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SECTION A: Discussion Questions

1. Identify and discuss Toyotas distinctive capabilities. Toyotas distinctive capabilities are built around the organizations core processes. President Cho has a vision of choosing to perform activities in areas of the organization differently than rivals to improve profits. These activities are designed for the purpose of reducing operating and manufacturing costs. As a result, margins are strong and more cash is available to develop new models and technologies. Majority of Toyotas stakeholders, from employees to suppliers, develop the skills and knowledge of the companys objectives and direction. Table 1.1 displays well known activities around the company as they contribute to cutting expenses and having an integrated, flexible, global manufacturing system. Table 1.1: Kaizen PDCA Obeya Pokayoke CCC21 GBL Continuous improvement. Employees given cash and rewards for ferreting out glitches in production and devising solutions. Plan, do, check, action. Steps in development cycle aimed at quick decision-making in a task such as designing a car. Regular fact-to-face brainstorming sessions among engineers, designers, marketers, and suppliers. Mistake proofing. Use of sensors to detect missing parts or improper assemply. Construction of Cost Competitiveness, a 3 year push to slash costs of 170 components that account for 90% of parts expenses. Global Body Line. A manufacturing process that holds auto frames together for welding with one brace instead of the 50 braces previously required.

Toyotas processes mainly operate from inside the business to outside. The company under President Cho puts more emphasis on cost control, technology development, manufacturing processes and integrated logisitcs. For example, Toyota plants from Indonesia to Argentina will be designed both to customize cars for local markets and to shift production to quickly satisfy any surges in demand from markets worldwide. By tapping its South African Plant to meet a need in Europe, Toyota can save itself the $1 billion needed to build a new factory. Cost-cutting and process redesign eliminates billions in expenses and as a result more cash is available to develop new models like the Prius an eco-friendly gasonline-electric car, to invest in global manufacturing, and to invade markets such as Europe and China. Financially speaking, management has invested $14 billion in production in the United States to take advantage of costs being set in dollars and the high demand for Toyota products in the North American market. Management is less speculative on spending on research and development because of the companys

$30 billion in cash-and-securities. The growing cash cushion gives design teams the means to revamp the look of models to meet the needs and preferences of the different markets Toyota competes in. Accumulated knowledge has guided management in improving business design over time. The business model is being leveraged to drive more profit rather than sales, and as a result Toyota has a well-rounded product line, with sport-utility vehicles, trucks and mini-van to capture different segments within the market. In addition, the coordination of activities is facilitated by the offensive business model. With worldwide operations, Toyota is able to grasp the most efficient and effective channels of distribution of its products, as well as expand and grow the companys brand name. Both the brand name and product line are strong assets of the company, with efficient operations and manufacturing. Also, the culture of the organization is a capability in that it enables the firm to coordinate activities and make use of assets. President Fujio Cho regularly works on the plant floor and asks of his workers to save as much in costs as possible in every day activities. What makes the company superior to competition is its radical piece of manufacturing technology, with the ability to make as many as eight different models on the same line. 2. Describe how Toyota is using cross-functional design teams. When ideas meet and information comes together, you bring innovations to market smarter and faster. A diversity of ideas and opinions are needed to generate high quality solutions. Innovation, the source of sustainable competitive advantage for most companies, depends upon the individual and collective expertise of employees. In the new era of systemic innovation, it is more important for an organization to be cross-functionally excellent than functionally excellent. In addition to formal planning at the business level, best-practice companies use crosscutting initiatives on major issues in order to challenge assumptions and open up the organization to new thinking. Firms which are successful in realizing the full returns from their technologies and innovations are able to match their technological developments with complementary expertise in other areas of their business, such as manufacturing, distribution, human resources, marketing, and customer relationships. To lead these expertise development efforts, cross-functional teams, either formal or informal, need to be formed. These teams can also find new businesses in white

