"Toyota Marketing Strategy for Plug-in Hybrids"
Toyota Marketing Strategy for Plug-in Hybrids TEAM COCA (GROUP 10) BERKELEY COLUMBIA MBA Ron Berthiaume MARKETING STRATEGY CASE Bhavik Joshi PROFESSOR NOEL CAPON Erin Longdo SUMMER 2007 Varad Seshadri Table of Contents Page The individuals in connection with this Executive Summary report are: Preamble: Toyota Plug-in Hybrids 2 Berkeley-Columbia MBA Headlines 7 Summer 2007 Situational Awareness TEAM COCA (Group 10): Market overview 25 Ron Berthiaume Customer purchase decision 32 Bhavik Joshi Erin Longdo Competition and complimenters 46 Varad Seshadri Market Strategy Market segmentation 66 Branding strategy 99 Implementation Plan Marketing offer 106 Distribution plan 124 Monitoring the firm’s performance 139 1 Executive Summary Preamble: Business Case for this Marketing Strategy project Team COCA will be taking on the role of Toyota’s Marketing Executives. The team is tasked with formulating a marketing strategy before it commits to the commercialization of Plug in Hybrid Electric Vehicles. Team COCA will use the framework of The Virgin Marketer and develop a market strategy to capture the market share in the Plug in Hybrid Electric Vehicle (referred to as PHEV in the rest of the document). Team COCA has decided to put strategic emphasis on the following areas: Technology recommendations Market segments to pursue Sales channel changes Federal and State Incentives for PHEV buyers Licensing technology Toyota has only recently announced its Prius PHEV Pilot program in Japan, U.S. and Europe, starting with eight vehicles for road-testing. Masatami Takimoto, Toyota’s EVP for Power Train Development agrees on environmental and economic benefits; says batteries need further development before a commitment to mass-production can be made. The push for hydrogen fuel cell technology seems to be far greater. GM has announced the launch of their first PHEV, the Saturn VUE PHEV in 2009, followed by the Chevy Volt in 2010. GM has awarded two advanced battery development contracts. Ford has announced a strategic partnership with Southern California Edison. Honda is also forging ahead with a limited introduction of the Honda FCX in 2008. Fuel-cell technology is not expected to be commercialized until approximately 2018. Toyota acknowledges the race to be first – and to do it best. As the current leader in Hybrid Electric Vehicles (HEV), Toyota is well positioned to increase its market share rather than merely maintain it. For this Toyota needs to continue to innovate. As hybrid electric drive trains become standard over the next decade, we believe that PHEV’s will provide the solution to several pressing issues at hand: energy independence, global warming and smart energy grids to name a few. As the current leader in clean transportation and an innovator in the automotive industry, we (Toyota) must decide how to proceed to maintain and grow our leadership position in this rapidly expanding segment. Key contacts at the Company: Bill Reinert, National Manager, Adv. Technologies Group Steve Sturm, VP Toyota Motor Sales 2 Executive Summary Preamble: Introduction to Toyota Motors Company overview Company overview (cont.) World HQ: Toyota City, Japan Founded in 1933, Toyota Motor Corporation is one of the Toyota is introducing environmentally sensitive transportation world's leading auto manufacturers. Toyota Motors North solutions for each market world wide. In Brazil, Toyota is America is comprised of the following divisions: introducing Flex-fuel vehicles that run on up to 100% bio- Toyota is the ethanol. In the US market, Toyota is considering flex-fuel and Scion second best- Hydrogen fuel cell vehicles. For Europe, Toyota is developing selling brand in Toyota new bio-diesel fuel technology that reduces Nitrous Oxide the U.S. Lexus emissions 50% below EURO IV regulations. Toyota is also seeking innovations in battery technology that can raise energy Powered by record sales of hybrid vehicles in 2006, capacity and output while reducing size and weight. Toyota is a global Toyota recently became the second best-selling brand in leader in hybrid the U.S. The Prius hybrid posted all-time best-ever monthly sales with 19,156 units sold in March 2007, an increase of vehicle 133.2 percent over March 2006. The Prius hybrid is a Top technology with a Pick in the "green" car category for the fourth year in a row. goal to introduce Record U.S. sales of Toyota and Lexus hybrids have now hybrid drive trains topped the million mark. Toyota will offer a hybrid option on across its vehicle its entire lineup of cars, trucks, and SUVs by 2010 and line up by 2020. expects the cumulative global hybrid vehicle sales to cross the million vehicles mark. Exchange: NYSE | In 2004 Toyota licensed its Hybrid technology to Ford Ticker: TM Motor Company followed by Nissan Motor Corporation in 2006. Ford is currently offering this Hybrid technology in the Escape SUV and has plans to offer it in the Fusion sedan. 2006 Revenue Nissan offers it for the 2007 Altima. This will ultimately lower $196.55 Billion. the cost of Toyota’s hybrids to the consumer, further cementing Toyota’s dominance in the sector. Market Capitalization: $227.95 Billion Hybrid Vehicle Sales in the U.S., 1999-2006 Employees: 299,394 3 Executive Summary Preamble: Introduction to Toyota Motor Corporation Toyota’s phenomenal success in the Hybrid Electric Vehicle (HEV) market (76% market share) has had a “halo effect” on its overall US Market Share growth. US Market share of the Big Three auto makers has been significantly eroded (with Ford and Chrysler being hit the hardest) by the Japanese auto makers. Toyota is # 1 auto maker in the world by revenue (USD $212.39 billion), production (first half 2007: 4.72 million) and profit ($15.09 billion). 4 Executive Summary Preamble: Introduction to Product/Market area A plug-in hybrid electric vehicle (PHEV) is a hybrid vehicle with batteries that can be recharged by connecting a plug to an electrical power source. Plug-in hybrids have characteristics of both conventional hybrid electric vehicles and of battery electric vehicles. PHEVs can also be commercial passenger vans, utility trucks, school buses, scooters, and military vehicles. PHEVs are sometimes called grid-connected hybrids, gas-optional hybrids or GO-HEVs. As of 2007, the cost for electricity to power plug-in hybrids during all-electric operation in California has been estimated as less than one fourth the cost of gasoline. In comparison to conventional vehicles, PHEVs can help reduce air pollution and dependence on petroleum, and lessen greenhouse gas emissions that cause global warming. Plug-in hybrids use no fossil fuel during their all-electric range if their batteries are charged from renewable energy sources. Other benefits include improved national energy security, fewer fill-ups at the filling station, the convenience of home recharging, opportunities to provide emergency backup power in the home, and vehicle to grid applications. Toyota has said it plans to migrate to lithium-ion batteries in future hybrid models, but not in the next-generation Prius, expected in fall 2008. Lithium-ion batteries are expected to significantly improve fuel economy, and have a lower weight-to-energy ratio, but cost more to produce, and face safety concerns due to high operating temperatures. On November 29, 2006 GM announced plans to introduce a production plug-in hybrid version of Saturn's Greenline Vue SUV with an all-electric range of 10 mi (16 km. The model's sale is anticipated by fall 2009, and GM announced in January, 2007 that contracts had been awarded to two companies to design and test lithium-ion batteries for the vehicle. GM has said that they plan on introducing plug-in and other hybrids "for the next several years." In January 2007, GM unveiled the Chevrolet Volt, which is expected to initially feature a plug-in capable, battery-dominant series hybrid architecture which they are calling E-Flex. Future E-Flex plug-in hybrid vehicles may use gasoline, diesel, or hydrogen fuel cell power to supplement the vehicle's battery. General Motors envisions an eventual progression of E-Flex vehicles from plug-in hybrids to pure electric vehicles, as battery technology improves. General Motors presented the Volt as a PHEV-40 that starts its engine when 40% of the battery charge remains, and which can achieve a fuel economy of 50 mpg–U.S. (4.7 L/100 km / 60.1 mpg–imp), even if the vehicle is not plugged in. PHEVs typically require deeper battery charging and discharging cycles than conventional hybrids. Because the number of full cycles influences battery lifetime, battery life may be less than in traditional HEVs which do not deplete their batteries as deeply. However, some authors argue that PHEVs will soon become standard in the automobile industry. Design issues and trade-offs concerning battery life, capacity, heat dissipation, weight, costs, and safety need to be solved. Advanced battery technology is under development, promising greater energy densities by both mass and volume, and battery life expectancy is expected to increase. Interest in plug-in hybrids increased in 2006 to such a level that the architecture was included as an area of research in President George W. Bush's advanced energy initiative and mentioned in his 2007 State of the Union Address. After hearing an explanation of PHEVs, 49% of consumers surveyed in 2006 said they would consider purchasing one. That is about the same level of interest as standard hybrid technology. 5 Executive Summary Preamble: Introduction to Toyota Motors Historical Financial Results for Toyota All numbers in thousands of $ Mar-07 Mar-06 Mar-05 Sales Revenues 202,864,000 179,083,000 172,749,000 COGS 162,883,000 144,249,000 138,469,000 Gross Profit 39,981,000 34,834,000 34,280,000 Expenses 21,017,000 18,844,000 18,709,000 Operating Income 18,964,000 15,990,000 15,571,000 Net Income 13,927,000 11,681,000 10,907,000 Stock Price (Average Yearly) $110 $104 $75 Assets 275,941,000 244,587,000 226,604,000 6 Executive Summary Headlines Chapter 1: • The Halo effect created by the Prius HEV has provided a perfect launch pad for Toyota to introduce a Introduction to PHEV. However, at this time there seems to be serious competition on the horizon from GM. The Chevy managing marketing Volt, with its stunning looks and E-Flex platform is poised to capture several market segments. • Traditionally, Toyota has not been the leader in innovation. However, they’ve had tremendous success at being a very fast second. They outdid Honda (who launched the first hybrid car) in the hybrid vehicle market with Honda “pulling the plug” on their Accord hybrid vehicles. • The PESTLE forces in play since early 2006 is creating a perfect wave that Toyota can ride successfully if it chooses to. • Toyota did show initial reluctance in responding to PHEV advocates. This did create negative press for Toyota but not enough to create any permanent damages to the goodwill it enjoys in the market. • Jim Press was recently appointed president of Toyota Motor North America, the first non-Japanese to hold the post. Changes such as these do indicate that Toyota is serious about change from the top down. • Toyota values its customers in a number of different ways. First, it emphasizes product quality It strives to create a perception with the customer that buying a Toyota ,whether it is a Lexus or a Corolla, will offer Chapter 2: The quality and dependability. Second, it measures a customer satisfaction index within the organization as a value of customers continuous metric. Some compensation aspects of the employees are tied to this measure. and optimizing shareholder value • Toyota relies on its dealer networks to sell these cars and also to do service. To that end, they ensure dealers are sufficiently trained and can deliver excellent service to the customers. • The customer retention rate is close to 90% for Toyota, a significantly high percentage compared to its American counterparts. 7 Executive summary Headlines (2) Chapter 3: Market The overall product class that we are dealing with in our case is the automotive market with the product form insight being the plug-in hybrid market. Our further refined product form upon which our marketing case is based the plug-in hybrid market. The base product form that we are focused on within are the Pioneer, Showboats, Laggers and Fleet segments. Key industry forces and characteristics include: • Market is relatively in early growth, with Toyota and GM having big aspirations. Other direct competitors include Honda and Nissan. • Non-direct competitors include pure Electric vehicle manufactures (EV) such as Tesla Motors and Zap Cars. • Indirect competitors include mass transit, telecommuting options, Car pooling, higher vehicle efficiency from auto makers • As competition gets aggressive, brands will simplify purchasing choice/decisions for consumers and Toyota will be having its own brand to market plug-in hybrids. • Lithium Ion batteries are a key to plug-in hybrids and the improvement of technology will decrease the battery price and hence the plug-in hybrid price Key political, environmental, socio-cultural, technological, legal and environmental (PESTLE) considerations include: • The price of gasoline, driven by supply concerns and increasing demand will serve to increase the attractiveness of vehicle options like plug in hybrids that are less dependent on gasoline. • Environmental benefits of plug in hybrids become more significant selling features as public awareness of the seriousness of the issues at stake increases and the positive effects on these issues by plug in hybrids become more widely known. • Governmental incentives such as tax credits/usage of car pool lanes for plug-in hybrid owners will serve as attractors for the plug-in hybrid customers 8 Executive summary Headlines (3) Chapter 4: • There are different kinds of Plug In Hybrid customers and each distinct type is motivated by different Customer insight desires. • Different aspects of the Plug in Hybrid product appeal to different customers. This insight must drive both product development and marketing communications.. • Three primary subsets of benefits are presented by the Plug In Hybrid: • Environmentalism and geo-political concerns (Doing good for the ecosystem and the country) • Fashion and vanity (Not just doing good, but looking good and appearing to do good) • Economics (vehicle operating costs) • The benefits that appeal to Plug in Hybrid customers are valuable enough to merit a premium selling price such that governmental and commercial subsidies that exist can be shared both by the purchaser and Toyota PHEV division. The economic value provided by the Plug in Hybrid (tax credits and lower gasoline consumption) are approximately the same as the current purchase price premium. When Plug in Hybrids get more widely accepted and manufacturing economies of scale manifest, Toyota will enjoy additional margins and have the ability to pass some of these savings on as a response to competitive pricing pressures in the future. Chapter 5: Insight • The competitive landscape for PHEVs is quite involved and very dynamic. Competitors range from the about competitors most direct to the very remotely related. Examples include and complementers • Other potential manufacturers of PHEVs: GM and Honda • Traditional hybrids: Toyota, Honda, Ford • Manufacturers of other alternative energy vehicles: Tesla, BMW, Mercedes • Market analysis also indicates that the role of the battery developers and suppliers is critical to the success of the overall technology. Gaining access to the IP or successfully pairing with a key supplier could provide a competitive advantage. 9 Executive summary Headlines (4) Chapter 6: • The starting point of our marketing research has been the rapid growth of the hybrid vehicles market: Marketing research • The geo-political instability, increasing demand for crude oil from China and India, the declining supply of cheap oil and increasing impacts of Global warming have created forces which will keep oil from dropping down below $30 per barrel. • Battery technology is improving at the rate of 8% per year. This means the batteries can store 8% more energy within the same physical dimensions. This played a significant role in our strategy to pursue PHEV with the larger Lithium Ion batteries rather than the small format Nickel Metal Hydride batteries in the current hybrids. • The US Senate increased the automobile fuel economy standards to 35 miles per gallon, the first significant boost demanded of automakers in nearly 20 years. In his State of the Union Address, the President announced a "Twenty in Ten" goal to reduce U.S. gasoline consumption by 20 percent over the next 10 years. California is leading the fight against global warming and setting an example for the rest of the world by passing AB 32 into law. California has led the nation in passing Assembly Bills into laws (AB1492 and AB32) to reduce Green House Gases (GHG) from mobile sources (vehicles) and stationary source (power plants, oil refineries) and develop a mandatory reporting system for these emissions. Such legal forces mean that every automaker will have to find innovative ways to improve the fuel efficiency of its entire vehicle line up. • California is the most populous state in the US. It also helps that the most number of hybrid vehicles sold in the nation are in California. The initial launch of the Toyota PHEV will be targeted in California. Toyota is set to send two Prius PHEV’s in the fall of 2007 for road tests in Northern and Southern California. • We used available research data for our pricing models – a $4000 premium for PHEVs to be offset by Federal and State tax rebates until the batteries get cheaper with mass adoption. • International Investment managers Alliance Bernstein projects that by 2030, hybrids and PHEVs could be 85% of new car sales. An end to business as usual because of higher fuel prices, carbon caps or taxes, employee benefits, government incentives. PHEVs will become the dominant platform for MOST automobiles, building on PHEVs simple concept: power local travel electrically from an ever-greener grid, and evolve the range extender fuel to increasingly renewable sources. 10 Executive summary Headlines (4) Chapter 7: • Toyota PHEV will experience rapid growth by leveraging the success of the Prius hybrids. Determine and recommend which • Existing Hybrid customers will be targeted for “upgrade” in their next car purchase. markets to address • Pioneering Test product roll out will begin in Japan with the US and EU market rollouts following • Partnerships with municipalities, large employers, electric utility companies and lobbying groups will be key to creating the buzz initially, and to developing the longer – term service offering. • Internal growth of R&D will be supplemented with strategic acquisition of businesses that have technologies that can extend Toyota PHEV’s comparative advantages. 