Marketing_of_Hev_Cars

[pic] International Marketing --- Individual Assignment --- Case: TOYOTA: driving the mainstream market to Purchase --- (13/02/2010) Table of Contents 1. Introduction 3 2. Executive Summary 3 3. TOYOTA’s Marketing Challenge 4 3.1. How will Toyota attain leadership in the hybrid electric vehicle segment' 4 3.2. What strategy should Toyota use to communicate that HEVs are available and have performance capabilities on par with current vehicles' 5 3.3. What can the Toyota marketing department do to develop advertising and marketing strategies to attain leadership in the segment' 6 3.4. How does Toyota develop the demographic profile to evolve the perception of HEV technology from a niche product to a mainstream product' 7 3.5. How will the marketing and advertising efforts translate with the introduction of the Lexus RX hybrid SUV and the rest of the Toyota line' 8 3.6. What segments should Toyota focus on to expand the target market for mainstream acceptance' 8 3.7. What non-monetary incentives can Toyota implement, or work with the government to implement, that will increase acceptance' 9 3.8. What does Toyota need to do to reassure consumers that the technology is dependable and supported' 10 4. Conclusion 10 Bibliography 12 Introduction This case is the result of an individual assignment by Jean Vercruysse for the Euro*MBA course “International Marketing”. While students have the choice between 5 cases, I chose the TOYOTA case because the automotive industry is a very competitive business, where every aspect of management is extremely challenged, especially marketing management. Executive Summary The automotive business is a very challenging one because of many aspects. The worldwide overproduction for cars creates a “cut-throat competition”, urging on its turns car manufacturers to continuously improve their different efforts to outperform their competitors to keep ahead. On the other hand, environmental constraints like CO2 emissions – the main greenhouse gas causing the climate change – puts the pressure on manufacturers to be innovative in alternative technologies replacing fossil fuel engine cars. And even if climate change would not be a real issue, the oil reserves are limited, and it will be much more expensive to find new reserves in coming decades, so soaring the price of fossil fuel anyway. The toughest challenge is that – as of today – it is not clear which technology will become the (de facto) standard replacing fossil fuel engine cars. Prototype cars have been built with many technologies : pure electricity, hydrogen, bio fuel like ethanol and biodiesel, etc. Though these different technologies all very seem promising in the fight against CO2 emissions, the question is which of these will have enough acceptance. And this acceptance will not be taken very much by consumers (only). Indeed, each of these “fossil fuel free” technologies will need to allow production of these alternative fuels in very large volumes, and moreover, will force societies to build new infrastructures for producing and especially for distributing these energy types with an adequate coverage. Hence, it may last still many years before the alternative technology to fossil fuel for road transport will emerge as the standard. Therefore, making very efficient hybrid electric cars, which are independent of any future infrastructure, awaiting the emerging norm is a quite smart, green and pragmatic (specifically realistic) vision. However, such a vision requires a well-thought marketing strategy to be realized. TOYOTA’s Marketing Challenge The aim of this case is to exercise on determining such a marketing strategy, by answering the 8 following questions. As the case is a few years old (2004) and since 5 years is very long period in the high-tech business – and nobody will doubt whether the car business is really a high-tech one these days –, I modestly think that there is no doubt about the fact that Toyota meanwhile is leading in the HEV nowadays. Indeed, the Prius was the best sold car in any category in Japan last year, i.e. in 2009 (YURI KAGEYAMA, 2010)[1]. But for sportsmanship reasons, I assumed that I was answering these questions in 2004 ; at this time, the same environmental issues were already existing. 1 How will Toyota attain leadership in the hybrid electric vehicle segment' Toyota should not only create awareness on the fact that its HEV is the most fuel-efficient car at this very moment, but it should also convince the market that it is – as a company – continuously investing in developing even more efficient vehicles and that it is really intended to maintain its pioneering position in this (green) market segment thanks to technological research and development. In other words, it is not sufficient that Toyota is the leader in fuel-efficient cars right now, but it has to perpetuate and to strengthen its leading position as competition for fuel efficient cars will follow anyway. According to Kotler et al.