spaces between existing business units. Why Cross-functional Teams? To face today's complex challenges, you need to incorporate a wide range of styles, skills, and perspectives. Cross-functional teams are regarded as a means to manage social collaboration and concept creation. Some examples of cross-functional teams are teams established to: Design and develop new products; chose and implement new technologies throughout organization; to improve the service-profit chain, and to control product cost. In cross-functional teams, individuals from different backgrounds draw upon their pools of tacit, as well as explicit knowledge, to contribute. The tacit dimensions of their knowledge bases make such individuals especially valuable contributors to innovation projects; perspectives based on such knowledge cannot be obtained any other way except through interaction. Just hearing a very different perspective challenges the mindset of others sufficiently that they will search beyond what initially appears to be an obvious solution. This is a reason that intellectually heterogeneous cross-functional teams are more innovative than homogenous functional ones, Toyota production model relies on this. What is Kaizen? Kaizen means "improvement". Kaizen strategy calls for never-ending efforts for improvement involving everyone in the organization managers and workers alike 3. Critically evaluate Toyotas global marketing strategy.

The strain of going global Life started changing for Toyota when the economic bubble burst in Japan at the start of the 1990s. First it had to work hard to improve its competitiveness as the yen strengthened. Mr. Okuda, president in the mid-1990s, launched a program of cost-cutting to make the company's exports competitive even

at a yen level of only 95 to the dollar. When costs fell and the yen subsequently weakened, Toyota reaped a double reward. When Toyota leadership abandoned their quality driven system for increased market share, they let themselves to be lured by increasing market share instead of their customer first ideals. "The flush of catching up to Ford and General Motors, coupled with a boom in demand, led Toyota's leaders to put sales growth above quality. Senior leaders became focused on becoming first in sales with a 15% share of global sales. This meant that new products had to be introduced more quickly, new plants had to be opened more rapidly, and supply networks had to be expanded more aggressively. We're now seeing the consequences of those decisions." (Steven Spear, Learning from Toyota's Stumble. HBR Blog Network ) Toyota was the industry example of how to run a manufacturing business at optimum performance. When they upheld Lean principles of the customer first in on all levels of their processes it was reflected in the quality of their product. Not just in production, but design and marketing. This Lean philosophy was translated into profit, brand loyalty and an impeccable reputation. They were truly a lean enterprise. One can see that now they become just another automaker. Toyota is reexamining what made them great. However, it will still take years to recover from the brand damage now done. After severely battered in 2009 by the economic crisis, slammed to the ground by a massive recall in 2010 and chased for nearly two years by German automotive group Volkswagen, the company decided to fight back. Through a series of measures united under the catch phrase Rewarded with a smile by exceeding your expectations, the auto maker is planning a comeback of biblical proportions, one which will be supported by each and every department in its organization. From the product line perspective, Toyota once again committed to continue its efforts to create ecofriendly cars, focusing on the creation of plug-in hybrid vehicles, pure electric vehicles and fuel cell vehicles. Toyota brand aside, the company announced that Lexus will form a strong component of its future

strategy. The luxury brand is to become a global premium player, by being introduced in emerging markets, where its competitors have already proven that luxury is at the top of the list for buyers. Toyota spent over $10 billion on global expansion in an aggressive effort to become the first truly globally organized car manufacturer. The company developed manufacturing hubs in the three major marketsNorth America, Europe, and Asiawith the ability to customize vehicles for regional markets. Such extensive coverage now allows Toyota to react quickly to local tastes, bypass regional trade barriers, and utilize locally based suppliers to increase cost efficiencies. The company set up an assembly plant in the United States as early as 1987 and continued expansion at a number of sites there and in Canada throughout the 1990s. In Europe, by 2001, Toyota had a regional parts center in Belgium, and manufacturing plants in the United Kingdom, France, and Turkey (another is scheduled to open in Poland in 2002). This local production allows Toyota to bypass tariffs and locally produce Toyotas Europe Car. In Asia, a local network of suppliers and assembly hubs allows Toyota to build sturdy, simply designed, low-priced cars that appeal to the Asian consumer. Toyota is a clear example of what not to do when you have a successful business model. All companies can be what Toyota was and hopefully will become again. Before this recall Toyota had 15% of the global market Today Toyotas global marketing strategy is an on going process of making decisions, implementing them, and tracking effectiveness over time. The industry in which Toyota competes in is an increasingly complex and demanding business environment where the firm must develop closely coordinated business and marketing strategies. Executives in the company are reinventing the business model with the objective of improving the firms competitive advantage, including altering market focus and modifying internal structure cost cutting and time efficiency processes. Additionally, Toyota has the capacity for continuous reconstruction as they are constantly investing and developing strategies for innovation, either it be process or product.