11 Executive summary Headlines (5) Chapter 8: Market • Eleven market segments were identified using three basic criteria: Hybrid-ownership, Income, and segmentation and Environmental Benefit/Appearance. Several other criteria were considered but none of them offered targeting enough discrimination to be used in the high-level segmentation. The high-level segments we identified each need to be further refined - particularly when designing the advertising campaign. (The same set of product features may be perfect for more than one segment but the VALUE they derive can be totally different.) • Determining which segments to target was based on evaluation of both the segments and Toyota. Market attractiveness was measured based on the following criteria: size (# of vehicles), wealth, growth, degree of influence on other segments, and the ability to identify a segment’s members. • Business strengths were analyzed for each individual segment because different segments call on different strengths of the company. For example, providing high quality service is critical for Fleets while flexing our engineering muscles is critical for success in the Pioneer segment. Chapter 9: Market • Team COCA identified 11 market segments but will focus their strategy on four strategic segments aimed strategy – the at establishing an early market share lead over competition: (Pioneers, Showboats, Laggers, Fleet integrator Vehicles) • Major shift in strategy from Hybrid vehicles include: • The PHEV has to look different. Pioneers, Laggers and Showboats want others to notice at a glance that they are driving a PHEV and not “just another hybrid”. We call this the product offering - Sparky. For fleet vehicles, a Plug in version of the Prius will suffice. We call it Prius Plus. • Toyota PHEV will sport a Series-Parallel combination drive train offering Flex fuel option. PHEV plus Ethanol will provide the “biggest bang for the buck” to reduce gasoline consumption and emissions. Toyota will need to move on to Li-Ion batteries. • A Lexus version (Sparkilicious) of the PHEV will be launched a year after Sparky. This will compete with luxury vehicles in the $40,000 - $55,000 price range. • The positioning statements made for each target segment reflect the focus as expressed above. Specific and different actions will be taken for each market segment in terms of Product, Promotion, Distribution, Service, Price and Functional Support. 12 Executive summary Headlines (6) Chapter 10: •Toyota will be playing in a market that is in the early growth stages for plug-in hybrids. Managing through the life cycle •The strategic option for Toyota is to target niche segments and to add benefits to satisfy specific types of customers in the market, while at the same time focusing on the quality and desirability. •Toyota will focus its efforts in Showboats, Laggers, Pioneers, and Fleet segments. The objectives are different for each market segment: • For the high income lifestyle customers (Showboats & Laggers) the intent is to generate profits and increase the revenues. • For the Pioneers , who are environmentally conscious and want to be perceived as cool. The intent is to expand the market share and the brand awareness. • For the Fleet, the intent is to target big corporations who care about reducing their operating costs and a go-green” approach. Chapter 11: •Toyota plug-in hybrid branding statement focuses on owning a fashionable and dependable car more Managing brands prominently than on cost-savings in gasoline. Toyota will be marketing the plug-in hybrids under a different brand and will monitor disparity between what Toyota sees its image to be and the reaction from customers. •Toyota will take advantage of the positive associations of the customers with its Prius brand and will suggest plug-in hybrids are even more of the same. 13 Executive summary Headlines (7) Chapters 12 and 13: • The definition of the product line is critical to Toyota PHEV’s success. By managing three distinctly Managing the different product offerings, Toyota PHEV will capture different customers seeking different benefits. product line • The growth / market share interaction will drive the timing and resource allocation of the marketing effort • Developing the Prius Plus product for fleets • Developing the Sparkilicious (Lexus brand) product for the upscale “Showboats” segment • Developing the Sparky product with broader appeal • Toyota PHEV is classified as an Interactor, with a high customer focus and high innovation focus. Toyota has demonstrated both a knack for innovation and for anticipating and satisfying customer needs. Customer feedback, new product development, and technological investment will drive the product to consistently innovate and provide functionality as soon as technology allows. • New product development, using the Idea Generator to identify product enhancements and modifications, will be a primary focus. Creative thinking about applications that complement customer desires will be sought and rewarded. 14 Executive summary Headlines (7) Chapter 14: The marketing communications planning for PHEV vehicles at Toyota is quite involved and sophisticated. Integrated Toyota will be launching at least 3 vehicles in this overall form in the next 4-5 years - each offering dealing marketing communications with a specific segment at a particular moment in time. Prius Plus for Fleet and some Pioneers Sparky for Pioneers and some Laggers Sparkilicious for Showboats and some Laggers. In each segment, communications will be targeted at various groups in various stages of the product life cycle. Some of the earliest targets for Toyota will be Pioneers – the early adopters in the traditional hybrid market. Following on from this there will be additional product launches targeted at Laggers and Showboats. In all cases there is a phased marketing communications budget with different primary targets. For example, in the Fleet segment, it is imperative to have properly trained salespeople to deal with Fleet Managers and their concerns. This internal salesforce is one important target of communications. In other segments, the consumer is the most important target for communication. This is true for Laggers and Showboats, although we use Showboats as the primary example in this write-up. 15 Executive summary Headlines (8) Chapter 15: Non- • The overall goal in each market segment is to raise brand awareness and increase sales. The creative personal brief is focused on the Showboat segment as we believe that this is the most challenging segment to communications attract. • Toyota will ultimately spend millions of dollars in the various stages of PHEV product launches and virtually all media outlets will be utilized in some form or another. • Two separate campaign ideas are presented. Royalty and Passing the Pump. Although both are initially positioned for the Showboat Luxury segment, only the royalty campaign is suitable. Passing the Pump is highly adaptable to the Laggers segment however and represents a promising campaign for Sparky. • Showboat ads are targeted to TV programs and magazines of interest to this segment as well as several other media classes and vehicles. • The integrated campaign for each segment will include a ramping up period, a launch period and finally a maintenance/sales period. The ramping up period can begin anywhere from 6 months prior to launch to a year or more before product introduction. Chapter 16: • The objective is not necessarily to gain the first mover’s advantage, but to be a fast second and then gain Directing and market share with a superior line of products that have a real economic and environmental value for the managing the field sales effort customer. • The Toyota PHEV product line must be able to gain a 70% market share of Pioneers within a year from launch. The Lexus PHEV product line must be able to gain 20% market share of Showboat by 2012. • In terms of sales force organization, the recommended change is to add a new e-commerce channel similar to that employed by Tesla Motors to sell the PHEVs directly from the Toyota web site with pickup scheduled from local dealerships. • We recommend having more women in the sales force at car dealerships: • The entire sales force needs to be trained to act as “myth busters” to dispel common myths regarding battery life, safety, residual cost, weight etc. 16 Executive summary Headlines (9) Chapter 17: • Toyota’s distribution systems are one of the best in the auto industry. Team COCA does not recommend Distribution any changes. decisions • Toyota should keep supply in check to create an pent up demand. Chapters 18: • Toyota enjoys a strong customer service infrastructure and distribution channel including both on stage Managing services, (dealerships, auto show presence) and off stage (service departments, financing offices). customer service and customer • Training in the particularities of the Plug in hybrid product offering and customer benefits will be the key relationship change to the existing infrastructure. management • The three primary gateways to Toyota PHEV’s customers are • Toyota.com • Toyota’s 800 and local dealership telephone numbers • Toyota dealerships (walk-in/ drive–in) Chapter 19: • Toyota PHEV’s price / service positioning is closer to the “fair value line” than either competitor. Managing price and value • As the dominant player, Toyota should set pricing and not follow competitors. Toyota PHEVs will enjoy a premium value in the marketplace, and as such, price competition can be avoided for the intermediate future. • Brand awareness is our first goal, then market share growth. All the while the quality (cutting edge) image must be maintained in order to remain in the dominant position relative to the competition. 17 Executive summary Headlines (10) Chapter 20: •Toyota plug-in hybrid division's mission statement states: "Toyota will be the industry leader in plug in Ensuring the hybrids, leveraging the successes of Toyota’s hybrid vehicle line-up. Continuous improvement and marketing offer is implemented as technological innovation will be the means by which we achieve the goal”. planned •The marketing function effectively permeates the entire company, thereby crossing traditional functional or organizational lines. We have a well established marketing and sales organization but Toyota should develop a think global, act local policy and to that effect recruit top talent locally and provide them with decision making powers instead of having the control in Japan. This will allow Toyota to expand faster in the US plug- in hybrid market. •Additional systems and processes should be developed as the company progresses through it’s growth stages in the plug-in hybrid market. For example, integrating battery suppliers in the supply chain ( “hard system”). This will aid the company in integrating "Just in Time" inventory control for battery and accessories. Toyota should invest in improvements in battery, charging, and metering technologies. Patenting these technological improvements will serve to create competitive advantages. •Toyota through its dealership network should assist the consumers in simplifying the federal and state tax credit/ incentives in buying a plug-in hybrid. Chapter 21: •Toyota is a well established company and has rigorous monitoring systems and processes in place. Toyota Monitoring and also has launched several new products over the years, including Prius and can leverage the lessons learned controlling firm performance and in establishing controls for plug-in hybrids. Many of the suggested monitors include additions to existing firm functioning processes or best practices or benchmarks against Toyota's other launches that can be put in place for plug- in hybrids. We also will leverage existing systems to measure customer profitability in addition to product profitability. 18 SITUATIONAL AWARENESS 19 Situational Awareness 1A.2 COLOR – Marketing orientation of the firm A. THE PLANNING SYSTEM A.1 Objective setting Our objectives are set with a predominantly internal focus Toyota maintains a strong external focus in setting objectives A.2 Planning and budgeting Our plans comprise largely numerical budgets Toyota budgets are a balance of quality and quantity. A.3 Gathering market information We pay little attention to customer/competitor data gathering Toyota employs a holistic approach into customer/competitor and analysis data gathering and analysis A.4 Sales Forecasting We do a terrible job of forecasting sales volume Toyota does a good job of forecasting sales volume A.5 Information systems We develop information systems to reduce costs and increase Toyota is always looking to improve efficiencies and cut costs operating efficiency by employing IT solutions. B. DEFINING THE MARKET ARENA B.1 Attitude toward the “rules of the game” We accept the rulings made by various legal and regulatory Being a Japanese company, Toyota does not have the lobbying bodies power exercised by rival US automakers. B.2 Attitude toward regulation We actively dislike all forms of regulation The Big 3 US automakers sued the state of California in late 1990’s for its stringent emission regulations, whereas Toyota started working on its Prius. B.3 Competitive View We believe our competition comprises firms attempting to meet Toyota plays in an extremely competitive market globally. the same customer needs and wants as ourselves C. TREATMENT OF CUSTOMERS C.1 Attitude toward customer service Having to deliver customer service is a necessary evil Toyota strives for the best customer experience as it builds customer lifetime value and customer retention, both of which tie to the bottom line. C.2 Attitude toward product/service defects We believe in “buyer beware” Toyota Quality is set as the industry benchmark. C.3 Allocation under scarcity When we have supply shortages, we use standard allocation Toyota make strategic allocation decisions when faced with formulae to allocate our capacity steel shortages a few years ago. 20 Situational Awareness 1A.2 COLOR – Marketing orientation of the firm (2) D. MARKETING SPENDING D.1 Attitude toward marketing expenditures When profits are under pressure, marketing budgets Toyota continues to prove that good products backed by are the first to be cut solid marketing has improved their bottom line. D.2 Response to shortfalls When we are under financial pressure, we cut budgets Financial pressure or not, Toyota strives to carve out by the same percent across the board efficiencies in its operations. Pioneering the Just in Time inventory is an example. D.3 Response to recession In recessionary times, we cut our marketing budgets In recessionary times, Toyota will increase or hold firm marketing budgets. E. PRODUCT LINE DECISIONS E.1 Approach to product development We have a haphazard approach to new product Toyota has the shortest concept to production development timeframes in the auto industry. They use state of the art CAD/robotics tools to achieve this. E.2 Product line breadth Our product line is misbalanced (too narrow or too Toyota has a full lineup of 21 vehicles to address every broad) market segment. F. COST TO THE CUSTOMER F.1 Approach to setting prices We set prices on a cost-plus or target-return basis The auto industry is highly competitive. Toyota brand value allows it to enjoy higher margins that other US automakers. F.2 Credit extension Our credit policy is rigidly applied regardless of Toyota uses its credit policy for strategic accounts. customer G. BUSINESS ORGANIZATION Our organization structure is characterized by Though Toyota is not run like traditional US companies, functional silos it places high value on cross-functional integration 21 Situational Awareness 1B.1 Toyota’s approach to marketing Organizational survival is the major firm objective 7 Shareholder value is the major firm objective Accounting profit is critical 7 Shareholder value is critical Product markets are pre-eminent 2 Capital markets are pre-eminent Marketing is one of the functions 6 Marketing is a philosophy as well as a function We manage the status quo 7 We manage change Customers are a “necessary evil” 7 Customer are key assets The supplier chooses options 5 The customer chooses options Seller power dominates 7 Customer power dominates Customer have non-discretionary purchasing power 5 Customers have discretionary purchasing power The firm accepts all orders 1 The firm selects customers A department markets 7 The firm markets Marketing is a one-way process 7 Marketing is an interactive process Analysis Marketing is considered key to success for Toyota and every activity is oriented toward the customer. Toyota actively listens to customers and is very effective in analyzing and using the information collected to define the future actions, investments and overall marketing strategy. Toyota has been well known to be an externally focused organization with relentless focus on its customers. 22 Situational Awareness 1B.2 Marketing imperatives and marketing principles Marketing Imperatives Reason for Importance Identify and Target Market Plug in hybrid is a new concept with high risks and high rewards. Identifying and targeting the right Segments market segments will cement the road for future growth. Toyota aims to capturing the PHEV market the way it has captured the hybrid markets. This has allowed Toyota to make strong profits while the other US automakers suffer the worst losses in Set Strategic Direction history. Setting the strategic direction for the next generation of automobile technology will allow Toyota to be the dominant player in this highly competitive market. Toyota has strong competition from GM in the PHEV market. Toyota needs to differentiate itself Design the Marketing Offer from GM and thus it is imperative to put together a fresh marketing offer for each segment targeted. Marketing Principles Reason for Importance Brand Value is fundamental in the auto industry. Strong brand loyalty can fuel strong growth for several years. Market research, direct interaction with the customers, surveys and most Brand Value importantly a thorough analysis of all the data collected will be key to the success of Toyota in the PHEV market. GM has secured the early movers advantage by showcasing a stunning Chevy Volt with an impressive 40 mile all electric range. Toyota is road testing an 8 mile all electric range plug in Prius Differential Advantage in Japan and the US. Toyota PHEV will have to differentiate itself not only from the Chevy Volt but from the highly successful Toyota Prius. 