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Evaluation of the Marketing Strategy of Toyota UK

Executive Summary

Toyota has had recent problems with gaining market share against major players in the UK and broader European marketplace. This issue is exacerbated by the rise in price-sensitive buyer markets triggered by the ongoing regional economic problems plaguing the region from 2008 to 2009. The heterogeneity of market characteristics also create problems in creating effective strategies and promotions to ensure that brand defection switching costs are reduced in desired target markets.

Additionally, Toyota has experienced many problems with quality failures that have led to dramatic recalls of many of its diverse products which are in sharp contrast to the brand-building efforts undertaken by the company to build trust in quality as it primary positioning strategy. These failures have been well-publicised.

Evaluation of the Marketing Strategy of Toyota UK

It is recommended that the business turn toward low-cost social media as a means of injecting transparency into the consumer market whilst also supplementing this strategy with heavier, short-term emphasis on promotion development. It is further recommended that the business seek out a new youth market, focus more on corporate social responsibility, and build an online CRM model that engages consumers more effectively. Toyota maintains strong internal competencies and a dedicated organisational culture with tacit and explicit knowledge that brings the business more efficiencies and this should be utilised as a promotional resource to rebuild trust in markets that now have questions about Toyota’s quality competency.

Research has identified that Toyota conducts considerable market research on consumer characteristics in diverse markets to create localisation strategies which tends to outperform competitors that attempt to build homogenous marketing strategies. This, however, is not enough to boost its market position and needs a change in marketing strategy.

Evaluation of the Marketing Strategy of Toyota UK

  • 1.0 Introduction

Toyota is currently positioned as a quality-focused company, providing it with significant historical marketing advantages over its major UK rivals. However, in recent years, Toyota has been burdened with negative publicity associated with a variety of recalls in North America, Europe and Asia which sheds negative light on its quality measures. Coupled with economic problems in the United Kingdom stemming from the 2008 and 2009 recession, once-predictable consumer purchasing behaviours have changed, now making it difficult for Toyota to maintain its market share as price-sensitive consumers look for lower-cost automobile options.

Toyota is an interesting case study related to its marketing strategy as the company still maintains a quality-focused positioning even in the face of growing concerns about Toyota’s quality and where price-sensitive buyers are seeking alternative brands to satisfy their budgets impacted by the economic issues in the United Kingdom. Toyota only maintains a 4.2 percent market share in the whole of Europe (InAutoNews 2011) and, despite this inability to outperform major competition, the company still aims for increases in market share (Kim 2009) which seems impractical due to negative publicity and changing buyer behaviours related to pricing structures. This report examines the strengths and weaknesses of Toyota’s marketing strategy, examines the value creation process within the company, and makes recommendations for improving Toyota’s competitive position.

  • 2.0 Situational Analysis – Problems and Current Strategies

The most critical strategy for Toyota is publicising its lean production methodology which makes the business a cost leader over competition and also provides opportunities to offer consumers moderately-priced automobiles over that of competing products. Toyota operates in a heterogeneous market with a diverse profile of consumers each maintaining different motivations, needs and culturally-driven values which conflicts establishing a homogenous CRM program and promotional strategy. Additionally, competition has complete access to labour systems, capital and a well-developed supply chain in the UK (Shah and Ward 2007), making lean production a contributing factor in its marketing strategy with a position on quality. Toyota’s just-in-time production methodology involves attempts to maintain a zero inventory (Christopher and Towill 2001), thus avoiding the significant holding costs that most competitors must maintain in complicated supply systems. These costs include lighting, warehouse space costs, taxations, personnel costs for maintaining inventory and warehousing functions, as well as wasted product not utilised in the manufacturing process (Heizer and Render 2004). The company’s ability, historically, to operate using lean production systems and the just-in-time supply methodology has given the business considerable power in the supply market (by demanding vendor flexibility to meet supply needs rapidly) and has raised the switching costs for suppliers which allows the business to leverage pricing that can, ultimately, be passed back onto consumers in the form of lower pricing car models.

Concurrently, the lean production system has been well-publicised historically for Toyota, which has given the business a positive brand reputation in diverse markets for its quality focus and quality promises stemming from a non-replicable production system that outperforms competitors (such as Skoda, Ford and Nissan). However, in recent years, massive recalls impacting many European vehicles for a variety of quality problems have plagued the business that once had a very powerful brand in Europe (Madslein 2012; Toyota 2012; Toyota 2012; Toyota 2010; Toyota 2010). These recalls have dramatically reduced its quality-focused reputation in key markets whilst also injecting significant cost burdens on the company, likely a contributor to a market share loss from 4.5 to 4.2 percent in Europe.

Despite all of the aforementioned negative publicity and changing consumer sentiment about Toyota quality measures, the company continues to focus on quality positioning and reinforcing its quality emphasis as the foundation of the firm’s marketing strategy. However, Toyota fails to make gains in market share despite this rigidity in choosing to maintain quality-centric promotional strategies and as associated with customer relationship management practices in its service delivery methodologies.

