production process, but they wont be considered as a big threat anymore, because they are planning on prioritizing shortterm profits over the extension of their HEVs products line, they just want to maintain their actual position in the HEVs market. In addition, the other competitors focused on competing in the global market place, and were intending to introduce new HEVs vehicles in the following years. General motors strategy was different, they wanted to sell the maximum fuel-efficient and full-powered pickups with a mild

hybrid engine in large market segments and in vehicles that use more gas, the company was also going to sue the state of California for its environmental standards. It was clearly shown that Toyota is taking a big risk by investing in the future in the HEVs market and accepting the challenge of expanding its niche market to reach mainstream market.

c. The Macro environment: Based on PESTEL analysis:

Economical factor: the economic recession from 2001 to 2003, has considerably affected new car sales, which led automakers to fight for their leadership and market share positions. Social analysis: Americans are aware of the environmental issues about global warming and perceived that mandating more fuel-efficient vehicles was both acceptable and favorable. Technological factor: The hybrid-electric, pure electric vehicles and fuel cell technologies are considered as a disruptive technology, which will reinvent the auto industry.

Environnemental analysis: The US government is committed to accelerate the growth and availability of new alternative fuel technologies, according to President George W. Bush this progress will happen through innovative technology and not through regulations and law suits, the president has even allocated $1.2 billion in research funding. On the other hand, there is the ZEV program which has been adopted by the CARB in order to push auto manufacturers to reduce tailpipe emissions, even though this law is being revised and pushed back over and over again, because of the disagreement shown by auto producers, it is making its way step by step.

II.

Assignment questions

1) What are the size, growth and evolution of the auto industry? How has the Japanese auto manufacturers led to the category innovation? What is Toyota motors market position in the USA for the hybrid vehicle category?

Size, growth and evolution of the auto industry: From 1950 to 1996, the automobile industry has grown by 960%. The market was facing a huge increase of demand. It is estimated that, in 2050, more than 3 billion vehicles will be for sales. Globally, the size of the market is tremendous, and the speed of growth is really high.

However, the recession of 2001 to 2003 has caused a slight decrease in sales. The evolution of the auto industry responds to the market demand, the customers changing life style, technological development and the environment changes through the years. How have the Japanese auto manufacturers led the category innovation? Japanese automobiles manufacturers adapted quickly to the strict emissions regulations that has changed the future of the automobile industry. Therefore, the change in environmental regulations and consumers needs towards fuel-efficient vehicles, created a new market demand in the U.S market. Toyota took advantage of the 1970s oil crisis in US by offering its fuel-efficient new technology automotive. As a result, Japanese manufacturers took a leadership position in the hybrid market (40% of import shares in the US market in 2002). What is Toyota Motors market position in the USA for the hybrid vehicle category? Despite, the aggressive approach to maintain market leadership in the HEVs segment (90% MARKET SHARE of the HEVs US market), Toyota HEVs sales represented only .02% of total vehicles sales in the US market. Thats why Toyota is aiming to change the HEV position from a niche product to a star product (Exhibit 7) that will increase sales. This will offer them the possibility to increase the market size, and own more market shares, which will allow Toyota to increase the HEVs weight in the vehicle market.

2) What impact do government environmental legislation, regulation and investment have on the auto industry? What are the advantages of the leading technologies (hybrid electric vehicles), compared with the conventional internal combustion engine?

The gasoline combustion engine will not meet future environmental demands. Because of the strong environmental legislation, manufacturers are competing by trying to meet the needs of their customers, who are asking for performance, design and styling, while accelerating their efforts in order to make their cars environmentally cleaner and more fuel efficient. There is a constant pressure made on automakers by environmental entities like the CARB, which adopted a Zero Emission Vehicle program (ZEV) aiming to reduce the emission of tailpipe emissions and evaporative emissions. In April 2003, federal regulators voted to force manufacturers to make considerable fuel economies on their biggest vehicles (SUV, trucks), this have been considered as a big challenge by automakers even though environmentalists are seeing it as a too small step.

What are the advantages of the leading technologies HEVs compared to the conventional internal combustion engine? HEV have almost the same performances abilities, the Prius for example is as powerful as regular gas cars, the main advantages comparing to usual cars concerns the gas consumption, which is lesser than the traditional ones, tailpipes emissions are reduced by almost 30% and it cuts fuel and emissions by 47%, in addition to that: they achieve better gas mileage, lower emissions and owners are eligible for federal clean-fuel tax deductions. HEVs vehicles are the best of both worlds; they combine existing technology with the new innovative environmentally conscious technology.

