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Toyota’s Strategy And Initiatives In Europe

“THE LAUNCH OF THE AYGO” Presented By:

Ashwath PutturBakul Sanakal

Fenella AndradeSarahMasters in European Studies and Management

(MESM) 2010-2012Manipal Centre for European StudiesManipal University, Karnataka, India

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The Company

• Toyota Industries Corporation was founded in1926 by Sakichi Toyoda

• to manufacture and sell the automatic looms

which he had invented and perfected• Toyota Industries expanded its domain by

including textile machinery, automobiles,materials handling equipment, electronics, andlogistics solutions

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Toyota's World View and Mission

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Business overview

Automobile• Toyota Industries develops and manufactures

automobiles and automobile-related products,

such as vehicles, engines, car air-conditioningcompressors, car electronics components anddevices, and stamping dies

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Logistics• Toyota Industries carries out the Logistics

Solutions Business to help companiesreduce their logistics costs

• They combine extensive businessexperience in lift trucks, automated storageand retrieval systems, and other materialshandling equipment with their production

and logistics know-how

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Material Handling

• They carry out development, manufacturing, and sales of

logistics equipment and systems that include not only industrial vehicles, such as lift trucks, but alsotransportation, storage, and sorting

• Provide products to customers around the world usingthe Toyota, BT, and Raymond, Aichi brand names

• Aichi Corporation has the top share of Japan's aerial work

platform market and is a leading manufacturer of specialpurpose vehicles

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Textile machinery

• They manufacture two main categories of textile machinery:

spinning machinery weaving machinery

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The Toyota Way

Long Term PHILOSOPHY

The right PROCESS willproduce the right results

Add value to theorganization by developing

your PEOPLE and

PARTNERS

Continuously

solving rootPROBLEMS

Principle 1

Principles 2-8

Principles 9-11

Principles 12-14

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Toyota Production System• Focus on superior quality and putting the customer first

• The Toyota Production System (or TPS) is sometimes referred to as a "leanmanufacturing” or "just-in-time" system

• Key factor in the company’s development, in line with a consistent philosophy of Respect for People and the Environment.

• The Toyota Production System emphasises on Continuous Improvement(kaizen)

• It relies on two basic concepts:

1. "Just-in-time"

in which each process produces only what is needed by the nextprocess in a continuous flow

2.“Jidoka” which means that when a problem occurs, the equipment stopsimmediately, preventing defective products from being produced

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TOYOTA MOTOR EUROPE (TME )A snapshot (2005)

• 2005 - 9th consecutive year forrecord sales

• Sales grew by almost 50% from2000 to 2005

• Already establishedinternational market : North America

• Already established brands : Yaris, Prius and Lexus

• Sales hit 2 million in 2005 withToyota holding 13.7% f USmarket, only 12 plants inNAFTA region

Toyota Prius

Lexus LS 600h hybrid sedan

Yaris

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Strategies by Toyota

• Emotional positioning – “green issues” (Prius hybridmodel)

• First to offer D – Cat diesel engines

• Strong focus of customer loyalty and satisfaction

• Expansion in Europe• Localizing production in Europe – opened first car and

engine plant was in UK in 1992

• Car plant in France in 2001

• By 2005, 8 plants in 6 countries

• Toyota’s largest markets – Big 5 markets (UK, Italy, Spain,Germany and France)

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Toyota Peugeot and Citroën Automobiles(TPCA)

• 50 / 50 joint venture in late 2001

• Opened factory in Kolin, Czech Republic

• Objective was to manufacture a mini car with 93%

common parts between Toyota, Peugeot and Citroëncars

• Toyota was responsible for running the factory underTPS (Toyota production system)

• PSA would handle all purchasing and suppliersrelations including their selection

• Toyota would produce 3 cylinder gasoline engine andPSA 4 cylinder diesel engine

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PSA company background

• Paris based company and second biggestmanufacturer in European automobile sector after

VW Group.