  • 2.1 Strengths of Quality-Centric Positioning

Toyota recognises that in certain markets which are, again, heterogeneous it has established brand loyalty through years of quality-centric focus and its supplementary emphasis on putting customers first as part of its powerful corporate social responsibility focus. Customers that are loyal to a brand are usually willing to spend more of their financial resources on their favourite brand and provide excellent word-of-mouth advertising (Chaudhuri and Holbrook 2001). Additionally, in this industry, products and services can be easily replicated (except for Toyota’s lean methodology of production), thus the only non-replicable aspect for the company is its brand which is not easily copied (Nandan 2005). Toyota, despite much negative publicity related to concerns about quality, still maintains loyalty in key profitable markets, believing that Toyota is an experience and not just a product.

Quality-centric strategies for the business manifest themselves in the company’s Customer First program which emphasises how Toyota works to create world-class excellence in its service delivery model. Toyota recognises the heterogeneity of its UK target markets and, unlike many competitors seeking to create homogenous strategies, the business conducts considerable market research in a localisation strategy to build connections with diverse cultures of consumers (Toyota 2006). This illustrates that Toyota attempts to segment and target based on behavioural characteristics, which is rather unique in the auto industry in Europe (except for luxury vehicle products and services). What Toyota attempts to accomplish in its promotional strategies and the Customer First program built on service excellence is to establish perceptions that Toyota can enhance lifestyle and build personal self-expansion for target buyers. Zhang and Chan (2009) emphasise that when a brand is able to provide these perceptions of growth, brand attachments are formed that will ultimately lead to brand loyalty.

There is, at least, some evidence that this localisation and culture-centric segmentation and targeting strategies are working for Toyota. Localisation strategies, rather than working to create homogenous strategies, continue to provide Toyota with positive data from consumer surveys illustrating customer satisfaction (AutoindustryA 2009; McBride 2008).  Toyota attempts to cater to the unique lifestyles, attitudes and values of its target consumers based on qualitative and quantitative market research, thus personalising the Toyota experience for target consumers. Localisation provides the foundation for value creation by building emotional connections with consumers and attempting to create life-long relationships founded on cultural values.

  • 2.2 Diversification and Modernisation of Product in Marketing Mix

Toyota, outside of its quality-centric positioning efforts, also creates products that are aligned with changing consumer needs. There is a growing subculture in the UK (and many other markets) expecting more cost-effective features, such as more efficient fuel consumption. In response, Toyota launched the Prius product, a mid-priced, rather compact vehicle that is considered a full hybrid product to fulfil these consumer expectations offering 60 miles per gallon (English) which significantly outperforms other hybrid vehicles in this industry (UK Department for Transport 2012). Toyota recognises that certain target markets have a need for more efficiency that satisfies both price-sensitive buyers and those that are concerned about sustainability as it relates to environmental emissions. Being able to adapt production to provide recurring innovations and diverse products aligned with identified market research-supported data gives Toyota some advantages in product associated with the marketing mix. This is another dimension that ensures value creation as it relates to the company’s most profitable and relevant target markets.

The ability of Toyota to be so adaptive and flexible in offering diversity of products to heterogeneous markets is attributed to the company’s well-developed supply infrastructure in Europe. The business has established the Toyota Training Centre in Zaventem, Belgium that provides training and support to engineers involved in the distribution system. In France, the Toyota Europe Design Development Centre focuses on establishing new design concepts that are aligned with known consumer needs in the European market. There are, additionally, 14 different logistics centres established throughout Europe to facilitate the just-in-time production needs. Combined with at least 8 different manufacturing centres wholly-owned and wholly-managed by Toyota, the organisation is a leader in design, training, and establishing efficiencies in the supply chain.

Michael Porter (2011) identified that there are externally-driven risks to businesses that operate in highly saturated and complex markets that impact strategy development. These include threats of substitutes and buyer power in the market. The business is able to reduce the risk of substitute products by creating a diverse line of auto products with features and benefits to outperform competitive offerings. Many competitors must import their automobiles into the UK as they do not have the capital availability to establish the type of training, logistics, and supply networks that give Toyota an advantage. Thus, only certain models are available with competition to serve as substitutes whilst Toyota is able to saturate key market environments with European-made automobiles.

Toyota is also able to raise the switching costs for consumers attributable to the lean production system in place that provides previously identified cost advantages to the business. Not all European manufacturers are able to create automobiles that maintain features and benefits (non-economical) that Toyota is able to provide due to the cost savings that are experienced in the current lean production system. This, again, gives Toyota a competitive advantage over major players in the UK auto market.

  • 2.3 Comparing Quality-Focus to Quality Failures

As identified, there are disparities between losses of brand reputation with Toyota compared to the existing brand loyalty with certain heterogeneous market characteristics. The evidence would suggest that lower cost products with enhanced features and benefits would be satisfactory for the price-sensitive markets and other identified target markets. However, Toyota is unable to capture additional market share, thus emphasising the problems occurring with the high volume of recalls that could be preventing the business from capturing new markets.