23 Situational Awareness 2A.1 Current customer lifetime value (LTV) Toyota March 2007 Term Calculation Toyota’s Mar 2007 Notes Financial Statements have been used to compute the LTV. From Mar 2007 Net Margin per customer m $13,327 Financial Data Toyota enjoys a large customer retention From LIBOR rate Discount Rate d 8% rate and with the (5.5%) plus 2.5% introduction of plug-in 90% retention rate is hybrids, we are Customer Retention Rate r 90% forecasted for plug- expecting that it will in hybrids continue to do so. Margin Multiple r / (1 + d – r) 5 Customer Lifetime Value m * r / (1 + d – r) $66,635 Analysis Toyota has built-in a customer satisfaction measure as part of the organization and monitors this very closely. In fact, some of the compensation of the employees are tied to that measure to create accountability. Toyota has been able to demonstrate a high customer retention rate (and subsequently less defection) because of its focus on customers Guidance Toyota should constantly renew and measure customer profitability ( as opposed to product profitability), and should evaluate deleting customers, growing the margins and increase the retention. As we can see increasing the retention from 90 to 95% will increase the LTV of the customer 24 Situational Awareness 3A.1 Market Structure Analysis 2006 Passenger vehicles = 49 Million Transportation (Cars & light trucks) Automotive Vehicles 2006 US Hybrid sales = 250,000 Passenger Toyota/Lexus = Alternate Energy Vehicles Vehicles 190K US 49Million Toyota/ Plug In Hybrids Lexus PHEV 25 Situational Awareness 3B.1 Product Lifecycle Analysis Gasoline Product Form Life Cycles Hybrids Plug-in Hybrids Sales Volume Fuel cell Hybrids Time 2011 • Product Class is Automotive market, Product Form is the Plug-in Hybrids, Product Item is the Toyota Plug-in Hybrid 225,000 cars Sales $ Profit Margin 2011 Time Toyota PHEV Projected Sales and Profit Margins Profit Margins are greatest in early growth and drop in late growth/maturity. 26 Situational Awareness 3B.1 Product Lifecycle Analysis Toyota’s Product Life Cycle and Environment Policy 27 Situational Awareness 3C.1 Industry forces analysis Direct Industry “five forces” analysis competitors having lost the Hybrid vehicle Industry force Important players Potential impact on firm or business unit market to Toyota Current direct General Motors, Honda, Nissan The world's #1 car-maker is placing a big bet on are now competitors electrification of transportation as a strategy for growth and determined to prosperity. In doing so, it is first out of the gate in the great plug-in car race of 2007. GM and Toyota have both said capture the Plug they want to be first on PHEVs. in Hybrid market Non-direct Tesla Motors, Zap Cars, Phoenix Motorcars, Pure Electric Vehicles (EVs) are available but at a segment. competitors BMW, Mercedes Benz significantly higher price point than Plug in Hybrid Electric Vehicles (PHEVs); European luxury brands are bringing Indirect cleaner burning diesel engines to the US. competitors are Indirect competitors Increased efficiency of hybrid vehicles, Car Increased fuel efficiency on hybrid vehicles could lessen mostly targeting pooling, Mass Transit, High density housing the incentive to turn to plug-in hybrid vehicles. Several the high end near offices, tele-commuting cities are providing greater incentives for using public sports car/ luxury transport, car pooling and telecommuting to improve worker productivity. Daily commute times have been on the rise in car market most metropolitan areas in the US since the past 10 year. segment at a Suppliers Lithium Ion Battery manufacturers Energy density of Li-Ion batteries has been improving at 8- much higher price 10% per year allowing automakers to increase the all point and reduced electric range of PHEVs. Economies of scale would bring all electric range. the price point of batteries and hence the PHEVs to that of Hybrid Vehicles. Buyers Consumers, rental car companies, corporate Increased interest in PHEVs will bring down the breakeven and government fleet, for automakers speeding up commercialization of PHEVs which would align with the current energy policy. 28 Situational Awareness 3D.1 PESTLE Analysis Force Important factors Potential impact on firm or business unit Political 20 in 10 The instability serves to make fuel efficiency a more significant Hostile governments in Venezuela and Nigeria have decision factor for vehicle consumers, increasing the desirability of increased US dependence on OPEC and Russian the plug in hybrid. oil. Certain consumers may see purchasing a plug in hybrid as a move Political instability in the Middle east including the that reduces dependence on foreign oil and one that serves to Iraq war, Iranian tension and Israel / Palestine bolster US independence while reducing the bargaining power in hostility adversarial governments. Economic Steep increase in crude oil price. Gasoline prices The price of price of gasoline, driven by supply concerns and have remained high. increasing demand will serve to increase the attractiveness of Talks of gasoline tax in Washington vehicle options like plug in hybrids that are less dependent on gasoline. Global demand has exceeded global oil production. China and India growing at 8-10% annually have put Governmental tax increases and tax credits on gasoline will a huge demand on oil in the global market keeping increase the desirability of plug in hybrids prices steady. Socio-cultural Much greater awareness of environmental impact. This is a positive force for Toyota overall as the market leader in An Inconvenient Truth has done nearly $42M in box hybrid technology. Consumers will become more and more aware office and there is a great deal of celebrity effort of their ecological footprint in the coming years. Also, there will be around reducing global warming. Driving a hybrid is increasing pressure to reduce that footprint and value associated a status symbol in young Hollywood. with doing so. Technological Over the next 3 years Toyota and Honda plan to: Increased sales of hybrid vehicles, competitive advantage over Reduce the weight of hybrid power train by 50%. late entrants, maintain leadership position. Reduce the price of hybrid technology from $4000 Potential to mass market hybrid technology. per vehicle to $1900. Position to innovate and build on the hybrid platform to keep competition at bay. Legal AB32, California ZEV Governmental initiatives to encourage low emission / high fuel economy will serve as attractors for Plug In Hybrid customers. Environmental Motion to allow drilling in Alaska’s Arctic National Environmental benefits of plug in hybrids become more significant (physical) Wildlife Refuge was defeated. selling features as public awareness of the seriousness of the Global warming report presented by the Association issues at stake increases and the positive effects on these issues of scientists by plug in hybrids become more widely known. 29 Situational Awareness 3D.2 Summary of PESTLE forces Planning horizon: 3 to 5 years Force Important factors Summary impact of environmental force Political US External oil dependence Customer desirability towards plug-in hybrids Economic Talks of gasoline tax in Washington, increased demand Customer desirability towards plug-in hybrids of oil due to emerging markets, Socio-cultural Movies/Books on global-warming increased awareness of Customers will become increasingly aware of plug-in hybrids going green Technological Toyota plans to reduce price and weight of hybrids Potential mass market opportunity for Toyota PHEV Legal AB3, California ZEV Governmental incentives increase customer desirability towards plug-in hybrids Environmental (physical) Arctic and Alaska drilling of oil Motion defeated 30 Situational Awareness 3D.3 and 3E.1 Challenges and opportunities from PESTLE forces Overall the Challenges and opportunities from “PESTLE” analysis and various PESTLE Market insight forces represent a Planning horizon: 3 to 5 years significant Challenges and key insights for Firm Opportunities and issues for Firm opportunity for PHEV technology. Competitors: Toyota is a target having taken a truly Legal pressures are increasing for car The company that dominant lead in traditional hybrids. GM has been manufacturers to improve performance based on moves quickly very public in their goal be first with PHEV emissions and to meet minimum mpg standards. and strategically technology and dethrone Toyota. to take advantage The strong ethanol lobby may create noise and Several factors are likely to substantially increase stands to win confusion in the marketplace around which gasoline prices in the short and long term future. substantial long- technology is better from a political point of reducing This will drive consumer demand for very low mpg term gains. US dependence on foreign oil. vehicles like the PHEV. Technically, the challenge of batteries for PHEV is Culturally there is a growing emphasis on crucial. Major advances are need to deliver on the environmentally conscious living. Positioning your promise of the technology. product or service in-line with a green approach to living can be seen in everything from cars, to farming to insurance. This movement is so significant it has even been parodied on Comedy Central’s South Park. Vehicle to grid is touted by public utilities as a major There will likely be tax incentives for purchasing potential benefit of PHEV but the PHEVs as there were with hybrids, increasing the overall economic value of the technology to the consumer. 31 Situational Awareness Figure 4A.1: Purchase Decision Map Firm/Business Unit Toyota Influencer/Advisor Organizations Car Magazines, Reviews, Car TV and radio shows Other Firm Business Units Direct Customer Environmental Activist Groups, Calcars.org Dealerships, Fleet & Car Rental GM, Honda,Tesla, Citroen companies Governments and government agencies Utility companies (PGE) Fuel cell proponents End User Consumers/Drivers 32 Situational Awareness Figure 4B.1: The Purchase Decision Process Purchase- Explanation Behavior of Customer Type Decision Step Recognition Decision to buy can be driven by several factors: Many customers have been waiting for an 1. Life change (student leaving for college for example) environmentally friendly car whose value proposition is 2. Current vehicle determined to be inadequate due to significant enough to get them to move. PHEV is it. age, service… 3. High gas prices are shifting customer preference from horsepower to mpg 4. Environmental concerns are also a factor – awareness of carbon footprints and the impact of global warming make very low or zero emissions more important as well. Information Customers seek complete feature lists and comparisons Nearly all customers do research online before visiting a to other vehicles both internal and competitive. Most dealer for a test drive. customers drive the vehicle or identical make/model before deciding to purchase it. Evaluation Customers evaluate alternatives based on vehicle Of these, PHEV customers will pay most attention to specifications, finances, availability, service and technical/functional, finances and what the car says emotional factors – “What does this car tell other people about them. about me?” Choice Customers are weighing technical & functional PHEV customers will take a longer term view on the considerations, economic factors, and emotional economic issues and will give the environmental responses in their purchase decision. benefits a greater weight. There will be a basic level of technical and functional performance required. (For example, a 2-seat vehicle is not appropriate.) Post-purchase After the purchase, customers decide where to get the Most PHEV customers will be big brand advocates once vehicle serviced and whether they would recommend it they have committed to a vehicle. to friends. 33 Situational Awareness Figure 4C.1: Roles in the Fleet Purchase Decision Process Role in the Organization Perceptions of our Name Decision Position/Degree of Firm versus “Hot Buttons” Process Influence Competitors Not very authoritative, Fleet Manager Decider Toyota = Quality Service as well as low costs. subject to influencers F l e e t Influencer/ Moderate ability to Service Administrator Toyota = Quality Champion influence decision Purchasing or P o t e n t i a l Biggest potential Low purchase, operating and other Financial Toyota = Quality Manager Gatekeeper/ Spoiler influencer maintenance costs. Toyota is the leader in Corporate Social Influencer/ Environmental benefit and ability Moderate ability to traditional hybrid Responsibility to signal that commitment to Oficer Champion influence decision technology and has the consumers. “greenest” reputation. 34 Situational Awareness Figure 4C.2: The Multiple Person Purchase-Decision Process Question Response Will the purchase decision be For fleet customers, this decision will be made by a group that includes the Fleet made by an individual or by a Manager, Fleet Administrator and Finance as a minimum. It might also include a group? If a group, who do you representative from Corporate Social Responsibility. expect to be involved? What are the power relationships The power is mainly balanced between the Fleet office and Finance. among the actors in the purchase decision? Do you expect coalitions of No major coalitions are expected. It will be a fairly objective decision. There is a small individuals to form for this concern that there will be pressure to buy American particularly for the rental car purchase decision? If yes, identify companies. the coalitions for this purchase. What mechanisms does the Purchase conflicts that can not be resolved within an implementation team are escalated customer use to resolve conflicts up the chain of command. in its purchase decisions? Based on your answers to the Toyota needs to highlight its American manufacturing in its communications with fleet foregoing questions, what actions customers. The PHEVs will be manufactured in the US – at both NUMMI and Tupelo. should you consider taking? 35 Situational Awareness 4D.2: Consolidated List of Customer Benefits (needs) Environmentalism / Politics 1. Desire to drive a car that is consistent with genuine concern for the environment. 2. Desire to protect the environment by emitting less pollution 3. Desire to reduce dependence on oil imports Fashion / Vanity 1. Desire to be more attractive and “cool” by driving the “in” technology 2. Desire to be on the cutting edge of technology 3. Desire to set an example for others in family, peer group, and community 4. Desire to appear to be “green” “Conspicuous environmentalism” Economics 1. Desire to spend less money on gasoline Attributes/Benefits/Values Ladders follow for each major benefit category 36 Situational Awareness 4E.1.1: The Attributes/Benefits/Values Ladder - Environmentalism Start from Attributes and work up the Start from Values and work down ladder the ladder Customer Values Better air quality and less pollution means that the Protect the environment that we all environment as a whole is healthier which is good share. Cleaner is healthier for everyone. Benefit level 3 Means better air quality / less pollution Benefit level 2 Less gasoline used means less emissions / smog Benefit level 1 Less gasoline used means less oil exploration / transportation / processing Attributes PHEV uses less gasoline Less gasoline use protects the environment 37 Situational Awareness 4E.1.2: The Attributes/Benefits/Values Ladder – Fashion / Vanity Start from Attributes and work up the Start from Values and work down ladder the ladder Customer Values Desire to be admired, be liked, be respected. Appear to be in fashion, cool, and sensitive to the environment Benefit level 3 If people like and listen to me more, I’ll get to be a leader and that will feel good Benefit level 2 Increasing my attractiveness makes people like me and listen to my opinions more Benefit level 1 Driving a cool car increases my attractiveness Attributes PHEV is aero-dynamic and conspicuously labeled Driving a hybrid is a form of as hybrid “conspicuous environmentalism” 38 Situational Awareness 4E.1.3: The Attributes/Benefits/Values Ladder - Economics Start from Attributes and work up the Start from Values and work down ladder the ladder Customer Values Don’t overspend when possible to avoid doing so. A penny saved is a penny earned Benefit level 3 When Plug in hybrids become a reality, the electricity arbitrage effect will further reduce operating costs Benefit level 2 Tax credits exist to offset the initial purchase price Benefit level 1 Better gas mileage results in buying less gasoline and in being less at the whim of the volatile gasoline price market Attributes PHEV consumes less fuel and costs less to operate Hybrid cars operating costs are lower than traditional cars. 39 Situational Awareness 4F.1: Economic Value for the Customer (EVC) Negative “Early adopter” Differentiation Risk, Higher initial cost Value Value Of meeting Positive Total customers’ desires Total Differentiation Value Economic to save $, Economic help the Value Value environment, and appear “Green” Reference Value of Value Non-hybrid Same Model 40 Situational Awareness 4F.2: Brainstorm Sources of Positive Economic Value and Additional Costs for the Customer Sources of Positive Economic Value Sources of Additional Costs Federal Tax credits for low emission vehicles Higher vehicle cost due to dealership markup Several states also offer tax deductions for the purchase of plug-in hybrid vehicles. Reduced gasoline costs of ownership. Projected higher resale values resulting from plug-in hybrids being “in” fashion Many states offer sales or excise tax exemptions for plug-in hybrid vehicles Many states offer carpool access for single occupants and special parking permits. Projected lower insurance costs for plug-in hybrids (true for traditional hybrids) 41 Situational Awareness 4F.4.1: Calculation of Economic Value – Gasoline Consumption 42 Situational Awareness 4F.4.2: Calculation of Economic Value – Greenhouse Emissions Greenhouse Gas Emissions National Mix vs California vs Renewables Midsize Car Comparison 43 Situational Awareness 4F.3: Economic Value Table – Lexus RX 400h FWD example Sources of Positive Economic Value Economic Sources of Additional Costs Additional Value ($) Costs ($) Tax credits for low emission vehicles $1,500 Higher vehicle cost from dealership $3,780 Reduced gasoline costs of ownership (PA) $780 Lower insurance costs (5-10% PA) $100 Many states offer sales or excise tax exemptions for hybrid vehicles Many states offer HOV access for single occupants and special parking permits. Higher resale values resulting from hybrids being “in” fashion Total – First year of ownership $2,380 Total $3,780 This example is based on 2007 Lexus RX 400h FWD conventional hybrid. As PHEVs are yet a concept vehicle, no actual economic cost information is available. PHEV economics will be similar to conventional hybrids. 44 Situational Awareness 4F.4: Calculation of Economic Value Reference Value – Price of Competitive Product (Lexus RX 350 FWD – Non-hybrid) $37,400 Total of Positive Sources of Economic Value (Average ownership 3 years) $2,380 *3 = $7,140 Sum of Reference Value plus Positive Sources $44,540 Total Additional Costs -$3,780 Total Economic Value $40,760 (Actual RX400h (Hybrid) Price $41,180) This example is based on 2007 Lexus RX 400h FWD conventional hybrid. As PHEVs are yet a concept vehicle, no actual economic cost information is available. PHEV economics will be similar to conventional hybrids. 