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Case #2Leading a Wave of Hybrids

Case 2 Marketing – Prius: Leading a Wave of Hybrids

Q1)

Microenvironment Factors affecting Toyota Prius are:

CompanyIntroducing a gasoline hybrid car as the Toyota Hybrid is considered a great challenge at a time where Gasoline prices are increasing upwards and people and governments are becoming more environmentally conscious.

In developing and Marketing the Prius, Toyota has established a strong model of how to success fully align sustainable goals and values with the lifestyle needs of consumers, while drawing on its own core competencies.

Toyota continues to drive revenue growth & brand equity from the Prius, which ads environmental benefit without compromising traditional product quality, including such intangible consumers values as styling forwardness, and fun. Toyota developed the hybrid engine for nine years before driving the car onto showroom floors in the US

SuppliersThe new Prius had been excessively popular inconveniencing some of Toyotas customers and the factories were working at full capacity. But the nickel-metal hybrid Batteries supplier "Panasonic EV Energy" was not catching up with demand, leaving the car facing up to 6 months waiting lists.

Marketing IntermediariesFor sure Agents and dealers have been an important parameter toward the success of the Prius and Toyota in general. The agents helped promote the new brand of hybrid. Since the company did not want to take any chance for interpretation of the features of Prius, they did not offer online purchase facility to customers. Thus, Toyota hired agents and provided professional training to them to provide maximum customer satisfaction. In May 2008, Toyota announced that it had sold a total of 1,028,000 Prius car.

PublicsAs the Government Publics that have encouraged purchasing hybrids, this is when some states issued permits for hybrids to drive in the HOV lanes, even if they had one occupant. Besides, some governments and provinces give tax breaks amounting to thousand of dollars.

Also citizen action groups took place when some eco-friendly companies such as Timberland ,Google & Hyperion Solutions gave employees as much as $5000 toward the purchase of Hybrids.

CompetitorsAmong large companies ,Toyota has been particularly successful ,taking an early perceived lead among competitors with the introduction of the Prius, and retaining that lead even as other companies increase their research, development & production in the area of hybrid, electric and alternative fuel vehicles.

The Toyota Prius is not the only hybrid vehicle in the US market. It was not even the first to be sold .But without question, it symbolizes hybrid vehicle technology to most American consumers. It is seen as stylishly distinctive, innovative, versatile, technological, and smart and as the emblem of environmental sustainability.

In 2006, a widely publicized report by Consumers Reports revealed that of six hybrid models studied , Prius and Civic were the only two to recover the price premium and save consumers money after five years and 120700 km.

With 15 hybrid models available in the US from different brand nameplates. Toyota is current leader in hybrid sales and likely will be for some time to come.

Although hybrid accounted for only about 3% of total US car sales in 2007.In 2008 hybrid sales were up to 25 % over the previous year .In April that year sales jumped a whopping 58% and the Prius commands more than 50% of the market.

ConsumersThe Prius was targeted to early adopters or techies who were attracted by the car's advanced technology and the environmentally friendly consumers. Also it is assumed that the value of the Prius is justified by its fuel savings, but this conclusion does not stand up to an economic analysis. But the customer value generated by the Prius reaches beyond pure monetary rewards.

A recent survey from the University of Michigan states that car buyer consider that less gasoline use leads to less pollution, less green house gas emissions and less dependence on foreign oil ,along with the Prius gas saving are the most important reasons why consumers buy this car.

Moreover, the Prius was a starring character in Hollywood: George Clooney, Cameron Diaz and others walked on the red carpet from their Prius at the Academy Awards, and the car was appearing in the cameos on various television shows and movies.

Q2) Outline the major macro-environmental factors-demographic, economic, natural, technological, political, and cultural-that affected the introduction and re-launch of the Toyota Prius. How well has Toyota dealt with each of these factors?

On the demographic level, Prius was targeted for the Baby Boomers, who are known for their interest in quality & love to try new innovations, also “techies” were the focus for this hybrid car, full of interesting gadgets, & electronic add-ons.

Economic forces were obvious, since the car had less fuel consumption levels, especially with the rise of oil prices internationally, plus the financial crisis that affected people and transformed them to a more economic life style, they became sensitive to any extra expenses, so saving on fuel was of utmost importance, and an added value to this hybrid car.

Natural forces: Prius is designed to be environmental friendly for less air pollution and less need for oil exploration and gasoline production. Toyota is an “environmentally concerned” company since it had greater fuel efficiency and lower emissions. It also took advantage of the environmental appeal by sending out green seed cars shaped like Toyota’s logo to prospective buyers on Earth Day.

The technological factor is explained by the many features including adding cruise control by some wiring, dashboard display screen, playing video games, 7-inch energy monitor, a CD player holding 6 discs at a time and many more. Since the customers favored technological products and had enough knowledge Toyota was able to maintain customer loyalty.

Political forces were displayed as the government encouragement for the new ecological car in the form of tax incentives & deductions, which had a great impact on boosting Prius sales, however, the speed limit factor acted as a hindrance but was covered by extensive marketing campaigns.

The sense of eco-awareness and views of the universe is an essential element of cultural forces. Till today, Toyota has introduced the Prius concept to ecologically caring nations; such as US, Europe & Japan. Knowing that Middle-Eastern cultures might not have such an initiative, Toyota is yet to introduce Prius in the Arab world.

Q3) Evaluate Toyota’s marketing strategy so far. What has Toyota done well? How might it improve its strategy?

A3)

Market segmentation and strategy follows a typical pattern called the “Technology Adoption Life Cycle”. When new technologies are introduced, a typical marketing strategy focuses on attracting the “Innovators” and subsequently the “Early Adopters”. 2000 Prius campaign focused on Toyota`s commitment to creating environmentally responsible vehicles. It enabled interested customers to visit a special website about Prius development as early as two years before the

introduction of the Prius. It used focus group and clinics with target consumers to evaluate different aspects of the Prius. Continue to educate customers about how hybrid technology vehicles works.