Before developing a business and marketing strategy, the corporate strategy must be understood first. The corporate strategy consists of: 1. Managements long-term vision of the corporation 2. Objectives which serve as milestones toward the vision 3. Resources 4. Businesses in which the corporation competes 5. Structure, systems, and processes 6. Gaining corporate advantage through multimarket activity Toyotas vision is to become the number one automaker and market share leader, as well as continue pushing constant improvement in everything the firm does. This includes planning to create an integrated, flexible, global manufacturing system, and focus on cost-cutting and process redesign to eliminate billions in expenses, keeping margins strong and free up cash to develop new models and technologies, invest in global manufacturing, and invade markets such as Europe and China. Toyota also has a vision of flexibility and looking forward. The company has noticed a problem in the design of their cars, with products being designed with Japanese consumers in mind and then exported. As a result, the firm has design teams on the West Coast of the U.S., and in southern France because buyers feel like they want some level of style in their vehicle. To increase market share in Europe, Toyota plans to boost production in Britain and France. President Chos goal is 15% of global sales by 2010, up from the current 10%. Also, the company aims to focus on producing profit rather than sales gains. New product targets include the eco-friendly gasolineelectric car and expansion of the SUV product line. Toyota plans to extend its early lead in eco-cars by pushing the Prius and adding a hybrid Lexus RX 330 SUV next summer. The company is intent on boosting its 4.5% market share of pickups, the last profit refuge of the Big Three building an $800 million plant in San Antonio, Tex., that will allow it more than double its Tundra output. Another objective for Toyota is attacking the youth market with the $14,500 Scion xB compact. Furthermore, Toyota will continue to take advantage of costs in purchases of parts and materials from North American suppliers because of the amount of products sold there. The company also plans to continue working with suppliers to radically cut the number of steps needed to make cars and parts. By having worldwide operations, Toyota is better able to realize potential opportunities and design better policies and procedures that enable the organization to operate efficiently and profitably.

Toyotas marketing strategy consists of the analysis, strategy development, and implementation of activities in: developing a vision about the market(s) of interest to the organization, selecting market target strategies, setting objectives, and developing, implementing, and managing the marketing program positioning strategies designed to meet the value requirements of the customers in each market target. The target market for Toyota is fairly broad, and can be better defined by product type/form. Camry: families, middle class, United States Prius: environment friendly consumers Scion xB: young consumers Yaris: price sensitive consumers, single/couples, Europe Tundra: males, consumers who need pickup trucks for work/ recreation activities Lexus: luxury, medium-high class, United States

Essentially, Toyota competes in sport-utility vehicles, trucks, mini-vans, and other different sized cars. By doing so, the company captures all segment groups within the market of auto-mobiles. Because the SUV market has grown and continues to grow, Toyota prides itself on owning nearly 12% of that highmargin segment with eight models in that particular category. Moreover, certain products are more profitable in different countries around the globe. The average Toyota owner is about 46, a number the company must lower or risk going the way of Buick. In order to keep prices low for new models, Construction of Cost Competitiveness, a three-year push to slash costs, was implemented. Because Toyota is currently entering the youth market, the company needed to position its products for that target differently than the norm. For example, to attract young consumers to the Scion model, the company attempted to be hip and edgy with underground marketing and a new brand name. Since the launch of the Scion the company has sold 30% more than forecasted, meaning that the firms growing cash cushion should be used to develop better designs. Market target objectives of the company include maintaining 40% plus market share in Japan, increase sales in Southwest Asia due to the plan of building transmissions in mid-2004 in Bangladesh, India, Pakistan, and Turkey. Because Lexus is a luxury leader in North America, Toyota altered its process strategy to reduce shipping by shifting Lexus production to that market. Also, Toyotas goal is to triple sales of the six Lexus models by 2010,