45 Situational Awareness Figure 5A.1 Overview of competitors and complementers Competitors Complementers Direct spectrum Indirect Lithium Ion battery Automakers manufacturers, Carbon pursuing bio-diesel/ trading programs, Public Automakers cleaner diesel Utilities pushing for pursuing Automakers Car pooling, Mass vehicles Vehicle 2 Grid commercializatio Automakers pursuing pursuing Electric Transit, High (Mercedes Benz, technologies, President Actual n of PHEVs Fuel Cell Vehicles Vehicles (EVs) density housing BMW) Bush’s 20 in 10 energy (GM, Nissan) (FCVs) (Honda) (Tesla, Phoenix, near offices, tele- and traditional policy Zap) commuting Environmental groups hybrid manufacturers (Calcars) (Toyota, Honda) Visionary Daimler Chrysler Electric scooters Vehicles (Not clear whether Automakers pursuing EV imports (personal (a series PHEV Potential built in China to program remains a PHEV fuel-cell (Venturi Fetish, transporters) joint venture after concept cars (Ford) REVA, Think City) (Xtreme Scooters, the US market sale of Chrysler) Segway) in 2009 ) Toyota will focus on two main competitors: 1) GM 2) Honda 46 Situational Awareness Figure 5B.1a General Motors – Business System Design Manufacturing Marketing Sales Services E-flex power-train GM has partnerships Huge marketing Strategic Strong makes the Volt with Li-ion battery budget with partnerships/stakes relationships with adaptable to changing producers and will be presence at most in global markets – dealerships and Cost Advantage fuel options – even able to save money on major sporting Opel in Europe, an established after purchase. these relative to other events. Holden in Australia, service network manufacturers. Daewoo in S. Korea trained on GM etc. vehicles. Differential advantage GM should be able to American brand = Ability to market the Sales and Service – ability to gain the move the price closer valuable in US Chevy Volt under just becomes that support of corn to the Prius. local brands – much more Value Advantage ethanol lobby in US reduces marketing easier. and sugarcane lobby costs in Brazil. - Established brand – may gain market share in US hybrid market from customers who want to buy local vs Major foreign manufacturers Strengths -Strong relationship with flex-fuel in the customers’ minds - GM has not been successful with environmentally friendly cars and has little experience. They have a major Major brand problem in this area. Weaknesses 47 Situational Awareness Figure 5B.1b Honda – Business System Design Manufacturing Marketing Sales Services Low cost and efficient Cost rationalized Honda marketing is Honda sales model Honda service is engineering production facilities among the most competes head to world class. The are well established effective at new head with Toyota. products are Cost Advantage and can be re- product introduction highly reliable. purposed to PHEV Offer amazing value to Manufacturing costs This makes Honda Allows Honda to Honda vehicles the customer at are among the best in products believable. offer extremely consistently have competitive pricing – class, allowing for Honda enjoys high competitive model the least cost per Value Advantage example the Honda flexibility in pricing trust among its year end pricing to mile – a major Ridgeline is best in customers. customers. selling point. class and redefines utility in pick up trucks -Reputation of reliability and value Major -Effective marketing and distribution systems Strengths Not currently engaged in Plug in Hybrid research. No current plans to compete in the PHEV space. Major Weaknesses 48 Situational Awareness Exhibit 5C.1 SWOT Analysis Opportunities: Threats: Leverage the “halo” effect of their hybrid vehicles to Major investment in R&D, Marketing and Operations capture an untapped PHEV market by GM may erode Toyota’s ambitions to capture the Generate revenue by licensing the PHEV technology PHEV market. like they’ve done with Ford and Nissan for the Hybrid Safety recalls due to “overheating” problems with Synergy Drive Lithium Ion batteries may impact Toyota’s quality Become the “Uber” green car company by pushing image. for 100 mpg vehicles. Public policy favoring alternative technologies such as Hydrogen fuel cells. Strengths: Weaknesses: World’s largest car manufacturer Not known to make bold, innovative first moves; Reliable and High Quality Image rather play a fast second role R&D, biggest spend amongst car manufacturers; Taken a very conservative approach to Lithium Ion innovative battery technology ‘Just In Time’ Production Global leader in Hybrid vehicles 49 Situational Awareness Figure 5D.1a: General Motors - Competitor Assessment Analysis Required Capabilities or Resources Importance Effective Customer Required Benefits/ Values Fast Engineering Green marketing Rank Time to Expertise Brand Communicatio Market ns Desire to drive a car that is consistent with genuine 1 concern for the environment. Desire to reduce dependence on oil imports 5 *YN *YYY Desire to be more attractive and “cool” by driving the “in” technology 2 *YYY Desire to set an example for others in family, peer 4 group, and community Desire to appear to be “green” “Conspicuous 6 *YYN environmentalism” Desire to spend less money on gasoline 3 *N Legend: *YYY = Toyota PHEV has a sustainable superiority in a value that customers care about *YYN = Toyota PHEV has a superiority in a value that customers care about (may not be sustainable) *YN = Toyota PHEV has a capability in a value that customers care about (but not a superiority) *N = Toyota PHEV does not have a capability in a value that customers care about 50 Situational Awareness Figure 5D.1b: Honda - Competitor Assessment Analysis Required Capabilities or Resources Customer Required Benefits/ Values Importance Engineering Effective Fast Time Green marketing Rank Expertise to Market Brand Communications Desire to drive a car that is consistent with genuine *YYN 1 concern for the environment. Desire to reduce dependence on oil imports 5 *YN *YYY Desire to be more attractive and “cool” by driving the 2 “in” technology Desire to set an example for others in family, peer 4 group, and community Desire to appear to be “green” “Conspicuous 6 *YYN environmentalism” Desire to spend less money on gasoline 3 *N Legend: *YYY = Toyota PHEV has a sustainable superiority in a value that customers care about *YYN = Toyota PHEV has a superiority in a value that customers care about (may not be sustainable) *YN = Toyota PHEV has a capability in a value that customers care about (but not a superiority) *N = Toyota PHEV does not have a capability in a value that customers care about 51 Situational Awareness Figure 5D.2: Competitor Assessment Analysis -- Summary Importance Summarize Results Potential Sources of Potential Sources of Customer Required Rank per Required the Firm’s Competitors’ Benefits/Values Benefit/Value Differential Differential Advantage Advantages Desire to drive a car that is consistent 1 Toyota PHEV has a short- Marketing strengths and GM has a head start in with genuine concern for the term advantage in this area hard – earned reputation developing a ready for environment. for environmentally market PHEV (the Volt) conscious products give and is banking on serial Desire to reduce dependence on oil 5 Toyota PHEV has an Toyota PHEV an initial hybrid technology. imports advantage in this area advantage. Toyota must Should this become the Desire to be more attractive and “cool” 2 No competitor has a clear launch within 12 months standard, GM will have by driving the “in” technology advantage in this area. of GM if they do not make the first mover advantage. the first move. Desire to set an example for others in 4 Toyota PHEV has a short- family, peer group, and community term advantage in this area Honda is a well respected brand known for quality Desire to appear to be “green” 6 Toyota PHEV has an and dependability. Their “Conspicuous environmentalism” advantage in this area entry into the PHEV space will encounter little 3 No competitor has a clear Desire to spend less money on resistance. advantage in this area. gasoline Key items of competitor information required for a deeper analysis: 1. GM’s marketing strategy 2. Honda’s PHEV market entry plans 52 Situational Awareness 5E.1 Competitor strategy analysis Competitor Total Level of Likely Likely Possible Firm Hybrid Competitor’s Competitor’s Competitor’s Strategy Electric Threat to the Firm objectives Strategy Vehicle Market Share GM Small High Capture leadership Marketing blitz to play on Toyota Tundra is now the (<1%) position in the PHEV the patriotic emotions of biggest truck in the US full market. Erode Toyota’s the US market plus their size pick up truck market. market share and love of driving sexy, Toyota gave the American regain # 1 automaker powerful American cars consumer what they spot in the US. and not Japanese CUBS wanted. – Cute Ugly Boxes. Use this strategy to create Flex Fuel E-Flex an aggressive platform allows Chevy European/American design Volt to operate on for Sparky. Ethanol. Strong Use the fact that Series relationship with the hybrid (Volt) is less efficient Corn lobby will work to than the series- parallel get subsidies for GM, hybrid to be used for the allowing them to price Toyota PHEV. the Volt competitively. Toyota began road testing PHEV technology in 2007. Honda High Medium Maintain market share Not play in the PHEV Keep working on their Fuel (24%) of Honda loyalists. market. Instead push cell vehicle program. Compressed Natural Toyota does not have to Gas vehicles and the react to Honda in this new hydrogen fuel cell market. Honda FCX. 53 Situational Awareness 5F.1: Complementer Analysis Complementer Nature of the Likely Change in Likely Actions by Possible Firm Complementer Complementer Importance Complementer that will Actions to the Firm. Why? or why Impact the Firm not? Federal, State and Tax Credits for hybrids To stay the same then get less If tax Credits phases out, the Lobby for continuation Local Governments encourage ownership important. As hybrid volumes go increased cost of Hybrid technology of tax credits up, cost differentials should becomes more of a barrier to reduce. buyers Battery technology Research and development of To get more important then less. Until better, safer, cheaper batteries Invest in and companies new and better battery There is a diminishing return are created, battery efficiency will encourage R&D technology be a barrier operations Popular Culture Creation of public perception of To get more important. If icons Leo DiCaprio is credited with the Select (Hollywood) the benefits vs costs of plug-in drive plug-in hybrids, the public early acceptance of the Prius. spokespersons, hybrids will follow. Need more icons. product placements Public Utilities Promotion of “grid” benefits of To get more important Solving the vehicle to grid Partner with Utilities Plug In Hybrids practicalities will give consumers for media campaigns more incentive to buy Environmental Lobbying of governments, To get more important for a period Successful lobbying / media will Support /Advocacy Groups publicity campaigns, attention then less important as plug-in increase public acceptance of / environmental groups. (CalCars, etc) drawn to the environmental hybrids achieve mass acceptance desire for plug-in hybrids Share data. Coop benefits of plug-in hybrids Ads News Media Attention drawn to the Not likely to change Media coverage of the underlying Manage media geopolitical implications of oil problems that plug-in hybrids help relations. No bad dependence, to the to solve increases public demand press to offset the environmental impact of gasoline good work that the vehicles, and to the declining media are doing for reserves of oil us. 54 Situational Awareness 6A Planning assumptions With 70% market share U.S. Hybrid Vehicle Sales Estimates, 1999-2006 in the Hybrid Electric Vehicle (HEV) market, 1999 2000 2001 2002 2003 2004 2005 2006 Total Toyota is clearly Honda Insight 17 3,800 4,700 2,200 1,200 600 700 700 13,900 maintaining its leadership position. Toyota Prius - 5,600 15,600 20,100 24,600 54,000 107,900 107,000 334,700 With 24% market share in the HEV market, Honda Civic - - - 13,700 21,800 26,000 25,900 31,300 118,600 Honda may relinquish its second position to GM after announcing to Ford Escape - - - - - 2,600 15,800 19,200 37,600 discontinue sales of the Accord Hybrid and Ford Mariner - - - - - - 1,600 3,400 5,000 pursuing the Hydrogen Honda Accord - - - - - 700 16,800 5,600 23,100 Fuel Cell route. Toyota - - - - - - 18,000 31,500 49,500 GM with almost no Highlander market share in the HEV market is keen to Lexus RX 400h - - - - - - 20,700 20,200 40,800 capture the PHEV market with its 1 million Toyota Camry - - - - - - - 31,300 31,300 Chevy Volts by 2015 strategy. GS 450h - - - - - - - 1,800 1,800 One would assume that 50% lighter hybrid vehicles would also result in more fuel efficient vehicles, just in weight reduction alone. When better batteries and software are added to this equation, the outcome is fantastic. In 3 years Toyota and Honda hybrids will be more fuel efficient and significantly cheaper. . 55 Situational Awareness Figure 6B.2: Estimating Market Potential The market is flooded with forecasts for the growth of hybrid sales in the next 10 years. The exponential growth shown in the graph leads to the fact that “hybrid drives” will become the de-facto standard for automobiles the way “fuel injection” replaced carburetors in the 1980s- 1990s. The next big jump for fuel saving and emissions reduction will come from PHEVs. Many hybrid vehicles such as the Ford Escape will not meet the new CAFÉ standards. President Bush’s new energy policy to reduce 20% of gasoline consumption by 2017 is also not possible just by switching to hybrid vehicles alone. PHEV’s can also make the Ethanol economics work better. 56 Situational Awareness Figure 6C.1: Forecasting the Firm’s Sales Assumption: PHEV market will be 10% of Hybrid Vehicle market which is projected to be 1 Million in 2011 and 2 Million vehicles by 2015. 2011 2012 (15% 2013 (20% 2014 (25% 2015 (30% growth) growth) growth) growth) Market Forecast (from Figure 100,000 115,000 138,000 172,500 224,250 6C.1) Market Share Estimates 50% 53% 55% 58% 60% Justification of Market Share Toyota maintains Toyota maintains Toyota maintains T o y o t a Toyota would Estimates its 70% hybrid its 67% hybrid its 65% hybrid maintains its have 60% of vehicles market vehicles market vehicles market 62% hybrid hybrid vehicles share. share. share. vehicles market market share. share. Sales Forecasts (units) 50,000 60,950 75,900 100,050 134,550 Forecast Average Selling Price $25,000 $26,500 $27,500 $26,500 $25,000 Sales Forecasts (dollars) $1.25 Bn $1.615 Bn $2.087 Bn $2.651 Bn $3.363 Bn 57 Situational Awareness Figure 6D.1: Forecasting Market Size Forecasting Year 1 Year 2 Year 3 Year 4 Year 5 Method 5% year on 2011 – year 1 2012 (15% 2013 (20% 2014 (25% 2015 (30% year linear for PHEV growth) growth) growth) growth) growth in commercial PHEV sales sales – 45% (average of the various industry analysts in the previous slide) of Hybrid vehicle market of 1 million vehicles/ year 58 Situational Awareness Figure 6E.1: Estimating Market Potential Market Partition Total Percent Number of Number of Units Market Partition Number of Likely to Customers Likely to that those Potential Customers Buy (%) Buy Purchasing are Calculation A B C = A*B Likely to Purchase E = C*D D Consumers 100,000 45 45,000 1 45,000 2a. Corporate 200 50 100 40 4,000 Fleet 2b.Rental Car fleet 10 50 5 200 1,000 Total Market Potential 50,000 in 2011 59 MARKET STRATEGY 60 Market Strategy Figure 7A.1 Vision and Mission Vision “A Plug In Hybrid in the garage of every environmentally conscious automobile enthusiast”. Mission “Toyota will be the industry leader in plug in hybrids, leveraging the successes of Toyota’s hybrid vehicle line-up. Continuous improvement and technological innovation will be the means by which we achieve the goal”. 61 Market Strategy Figure 7A.2: The Growth Path Penetrate International Penetrate Penetrate market with next international international Generation PHEV with markets with markets with Vehicle to Grid New PHEV Ethanol E85 Technology PHEV Sell PHEV to Create and When technology is Current Gasoline market an feasible, create and car owners Ethanol E85 market Fuel Cell Market Related PHEV PHEV Increase PHEV Convert some Next Generation Awareness current first PHEV with Existing generation Vehicle to Grid hybrid owners to Technology PHEV Existing Related New Products/Technologies 62 Market Strategy Figure 7A.3: Timing of Entry Timing of Entry Firm or Business Unit Examples Pioneer Toyota PHEV will be one of the early pioneers in the Plug In market, entering at or about the same time as GM. Pilot programs in the fleet segment and in Japan will be used to create awareness and refine the concept. Follow the leader If GM beats Toyota in the race to commercialize PHEVs, Toyota will be a fast second as they did with the Prius. Segmenter As we and GM prove the concept and achieve early publicity, other competitors will enter. We will stay ahead of the competition by expanding PHEV from the small car segment to the full size and SUV segments, ahead of the competitor’s entries. Our superior technology will be our competitive advantage, leveraging our head start in the research an development process (similar to the strategy that we used in the First Generation Hybrids (Prius) Me-too Timing of Entry Options 63 Market Strategy Figure 7A.4: Assessing the Strategy for Growth Favourable Elements Unfavourable Elements Gasoline prices continue to rise People are becoming more environmentally conscious PHEV market is nascent Technological development in other green options distracts the consumer base Competition is developing directly competitive products (Volt) Customer mindset needs to be changed to overcome the initial price differential Do not sacrifice quality Toyota Motor Credit to provide below market financing for a pilot Embrace publicity that PHEVs will generate program that will encourage high visibility (high likelihood of being visible to future PHEV buyers) to purchase PHEVs. The Form strategic alliances with advocacy groups like CALCARS cost of the below marketing financing will be treated as marketing and Plug in America who’s mission is to raise market awareness brand expense (channel development) Begin with Fleets and large purchasers (car rental, municipalities. Lobby state and federal governments to encourage subsidies / incentives that reward consumers for the environmental benefits delivered by PHEVs. Suggested Strategy for Growth 64 Market Strategy Figure 7B.1: Implementing a Strategy for Growth Implementation Firm and Business Unit Objectives Options Internal development Motivate marketing department and R&D to encourage zealotry within the firm and create a culture of “PHEV evangelism”. Every employee of the PHEV division should be conspicuously loyal to Toyota first then to PHEVs second. Acquisition Purchase investments in battery R&D companies as well as in companies engaging in developing Vehicle to Grid metering and billing solutions. Strategic alliance Create strategic alliances with battery manufacturers to foster efficient battery developments. Partner with Utility companies to encourage the creation of charging stations at Park n Rides and at large employer parking lots. Partner with large employers to extend employer subsidies for Hybrids (particularly with Plug in Hybrids) Licensing and technology None yet. purchase Equity investment Toyota will internally finance the development of the product and the marketing and brand development. 