(Kotler et al., 2009, p.312-323[2]), Toyota could – as a market leader in this young segment: • Expand the total market, in particular by increasing the number of customers of fuel-efficient cars. As the environmental issues (global warming due to CO2 emissions, smog due to soot particles, etc.) caused by fossil fuel engine cars come under considerably increasing pressure, and as fossil fuel prices will continue to increase anyway due to an increasing demand while oil reserves will decrease, fuel-efficient cars will undoubtedly increase in popularity (at the expense of cars with a high consumption). Hence, Toyota should strengthen its position as the pioneer in designing, developing and manufacturing environment-friendly cars. • Defend its market share. By continuous innovation in “green cars”, but also by getting benefit of its leadership – and thus larger market experience – Toyota must be able to at least maintain, and even increase its market share in the HEV segment, but in the fuel-efficient segment more in general. Important here is that Toyota must aim to be and remain the leader in fuel-efficient cars, rather than in HEV technology, as within some years, another more “green performing” or even more fuel-efficient technology may emerge and outperform HEV technology. • Expand its market share against competitors who also market fuel-efficient cars – like for instance Honda that also has HEV’s, or Volvo Cars having a S40/V50 Diesel engine model with comparable CO2 emission and fuel consumption. 2 What strategy should Toyota use to communicate that HEV’s are available and have performance capabilities on par with current vehicles' The communication strategy should be based on the fact that drivers – more especially potential car buyers – should not wait any longer (for still many years, i.e. the period by which hydrogen fuel stations, electric charging points or whatever will be widespread), to save a lot of (fuel) money and moreover to help to reduce environmental issues right now, and this without any decrease of convenience, or of driving comfort neither. It even offers more convenience, as drivers will have to stop less often at a petrol station. Indeed, no worry about the risks of hydrogen as an explosive fuel, neither the inconvenience of long lasting upload of electric batteries as it is the case for (pure) electric cars. Toyota should also adapt its approach over the time, according to streamline the “innovation diffusion process” (Kotler et al., 2009, p.567-569[3]). So, it should create awareness and interest by effective communication and advertising campaigns. Then it should convince potential buyers to evaluate and try buying a Prius, by encouraging them to participate to a test drive, so to persuade the drive comfort and quality of the car. And finally, it should convince them to adopt these potential buyers by additional communication on cost savings. 3 What can the Toyota marketing department do to develop advertising and marketing strategies to attain leadership in the segment' Before investing money on advertising, the marketing department should first understand the different (geographical, demographic,…) markets it will target. Indeed, even if Japanese and European populations are sensitive to environmental issues, other regions may not. In the United States, and in the Middle-East for example, fuel-efficiency is less important than prestige. Segmenting and targeting the markets should obviously not only be based on the geographical dimension, but – according to Kotler et al. – also on cultural, demographic, psychographic, behavioural and possibly other criteria. Once it has targeted the markets, it should then determine more or less adapted positioning strategies to create customer-focused value propositions dedicated to those markets and their specificities. In urban regions, or in densely populated countries, like the Benelux for instance, where you cannot drive long distances before being stuck in a traffic jam, it may emphasize its low consumption thanks to the reload of batteries when braking (as when you are queuing, you must often brake), while the space in the car is larger, making it more comfortable than a small car (as a Smart or a Renault Clio) but with a yet lower consumption. Another value of fuel-efficient cars for urban areas is the decreased pollution like smog. In more rural regions, it may emphasize the reliability of the technology, and the possibility to drive long distances before having to refuel. In other words, developing awareness successfully in different segments (= differentiated marketing), aiming a full market coverage so to impede competition to gain market share in any segment. When developing advertising and marketing strategies, Toyota should also take the “Technology adoption Life Cycle” (Rodriguez & Page, 2004[4]) : • Convince the innovators and early adopters of how great the technology is and motivate them to be proud of driving a high-tech car • Educate the early majority – and later on the “late” majority – on how the technology works and why they may take advantage of the benefits of the technology. • In a later stage, it could finally “kick the laggards a conscience” by making these drivers aware that they are still not driving an environment-friendly car. 4 How does Toyota develop the demographic profile to evolve the perception of HEV technology from a niche product to a mainstream product' Regarding the age to target, I think any age or generation below 55 could / should be interested in greener cars. Indeed, even the “trailing-edge baby boomer cohort” should realize that fossil fuel is not inexhaustible, as they could remain the energy crisis of the years 1975-80 (among others the car free Sundays in many Western countries). And younger generations should be at least as environmentally conscious, as they have grown in a world that has been confronted with many environmental challenges: many forms of pollution like smog in industrialized areas, ozone layer problem, acid rain, waste management challenges, and more recently the climate change. Concerning the “Life cycle stage”, the most obvious segment would be young families with a few children, as the Prius is to be categorized as a family car, spacious and comfortable enough for 4 up to 5 persons. With regards to incomes, I think the middle-class would be the best target : people who earn enough money, but not too much as these people may be more focused on luxury and prestige. Also people who believe in technology as a means to solve problems – like engineers and scientists – should be a quite easy to convince market segment. 