3) What advantages does Toyota have for sustaining leadership in this category? How has it addressed the cost disadvantage of HEVs, relative to conventional engine cars? What steps has Toyota undertaken to ensure it will have sustaining competitive advantages over competitors as the category becomes more popular? Toyota is the leader of the hybrid electric engine available and the first movers in the market. It is focusing its efforts on adapting to this new technology, which will allow the company to adapt quickly to changing market demands. Unlike some of its competitors Toyota is supporting and fiercely adapting to the environmental legislations. Toyota addressed the disadvantage of HEV`s with the just in time system (flexible production system) and its commitment to product quality. The just in time process was designed as a Pull system in which production is based in a short period demand. They were the only ones capable of building enough HEV`s to overcome the current 3.000$ a vehicle cost against the traditional cars and trucks. Combined with the federal tax incentive and potential savings on weekly gasoline fill-ups, Toyota`s competitive advantage is definitely their production system (just in time production). They were able to determine the need of its customers even before they express them and quickly respond to it. Their production system allows them to have a quality control over their production line. Finally, Toyota provides its customers with an effective after sales services, which is generally considered as a main challenge for HEVs. Indeed, they trained their service technicians at all dealership to solve and maintain any problem in the HEVs models.

4) How is Toyota introducing and sustaining the Prius brand entry through marketing communications? What are the US consumer attitudes toward fuel-efficient vehicles?

Toyota wants to develop a strategy to turn the hybrid technology into mainstream acceptance. For the Prius launch, they used a multitude of marketing communication strategies, to increase brand awareness and to strongly position itself at the market to align the boost of sales. Indeed, they established a marketing plan with an emphasis on Internet and web-based communication to target the early adopters, which helped Toyota to create a buzz around its products; this was a real success since it led to 1,800 pre-orders sold online. Toyota also used traditional medias including broadcast and print advertising, and non-traditional marketing tactics too, to raise awareness and try to change perceptions, but Toyota ended still jammed with the environmental vehicle image. In addition, Toyota teamed with Global Green USA, an environmental lobby group, and used the image of celebrities like Harrison Ford and Tom hanks in one of the biggest movie award ceremony, and was pursuing this new type of marketing by offering HEVs to celebrities (star power). This had a big impact, newspapers wrote articles about it, and news media talked a lot about it. The fact that the Toyota advertising had been directed to environmentalists and had been linked with the green theme, is not helping to attract a larger segment because not every potential customer is an environmentalist, they have to change this image in order to reach more people. The research mentioned that Americans were convinced that mandating more fuel-efficient vehicles is acceptable and favourable, an analysis was made by Toyota to measure attitudes about HEVs, this report was positive: consumers are considering buying a hybrid version of their current vehicle.

III.

Key marketing issues and expected results:

5) What decisions do the Toyota and Prius marketing managers face, and what recommendations do you have to address their marketing challenges moving forward?

Most Americans perceive that mandating more fuel-efficient vehicles is both acceptable and favorable. These facts highlight a sufficient scope for expanding the HEV product line of Toyota in USA. Toyota marketers are facing a problem of decision-making, the challenge would be to understand the demographic and psychographics of potential customers, in order to determine the

advertising and marketing strategies. As Toyota prepared to fully integrate the hybrid-electric vehicle into its product line, the key to increase consumer acceptance and perception about this technology is a well-oriented marketing and advertising strategies. To come up with the best strategy, three factors must be taken into consideration. First, the company has to better understand the habits and preferences of US consumers. Then, it has to choose the right promotional tactics to launch Prius and Lexus. Finally, Toyota has to decide which strategy to adopt for product development. The main objective is to move from a niche to a mainstream market, in order to remain the leader. To achieve this goal, they have to target a wider segment with new target customers like: young people, men and female adults, family oriented people The recommendations regarding the marketing challenges that will lead Toyota moving forward are first, to keep their old marketing strategy. It consists essentially of Internet, web advertising, web-based marketing (for early adopters), and anticipating an early dialogue with interested consumers. In the other hand, they have to keep their traditional media tactics, involving print advertising, broadcasts, outdoor billboards everywhere, not only in featured business, environmental technology and computer publications; but also in malls, entertainment places, parks and highways etc. In order to garner awareness and increase perceptions, the non-traditional marketing tactic are needed, like the association with environmental lobby group (Global Green USA), giving away HEVs cars to celebrities: consensus is a tool that strongly motivates people to act in a desired behavior and will most probably change their attitudes regarding a product. Toyota will work to make the parents transfer these perceptions to the upcoming generation. Thus, to achieve its goals, to change the attitude of its customers and to target a new wider segment, they have to focus on convincing old owners of Toyota to take the HEVs cars instead of their old vehicle. Toyota needs to develop their marketing plan as follow: They should focus on changing its communicated message through marketing and advertisement campaigns by emphasizing on the performance of HEVs (it has the same performance as other cars), its style and design and mention the environment friendly as an added value. Moreover, this message should be translated into actions as developing a new design (fashionable), or make its size bigger since the American customers dont like small cars, in addition, they can make it look more masculine (special models, sizes or colors) to satisfy the new targeted segment. They should highlight that HEVs cars could save money to the owners by reducing the cost of gas consumption. The new communicated message could be performance, style and environment friendly. They should change the environmental vehicle image to get out from the niche market. After applying all the mentioned above, Toyota can succeed in changing the consumer and potential segment attitude. This will be shown by reaching the mass market segment and will result in an increase on its market share and it will keep on leading the HEVs market.