65 Market Strategy 8A.1-8B.1 Required customer benefits, values and potential market segments 8A.1: Customer Benefits and Values, in priority order: Desire to appear green – conspicuous environmentalism Desire to be less of a burden on the environment Desire to save money or at least breakeven on gas/car Desire to drive a cutting-edge car (technology is cool!) 8B.1: Potential Customer Segment Examples: Segments: Age 21 - 30, 30 - 45, 45 - 65, 65+ Current/previous hybrid owner Yes, No Income Level $35K - $60K, $60K+ Geographic Location California Residents, US Residents, Importance of saving money/ Low, Med, High Sensitivity to gas price Importance of environmental benefit None, appearance only, appearance & actual benefits, Most important factor Importance of vehicle performance Med, High (standard measures) Opinion on reliance on electric grid for energy Not-favorable, Favorable 66 Market Strategy Figure 8C.1: Select Segmentation Dimensions and Form Groups Dimension A. Current or Previous hybrid Owner Group 1. Hybrid Owners Group 2. Non-hybrid owners Dimension B. Income Group 1. Lower ($35K-$60K) Group 2. Higher (>$60K) Dimension C. Environmental Benefit/Appearance Group 1. High benefits/appearance BOTH Group 2. Appearance High (benefits nice) Group 3. Neither is particularly important 67 Market Strategy Figure 8D.1a: Forming Consumer Market Segments – Hybrid Owners Pioneers Classic early adopters who High love technology. And they love Kermits Pioneers to show-off their new technology. Hybrid pioneers also care about the environment. Kermits These are hybrid owners who believe passionately in Dimension 1: environmental causes. They Environmental bought at a time when the Benefits & economic value of the hybrid Appearance might not have made sense but the overall value proposition did. Opportunists Opportunists These hybrid owners bought not because of the environmental benefits but for all the perks that come with it: carpool lanes, better parking, tax benefits and the like. Low Lower Higher Dimension 2: Income 68 Market Strategy Figure 8D.1b: Forming Consumer Market Segments – NON-Hybrid Owners Laggers This is the higher income majority/ High late majority. They follow the Lizards Laggers Pioneers and Kermits. Substantial value must be demonstrated to get them to move earlier. Lizards This is the lower income majority/late majority. They are very similar to Kermits but have not committed to hybrids of any Dimension 1: kind yet. Environmental Benefits & Wannabes Showboats Showboats Appearance Showboats follow trends and like to be admired. They are influenced by celebrity and popular culture. Showboats care more that others view them as environmentally conscious than about actually being so. The Simpsons The Affluentials Wannabes Similar to the Showboats but with Hard-working Joes less money. The financials will be Low much more important to this segment. Lower Higher Dimension 2: Income The Affluentials Luxury consumers primarily concerned with the good things in Hard-Working Joes The Simpsons life. Environmental image may These are consumers whose vehicle Lower and possibly fixed income outweigh actual environmental needs outweigh environmental households, the Simpsons are benefits in this segment. concerns. They demand high primarily motivated by financial performance on features such as torque concerns. and hauling capacity. 69 Market Strategy Figure 8D.2: Final Set of Market Segments In addition to the previously identified consumer segments we have added Fleet as a segment here. Fleet Fleet represents companies who purchase large numbers 1. Kermits 6. Wannabes of vehicles for use in their operations. The Fleet segment includes rental car companies. 2. Pioneers 7. Showboats Reducing operating costs is critical to these companies. They also gain some value from reducing their 3. Opportunists The Simpsons environmental footprint. Lizards Hard-working Joes Laggers The Affluentials Fleet (not a consumer segment) 70 Market Strategy Figure 8E.1: The Market Segmentation Matrix Pioneers Ker Opp Lagge Lizar Wanna Showb Affluent Hard- T h e Fleet Segments mits ortu rs ds bes oats ials workin Simpso nist g Joes ns s Hybrid Owner? Yes Yes Yes No No No No No No No N/A Income? High Low High High Low Low High High Med Low High Importance of High High Low High High Med Med Low Low Low Med “Green” Customer Benefits Desire to appear 3 3 2 2 3 1 1 2 3 3 2 green – conspicuous environmentalism Desire to be less 2 1 4 1 1 4 3 3 4 2 3 of a burden on the environment Desire to save 4 2 1 3 2 2 4 4 1 1 1 money or at least breakeven on gas/car Desire to drive a 1 4 3 4 4 3 2 1 2 4 4 cutting-edge car (technology is cool!) 71 Market Strategy Figure 8G.1: Brainstorming Market Segment Attractiveness Factors 1. Early technology adopters 7. Positive regulatory environment (state by state regulations/mandates) Example – California has special rules/privileges/tax 2. Opportunity for growth benefits for electric vehicles 3. Market size (# of potential vehicle sales) Geographic areas with poor air quality 4. Market Influence (trend-setting) Identifiability 5. Market Wealth Receptiveness to environmental pitch 6. Electricity reliability Urban vs Rural 72 Market Strategy Figure 8G.2: Selected Market Attractiveness Factors and Reason to Include Market Segment Attractiveness Factor Reason to Include Market size (# vehicles) Important to justify costs of development and to generate profits after breakeven. Represents future growth opportunity. Market growth opportunity Some segments influence others and represent an opportunity to build your business in two Market Influence segments. Market wealth Although a market may be quite large, it needs to have sufficient wealth to allow us to breakeven and then profit. Identifiability Creates marketing efficiencies 73 Market Strategy Figure 8G.3a: Analysis of Market Segment Attractiveness Factor Weight Pioneers Kermits Opportunists Lizards Rate Total Rate Total Rate Total Rate Total Market size 40 3 120 4 160 1 40 7 240 Market Growth 5 2 10 8 40 1 5 4 20 Market Influence 25 10 250 7 175 1 25 5 125 Market Wealth 25 8 200 3 75 10 250 5 125 Identifiability 5 10 50 10 50 2 10 7 35 TOTAL 100 630 500 330 545 Note: Best possible score is 1000. 74 Market Strategy Figure 8G.3b: Analysis of Market Segment Attractiveness Factor Weight Laggers Showboats Wannabes The Simpsons Rate Total Rate Total Rate Total Rate Total Market size 40 6 240 3 120 3 120 10 400 Market Growth 5 4 20 3 15 1 5 1 5 Market Influence 25 3 75 10 250 6 150 8 200 Market Wealth 25 10 250 10 250 5 125 5 125 Identifiability 5 6 30 10 50 6 30 9 45 TOTAL 100 615 685 430 775 75 Market Strategy Figure 8G.3a: Analysis of Market Segment Attractiveness Factor Weight Hard-working Joes The Affluentials Fleet Rate Total Rate Total Rate Total Market Segment size 40 4 160 3 120 9 360 Market Segment Growth 5 1 5 1 5 2 10 Market Segment 25 2 50 4 100 3 75 Influence Market Segment Wealth 25 7 175 10 250 10 250 Market Segment 5 6 30 7 35 10 50 Identifiability TOTAL 100 420 510 745 76 Market Strategy Figure 8G.4: Brainstorming Business Strengths Factors Business Strengths Quality (TQM) Marketing Customer segmentation Strong brand management Supply chain management Timely delivery Minimize Standard Costs Environmental image/brand Environmental benefit Very strong engineering and technology development Fast development process EX: Re-engineers in 18 months or less Excellent customer service Affordable and accessible financial services 77 Market Strategy Figure 8G.5: Selected Business Strengths Factors and Reason to Include Segment: Kermits Business Strengths Reason to Include Weight Rate Total Factor Environmental Benefit A core value of this segment is reducing 20 7 140 their environmental footprint. Supply Chain Kermits don’t have much money so it’s 20 8 160 Management important that a company can deliver the lowest cost possible while helping the environment. Financial Services Higher upfront costs will make financing 15 5 75 options more critical to success. Quality Quality is an important factor in terms of 15 8 120 value and provides Kermits with peace of mind. Customer service Good customer service makes Kermits 5 6 30 feel valued. E n v i r o n m e n t a l The ability to let others know they are 25 10 250 Image/Brand environmentally conscious is a key reason Kermits buy. Total 775 78 Market Strategy Figure 8G.5: Selected Business Strengths Factors and Reason to Include Segment: Pioneers Business Strengths Reason to Include Weight Rate Total Factor Cutting-edge Technology The first core value of the segment is 30 10 300 interest in new technologies. Environmental Benefit Second defining value that these 30 7 210 customers are looking for Fast time to market If you don’t get there quickly, someone 30 9 270 else will. Customer responsiveness Pioneers want to know that their 10 8 80 related to design suggestions are heard and incorporated into provider decision-making. Total 860 79 Market Strategy Figure 8G.5: Selected Business Strengths Factors and Reason to Include Segment: Opportunists Business Strengths Reason to Include Weight Rate Total Factor Convenience Opportunists love convenience – always 65 5 325 being able to use HOV lanes when driving special vehicles is one good example Environmental Image/Brand The ability to let others know they are 35 10 350 environmentally conscious helps opportunists justify their decisions to others. It makes them look good. Total 625 80 Market Strategy Figure 8G.6: Business Strengths Analysis - Lizards Segment : Lizards Business Strengths Reason to Include Weight Rate Total Factor Supply Chain Management Lizards don’t have much money so it’s 20 8 160 important that a company can deliver the lowest cost possible while helping the environment. Financial Services Higher upfront costs will make financing 20 5 100 options more critical to success. Environmental Benefit Second core value that these customers 35 7 245 evaluate against Quality These customers will wait for the product 15 8 120 to mature Quality is an important “peace of mind” factor Customer Service An important factor toward building strong 10 6 60 brand loyalty Total 100 685 81 Market Strategy Figure 8G.5: Selected Business Strengths Factors and Reason to Include Segment: Laggers Business Strengths Reason to Include Weight Rate Total Factor Environmental Benefit A core value of this segment is reducing 30 7 210 their environmental footprint. Environmental Image/Brand The ability to let others know they are 30 10 300 environmentally conscious will be a key reason Laggers buy. Quality Quality provides peace of mind. 20 8 160 Customer service Good customer service makes Laggers feel 5 6 30 valued. Supply Chain Management Laggers are more cautious than Kermits 15 8 120 and Pioneers and must be able to validate the overall financial benefit of vehicle ownership. They are likely to have many financing options however Total 820 82 Market Strategy Figure 8G.6: Business Strengths Analysis - Wannabes Segment: Wannabes Business Strengths Reason to Include Weight Rate Total Factor Environmental Image/Brand The ability to let others know they are 30 10 300 environmentally conscious will be a key reason Wannabes buy. Supply Chain Management The Wannabes are price conscious so 30 8 240 lower costs will help access this segment Financial Services Higher upfront costs will make financing 40 5 200 options more critical to success. Total 100 740 83 Market Strategy Figure 8G.6: Business Strengths Analysis – The Simpsons Segment: The Simpsons Business Strengths Reason to Include Weight Rate Total Factor Supply Chain Management The Simpsons are smart purchasers and 30 8 240 will “shop around” before making their purchase decision Financial Services Higher upfront costs will make financing 20 5 100 options more critical to success. Environmental Benefit 10 7 70 Quality Quality is an important “peace of mind” 20 8 160 factor for this risk averse segment. Customer Service An important factor toward building strong 20 6 120 brand loyalty. Total 690 84 Market Strategy Figure 8G.6: Business Strengths Analysis – The Affluentials Segment: The Affluentials Business Strengths Reason to Include Weight Rate Total Factor Luxury Image This segment prefers the finer things and 50 7 350 are big on making a “status” statement with their vehicles. Performance Numbers such as 0-60, horsepower, etc 20 7 140 matter a lot to this segment. Customer Service The experience of purchasing a green 25 6 150 vehicle is more important to this segment than the actual purchase decision. Cutting edge technology 15 6 90 Total 730 85 Market Strategy Figure 8G.5: Selected Business Strengths Factors and Reason to Include Segment: Showboat Business Strengths Reason to Include Weight Rate Total Factor Environmental Image/Brand The ability to let others know they are 60 10 500 environmentally conscious makes them look good. They want to be associated with the Leonardo Dicapprios of the world. Cutting-edge Technology The “cool” factor is very important for this 40 6 240 market segment. Customer Service An important factor toward building strong 10 6 60 brand loyalty. Total 800 86 Market Strategy Figure 8G.5: Selected Business Strengths Factors and Reason to Include Segment: Hard Working Joes Business Strengths Reason to Include Weight Rate Total Factor “Tough” image/brand HWJs use their vehicles to haul things. This is 45 2 90 a work hard, play hard group. Quality Because they require so much from their 40 8 320 vehicles this is mandatory. Customer Service An important factor toward building strong 15 6 90 brand loyalty. 500 87 Market Strategy Figure 8G.5: Selected Business Strengths Factors and Reason to Include Segment: Fleet Business Strengths Reason to Include Weight Rate Total Factor Quality Fleets need high quality to minimize the 25 8 200 impact of having a company vehicle on their employees and maximize productivity. Supply Chain Management Delivering on-time with lower cost will help 40 8 320 secure this segment. Environmental Benefit Companies with fleets report on their own 10 7 70 environmental impact so their ability to enhance both their performance and image has value. Environmental Image/Brand Companies with fleets report on their own 10 10 100 environmental impact so their ability to enhance both their performance and image has value. Customer Service These are enormous accounts who expect 15 6 90 excellent, preferential treatment Total 780 88 Market Strategy Figure 8G.7: The Market Segment Attractiveness/Business Strengths Matrix 1000 Pioneers Laggers Showboats High Fleet Kermits Affluentials Wannabes 700 Simpsons Business Strengths Lizards Opportunists Medium HWJs 400 Low 100 100 Low 400 Medium 700 High 1000 Market Segment Attractiveness 89 Market Strategy 8D.2 Final set of market segments Market Segment Characteristics Fleet Fleet represents companies who purchase large numbers of vehicles for use in their operations. The Fleet segment includes rental car companies. Reducing operating costs is critical to these companies. They also gain some value from reducing their environmental footprint. Pioneers Classic early adopters who love technology. And they love to show-off their new technology. Hybrid pioneers also care about the environment. Showboats Showboats follow trends and like to be admired. They are influenced by celebrity and popular culture. Showboats care more that others view them as environmentally conscious than about actually being so. Laggers This is the higher income majority/ late majority. They follow the Pioneers and Kermits. Substantial value must be demonstrated to get them to move earlier. Notes: Kermits will naturally purchase PHEV vehicles based on their core values. The combined strategies used to target Pioneers and Laggers will naturally include Kermits. Although the The Simpsons represent a significant opportunity they will only enter late in the product life cycle. That being said Toyota will target them but NOT in the initial stages of product launch and early growth. 90 Market Strategy Figure 9A.1: Objectives for the Market Strategy Pioneers Showboats Laggers Fleet Strategic Our primary objective is to gain market Our primary objective is to Our primary objective is to Our primary objective is to Objectives share for our PHEV products in this gain market share for our gain market share for our gain market share for our segment. PHEV products in this PHEV products in this PHEV products in this Our secondary goal will be to earn segment. segment. segment. profit at a minimum target level that Our secondary goal will be Our secondary goal will be achieves breakeven. to earn profits significantly Our secondary goal will be to earn profit at a minimum above breakeven. to earn profits significantly target level that achieves above breakeven. breakeven. Operational Market share of Pioneers & Kermits We plan to achieve a 20% We plan to achieve a 10% In the Fleet segment, Objectives for Toyota is high but only for market share by 2012 and market share by 2012 and Toyota’s goal is to achieve traditional hybrids. Our goal is to a minimum average a minimum average 50% market share of achieve a 70% market share of these contribution margin per contribution margin per PHEV fleet vehicles sold early adopters for our PHEV offering vehicle sold of $5000. vehicle sold of $1000. in 2011. (This is a smaller by the end of 2011. (This is equivalent percentage of the overall to 100% retention.) fleet market.) O v e r a l l Our goal is to achieve a 70% market Toyota plans to achieve a We plan to achieve a 10% In the Fleet segment, Statement of share of these early adopters for our 20% market share of market share by 2012 and Toyota’s goal is to achieve Objectives PHEV offering by the end of 2011. Showboats by 2012 (Lexus a minimum average 50% market share of share comparison needed) contribution margin per PHEV fleet vehicles sold and a minimum average vehicle sold of $1000. in 2011. contribution margin per vehicle sold of $5000. 