to at least 65,000 cars from 21,156. The firm is trying to build its comparative advantage with its big selling point of having a six-year warranty. The way the brand is positioned must also be altered, in that Lexus needs to create a desire to own the car, with a meaning of attention to detail and brand heritage. 4. Discuss and evaluate Toyotas pricing initiatives. The reputation of the Company has been developed by producing high quality vehicles that can be bought at a reasonable price. The Company has also been using tactful pricing strategies through price differentiation so that they are different from other automobile producers. The Japanese success in conquering and creating new markets has become a real challenge to numerous industries throughout the globe, with a diversification strategy for penetrating the hardest markets and their segments. The Japanese achieved their enviable position through the use of a diversification and pricing strategy at the entry and penetrating stages and a product strategy at the line stretching stage to acquire, hold and expand its market share. The Japanese were able to embellish their products with what consumer behaviorists call a "tangible value." Later on, once they were entrenched with their casual cars, they were able to enabled them to further expand their share of the U.S and European luxury car market. Theoretically, price represents the value of a good or service for both the seller and the buyer. Consumer behavior states that the value of a good or service can involve both tangible and intangible factors. An example of a tangible factor is the cost saving a consumer can get from buying a new, high quality car; an example of an intangible factor is a consumer's pride in the ownership of a Lexus, for example, rather than a BMW or another similar car. Therefore, in order for a consumer to choose the latter, the lack of an intangible value has to be offset by tangible values, such as price, performance, customer service or future status appreciation from holding onto the merchandise. Toyotas customers are very diverse and they range from the low income earners to the very rich. They are widespread around the world. Toyota has catered for all car needs that may arise for any individual with their wide range of motor vehicles. They range from small sports cars to big family vehicles and trucks as well as vans. The customers comprise a varied group of people, with differing

ages, incomes, geographical locations, and social and cultural statuses. Customers go for Toyota products to satisfy different wants and needs. Low income earners are provided with a basic mode of transportation that is both within their price range and efficient. Clients going for class and elegance are also catered for. 5. Strengths and limitations of Toyotas strategic brand management of Lexus and Toyota The Lexus Launch Strategy The beginning of the introduction: The Toyota managers had announced that they expected as many as half of the Lexus buyers would be their move up customers and/or individuals between 40-45 years of age with a household income of $100,000 a year (Economist 1989). In order to fulfill its goals, Lexus came up with two models in September 1989: the flagship LS400 priced in the range of $35,000-40,000, depending on the accessories included. The base price of $35,000 was about $10,000 less than the competitive BMW 535i and Mercedes 300E, and some $6,000 higher than the Lincoln Continental. Another model, a sports sedan ES250, carried the price tag of $21,050. The expansion of Lexus dealerships and the necessity to pay off its loans compelled Toyota to enter into the phase of higher profit margins, which were then followed by gradual increases in price. With the division earned sufficient credibility, it was believed that higher prices would not push the demand down, but, on the contrary, as was suspected, they would contribute to the image of "luxury". In May 1990, Lexus announced a 2.9% base price increase ($1,000) on the flagship LS400, while leaving the ES250 price unchanged. The $36,000 price tag even after its raise, still separated Lexus from its closest competitor, the M-B300E, by almost $10,000. This price strategy was adopted after the delivery of the tangible factors of price, quality, and performance. After a short while, the American consumer was cultivated to relate to the intangible factors as they had to the German cars. Toyota follows a pyramid strategy, selling large numbers of low-cost models (Corolla, Camry) and smaller numbers of higher-cost models (Tacoma pickup truck, Lexus luxury vehicles). This product

breakdown reflects Toyota's strategy of segmenting the market into wealth levels and selling accordingly. The following Toyota's most important models Lexus

Camry, Prius, Tundra

Corolla, Yaris, Scion


Toyotas Strategy Product Strategy The Company is believed to be moving with a strategy of mass production of which it has enabled it to sell widely in the global market. It has also included the strategy of hybrid product, where it can double the amount of production for the arising needs in the market. Price Strategy The reputation of the Company has been developed by producing high quality vehicles that can be bought at a reasonable price. The Company has also been using tactful pricing strategies through price differentiation so that they are different from other automobile producers. Location Strategy Being a global producer and supplier of Toyota automobiles and their components, Toyota Company has positioned itself all over the world giving it a clear cut within the market. Within three years to come, it is working towards the achievement of about 35 percent of the market share, and this will make it to be best and top supplier of automobile products. Promotion Strategy The Company is determined to use a pricing mechanism that will give it a competitive edge

over its main competitors. This is a mechanism that it is using to market itself so that it can get hold of market share that will see it better in achieving the highest level in the market