3.0 Recommendations for Improvement

Building legitimised relationships with consumers, focusing on psycho-social characteristics, is to establish transparency with consumers and building trust (Goodson 2011). Social media provides an excellent outlet for Toyota to engage with their target consumers and has been effective for such companies as Apple, Inc. (a major global technology leader), performing a contemporary marketing system known as movement marketing. Companies that utilise social media, such as Facebook, are able to express their values as they relate with desired target markets and consistently reinforcing what the business believes in (Goodson 2011).

Hence, it is recommended that Toyota develop a more effective customer relationship management system as a measure of providing the aforementioned necessary transparency and also improving market research related to legitimate and real-time customer satisfaction. “CRM is an information industry term for methodologies, software and usually internet capabilities that help an enterprise manage cluster relationships in an organized way” (Buttle 2008, pp.3-4). There was evidence provided that Toyota is able to offset some of the outcomes provided by negative publicity in areas of product quality through tangible facilities development, diversification of product offerings, and the Customer First program focused on service excellence. However, social media represents a significantly low-cost method by which to engage consumers, highlight achievements in quality improvements, and also infuse total operational and staff transparency in a way that provides more value to consumers; both loyal and non-customers.

Furthermore, Toyota should be seeking new market opportunities aligned with specific age demographics to offset any losses of once-loyal customers segments that are concerned about the quality reputation of Toyota products. Toyota provides many low- to moderate-priced vehicles that are aligned with the consumer values in the 18 to 30-year-old markets maintaining generally moderate resources, but those that are also attracted to premium products that assist in building their social identities (Executive Digest 2008). It should not be forgotten in this recommendation that Toyota is effective in localising its promotional and customer relationship management strategies that continues to infuse brand loyalty with certain markets. The youth markets are some of the highest users of social media as a lifestyle and social activity, thus providing an excellent opportunity to begin targeting promotions in an effort to gain this market’s loyalty toward Toyota products. Muniz and O’Guinn (2001) reinforce that when a brand is able to establish attachments to the product, consumers will be more willing to devote their social resources into defending the brand such as in brand communities in social media. If Toyota develops an interesting, humorous, or otherwise engaging viral marketing campaign to create buzz about developments in quality, pricing, design, or any other important feature of the business, Toyota will gain more followership with the aforementioned younger market.

Additionally, though Toyota maintains a very strong focus on corporate social responsibility, research did not uncover ample enough promotion of these activities in a variety of medium sources. Hence, it is recommended that Toyota devote more capital and labour resources toward establishing its own publicity campaigns above that of its press release strategy to more strongly emphasise its internal capabilities. Many companies such as Shell and Exxon utilise promotional materials that provide these businesses with more transparency and illustrate competency related to internal human capital. The research indicated a well-developed system of training, design collaboration centres, and many other internal competencies that bring Toyota advantages related to its organisational culture. If the business invests in television advertising and uses lower-cost social media, such as YouTube, to give UK consumer markets a glimpse into the internal processes and strengths of its dedicated culture, it will inject the necessary transparency suggested by Goodson (2011) that builds trust in the organisation. By illustrating to consumers, tangibly, that there are production system changes and research practices occurring, it will provide a new type of window into the Toyota business model that could offset some of the market losses that have occurred as a result of quality failures occurring in the UK and throughout the world markets.

Marketers need to remove cognitive dissonance when it occurs in target markets, which is defined as “a psychological state where cognitions – values, beliefs, attitudes and behaviours – are at odds with one another” (Bose and Sarker 2012, p.191). This is what has occurred with some markets for Toyota with consumers torn between their long-standing trust in the firm and the sudden onslaught of media attention about quality failures occurring throughout the international marketplace. In the decision-making process, consumers organise information based on a variety of stimuli to create a final determination about a particular brand, sometimes drawing on social sentiment and stereotypes in the process (Schiffman and Kanuk 2010). When loyal or attached markets are being inundated with media coverage of recurring quality problems, it reinforces the presence of cognitive dissonance that will impact the consumers’ willingness to seek out Toyota’s products if the business is unable to provide more effective and trustworthy stimuli. Because of this, it is strongly recommended that, in the short-term, Toyota invest much more capital and labour resources into the promotional function and be more responsive to negative media sentiment about potential quality issues to combat cognitive dissonance.

4.0 Conclusion

Toyota is clearly not a failure as even 4.2 percent of market share in a highly saturated and complex heterogeneous market is substantial. However, Toyota continues to set targets for improving market share, but cannot seem to manage this even with a service philosophy focusing on excellence in providing customer-centric strategies and diversifying products to fit more market needs based on social, psychological and cultural preferences. If the business selects the recommended strategies, including social media, heavier emphasis on promotion, injecting transparency by focusing on internal competencies and corporate social responsibility, and focusing on establishing an Internet-based CRM system, it will likely manage to build more trust in existing markets and new markets that will provide greater profitability to the organisation. Trust appears to be the most primary element that must be reconstructed or reinforced with desired target markets in order to gain the expected revenue increases and market share improvements that the business has struggled with in recent years and, as identified in the report, there are solutions to re-establish trust in many diverse markets.

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