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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

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Outline

I. Situation Analysis ................................................................................................................................ 3

a. The Market:.................................................................................................................................... 3

b. The micro environment: ................................................................................................................. 3

c. 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 HEV’s, 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

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I. Situation Analysis

Toyota is aiming to develop its consumer’s 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 HEV’s 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 HEV’s and has the ability to adopt the technology into their production process, but

they won’t be considered as a big threat anymore, because they are planning on prioritizing short-

term profits over the extension of their HEV’s products line, they just want to maintain their

actual position in the HEV’s market.

In addition, the other competitors focused on competing in the global market place, and were

intending to introduce new HEV’s 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

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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 HEV’s

market and accepting the challenge of expanding its niche market to reach mainstream market.

c. The Macro environment: Based on PESTEL analysis:

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.

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.

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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 customer’s 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 consumer’s needs towards fuel-efficient

vehicles, created a new market demand in the U.S market.

Toyota took advantage of the 1970’s 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 HEV’s segment (90%

MARKET SHARE of the HEV’s US market), Toyota HEV’s sales represented only .02% of total

vehicles sales in the US market.

That’s 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 HEV’s 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.

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What are the advantages of the leading technologies HEV’s 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”.

HEV’s 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 HEV’s, 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 HEV’s. Indeed, they trained their service technicians at all

dealership to solve and maintain any problem in the HEV’s models.

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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 HEV’s 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

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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

HEV’s 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 HEV’s 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 HEV’s (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 don’t 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

HEV’s 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 HEV’s market.