91 Market Strategy Figure 9B.1: The Strategic Focus Pioneers Showboats Laggers Fleet What you intend to We will retain our existing We intend to increase our Toyota will motivate Toyota will achieve it’s do Pioneers (70% market share) market share by gaining Laggers to move into market share objectives new customers from our PHEVs earlier by targeting large fleet competitors, especially in customers in areas with luxury classes high environmental awareness How you intend to By using our existing community This will be achieved by By demonstrating true Toyota will demonstrate do it website to build awareness and increasing the profile of economic and true economic and by maximizing the technological the Lexus hybrid and environmental benefits of environmental benefits of enhancements in the PHEV. introducing a dedicated the PHEV lines in both it’s PHEV vehicles. (Examples include instant PHEV Lexus line – code regular and luxury classes vehicle performance data and name Sparkilicious. bluetooth mobile phone integration) Note: Throughout the document we refer to products such as Prius Plus, Sparky and Sparkilicious. These are internal code names – not the product names. These products are defined below. •Prius Plus: First generation PHEV based on the Prius body. It will be easily identifiable as green and distinguishable from the Prius. •Sparky: Second generation PHEV. This will establish the Toyota PHEV brand. •Sparkilicious: Lexus luxury PHEV that will only be offered as a PHEV. 92 Market Strategy Figure 9C.1: Positioning Elements Segment: Pioneers S e g m e n t : Segment: Laggers Segment: Fleet Showboats Customer Targets 1st & 2nd generation Prius Luxury car owners Anyone who has ever PGE, Google, Cisco, owners, All hybrid owners who primarily concerned with test-driven a hybrid or Public Utilities, Enterprise, purchased prior to 2004 status and perception. researched them. other car rental Popular celebrities. companies, Airport fleets, Taxi companies Competitor Targets Our competitive targets include BMW, Audi, Mercedes, GM, Honda, Saturn Ford, GM the Chevy Volt and all other Infiniti, Acura Hybrids and PHEVs will hybrid and alternative fuel be competing for the vehicles. Lagger market. Toyota needs to have offerings of both technologies to capture the lion’s share. Value Proposition Our value proposition for the For Showboats, Lexus will Sparky provides a gas Sparky provides a gas early hybrid adopters is to offer the an easily mileage benefit that is 3x mileage benefit that is 3x deliver a new technology that is identifiable PHEV luxury greater than traditional greater than traditional more fuel efficient, more vehicle. hybrids (Difference of hybrids (Difference of environmentally friendly and in 48mpg vs 16mpg) 48mpg vs 16mpg) a vehicle with amenities that count. Reason to Believe The Prius Plus will have an all The Sparkilicious will be Toyota is the market Toyota is the market electric range of 20-40 miles the first PHEV-only leader in hybrid vehicles leader in hybrid vehicles with very low emissions vehicle from Lexus. Lexus bringing years of bringing years of combined with other is the first and only luxury experience and experience and technological amenities such as car company to offer demonstrated quality and demonstrated quality and iPod & bluetooth phone hybrid vehicles and is value. value. integration, & real-time vehicle committed to delivering performance data . Toyota high quality vehicles with PHEVs have been on the road an environmental brand. since 2007. 93 Market Strategy Figure 9C.2A: Positioning Statements Segment: Pioneers We will convince… The Pioneers Chevy Volt and all other hybrid and alternative fuel vehicles. … that… (in the context of other alternatives) New technology that is more fuel efficient, more environmentally friendly and in a vehicle with amenities that count … that … (they will receive these benefits) Toyota PHEVs have been on the road since 2007. The Prius Plus will have an all electric range of 20-40 miles with … because… (we have these capabilities) very low emissions combined with other technological amenities such as iPod & bluetooth phone integration, & real-time vehicle performance data . Segment: Showboats We will convince… The Showboats BMW, Audi, Mercedes, Infiniti, Acura … that… (in the context of other alternatives) Lexus will offer the an easily identifiable PHEV luxury vehicle. … that … (they will receive these benefits) Lexus is the first and only luxury car company to offer hybrid vehicles and is committed to delivering high quality … because… (we have these capabilities) vehicles with an environmental brand. The Sparkilicious will be a PHEV-only vehicle from Lexus. 94 Market Strategy Figure 9C.2B: Positioning Statements Segment: Laggers We will convince The Laggers GM, Honda, Saturn … that… (in the context of other alternatives) Sparky provides a gas mileage benefit that is 3x greater than traditional hybrids (Difference of 48mpg vs 16mpg) … that … (they will receive these benefits) Toyota is the market leader in hybrid vehicles bringing years of experience and demonstrated quality and value. … because… (we have these capabilities) Segment: Fleet Fleet We will convince .. Ford, GM … that… (in the context of other alternatives) Sparky provides a gas mileage benefit that is 3x greater than traditional hybrids (Difference of 48mpg vs 16mpg) … that … (they will receive these benefits) Toyota is the market leader in hybrid vehicles bringing years of experience and demonstrated quality and value. … because… (we have these capabilities) 95 Market Strategy Figure 9E.1: Implications for Implementing Action Programs Segment: Pioneers Segment: Showboats Segment: Laggers Segment: Fleet Product : Pioneer care more about Product: Showboats care more Product: Laggers will prefer a Product: Fleets prefer function the actual technology – First about luxury/performance - Lexus distinctive product–Second over form. generation Prius Plus PHEV generation PHEV – a new product line. Promotion: Road & Track, Popular Promotion: Golf magazine run Promotion: A witty Super Bowl Promotion: Direct partnerships Mechanics and Motor Trend will early reviews and Lexus PHEVs commercial will target the laggers with rental car agencies – early write early reviews and run will sponsor the US Open Tennis to take the “plunge” .. “trade in discounts on volume pricing, demo promotional campaigns by online and premier Golf tournaments their yesterday’s car” vehicle program surveys to its customer base. televised on National TV. Distribution: Pioneers will do most Distribution: Showboats do like the Distribution: Toyota + Lexus Distribution: Direct Factory sales research online and may even buy “experience” Lexus showrooms showrooms from sites like vehix.com or with well trained sales force will autotrader.com lead this effort. Service: Pioneers will provide Service: Showboats need the Service: Laggers are not as tech Service: Toyota will need a significant feedback to Toyota highest level of service possible. If savvy as the pioneers. The Toyota separate service force to train the during year 1 – need a dedicated there are early recalls of Lexus Sales and Service force will need Fleet service engineers. service organization to work with PHEV’s the impact to owners need to be trained to answer a wide Maintenance requirements will be Pioneers in close partnership. to be minimal. Showboats also variety of questions from Li-Ion higher. Online secure forums batteries to Vehicle 2 Grid technology to safety concerns. Price: $25,000 + Price: $40,000 + Price: $25,000 - $40,000. With a Price: $20,000 - $25,000 PHEVs will be priced about $3000- Priced about $3000 - $5000 above $7000 federal tax rebate, PHEV’s Fleets will get volume pricing from $4000 more than hybrid vehicles. hybrid Lexus vehicles. This will be around the $25,000 price Toyota. Toyota may be willing to Pioneers pay well over MSRP due segment provides the biggest point. take a margin hit to get market to pent up demand and anticipation. margins for the dealerships as well share in this segment. Once fleets Toyota will make decent margins. as Toyota. make investments (either lease or buy outs), its difficult to switch. Functional support: National sales Functional support: National sales, Functional support: Toyota Functional support: Toyota Sales and service, Manufacturing service and Marketing. Financing, Marketing, Service and Service 96 Market Strategy Figure 10A.1: Strategic Options in the Product Life Cycle Product Life Cycle Stage Scenarios Selected Strategic Option Early Growth Early Growth - Leader Lead technological innovation, market acceptance, and public perception of the benefits first of PHEVs, second of Toyota PHEVs Rationale Toyota will continue to cultivate play on the positive market perception of Toyota as a technological innovator providing new ideas first and with exemplary quality. Toyota will seek to achieve first mover advantage and defend these gains by staying at the vanguard of product performance, strategic alliance, and public relations. 97 Market Strategy Figure 10A.1.1: Strategic Options in the Product Life Cycle Sparky Sparkilicious Chevy Volt Legend: Product Form Life Cycles Red = Gasoline Green = Hybrid Orange = PHEV 4 Blue = Fuel-Cell Prius Plus Sales Volume 3 2 1 2018 1997 Notes: 1. Pioneers are expected at the introduction of the 1rst dedicated commercial Toyota PHEV (Sparky). Some fleets will also enter here buying the Prius Plus. 2. Some Showboats and some Fleet will enter here. 3. More Showboats and Fleets with the entry of Laggers into the PHEV market. 4. Some Laggers will not enter PHEV but will go to traditional hybrids which are much more mature and therefore less risky in terms of technology and quality. 98 Market Strategy Figure 11A.1.1: Brand Identity “Toyota PHEVs are cutting edge, cool cars for socially and environmentally responsible drivers. “ Figure 11A.1.2: Brand Image “Consumers who have viewed the model and concept versions of the Toyota PHEVs have expressed awe and enthusiasm asking “can I have my Prius converted” Toyota will strive to parlay the positive associations that exist for the Prius to suggest that the PHEV is even more of the same.” 99 Market Strategy Figure 11B.1: Brand Associations 1. I’m part of the solution to the energy problem 2. Environmental responsibility is attractive 3. Easy to get a PHEV (easy financing) 4. Would highly recommend to a friend 5. Great resale value 6. Fewer trips to the gas station 7. Really? Toyota makes an electric car? 8. Dependable and clean 9. Special treatment (HOV, Parking) 10. I’m like a celebrity 11. Yes, Prius 12. Can you believe that people are not driving hybrids? 100 Market Strategy Figure 11C.1: The Gap between Brand Identity and Brand Image Branding elements that need to be changed • Wewill create new brands for Toyota and Lexus PHEV • We will leverage the Prius and Lexus Brands Tentative approach for aligning brand Identity and brand image • Form strategic alliances with environmentally responsible groups such as calcars.org, Plug in America. • Create brand ambassadors to promote Toyota and Lexus PHEV brands 101 Market Strategy Figure 11D.1: Brand Positioning Statement “Drive a Toyota PHEV and enjoy the benefits of being in a fashionable, dependable car that makes you part of the world energy and global warming solution. Toyota is committed to exceeding customer expectations for style, performance, environmental responsibility, service, and value” 102 IMPLEMENTATION PLAN 103 Implementation Plan 12A.2 Growth/Share matrix Toyota will focus on three products initially in the plug-in hybrid market. Legend Prius Plus for fleet PP - Prius Plus – for Fleets segment. SP PP SP - Sparky Long-Run Market Growth Rate Sparky for Pioneer SL - Sparkilicious and some percentage High of the Lagger SL segment. Sparklicious (Lexus Brand) for Showboat STARS WILD CATS segment. 3.0 The current situation should be seen as an opportunity as opposed to a risk, since the market is still fairly new and therefore new Low players can conquer a significant portion of the market. CASH COWS DOGS Toyota needs to ensure that High 1.0 Low investments are made not cutbacks. They do Relative Market Share not want Stars to Long-run market growth: Estimate of plug-in hybrids in physical units such as cars become Dogs. Relative Market Share (RMS) : Firms market share divided by its largest competitor’s market share. Toyota will have few competitors in the products/segments we are interested in. Our nearest competitor is GM, GM is expected to have 30 % market share in 2011 with Chevy Volt RMS = 70/30 = 2.33 104 Implementation Plan 12A.3 Assessment of resource allocation The table offers some Type of Level of Allocation Arguments for Change suggestions for a Resource different allocation of the company resources to focus on the Prius Plus and Sparky. Toyota should allocate enough marketing resources to address Showboat, Marketing Need for a specific time Pioneer and Laggers segments in the early growth years since this is a new Effort allocation In particular, the product. Marketing effort, the advertisement and the Sales Force time allocation should be modified to focus more on the higher growth products. All the three segments While it’s important to ensure that all the products offered align to the Plug-in (Showboats, Pioneer, brand, Toyota should differentiate its three segments to ensure the customers Advertisement Laggers) will be advertised perceive the difference among the products. High end customers should feel differently royal about driving the car while Pioneers should feel proud about having a cool appeal driving the car. Since many companies start adopting ‘go-green’ strategy and are displaying Current sales force is right environmentally conscious behavior to the society, we feel there is a good Sales Force sized. Toyota must increase opportunity for Toyota to tap into the Corporate/Fleet segment. We are its fleet sales force by 10%. recommending increasing the fleet sales force to a maximum of 10% from its current level. 105 Implementation Plan 12A.3.1 Improving the product offering Several tactical actions Increase Value to the Customers can be taken by Toyota • Toyota can create information packages instructing consumers about the details of and the steps to apply for plug-in to offer greater value to hybrid tax credits and employer subsidies. Toyota can assist consumers in completing application documents as a the customers and at step in the closing / financing customer service process. the same time increase revenues and sales for • It would be useful for Toyota to emplace PHEVs at rental agencies and shared car pools such that customers can rent the company in the the PHEV as an “extended test drive”. long term. • Toyota should actively support lobbying groups (I.e. CALCARS) to encourage the continued lobbying of tax credits, to encourage the public awareness campaigns, and to encourage the creation of a community of right thinking hybrid owners. Improve the Business • Toyota should invest in improvements in battery, charging, and metering technologies. Patenting these technological improvements will serve to create competitive advantages. • Toyota should experiment with and conspicuously utilize low weight, high efficiency materials carbon fiber, aluminum, and high performance plastic vehicle components. • Toyota should actively engage municipalities, employers, and power companies to arrange for the emplacement of charging station facilities throughout the community to allow for the full utilization of the PHEV functionality. • Toyota should invest in high performance solar components to allow for electricity generation and capture while cars are operated and parked mid-day. 106 Implementation Plan Figure 13A.1: Innovation Focus Firm or Business Unit Classification: Interactor Why I classified my firm or business unit this way. Toyota PHEV division is classified as an interactor, with high customer focus and high innovation focus. Following in the footsteps of the highly successful Prius product, Toyota has demonstrated both a knack for innovation and for anticipating and satisfying customer needs. Remaining true to Toyota’s organizational strengths will be the stated goal of the newly developed product division. With a razor sharp market segmentation and a product and marketing effort, Toyota PHEV will strive to create and maintain the lead in the development of the product class. Toyota PHEV will constantly innovate with each model year bringing new features to the product. Customer feedback, new product development, and technological investment will drive the product to consistently innovate and provide functionality as soon as technology allows. From Lithium Ion batteries to Cobalt to the next generation batteries as the technology becomes safe and available. Newer and more efficient battery technology will be paired with the latest and most effective engine technologies including fuel cell, hydrogen, and bio-diesel as the technology becomes viable. Because of Toyota PHEV’s focus on the customer, and because of the legacy of constant innovation, they are classified as an interactor. 107 Implementation Plan Figure 13B.1: The Idea Generator Innovation New Ideas Best Why Resource Template Idea Best Idea Implications? Subtraction Remove all energy wasting accessories (air conditioning, Most Will require navigation, high output audio). Market as “Most efficient car practical developing available” partnerships with & appealing Electric utilities, to potential municipalities and Multiplication Add secondary (solar) charging system to capture additional large employers Customers electricity when plugging in is not possible. Division Cross market Plug In Hybrid golf carts, lawnmowers and motorcycles. Task Unification Add solar panels to all exterior surfaces of the car A t t r i b u t e Offer tax Credit “anticipation” loans, similar to H&R Block tax Dependency refund loans. Facilitates the purchase and allows for additional Change revenue streams from the new and popular product. Create “vehicle to grid” functionality to allow PHEV owners to sell electricity back to the grid, subsidizing the operating cost of the vehicle and providing societal benefits Yes 108 Implementation Plan Figure 14A.1: The Communications Strategy Target 1:Pioneers Target 2: Showboats Target 3:Laggers Target 4: Toyota Fleet Sales Force Objectives Retention (prevent defection to Generate market awareness Generate market awareness Training/Education GM) Increase Sales Increase Sales Create brand advocates Generate market awareness Tools Dedicated area in Print advertising campaign in Print advertising campaign in In-house training seminar toyotareasons.com. Links from higher-end lifestyle magazines lifestyle magazines such as InStyle, with printed “launch books” toyota.com. Extensive exposure such as Vogue, GQ, Vanity Maxim, O etc. Test-drives with course on green car congress, calcars Fair, Robb Report etc TV commercials etc. BUZZ approach including Web-based training TV commercials ideally with Internet campaign PR & Investor Relations celebrity endorsement Releases Prominent car show presence Public Relations Print Ads:Road&Track, Pop Product Placements Mechanic etc Internet campaign Prominent car show presence Prominent car show presence Product Placements Product Placements Some direct mail Outdoor First year $1M $6M launch year $6M $1M Budget ($) Building to about $6M at launch of Sparky in 2010. Timing Starting in 2008. Toyota needs Starting in late 2010 with Starting in 2011. Budget will be split Q4 2007 (to allow for 1 year the Sparky to catch up to the launch of Sparkilicious between Sparky and Sparkilicious. sales cycle with fleet) Volt in the minds of the Pioneers. Initial spend will be on internet, PR and IR. 109 Implementation Plan Figure 15A.1: Creative Brief for Campaign Idea This slide briefly Target Audience: Showboats Secondary: Laggers describes a creative brief targeted Communications Generate market awareness and increase sales specifically to the Objective Showboat segment. In this section, we are Assignment Magazines: Higher-end focusing specifically Examples: Vogue, GQ, Vanity Fair, Robb Report, Golf etc on the Showboat section since we plan Customer Insight Showboats want to stand out in the crowd and be recognized. They also want to replicate the to be admired and even envied. basics of the original Prius Competitive Insight Chevy Luxury or Status communications strategy for Sparky. There is a big gap in terms of luxury green cars between our traditional Lexus The first three years hybrids and the all-electric Tesla. Sparkilicious will compete with non-hybrids of that campaign will and existing Lexus hybrids for sales. The idea is to position the luxury and deal primarily with status of the Sparkilicious as at least equivalent to the major luxury brands (in Pioneers and have other words – exactly what you expect a Lexus to be!) and then use the Laggers as a secondary target. environmental benefits to differentiate the Sparkilicious. Marketing Key Benefit Admiration and Envy of others communications Reason to Believe Lexus will deliver the first and only LUXURY PHEV related to fleet will take an entirely Desired Brand Luxury and status. different track Identity including more PR Sexy and powerful. and a very intensive direct sales effort. Mandates Ad must include a view or partial view of the vehicle that shows brand plate Much of the and/or most recognizable (defining) part of vehicle design. Do not show or marketing discuss the plug. communication will be directed at the Must include Lexus brand fleet sales force in fact. Must disclose average mpg and average emissions data Must include call to action at local dealership/website 110 Implementation Plan Figure 15A.2: Top Two Issues in the Creative Brief for a Campaign Idea 1. It’s actually a little difficult to try to reconcile the brand identity of luxury, status, sexy and powerful with the mandate for posting the environmental data. If presented as a sort of “glorified fine print” or possibly even the privilege of the wealthy (to support the environment when people of less means can not) it can be integrated effectively. 