• Manufactured 2 popular brands - Peugeot andCitroën

• Adopted a strong business strategy by forming joint ventures with many companies of the same sector

• Diesel engines with Ford, gasoline engines withRenault and BMW, commercial trucks with Fiat andSUVs with Mitsubishi

• Expansion in Eastern Europe ( opened a new factory

in Slovakia)

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AYGO

ManufacturerToyota PeugeotCitroën AutomobileCzech

Production 2005-present

Assembly Kolín, Czech Republic

Class City car

Engine1.0 L 1KR-FE I31.4 L DV4 HDi dieselI4

Wheelbase 2,340 mm (92.1 in)

Length 3,405 mm (134.1 in)Width 1,615 mm (63.6 in)

Height 1,465 mm (57.7 in)

Curb weight 890 kg (1,962 lb)

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Features of Aygo

• Emission rates were among the lowest – 109gms per km

• Full warranty for 3 yrs or 1,00,000 km

• Interest rates were calculated according tothe age of the driver

• Customers could also opt for a package which included insurance and service

contracts• Better rates on insurance if they joined a

one day driving training

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Challenges in launching Aygo

• How to differentiate a product with 93%standardized parts from other siblings?

• How to sell the product in an entirely newmarket with no loyal customer base?

• How to sell the product to younger clients?

• How to market it?

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1) Porter’s 5-forces analysis for TME

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Competitive Rivalry between ExistingPlayers

Competition between existing players is likely behigh when

– There are many players of about the same size

– Players have similar strategies– There is not much differentiation between

players and their products

– Barriers for exit are high (e.g. Expensive andhighly specialized equipment)

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• Rivalry among Competing Sellers – Strong

• TME was entering into this segment for the first

time• many rivals competing for market share

• most of them were experienced

• each competitor was trying their best to

differentiate their car in terms of performance and value

• DaimlerChrysler, Volkswagen,Nissan,Honda, Ford,General Motors, Daewoo, Hyundai

• Fierce competition from already establishedbrands Fiat Panda (built in Poland), VW Fox(Brazil), Hyundai Getz (South Korea), RenaultTwingo and Nissan Micra

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Bargaining power of supplier

• Low bargaining power

• The market dominated by large number of suppliers

• Opening of TPCA was entry point for European suppliers

into Toyota• Suppliers were not in good condition during that time

• as many of their traditional customers cut down theirproduction volumes

• The switching costs from one supplier to another was low• no monopoly situation in the supplier side because the

suppliers were also competing among themselves

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Bargaining Power of Buyers

• The bargaining power of the buyers ismoderately high in mini-car segment

• The buyers have low switching cost (if they

are not happy)• Customers have low margins and are price

sensitive

• The buyers are a significant portion of theindustries revenue and all manufacturersare dependent on them

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Threats of New Entrants

• The threat of new entrants is low becausehuge capital and cutting-edge technology isrequired

• Economies of scale: sizeable economies of scale are present within the industry interms of established players

• Cost of entry: resources, competencies andcompetitive capabilities that are needed toentry the market

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Threat of substitute products

Pressure from some of the substitutes available

There are plenty available and can offer more power andspace

Threat from two-wheelers

Switching costs for customers are very low in minicarsegment

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2) Competition Global or Multi-country?

Multi-country competition exists whencompetition in one national market islocalized and not closely connected to

competition in another national market Competition is global

not confined only to Europe

Huge competition from companies likeHonda, Mazda, Nissan, Hyundai, Kia whichare from other countries

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International strategy • Strategic Alliances

• ‘learn local, act global’- strategic way of globalknowledge creation

• The untouched production system of Toyota with theexcellent knowledge of the European market of PSA

• Toyota in charge of development and production, while PSA is responsible for procurement

• Two global carmakers combine their knowledge of product design, styling, production and supplier

relationships, while learning from each other’scorporate cultures, technologies and processes

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Key success factors

• Low manufacturing cost

• High fuel prices

• Economic uncertainty • Product innovation

• Focused advertisement

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• Aygo well-positioned in European minicar

market• Targeting the unexploited market segment(Generation Y)

• Toyota's image of high quality, durability and

reliability of its cars can act as advantage• Cars produced using this common platform

have a three-fold advantage: they have prices

lower than those in the current small-carsegment, feature a high-level of standardsafety performance and offer excellentenvironmental achievements

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SWOT ANALYSIS• STRENGTHS

– Strong brand equity – Motivated and extremely productive work force– Careful market research and short design so as to keep models closely

aligned with market demand– Custom order production and superior customer service (principles

and beliefs based on Continuous Improvement and Respect forPeople)– Long-term relationship with supplier– Diversified product range, highly targeted marketing and a

commitment to lean manufacturing and quality – High penetration in key market - Japan, China and USA

– Toyota Motor Corporation is the part of “Toyota Group”; one of thebiggest conglomerates in the globe

– best known for environmentally safe, quality, durability, reliability,and value for money and convenient

– Strong distribution and marketing efforts focused on the meetingdiverse needs and high quality sales and services

