Analysis Of The Factors Affecting Toyota Motor To Become A Successful Automotive Business

Toyota Motor is one of the world’s largest automotive producers and is considered to be one of the market leaders for hybrid electric cars. Toyota was founded in 1937 and based in Toyota, Aichi, becoming the first automobile company to produce more than 12 million units in a year as of 2012. However, in recent years the company has had to recall numerous vehicles due to faulty airbags, which led the company to create future plans that will secure their position as market leader whilst maintaining a competitive advantage. Toyota has implemented the product marketing strategy of product/service differentiation which has been observed to fulfill their financial objective of growth. The business has also implemented the penetration pricing strategy which has been able to fulfill their overall objective of profitability.

Products are finished goods that are manufactured and refined for sales, however in order to achieve sales, product marketing needs to be incorporated as the business focuses on every customer’s demands and needs. Toyota have been observed to utilise the product/service differentiation marketing strategy which occurs when consumers perceive a difference in a product compared to its competitors, with the purpose of creating a competitive advantage for each individual vehicle. Toyota’s product differentiation has been achieved through features including quality, customer service and image whilst altering their products to suit the needs of each market they are targeting. Toyota have been able to differentiate themselves from their competitors by providing consumers with a wide range of vehicles ranging from sedans, trucks, SUVs and luxury vehicles in order to meet the demands of each consumer market and their rapidly changing demands for new features.

Along with the various vehicle styles, Toyota have ensured that each of these vehicles are differentiated on the basis of superior design and quality leading to strong brand and product image in the minds of consumers. Product differentiation was used by Toyota when they created the luxury vehicle division known as Lexus so that they would have the ability to tap into new markets, reaching high income earners. Toyota further differentiated their products when they introduced the first hybrid car into the market known as the Prius in 1997 in order to appeal to high income earners and consumers that were concerned with the environment. Toyota strives to provide an outstanding consumer experience across all areas and ensure they are transparent in the information they provide to consumers regarding their vehicles. Toyota offers excellent post-sale services for their consumers in order to differentiate themselves from their competitors by providing each consumer with a five-year warranty on their vehicles, however this was only introduced for customers who purchased a vehicle after January 1, 2019. Toyota also offer annual services for each of their consumers ranging from a three to five-year coverage depending on the vehicle purchased.

By implementing product/service differentiation, Toyota has been able to fulfill their financial objective of growth as they tailor their product to suit the individual needs of consumers. Toyota were able to achieve growth as they identified a way to reach high end income earners through direct expansion as they developed the luxury sub-brand Lexus. In 1984, before Lexus was established Toyota expanded their manufacturing to California to start U.S production, allowing for the development of their brand image within a new market surrounding luxury vehicles. Lexus fulfilled Toyota’s growth objective through brand expansion, leading them to maintain their market leader position for eleven consecutive years throughout the United States which is the world’s largest market for luxury vehicles. As Toyota introduced the Prius in 1997, they were able to gain 48% of the market share for hybrid vehicles by 2016, as they appealed to environment concerned consumers that were seeking the most fuel-efficient car.

Toyota’s further expansion into the hybrid market through the development of their other vehicles led them to remain market leader throughout 2018 and achieve almost double the market share of their competitor Mazda. Toyota’s hybrid expansion has been extremely successful in the eyes of consumers as 45.4% of all Camry sales and 31.4% of Corolla sales were for the hybrid version of each vehicle, meaning that Toyota have been able to secure an increase in market share nationally to 18.2% in the calendar year of 2017 from a previous 17.8% in 2016. Therefore, due to Toyota’s product differentiation strategy, the business has been able to expand into new markets including luxury vehicles and hybrid cars to suit the changing economic conditions that have led the tastes and preferences of consumers to be altered. Toyota’s financial objective of growth was hence largely improved through product differentiation of both luxury and hybrid vehicles allowing for an increase in market share and global expansion.

The price of a product is the value it holds in monetary exchange and therefore plays an important role in influencing consumer choice. Toyota have adopted the penetration pricing strategy in order to maximise their profits, this involves setting the price of a new product at the lowest possible price whilst still covering expenses, to eventually increase the price once brand loyalty has been established. The prices of Toyota’s vehicles begin comparatively lower than those of their competitors in order to attract consumers and cater for those who are not necessarily high-end income earners, meaning Toyota generally sit lower on the price spectrum. In 1970, a few years after its initial release the Corolla was based at a price of $1 726, because it was a new vehicle Toyota had priced it reasonably lower in order to appeal to new consumers. By 2012, Toyota had raised the price of their Corolla to $16 130, however it is now based at a price of $24 761, highlighting Toyota’s use of the penetration pricing strategy as they have achieved strong brand loyalty over the years. The Camry is another long-term vehicle that Toyota have sold, starting at the original price $9 698 in 1983, which further increased in 2012 to $22 055. However, the vehicle is now at a base price of $31 506 due to the implementation of Toyota’s penetration pricing strategy. Similarly, when Toyota expanded into the luxury car market with their brand Lexus, they originally released the LS 400 in 1989 at a base price of $64 000 but due to penetration pricing the car has been developed and based at a more expensive price of $203 627.

A key business financial objective is profitability, which involves the improvement of a business’s ability to make a profit through an increase in revenue or a reduction in expenses. Toyota’s intensive penetration pricing strategy has been able to support the business’s profitability as they continue to appeal to consumers through low prices and the development of brand loyalty. Toyota’s consistent development of brand loyalty through the implementation of penetration pricing has meant one of their original vehicles known as the Corolla, benefitted the business’s sales and profitability immensely due to around 40 million Corolla’s being sold throughout eleven generations until 2013. The Corolla continues to be one of the most successful Toyota vehicles as it is considered to be one of the top ten cars sold in 2019. Toyota’s success in sales and profitability has also occurred due to strong consumer loyalty for the Camry which originally sold 53 501 units in 1983 and continued to increase sales whereby in 2012, 404 886 units were sold. The luxury division, Lexus has been able to contribute to Toyota’s profitability success as they reported 29,671 units were sold for the Month of May in 2019, implying a 14.5% improvement over the same month in the previous calendar year.

Therefore, due to the success of vehicles such as the Corolla and Camry as well as Lexus vehicles, Toyota have seen an immense improvement and fulfillment of their profitability objective through the penetration pricing strategy. This is evident due to an increase in Toyota’s net profit between 2016/2017 where they made $99 million and by 2017/2018, they had made $137 million. Such an increase in net profit has been labeled as the best sales result Toyota has ever achieved, highlighting the success of their penetration pricing strategy which has led to the development of strong brand loyalty. Therefore, Toyota Motor can be considered as a successful automotive business that has been a market leader for many years, notably due to their outstanding quality and brand loyalty. Toyota has implemented the product strategy of differentiation in order to fulfill their financial objective of growth which has seen a large improvement in recent years. Toyota also utilises the penetration pricing strategy in order to achieve their financial objective of profitability which has seen a large improvement through the obvious increase in net profit due to their strong brand loyalty.

01 February 2021
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