2. Sparkilicious is in an EV space of its own between the Volt/Sparky and the Tesla as a combination of price/admiration/features. This makes it harder to define a specific competitor to highlight (or lowlight) in the creative brief. Instead our competitive position would be that of a sole provider or a sort of “we stand alone” 111 Implementation Plan Figure 15A.3: Two Campaign Ideas Campaign Idea 1: Treat Yourself and the Planet Like Campaign Idea 2: Passing the Pump Royalty This campaign focuses on the luxury aspect of the brand and deals This campaign focuses on the STATUS aspect of the brand and uses mainly with luxury lifestyle but with a twist. Each ad would include a “royalty” spokespeople from a variety of arenas. Sports royalty, moment where the luxury is getting to skip that trip to the gas station. Hollywood royalty, Music royalty, American royalty, Business royalty The campaign could start with several different ads all showing the Specific celebrity targets might include: Andre Agassi & Steffie Graf, same successful attractive person running late for something. Joe Montana, Drew Barrymore, Martin Sheen, Tom Hanks, Priscilla Examples might include the ballet, opera, polo match, spa date, dinner Presley, Queen Latifah, Prince, Maria Shriver, Larry Ellison date etc. On the drive to the event, there is a moment where the driver checks the gas as they are passing a station and it’s always full (or gradually goes down over say a year of the campaign) This could be Ads would include spokespersons in different settings, not necessarily varied by introducing a second person (spouse) late for different things related to their dominant area but focused on key brand message. For but always the moment where they see the station and pass it with a example, we do not need to see the Agassis with tennis rackets. full tank. Further extension of the idea includes expanding the idea of Instead, the campaign would place these royals in the same kinds of time you don’t want interrupted as a luxury. For example, a heart-felt luxurious surroundings the target customers enjoy or aspire to enjoy. talk with a child or spouse, a sleeping baby etc. Again, each of these (Each celebrity endorsement would offer a new opportunity to would feature the pass the pump moment. In the print ads, the pass associate with various luxury images. Ideally all ads would be set the pump message could be conveyed with a gas station in the outdoors or include some reference to nature and the environment.) rearview mirror. Each ad would also need to feature the plush interiors and conveniences of the Sparklicious and of course the famous tail- shot. For example, the Larry Ellison television ad would start with a man getting out of his Sparkilicious, opening the trunk and grabbing his sailing gear. Then we cut to Larry on his yacht (the Sayonara) The mandatory mpg and emissions data would be disclosed at the end directing the crew, sipping a cocktail in the amazing cabin and finally right before the dealership and website information. we see him back at the marina and understand he was the man in THE car. Final shot is the same back of the car after the trunk is closed, with your tagline, and finally the mandatory mpg and emissions disclosures and dealership and website information. There is an excellent opportunity here to partner with the America’s Cup as their official car and do some additional work around that. Using sailing not only identifies the brand with luxury but also builds in subtle messages about preserving the environment. There would also be companion print ads. 112 Implementation Plan Figure 15A.4: Assessing the Campaign Ideas Clearly of the two Treat Yourself and the Planet Like Royalty Passing the Pump options, the Royalty campaign is the proper Accomplishes the Yes. And repetition of the call to action across Would probably create awareness but is not likely to choice for Showboats. objective media should be effective. provide a big boost to sales as the message is a little off for this segment. Our main concerns Communicates the Definitely. There is a strong focus on luxury while No. We do not believe that the time as luxury message can related to this campaign product and brand still communicating the corporate mandates. We be communicated effectively in this segment – at least not are finding the right positioning especially like the idea of incorporating a subtle as described. leading spokesperson environmental message as well. and cost, especially the Is believable, Mostly. It’s not totally unique but we believe it will Everything but competitive. This campaign does not cost associated with unique, competitive, be effective in establishing the Sparkilicious position us strongly enough in the luxury category. celebrities. There is also ownable brand. a reticence on the part of elite American stars Is effective for the Yes. All Americans love celebrity but especially No. There’s not much here for Showboats. to do ad campaigns in i n t e n d e d Showboats. This campaign will resonate with the the US. We may have communications target. target greater success approaching foreign Is provocative - the Yes. The Ellison ad as described sounds fantastic No. stars with major appeal target will pay especially with the air of mystery/anticipation at attention the start – landing him is another story entirely. It in the US. (Helen Mirren, is unclear if the intrigue at the beginning would be Kate Winslet, Daniel a defining feature of the campaign. Craig etc) Has “legs” – is Very campaignable since the idea of royalty can Yes. You can see how a series could develop. campaignable be easily expanded into additional demo and psychographics. Jay-Z as a spokesman takes the campaign to another section of Showboats. Passing the Pump, while inappropriate for Doesn’t alienate any Pioneers will likely be annoyed by this campaign This campaign would not alienate any of our target Showboats, is an o t h e r but mostly due to annoyance with the segment segments. communications itself and not specific to Toyota. excellent campaign for target Laggers and would work well for the Sparky product. 113 Implementation Plan 15B.1 Allocating the communications budget Communications Targets: Showboats Communications Budget: $3M Although the first year budget is $6M only Media Class Media Class Budget Media Vehicle Vehicle Budget $4.08M is allocated here. The additional $1.92M will be spent Motor Trend $400K across the following International Auto Show communications tools: $900K Los Angeles $270K Auto Shows International Auto Show PR, internet, outdoor, dealerships, product Chicago International $230K placement and Auto Show additional print GQ $300K vehicles. Vanity Fair $300K Print Ads $1.2m The TV ads/product placements will be Robb Report $180K concentrated in Showboat appropriate HBO & Showtime $550K programs. Examples from 2007 would include Entourage, $2.4M Major public networks $1.25M TV Ads/Product Weeds, and Grey’s Placement Anatomy Other cable channels $600K (Travel, History, etc) 114 Implementation Plan 15B.2 Example monthly media schedule Media Class: Print Budget for Class = $1.2 Media -7 -6 -5 -4 -3 -2 -1 Launch +1 +2 +3 +4 Total Vehicle p e r Vehicle GQ $15K $15K $15K $15K $15K $15K $30K $30K $30K $30K $15K $225K Vanity $15K $15K $15K $15K $15K $15K $30K $30K $30K $30K $15K $225K Fair R o b b $10K $10K $10K $10K $20K $20K $20K $20K $10K $130K Report Although the total Print budget is $1.2M for the first year, only $580K has been allocated here. There are several local high- end magazines which will get a majority of the remainder of the first year budget. These magazines target specific urban areas with high concentrations of Showboats. Examples Include: •The New Yorker •San Francisco magazine •Sunset magazine •Other local and regional magazine outlets targeting the aforementioned cities as well as Chicago, Miami, Atlanta, Dallas, Houston, Seattle, Los Angeles and San Diego. •Local newspapers (In coordination with dealerships as this level of local advertisement is normally managed at the dealer level.) •The print budget will also have some crossover with PR. The actual amount of crossover has yet to be determined. 115 Implementation Plan 15C.1 Evaluating the communications program Evaluation Measures Evaluation Method Test Market Awareness Effectiveness Laboratory measures of print ad effectiveness in specific magazine vehicles. Perform lab- of print ads based study assessing awareness pre and post viewing of target magazine with appropriate ad inserted. Initial responses will be without prompting but prompting will be used if Lexus PHEV not mentioned on first pass. Testing will be performed 8 months prior to the Lexus PHEV launch or as soon as technically feasible. Perform field survey 2 months prior to launch to assess pre-launch effectiveness and Measure Market Awareness determine if the size of the planned launch media blitz is appropriate. Effectiveness of print ads Laboratory measures of TV ad effectiveness in specific geographic markets – particularly San Francisco and New York. Perform lab-based study assessing awareness pre and post viewing of target programs with appropriate ad or product placement inserted. Initial responses will be Test Market Awareness Effectiveness without prompting but prompting will be used if Lexus PHEV not mentioned on first pass. of TV ads & Product Placement Perform field survey 2 months prior to launch to assess pre-launch effectiveness and determine if the size of the planned launch media blitz is appropriate. Measure Market Awareness Effectiveness of TV ads & Product Placement 116 Implementation Plan 16A.1 Sales objectives Toyota Motor Sales Sales Objectives provides sales and distribution services for Toyota Motor • The Toyota PHEV product line must be able to gain a 70% market share of Pioneers within a year from Corporation. launch. The Lexus PHEV product line must be able to gain 20% market share by 2012. The Sales Objectives One Year Objectives are derived from the marketing strategy Achieve a 70% market share of early adopters for PHEV offering by the end of 2011. (This is equivalent to defined for Toyota. 100% retention.) The objective is not Achieve 50% market share of PHEV fleet vehicles sold in 2011. (This is a smaller percentage of the overall necessarily to gain the fleet market.) first mover’s advantage, but to be a Create a strong brand awareness backed by Toyota quality and reliability – create a compelling reason to fast second and then buy – target the Laggers. gain market share with a superior line of Create an interactive online community for first generation PHEV owners and drive internet traffic to this products that have a site. real economic and environmental value for Continue sales force training to empower the salesperson as educator. the customer. Build strong relationships with fleet customers. Provide pioneer/fleet feedback/response up the management chain. 117 Implementation Plan 16B.1 Estimate of required selling time The accounts at Toyota Selling time per Account Number of Accounts Required hours per can be divided among: Sales Potential/Sale* account (hours/year) Type “a” year “a x b = c” “b” (A) Dealerships – assumes 1 dedicated 50% of Toyota salesperson per dealerships 40 hours per week * 50 A MSRP - $25,000 1,200,000 dealership for purposes weeks = 2000 hours of calculation Roughly 600 dealers (B) E-commerce Vehix.com Customers (Vehix.com, B MSRP - $25,000 500 hours 500 autotrader.com) Autotrader.com Hour assignment based on Toyota’s hours spent dealing with the website 40 hours per week * 50 companies. Additional C $20,000 - $25,000 50 100,000 weeks = 2000 hours time required by the dealership is included in Account Type A. Total 1,300,500 (C) Direct sales to Corporate Fleets/ Rental Car companies *MSRP shown is for Sparky or Prius Plus in the case of early fleet sales. 118 Implementation Plan 16B.2 Calculation of required sales force size The current sales force for Toyota is right sized. Maximum Selling Time 1,848 hours/year The corporate fleet and per salesperson (365 days – 104 week-ends – 30 days vacation/holiday) * 8 hours/day rental car fleet direct sales force will need to be increased by 10%. Actual Selling time per 1293 hours/year salesperson (estimated 70% of actual selling time) Number of Salespeople 1019 Salespeople Required (1,317,520 / 1293) Actual Number of 1015 Salespeople* Salespeople * Approximation A new proposed sales channel will not require a traditional sales Proposed Firm Action force but a “virtual” sales force. 119 Implementation Plan 16B.3 Identify the sales force time allocation The Corporate and Fleet Sales Force Rental Car fleet Sales force allocation Salesperson Activity Time Allocation includes a significant portion of traveling. Selling 60% Traveling 30% Administration 10% Total 100% Dealership Sales Force The local Dealership Salesperson Activity Time Allocation sales force has to focus entirely on the Selling 80% sales effort (All products) Administration 20% Total 100% 120 Implementation Plan 16C.1 Sales force organization The current sales force Selling Organization organization should be preserved as it seems • Toyota sets the industry benchmark for its dealerships. With a relatively low number of dealerships compared to the to be working just fine for Toyota. competition, Toyota manages to keep its days inventories ratio low. Toyota should • With the success of Hybrids, Toyota has its foot in the door. PG&E, Google, Enterprise rental cars have been strengthen its sales incorporating Prius PHEV’s into their corporate fleet. force in the Direct sales to corporate channel. Organizational Proposed New Rationale for Changing Current Organization Form Organization or Retaining The national dealership network is quite complex and seems to be working for Preserve the current Geographic 1200 nationwide dealerships Toyota. As long as Days structure Inventories ratio stays low, Toyota should not change the structure. Given the nature of Divided among: Preserve the current technology, the Toyota Sales channel structure; force will have to go the Dealerships Distribution strengthen the effort in the extra mile to explain the Channel E-Commerce Direct sales to economic and environmental Direct sales to corporate/rental Corporate/rental fleet value of PHEVs to Corporate fleets segment fleets. 121 Implementation Plan 16D.1 Sales force processes Sales Force Current Assessment Proposed Changes Process A new sales method, which Tokyo Toyopet Motor Sales had been using on an experimental basis, spread to other dealers throughout the country, and became the Sales decisive factor in bringing about volume sales. Toyota The current approach seems to work well for Toyota and therefore it planning has successfully adopted up-to-date sales methods, should not be changed. including a sales territory system and employing university graduates for its sales force. Toyota emphasizes "scientific marketing" over older Getting the pipeline right will be key to create a pent up demand for the methods. Since 1956 Toyota, shifted focus to demand- Pipeline new PHEV. This is what happened with the unexpected super success forecasting techniques and prepared marketing plans analysis of the Prius. Toyota should leverage that experience to create a strong accordingly. Toyota uses SAP software for its pipeline pipeline by controlling supply in the first year of production. analysis. Current sales forecasts use the industry analyst Toyota will forecast sales of its PHEVs based on the actual demand Sales numbers for hybrid vehicles sales. Current numbers are curve for its hybrid vehicles in the years 2008 through 2010 and use a forecasting more optimistic at 20% of the total hybrid vehicles conservative 10% of the 2011 forecast as its projected PHEV demand market. for 2011. We recommend that Toyota analyze the performance numbers from Chevy Volt and Sparky. Chevy may have an early lead but that should Performance will be evaluated based on creating even Evaluation not be the measuring stick. True success will be evaluated by factors a stronger pipeline for 2012. such as quality recalls, public perception, Sparky sparking a global interest. Bonuses should be awarded based on hitting specific sales volume Reward Rewards for sales are quota driven Toyota dealerships. targets for PHEV. Profit-driven measures should drive rewards later in the product life-cycle. 122 Implementation Plan Figure 16F.1: Staffing the Sales Force with Salespeople There are 2 recommended changes for the salespeople: 1) Toyota should provide incentives for dealerships to add more women to this traditionally male dominated arena. 2) The internet channel for sales will be a whole new effort that will require tech savvy sales force. Toyota should provide computer and internet training opportunities for their existing sales force. 