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• WEAKNESS

• Less market share as compare to General Motors and Ford• Customers not segmented

• Customers are not being involved in the process

• Limited Research and Development done as compare to

competitors• Lack of a proper sales force

• Continuous stress on employees due to kaizen(Continuous improvement)

• huge investment in expensive fixed costs, as well as thehigh costs of training and retraining labour

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• OPPORTUNITIES

•

Quota imposed by US government is beneficial forToyota in the sense that it enabled Toyota to charge apremium price and to replace its inexpensive one, which were loaded with many options

• Changing demographics e.g. decline of large families

needing large family cars• Toyota is to target the 'urban youth' market. The

company has launched its new Aygo, which istargeted at the streetwise youth market and captures(or attempts to) the nature of dance and DJ culture in

a very competitive segment. The vehicle itself is aunique convertible, with models extending at theirrear!

• Growing demand for hybrid electric vehicles• Emerging markets China & India

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• THREATS

– Rising gasoline prices triggered by decisions of the OPEC oilcartel to hike crude oil prices substantially

– Declining economic growth on a global scale– Continuing trade frictions due to trade imbalances between

Japan and other countries and the lack of openness in the Japanese market to import

– Declining exports due to import restrictions in the UnitedSates and Europe and strict domestic content laws in other

countries– Credit Unavailability – Stiff competition & a saturated/shrinking market– Alternative forms of transport (e.g. cycling, public transport)

encouraged by governments all around the world

– The recall of cars with sticky acceleration pedals and the mediaattack connected with this issue– adverse impact of fluctuations in foreign currency conversion

rates– Increasing maintenance costs of vehicles, rising fuel price and

changing customer preference are challenging threats

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Question 7

• The alliances were successful in creating synergies between PSA andits partners

• Sales increased

• Toyota was responsible for running the factory (according to TPS)

• PSA handled all purchasing and supplier relations

• TME chose this method of entering the mini-car segment for many

reasons:– Toyota’s main aim was to enter the mini-car segment as a new entrant

but the economies of scale was enjoyed by already established big playersin the sector

– By collaborating with PSA they could avail economies of scale throughthe factory costs and the purchasing of raw materials thus lowering theirper unit production costs

– PSA already had a presence in Eastern Europe so PSA’s experience withsuppliers would work in their favour and lead to Toyota building theirown relationships with these suppliers

– Start-up costs and difficulties which a company faces while entering into

a new market could be reduced greatly

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Question 8

• Challenges in reaching the sales target of 100,000 Aygos annually

• direct competition with 200,000 mini-cars

rolling off the same assembly line• PSA are long established in the European

market and already have a strong customerbase there, so convincing customers to buy

Toyota brand above PSA for a productcontaining 93% common parts will be a toughtask

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Marketing Strategy for Aygo

• Phenominal design – seen at many Europeancar shows

• Sweden - Initially it was not possible to buy Aygo. Until May 2006 they could only lease itas a monthly package for € 190/ month whichalso included insurance, service and repairs

• Germany – Identify trendsetters among young people

– Getting in touch with them personally to“promote” Aygo

– The trendsetters brought them to a broad youngmainstream audience

E l i l A i i i

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Early promotional Activities× Traditional marketing Viral marketing• Phase 1 (9 months prior to the launch)

– “Aygo online community” – without the Toyota name– Goal was to get into a dialogue with customers– Website included videogames

• Phase 2 (few months before the lanuch in 2005)– Trendscouts arrived at discotheques and promoted the Aygo

booths inside the venue– Booths were set up for

• playing videogames – attractive prizes• taking pictures – posted on the website• video messages of visitors – could be sent to any email

address– Visitors could also game from home through the Aygo website– Sponsoring rap concerts – Aygo poster on the stage– Promoting by sponsoring VIP party with the band

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Toyota’s creative way of reaching the customer

• Dealer training– Subway station remodeled to a living room

– Training on how do these people live and what technology do they use( Age grp 18 – 30)

• Aygo nights— Beach parties, volleyball tournaments, disconights and concerts

• Aygo Lifestyle magazine

– Lifestyle magazine – fashion, travel, food and sports– Published every quarter and subsequently twice a year• Aygo city tour

– Biggest universities– Consisted of several renovated caravans from the 1970’s

• Booking test drives

• Lounge• Sending video messages via internet

• Mobile services– Car specifications sent to mobile phones– Register for brochures via SMS

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Question 9

• TME has already been successful in youthsegment

• Based on the same model it can re segmentits market

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THANK YOU

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