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Decision Situation

The decision situation facing the marketing managers at Toyota is determining options on how to manage the Lexus brand in Europe. Additionally, the marketers should outline and describe the strengths (and limitations) of Toyotas strategic brand management of the Lexus and Toyota brands. President Chos goal is 15% of global sales by 2010, up from 10% today, with increased sales of the Lexus brand in Europe. Last year, Lexus registered sales of just 21,156 cars down 11% from 2001 compared with more than 234,000 in the U.S. The alternatives generated should meet the key decision criteria. Strengths and Limitations Toyotas strategic band management of the Lexus and Toyota brands is consciously providing its products with an identity that is understood on all levels. Many consumers think of Toyota brands as smart and good products. In fact, the slogan, Good thinking means good products is emblazoned on a giant banner hanging across the companys Takaoka assembly plant. What Toyota does well at is knowing what makes the product special and exploiting its advantages. Many of the organizations products are promoted as better quality and service at a lower price. Branding for this company is not only for the products sold but also covers the entire corporate image. Toyotas communication strategy and brand equity comes with its message about size, comfort, and dependability. However, not all models developed and sold by Toyota merely have a single brand identity. This leads into a few limitations of Toyotas strategic band management. Firstly, in order to penetrate the generation Y market, through market research Toyota realized that the younger segment was not fond of the Toyota name. Many young consumers think of Toyota as an old person car or out of style. As a result, the company positioned the Scion model as a separate brand name with different marketing tactics. Similarly, the Lexus brand experiences the same limitations in Europe, with many consumers in that market being image conscious and disliking the Toyota name for this specific product form. Alternatives Alternative 1: Re-position the Lexus brand in Europe through a unique promotional strategy.

Alternative 2: Remove the Lexus brand out of the European market and focus on promoting other Toyota models such as the Yaris compact and Avenis. Alternative 3: Alter the organization process to spanning or outside-in to better understand the European market, and invest more capital into in research and design. Key Decision Criteria Managements decision for the key marketing issue should be based on the following criteria: a) Improving profitability b) Increasing sales and market share c) Maintain customer satisfaction and have continuous product and process innovation Comprehensive analysis of each alternative using the decision criteria Alternative 1: Re-position the Lexus brand in Europe through a unique promotional strategy. The Lexus is clearly not meeting sales targets in Europe. To make Lexus a success, Toyota needs to establish it as a separate brand. Through promotional activities, the brand Lexus can position itself in the market as a luxury vehicle that competes directly with other big names such as Mercedes and BMW. alter distribution channels. Right now Lexus vehicles are being sold in Europe mainly through Toyotas 250 dealerships, along with the far less lustrous Yaris, Corolla, and Avensis models. This way there will be dealerships that offer luxury-car buyers the kind of white-glove service they demand. Lexus needs to establish its own heritage, not just chase BMW and Mercedes. - Differentiate on price and quality. - Lexus doesnt break down - Lexus needs to create a desire to want the car

Alternative 2: Remove the Lexus brand out of the European market and focus on promoting other Toyota models such as the Yaris compact and Avenis. Alternative 3: Alter the organization process to spanning or outside-in to better understand the European market, and invest more capital into in research and design. . outside in process paly a key role in offering direction for the spanning and inside-out

capabilties, which respond to the customer needs and requirements identified by the outside-in processes. Provides vital information for new product opportunities, service requirements, and competitive threats.
this way they can find out things about the car that may be needed with change. Possibly change to spanning processx More money into research and design

find out where consumers are in buyer decsion processs

Recommendations including implementing guidelines - study 5 Cs in europe - keep lexus brand seperate Summary of the decision situation Alternatives Key decision criteria used to evaluate each alternative Comprehensive analysis of each alternative using the decision criteria Recommendations including implementing guidelines 1. Do market research to determine the number of drinks that will be available in the product line and who each beverage will be targeted towards 2. Create and test the new beverages 3. Market the new line by advertisements commercials and social media 4. Launch the new line of healthy beverages pushing in through distribution channels 5. Get feedback from relaters and sales information to determine which products are doing well and what needs to be re-evaluated.