The marketing strategy consists of 4 Ps which are product, price, place and promotion. The product that was re-launched had far better and attractive features as compared to its previous version, which included its outer appearance as well as the inner characteristics.

Secondly, the price maintained was also competitive and helped the company to maintain an edge over the rivals as well as retain its customers profitably.

The product was well received by the market in the sense that it was available easily in the showrooms as well as on the internet. The customers were able to make well- informed decisions because of the detailed website and the personal assistance provided by the trained agents. They were also able to share their experience through chat rooms such as Priusenvy. Com

Extensive marketing campaigns and heavy promotional activities through TV (Discovery channel, MSNBC, History and Learning Channel etc), billboards, auto magazines (Newsweek, Vanity far), newspapers, leaflets along with emotional taglines and environmental appeals helped Toyota set itself as the market leader.

Establishing a Web site to distribute information and also sent e-brochures to likely buyers just before the introduction.

Advertised in magazines and in television channels.

The tag lines such as “when it sees red, it charges” captured the consumer’s attention through ambiguity.

Toyota took advantage of Earth Day too.

Prius takes specially trained salespeople to explain and promote it.

Finally, the betterments may include higher quality for the inner features so as to improve the actual driving experience of the customer i.e. it is not a ‘muscle car’ and doesn’t even provide very high speed. This factor should be considered since their main focus is on youngsters.

Then it should use below the line advertising strategies and maintain direct and personal contact with the existing as well as the new focused customers.

Part of the strategy was the crisis management, facing the Prius Recall situation in 2010. That involved a specialized use of all 4Ps tools to regain consumer confidence.

Most recently in November 30th 2010, Toyota had announced that it would recall about 650,000 Prius cars worldwide in order to fix the hybrid system’s cooling pumps. The automaker stated that the vehicles will be recalled to solely ensure customer satisfaction and not under any legal compulsion.

Toyota has received many complaints in and outside Japan, revealing that the cooling pumps are malfunctioning and causing the vehicles to overheat and lose power. However, no cases of injury or accidents related to the problem have been reported so far.

Of the total number of vehicles to be repaired, about 390,000 units are sold in North America, 180,000 units in Japan and 70,000 units in Europe. They were manufactured between 2004 and 2007.

This is the second time of the year that Toyota made a massive recall of Prius hybrid globally. In February this year, the automaker has recalled 397,000 units (including 200,000 units in Japan) of Prius worldwide due to a problem with the anti-lock braking systems

The Promotion mix was of primary importance, especially PR. For weeks, Toyota CEO Toyoda made appearances on public releases analyzing the problems, defending the company apologizing to the world. In first appearances, Akio Toyoda seemed lost in translation. In a most serious congressional hearing on Wednesday 24th of February 2010; With an interpreter at his side, Mr. Toyoda often seemed detached, and sometimes confused, by inquiries from lawmakers. At one point, when Representative Jason Chaffetz of Utah asked about a Toyota memorandum proclaiming the Obama administration less friendly to industry, Mr. Toyoda hesitated for a minute. He ultimately said, through his translator, that he could not understand the English in the document.

They ultimately added a more organized promotion tool, with apologetic TV ads; sharing views of company commitment, as well as insights into consumer & dealer perspective of the recalls.

As for the product, after thorough investigation, the company was able to identify the potential cause of the brake crisis. It was an inaccurate implementation of the theory of regenerative brakes. Once the recalls were made, design improvements were in call.

The price went for some time negatively affected, allowing for demand-called price reductions. Though price drops were not truly official, dealers were sometimes forced to bargain off $200 to $500 to push demand. That had even threatened resale values from other non-faulty Prius owners. However, now that the problem seems behind, prices are once again at a range starting from $22,800.

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Q4) GM’s marketing director for new ventures, Ken Stewart, says “If you want to get a lot of Hybrids on the road, you put them in vehicles that people are buying now”. This tends to summarize the U.S automakers approach to hybrids. Would you agree with Mr. Stewart? Why or why not?

A4)

I disagree with this point of view, in my opinion, as a company, introducing such a product to the market would have a better Distinctive Positioning in the minds of its target customers if it were given a new Brand Name or new Model, so Prius as a new hybrid car by Toyota would highly benefit from this approach. In addition, the 4P’s or marketing mix, especially the price, would be justified to be higher if it were a new model having a unique personality, other than a variation of the same model with added features, moreover, the whole process of segmentation, targeting market, and positioning would be by far better, and clearer, to deliver the required attractive image for Prius. It’s a special vehicle intended for special drivers, so it deserves to have a special model name, & unique image.

However, this did not prevent Toyota from applying Stewart's strategy, as they first offered the Camry Hybrid in March 2006. It would seem odd especially after they had built a strong brand image with green Prius. Nonetheless, marketers viewed it as a growth strategy; conglomerate diversification. Each different hybrid product attracts a different market. Not only that, but later in 2007, Toyota introduced another existing brand into a hybrid model, the Toyota 4WD Highlander.

Although the Highlander attracts a significantly different market at a $10,000 price difference, the Prius & Camry Hybrid are closer. Yet one of the "green" forums commented on the comparison:

"There is more of a difference in comfort than just size. For his wife, two kids and the dog, my brother-in-law has a Prius that's very economical and utilitarian. It projects his enviro-friendly self-image instantly. My TCH is a much more comfortable, near-luxury car even without moonroof, GPS or seat/mirror/tilt memory. It's not big, but has plenty of head, knee and legroom. It's hybrid drive adds to the comfort by being economical and the quietest car I've owned."