5 How will the marketing and advertising efforts translate with the introduction of the Lexus RX hybrid SUV and the rest of the Toyota line' The introduction of another car within the same “Toyota family” (Lexus being Toyota’s luxury product line), would rather reinforce the belief in the HEV technology. It should also emphasize the fact that the HEV technology should not mean a decline in convenience or in comfort. On the other hand, the fact that the Prius was the first HEV car, should also have a positive effect on potential buyer of the Lexus RX hybrid SUV, as the technology is owned by the same company which has proven to be the pioneer and to be able to master the technology. There should be a synergy between both, rather than a cannibalisation as both cars are in distinctly different market segments, being the mid-sized family car (for the Prius) and SUV (for the Lexus RX). 6 What segments should Toyota focus on to expand the target market for mainstream acceptance' Next to the demographic segments (see question 3.4), Toyota could focus on what Kotler et al. call “need-based market segments”: • Size : taking the size of the Prius into account, Toyota should focus on the mid-sized or family car market. • Use : as the car batteries are reloaded when braking, the car should focus on users driving particularly often in cities or in urban regions ; people driving most of the time on motorways would rather (could better) consider a fuel-efficient diesel engine car. • Technology adopters : another focus should also be towards early adopters of technology, who are keen on experiencing the advantages of the technology. • Environmentally and saving conscious drivers : people who are conscious that people on earth should reduce their ecological footprint when possible and who are also keen on the cost of fuel consumption. 7 What non-monetary incentives can Toyota implement, or work with the government to implement, that will increase acceptance' Many countries (certainly in Europe, but also in other regions like California for instance), have implemented measures to meet their engagement regarding the Kyoto standard in CO2 emissions or to fight smog. In Belgium for instance, where more than half of the cars are company cars – undoubtedly representing an absolute majority of the kilometres driven – fiscal measures strongly stimulate companies to invest in fuel-efficient fleets, by making fleet costs more tax deductible for cars with a higher fuel-efficient rating. And excepting (pure) electric cars, the Prius and the Volvo S40/V50 (with 1.6 Diesel engine) are the 2 only mid-sized car models with a B-rating (i.e. with a CO2 emission lower than 105 g/km) allowing a tax deduction of 90%. While high-consumption SUV’s could go down to only 50% tax deduction. And for companies with a considerable fleet, this would make a large difference in profit. Moreover, consumers are stimulated by a 15% discount subsidized by the state for cars with a B-rating. Toyota should thus inform and provide convincing evidence of the advantages of its HEV technology to all governmental institutions involved in the implementation of environmental measures, helping to reduce CO2 emissions. It should even make suggestions to these institutions to support them in their “green decisions”. 8 What does Toyota need to do to reassure consumers that the technology is dependable and supported' First, it should stress the fact that many Toyota dealers have the competences needed in HEV technology to provide 1st class services for drivers who dared to invest in this new technology. It should show how it supports its dealers in mastering the technology in the maintenance of HEV’s. Similar to the software business, Toyota could for instance help its dealers to get a “certification” proving that these acquired the skills necessary to deliver a quality service. And also communicate here about to their potential customers. Giving a quite long guarantee period (as for other Toyota cars, 5 years - and maybe even longer for the typical HEV technology), the company would stress even more its self-belief in its own technology. This would certainly help to take possible hesitance away from potential buyers doubting of the reliability of Toyota’s HEV. Conclusion Though in 2003, Honda was the market leader in the US for HEV’s (Rodriguez & Page, 2004), Toyota largely succeeded to become the market leader worldwide, with a market share of about 50% (Hybridcars.com, 2010[5]). It is also clear that Toyota meanwhile has proven to be the pioneer in HEV’s. Indeed, the last years almost every other car manufacturer has developed or is developing HEV’s ; including Mercedes and BMW which launched HEV’s in 2009. Even Porsche – which is not immediately a brand associated with fuel-efficiency and environment-friendliness – is developing HEV’s ; as well for the Cayenne SUV as for the 911 sport car (Carros.nl[6]) And Toyota seems to be motivated to keep ahead in environment-friendly as it is apparently investing research in solar power green cars (The Huffington Post[7]). It is clear that Toyota – despite of the “incidents” of the last months with the recall of thousands of cars – not only succeeded to become the largest car manufacturer, but definitely has the ambition to be and to stay a trendsetter in the automotive industry.