lexus

STRATEGICAL ANALYSIS OF LEXUS

Introduction:

In recent years brand management has become one of the most important variables in marketing

and in the wholesale business strategy of a company. The main purpose of brand management is

to increase the product’s perceived value to the customer and thereby increase brand equity. A

brand is like a promise made to the customers of the level of quality they can expect with future

purchases of the same product. When the brand strategy is well done it may increase sales, profit,

market participation and the overall reputation of the company’s products.

Lexus is the luxury car vehicle division of the Japanese automaker Toyota Motor Corporation.

Lexus brand name vehicles are sold in North and South America, Europe, Asia, Oceania and

Africa. It started its operations in 1989 selling only in the United States; it was finally introduced

in Japan in August 2005, where the brand reputation did not succeed as well as in the United

States market.

Historical Background:

Toyota Motor Company was established in 1937 by Kiichiro Toyoda. However, it started the

production of automobiles some years later as a division of Toyoda Automatic Loom Works, in

1933. He was interested in automobile production, so in 1929 he travelled to Europe and the

United States where he studied Gasoline- Powered Engines in 1930. Toyoda Automatic Loom

Works was supported by the Japanese Government in order to develop Automobile production.

In 1934, the division produced its first Type A Engine, which was used by the Model A1

passenger car in May 1935 and the G1 truck in August 1935. The production of AA passenger

car started in 1936.

Although the founder family’s name is Toyoda, the company’s name was changed in order to

separate work life from home life, to simplify the pronunciation, and to give the company a

happy beginning because in Japan Toyota is considered luckier than Toyoda due to number of

strokes that it takes to write Toyota Katakana.

In 1982, the Toyota Motor Company and Toyota Motor sales merged into one company, the

Toyota Motor Corporation. Two years later, Toyota entered into a joint venture with GM called

NUMM I, the New united Motor manufacturing Inc. operating an automobile manufacturing

plant in Fremont, California. The factory was an old General Motors plant that had been closed

for several years. Toyota then started to establish new brands at the end of the 1980s, with the

launch of their luxury division Lexus in 1989.

LEXUS:

In 1983, Toyota started a project named F1. The F1 project,which eventually became known as

the Lexus LS 400, aimed todevelop a luxury car that would expand Toyota’s product line. The


F1 project was inspired by the success of the Toyota Supra sports car and the luxury Toyota

Cressida models.

In 1985, Toyota researchers visited the U.S. in order

to conduct focus groups and market research on luxury

Car consumers. They observed many characteristics

of the lifestyles and tastes of North American upper class

consumers. Toyota’s market research concluded that a

separate brand and sales channel were needed to present

its new luxury flagship and plans to develop a new network

of dealerships were made.

In 1989, after an extended development process involving 60 designers, 24 engineering teams,

1400 engineers, 2300 technicians, 220 support workers, around 450 prototypes and over

$1billion in costs, the F1 project was completed. The Lexus debuted in January 1989 at the

North American International Auto show in Detroit.

GROWTH:


Lexus luxury line aims to grow 10 percent annually for the next thirty years as it expands in the

U.S. , its biggest market as well as in emerging markets from China to Vietnam. It expects the

biggest volume gains from the U.S., even as emerging markets reduce the American share of the

unit’s global deliveries.

SWOT OF LEXUS:

Five- Force Analysis of Lexus:

1. Threat of New Entrants: It is relatively low in the luxury car market because of colossal

initial investment. For a company to enter into luxury car market it must be currently

acting in the car market. Companies who have a firm place in the luxury auto industry

have achieved almost perfect economies of scale. The firms are so big that fixed costs are

limited and revenues and profits can be maximized. New entrants into the luxury auto

industry will struggle to attain economies of scale.


2. Bargaining power of Buyers: It is very high. One of the biggest threats of the luxury

automotive industry is substitutes. Customers who shop for luxury automobiles know they

are looking the best car money can buy.

3. Threat of Substitutes: It is very moderate in the luxury car market. The prevailing economic

conditions and the technology. Technology is growing rapidly, previously touch screen is

considered as a luxury but now it is available even in a small car. On a scale of 10, we can give 5

for the threat of substitutes.

4. Bargaining Power of Suppliers: Suppliers of luxury vehicles have a good amount of power.

The inputs of luxury vehicles are going to be different than those of lower end, value vehicles.

Lower end, value vehicles use plastic, fake wood, and fake leather in many of their cares. When

it comes to luxury brands they use real leather, real wood, and rarely will use plastic in their

consoles.

5. Degree of Rivalry: It is high with the current market players. The luxury automotive industry

is well established. Consequently, there is not much more new market share to grab hold of.


Luxury car companies must take market share away from one another. Many times in on

television it is not uncommon to see comparative advertisements between car companies.

Environment analysis of Lexus (Germany):

a) Economic: There is a steady decline in the current GDP of the Country. Germany has a

powerful union that makes doing business difficult. Because of facing recession, the

unemployment rates are high in Germany that reduces production which in-turn

decreases the profits.

b) Social: Germany faces heavy competition in exports with U.S. so, the Government

policies forces the company to export more. In Germany, people follow C.A.F.E. (clean

air for Europe) policy. As we all know that clean environment and heavy production

cannot be achieved simultaneously. So, it reduces the production of cars.

c) Technological: Germany is known for its technology and innovation. People are creative

and with the heavy R&D investment Lexus can achieve maxim resource utilization. The

Hydroelectric power and wind power in the Germany also helps the company to achieve

its production growth.

d) Demographic: Population Growth in Germany is increasing and the technological growth

helps the people to earn more to afford luxury cars. Youth are the main target customers

of Lexusas they are more interested in technology and luxury.

e) Political: This factor is most related government policy such as taxation policy and trade

tariff. Because manufactures import some vehicles and parts from other countries, firms

need to pay for the tariff for buying. Costs of products will be increase, if government

increase import tariff. This is the challenge that company faces fluctuation of cost.

The Company should plan to cope with economic change which can affect buying power.

However, using technology in the market, Toyota has own advance technology such as

technology of hybrid car that can gain more opportunities because people are more conscious

about environmental issues. Concern with industry sector the bargaining power of buyer is high

and there are more competitors producing similar products that people have more choice to select

products.

Competitive strategy:


When Lexus was introduced in 1989, it used a focus strategy because they presented a unique

product produced using a lean production system in a specific market: United States. At the

present time, among the three generic competitive strategies established by Michael Porter:

Lexus has chosen a differentiation strategy because it is a brand that presents its uniqueness

between its competitors and consumers choose this among its competitors. Moreover, this

strategy helps the company in many ways:

a) Less competition: The Japanese government passed a law forcing the market leaders Ford

etc., to leave Japan. Also, failure of the government to encourage the large Japanese

conglomerate to enter the industry, made the government to provide incentives for Lexus.

b) Portfolio Diversification: Lexus is the luxury car division of Toyota. Toyota would be

making vehicles alongside handlooms, which would help both to broaden their scope and

grow as a group.

c) More Customers: The diversification strategy helps the company to compete in various

markets. So, a company can earn more customers either in one or all the markets.

References:

www.lexus.com

www.toyota.com

www.hybridcars.com

http://0-web24.epnet.com.oasis.oregonstate.edu/auth

http://www.ukessays.com/essays/business/strategic-business-plan.php

http://www.lexus.com/

http://www.toyota.com/

http://www.hybridcars.com/

http://0-web24.epnet.com.oasis.oregonstate.edu/auth

http://www.ukessays.com/essays/business/strategic-business-plan.php

lexus

Automotive