outside in process paly a key role in offering direction for the spanning and inside-out capabilties, which respond to the customer needs and requirements identified by the outside-in processes. Provides vital information for new product opportunities, service requirements, and competitive threats.
Toyota has become the worlds largest automobile manufacturing company this year, overtaking General Motors which reigned supreme since the 1930s. Before then, Ford was the global leader. Toyotas market capitalization is more than five times that of Ford and General Motors combined. Toyota must have been doing something right these past 20 years since it has become the most productive manufacturer in the world. The company owns the newly created market in hybrids. Toyotas example offers an excellent insights and a guide toward improving personal productivity. The two main pillars of Toyotas approach boil down to: 1) respect for people and 2) continuous improvement; constant and never-ending improvement in all areas. Toyota made a major innovation over the American automobile manufacturers in the process of how the company viewed its people. General Motors and Ford viewed factory workers as a replaceable variable cost component labor as a commodity. Toyota viewed its workers as the main place to turn for productivity and quality improvements. Toyota further innovated by challenging the planned obsolescence approach. The company started producing cars with fewer defects that were more durable and would hold their value longer. American car companies were forced to respond in kind by producing longer lasting, better quality cars with greatly extended warranty packages.

This is not all Toyota has done in terms of process innovations. American accounting methods valued inventory the same as cash, without any incentives for reducing inventory. Toyota pioneered lean manufacturing based in large part on creating value in the eyes of the customer and having products being pull or demand-based that would be responsive to the customer rather than push or supply-based from the production end. Lean manufacturing also includes identifying and minimizing waste (including inventory), empowering employees and aiming for perfection in the processes. This is an evolutionary change in the way cars are made that is currently sweeping through the other modern manufacturing sectors of the global economy. The Toyota Way can also be applied toward improving personal productivity. The Toyota Production System (TPS) works as a complete philosophy. It is a consistent set of processes and principles applied over a long period of time. The following principles form core parts of the highly effective TPS that can be used to enhance personal productivity. Create manual systems first, then use technology as a tool to assist the process. Toyota people are often found making signs and putting them up all over the place and using them along with manual lists to coordinate activities. Once the manual system is worked out, then technology is brought in to assist and improve the process. There is a strong aversion to acquiring and using technology just for the sake of the technology. Hold off of the expensive software until the basics are worked out. Create an environment where constant learning occurs. Toyota is full of people who strive to be teachable and who are very willing to share information and be involved in the learning process. Put aside some time for focused learning a course, book-a-week, seminars, workshops, reviewing articles, etc. Eliminate dont just reduce waste. In the U.S. system, the production line has slack built into it so that there is extra time and stuff available to ensure the line stays running. In the Toyota system, there is not. Unplug the television set and cut the end off the cord. Build quality into everything. Standardizing to create consistent quality while constantly working to raise the standards. Anything worth doing is worth doing well. Aim for great rather than just good enough wherever there is opportunity to do so. Create systems to respect and treat partners well. Self-improvement toward increased personal productivity is a two way street. Toyotas people work on self improvement but consider that to be tied to helping others improve for mutual benefit. Work with others but maintain core competencies. Do not outsource the important decisions. For Toyotas cars, electronics has become a big part so the company has decided to make that a core area. Take the time to learn the areas that can impact life. Understanding tax planning and basic financial matters are a classic area of neglect that many people should put more effort into. Chose friends and associates carefully. Toyota is very picky. Employees are often hired through a one to two year process. Partners and suppliers similarly go through extensive processes. Associate with people who can help you and that you can help in a two way manner. Toyota has pioneered its process and one of the great outcomes was becoming the worlds first mass producer of hybrid automobiles, with over half the world market for hybrids. The Toyota process itself is a hybrid of best practices that have evolved over time that can be used to enhance personal productivity. Peter Paul Roosen and Tatsuya Nakagawa are co-founders of Atomica Creative Group, a specialized strategic product marketing firm. Through leading edge insight and research, sound strategic planning and effective project management, Atomica helps companies achieve greater success in bringing new products to market and in improving their existing businesses. They have co-authored Overcoming Inventoritis now available.