123 Implementation Plan Figure 17A.1: Diagram the Firm’s Current Distribution System Target Segments Pioneers, Showboats, Laggers Fleet Tupelo, MS vehicle assembly plant Tupelo, MS vehicle assembly plant Distribution system for reaching target Segments** National Dealership network Corporate Fleet customers Pioneers, Laggers, Showboats ** Assumption – Plug in hybrid vehicles will be manufactured at its new vehicle assembly plant in Blue Springs, Mississippi, near Tupelo by 2010. 124 Implementation Plan Figure 17.A.1.2: Current flow of Products and Services This diagram shows the global flow of products and services for Toyota Motor corporation. Toyota is the very top long bar and their Customers are represented by the long bar at the bottom of the diagram. The process for the US is contained on the right- hand side of the diagram. It is important to note the position of financial services as very close to the customer. 125 Implementation Plan Figure 17B.1: Distribution Channel Functions and Where They Are Conducted Toyota will use two Segment: Pioneers, Laggers, Showboats, Fleet channels for sales but nearly all vehicles will be physically distributed though the dealerships. Channel Entity Functions Fulfilled Although Fleet customers often deal •Inventory of vehicle line up directly with the internal Toyota sales force, the •Distribution from larger distribution of vehicles Dealerships dealerships to smaller ones is handled by local •Customer relationship dealerships. These dealerships also •Maintenance/Service provide service to Fleet customers. •Inventory of vehicle line up E-Commerce •Relationship with Toyota dealers 126 Implementation Plan 17B.2 Quality of channel function performance Segment: Pioneers, Laggers, Showboats, Fleet Channel Channel Functions Improvement Channel Functions Improvement Functions Needing Moderate Options Needing Major Options Performed Well Improvement Improvement •Distribution from •Customer •E-Commerce •Tight integration larger dealerships relationship with partner E- to smaller ones management – in Commerce sites our interviews with or a new Toyota Toyota dealerships, •Technical training PHEV web site •Maintenance and we noticed that the of the sales force. dedicated to Service sales force knew •Direct-to-fleet sales over the less about Toyota •A younger more customer sales internet (follow Prius than the hip sales force the success customer. This model of cannot be the case •More women in the teslamotors.com for a game sales force changing technology such as •Increased Plug in Hybrids. investment in supporting direct to fleet customer sales. 127 Implementation Plan 17C.1 Proposed new distribution channel design Segment: “Pioneers, Laggers, Showboats & Fleet” Proposed Design – One stop shop to Functions Filled Critical Issues to Watch customize Toyota PHEVs Customer builds his/her own PHEV at Sales Dilution of focus: ToyotaPHEV.com - Too many channels can lead to diluted focus. Financing The website helps customer locate a Dealership sales volume dealership with that vehicle – if not the need not be impacted – vehicle is built within certain specifications. Insurance since vehicles will be picked up from the dealerships, and the Toyota Financing/ Auto Insurance can be Customer relationship management MSRP will be the same as bought for the dealers, a conflict of interest should not Customers who prefer not to haggle with arise. dealerships can pick up their vehicles when notified. 128 Implementation Plan Figure 18A.1: Service Delivery Resources Service Description Quality of Service Options for Improvement Resource Resource Facilities: on- Dealer Showroom, Auto Shows Showrooms are not owned Can focus certain dealerships based on local demographics stage by Toyota, but are held to a to appeal more to one or another of the targeted segments high standard through (I.e.bring in entertainment and animals to make certain licensing agreements dealerships more family friendly during promotions. Facilities: off- Service departments of Service departments are Improvements in the training of the service departments and stage dealerships, financing offices, held to the same standards conspicuous posting of technicians’ certifications on the Plug salesperson’s offices as the showrooms In Hybrid models will increase consumer confidence. Equipment Dealerships and service Dealerships are maintained Promotional sprucing of certain facilities in selected departments in excellent condition geographies can be performed to increase appeal to target customers People Toyota agents interact with people Toyota customer facing staff Product training on the specific benefits of the Plug in Hybrid on the sales floor, in the financing are world class and are can increase the professionalism of the sales presentations. offices, and in the service maintained at a high departments standard Guarantees Toyota warrantees the battery, This warrantee should allay Warranty should become a focal point of some of the charging system for 100,000 miles some consumer discomfort “familiarization” advertising. about the battery technology 129 Implementation Plan Figure 18B.1: Charting the Service Blueprint 130 Implementation Plan Figure 18B.2: Assessing the Service Blueprint Service Description Assessment Improvement Options Delivery Item Visit Toyota.com Customer visits web site to either The website can either direct them to Website should have sub-section gather information about products, the 800 number, locate a local specifically for plug in customers to help seek immediate assistance, or dealership, or immediately connect to them to get to plug in hybrid information schedule appointment agent via chat efficiently. Call 800 number Customer calls 800 number to 800 number is efficiently organizes Plug in Hybrid specialists should be gather information or schedule with voice response call routing. trained and should be available to assist assistance Agents are well trained. customer service agents. Call Local Dealership Customer calls local dealership Local dealerships will have customer Local dealership should have plug in either to schedule an appointment or service agents trained to handle hybrid specific knowledge to quickly assist to gather information questions, schedule appointments and customers solve problems Drive in to local Customer visits dealership either to dealership learn more, consider buying, or Sales and service personnel are a Personnel training on the plug in hybrids repair a plug in hybrid. strength of Toyota. High standards must be continuously updated and continuous improvement maintain this strength. 131 Implementation Plan Figure 18C.2: The Service Quality Chart N/A – Plug in Hybrids are a future product, and there is no way to assess service quality at this time. 132 Implementation Plan 19A.1 Perceived value analysis Relative GM Volt Honda Toyota PHEV Importance (Competitor A) (Competitor B) Rating 1 2 3 Benefits Required Desire to drive a car that is consistent with genuine 25 10 250 6 150 8 200 concern for the environment. Desire to reduce dependence on oil imports 10 6 60 10 100 8 80 Desire to be more attractive and “cool” by driving the “in” 20 10 200 8 160 10 200 technology Desire to set an example for others in family, peer 15 10 150 6 90 8 120 group, and community Desire to appear to be “green” “Conspicuous 10 10 100 6 60 8 80 environmentalism” Desire to spend less money on gasoline 20 6 120 10 200 8 160 Total 100 880 760 840 133 Implementation Plan Figure 19B.1: Customer Value Map Toyota is able to provide better customer value through it’s market dominating 100 position as the leader High in green cars. Toyota has the most recognizably green Worse Customer Value Fair Value Line brand in the automotive 1 industry and it is a key source of value for 3 2 potential PHEV Relative Price customers. Better Customer Value Fair Value Line Low 10 Inferior Superior (700) Relative Customer Value (900) 134 Implementation Plan Figure 19C.1: Anticipating Competitive Response and Reaching the Firm’s Objectives Proposed Price Anticipated Competitive Response Likelihood of Reaching Firm’s Objective Set price near to the price of the current Competition will match (set price near the price of Very good. Toyota enjoys a leadership position hybrid models their hybrid models) by virtue of the success of the Prius. Offer incentives to entice selected market Competition will match, possibly for different Excellent. Early objective to increase PHEV segments segments awareness will be contributed to by Toyota and competition’s incentives 135 Implementation Plan Figure: 19.D.2: Pricing Toolkit •Acceptable currency •Guarantees and Warranties •Allowances •Inventory carrying costs •Barter •Leasing •Buybacks •List price •Credit availability •“Markdown money” •Credit terms •Price stability •Discounts •Returns •Equity •Slotting fees •Freight •Unbundling and Bundling 136 Implementation Plan Figure 19D.1: Making Pricing Decisions Enter Am I No happy with Yes our pricing strategy? Review pricing Am I Revise pricing Yes strategy in light happy with strategy as of objectives our pricing required tactics? No Revise pricing tactics as required Exit 137 Implementation Plan 19D.3 Pricing strategy and tactics Current Proposed (Future) Increase brand awareness Market share growth Objectives Market share growth Profitable revenue Maintain quality (cutting edge) image Revenue growth Encourage visibility of PHEV by broad placements, while preserving the image of Maintain a higher price than competition where Pricing cutting edge and environmentally conscious value enables us to do so. Strategy with price and image as indicators of quality Use price as an indicator of value to the Incentives if necessary for placement in key customer (for certain market segments) accounts, but only until penetration is achieved Lower price for an initial period until customer Advertise the economic benefits of the PHEV as awareness of the benefits of the PHEV become well as rationale for higher initial price. Pricing more widely known. Set price higher than market price such that the Tactics Return to higher price once initial market benefits of the increased fuel economy and of the penetration and customer awareness is tax credits are shared between the consumer and achieved. Toyota. 138 Implementation Plan 20C.2 Examining the marketing organization Positive Features Negative Features Firm is externally oriented - focused on customers Central Management Structure from Research to Firm has a consistent advertising dollar budget at all distribution. Mandates the need for top people with times international savvy. Firm is focused on quality and examines the way marketing processes work and constantly challenges itself, "is there a better/faster/cheaper/less wasteful way to get the same task or goal accomplished “ Firm is environmentally conscious and adopted a “Go Green strategy” Casual observers quote TQM as Toyota Quality Management Recommendations Why the Recommendations will work Enhance the overall marketing function to be a “think Additional resources in key positions responsible for key global, act local” entity. objectives and measurable goals will aid the company as it grows into a larger global enterprise. 139 Implementation plan 20D.1 Systems and processes Type of system Description Pros and Cons Proposed changes Hard System: Toyota currently has a Pros: effective for today’s size and Update ERP, BEA and CRM system Current robust ERP (Main SAP ERP operations. Integrated R&D, as needed to support growth Automotive Suit and Manufacturing and Dealer Kanban Supply Chain) , Management/Customer Service BEA and Lean CRM system systems as part of its IT portfolio. Cons: limitations on scalability and functionality Hard System: Additional systems and N/A Improved co-ordination within and New configuration needed to between various participants in the support plug-in hybrid plug-in hybrid supply chain. For powertrain. example, on the supply-chain side, battery suppliers must be integrated. Soft System: Toyota’s top management N/A Toyota’s management (US and Current priority is to steadily Japan) is well positioned today to increase shareholder value take on the plug-in hybrid market. No over the long term through changes required. open and fair business activities that honor the language and spirit of the law of every nation. Soft System: Need to internally align the Pros: leveraged for growth Need to create a focused sales and New organization to support the this is not a concern if the correct marketing team to handle the plug-in plug-in hybrid market – US systems, controls and processes hybrid market. Need to align the and international. are in place internal organization and processes to support the hybrid market. 140 Implementation Plan 20F.1 Sustaining an external orientation Dimension of Impediment Current situation Suggestions for improvement A functional view of marketing Permeates entire organization and everything Plug-in Hybrid brand need to be carefully marketed and Toyota does should be aligned with mainline Prius brand or the Lexus brand as appropriate. Bureaucracy Bureaucracy reported in North American Promote old Toyota culture of having debates with bosses manufacturing Excessive centralization Run by Toyoda family. Introduced a unique Encourage local senior officials to become managing management system focused on prompt decision officers while performing as heads of local companies making for developing global strategy and speeding up of operations. Functional divisions Well established manufacturing, procurement, Further build out of functional lines with growth of plug-in finance, sales and marketing divisions hybrids Misaligned incentives N/A N/A Social fabric of the institution One of the best corporate citizens in the US. N/A Socially aware of its responsibilities – focus on environment and minority groups etc., Toyota has a range of long-standing in house committees and councils responsible for monitoring and discussing management and corporate activities from the view points of various stakeholders to ensure heightened transparency and the fulfillment of social obligations. Internal politics Mid-level bureaucratization in North American NA market Accounting systems Standard industry package using SAP Scale and upgrade the systems as required. Inward-oriented marketing Toyota is externally aware and focused on its Further expand outward focus including its plug-in hybrid department customers, suppliers and potential customers line-up, involving every employee in the organization 141 Implementation Plan 21A.2 Assessing performance control measures Input Input Intermediate Intermediate Output Output Measures Measures Measures Measures Measures Measures Type of Measure Input Measures Intermediate Measures Output Measures # Plug-in Hybrid Cars produced Customer awareness of plug-in hybrids Sales Growth (%) per year Customer Interest on plug-in Hybrid Profit Margin (%) Dealer Forecast of Plug-in Hybrid Competitive financial statements Market Share (%) car sales Measures Now COGS Customer Satisfaction Sales Expenses on Plug-in Hybrid Used launch Perception of plug-in Hybrid Customer Retention Rate # Advertising budget and spend Advertising response rate Shareholder Value per year Employee Satisfaction Return on Assets (%) Price elasticity of Plug-in hybrids # of repeat sales / year on average New plug-in hybrid customers per year (to measure effectiveness of pricing Amount of unsponsored industry press Plug-in Hybrid Brand recognition strategy) coverage Plug-in Hybrid Customer Satisfaction Suggested Plug-in Hybrid Sales Growth additions or Plug-in Hybrid Profit Margin changes Plug-in Hybrid Market Share Comments about Control Measures: All of the changes above are in addition to the current measures, not in place of them 142 Implementation Plan 21B.1 Assessing implementation control Toyota prides itself in customer service Difficulties Potential Solutions excellence. To that end, when we introduce Plug- How can we measure customer service issues of Dealer training and train-the trainers in hybrids, we have to Plug-in Hybrids? Do a comprehensive marketing audit make sure that the Are Plug-in Hybrids succeeding in US market? Measure marketing productivity through the marketing dealers are sufficiently trained to take care of a Is Pricing of Plug-in Hybrids versus direct and audit to assess price plug-in just as they do External indirect competitors competitive? Assess technology/systems and update as necessary with a regular Toyota. Integration of new suppliers (battery for example) into Toyota Production System, Hybrid customer database Centralized Management Structure (Toyota Family) Train sales force to be competent on Plug-in Hybrids Internal Plug-in Hybrid knowledge of the sales force Comments about Implementation Control: Important thing for Toyota is to grasp the demands and needs of the marketplace, customers and society and reflect them in its products Implement steering control (monitor and control approach) to be more market responsive 143 Implementation Plan 21B.2 Assessing strategy control Toyota will conduct periodic reviews after its plug-in Toyota should ensure that Toyota should focus on hybrid launch and will try to match its performance with the strategy and the strategy remains on improving the execution if it implementation target happens to fall here In the case of poor performance, Toyota will strive to isolate the root causes and act to improve their delivery of value to their customers. Good Having said that, Toyota will not make hasty changes in response to a poor Strategy performance but instead will perform a thorough analysis of the root cause before recommending any changes. Toyota should watch Toyota should still isolate whether the strategy is the cause – Poor strategy or adding value to customers. poor implementation that led Poor Rarely will a poor strategy to this disaster. be overcome by a good implementation plan Good Poor Implementation 144 Implementation Plan 21B.3 Assessing managerial process control Focus Areas Re-engineering Best practice Bench-marking approach? approach? approach? Supplier Management for n/a Use Toyota’s existing n/a Batteries, Low-cost supply chain system to lightweight materials and integrate battery supplier / efficient auxiliary systems auxiliary system network to reduce power and and ensure they are energy requirements for available for new cars and new cars and Warranties warranties Dealer Knowledge and n/a Yes – Implement train the Yes – benchmarking Incentives for selling plug- trainer programs. against Prius launch and in hybrids offer special incentives to the dealers to sell plug-in hybrids. Pricing Strategy n/a n/a Benchmark against Prius. Monitor sales and check whether the customers are willing to pay for the initial investment . Pursue creating customer value rather than cutting price Allocation of Firm’s n/a Use prior knowledge of n/a resources and ensure Toyota’s launches they have enough incentives to support Plug-ins Brand Identity for Plug- n/a Leverage lessons from n/a ins Toyota Prius brand 145 146