Toyota’s Strategy And Initiatives In Europe“THE LAUNCH OF THE AYGO”

Presented By:Ashwath PutturBakul SanakalFenella AndradeSarah

Masters in European Studies and Management (MESM) 2010-2012

Manipal Centre for European StudiesManipal University, Karnataka, India

The Company

• Toyota Industries Corporation was founded in 1926 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, and logistics solutions

Toyota's World View and Mission

Business overview

Automobile• Toyota Industries develops and

manufactures automobiles and automobile-related products, such as vehicles, engines, car air-conditioning compressors, car electronics components and devices, and stamping dies

Logistics• Toyota Industries carries out the

Logistics Solutions Business to help companies reduce their logistics costs

• They combine extensive business experience in lift trucks, automated storage and retrieval systems, and other materials handling equipment with their production and logistics know-how

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 also transportation, storage, and sorting

• Provide products to customers around the world using the 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 special purpose vehicles

Textile machinery

• They manufacture two main categories of textile machinery:

spinning machinery weaving machinery

The Toyota Way

Long Term PHILOSOPHY

The right PROCESS will produce the right results

Add value to the organization by developing your

PEOPLE and PARTNERS

Continuously solving root PROBLEMS

Principle 1

Principles 2-8

Principles 9-11

Principles 12-14

Toyota Production System• Focus on superior quality and putting the customer first• The Toyota Production System (or TPS) is sometimes referred to

as a "lean manufacturing” 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 next process in a continuous flow 2.“Jidoka” which means that when a problem occurs, the equipment stops immediately, preventing defective products from being produced

TOYOTA MOTOR EUROPE (TME ) A snapshot (2005)

• 2005 - 9th consecutive year for record sales

• Sales grew by almost 50% from 2000 to 2005

• Already established international market : North America

• Already established brands : Yaris, Prius and Lexus

• Sales hit 2 million in 2005 with Toyota holding 13.7% f US market, only 12 plants in NAFTA region

Toyota Prius

Lexus LS 600h hybrid sedan

Yaris

Strategies by Toyota

• Emotional positioning – “green issues” (Prius hybrid model)

• 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)

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 Citroën cars

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

• PSA would handle all purchasing and suppliers relations including their selection

• Toyota would produce 3 cylinder gasoline engine and PSA 4 cylinder diesel engine

PSA company background

• Paris based company and second biggest manufacturer in European automobile sector after VW Group.

• Manufactured 2 popular brands - Peugeot and Citroën

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

• Diesel engines with Ford, gasoline engines with Renault and BMW, commercial trucks with Fiat and SUVs with Mitsubishi

• Expansion in Eastern Europe ( opened a new factory in Slovakia)

AYGO

ManufacturerToyota Peugeot Citroën Automobile Czech

Production 2005-present

Assembly Kolín, Czech Republic

Class City car

Engine1.0 L 1KR-FE I31.4 L DV4 HDi diesel I4

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)

Features of Aygo

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

• Full warranty for 3 yrs or 1,00,000 km• Interest rates were calculated

according to the 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

Challenges in launching Aygo

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

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

• How to sell the product to younger clients?

• How to market it?

1) Porter’s 5-forces analysis for TME

Competitive Rivalry between ExistingPlayers

Competition between existing players is likely be high 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 and highly specialized equipment)

• 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 established brands Fiat Panda (built in Poland), VW Fox (Brazil), Hyundai Getz (South Korea), Renault Twingo and Nissan Micra

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

their production 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

Bargaining Power of Buyers

• The bargaining power of the buyers is moderately 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 the industries revenue and all manufacturers are dependent on them

Threats of New Entrants

• The threat of new entrants is low because huge capital and cutting-edge technology is required

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

• Cost of entry: resources, competencies and competitive capabilities that are needed to entry the market

Threat of substitute products

Pressure from some of the substitutes available

There are plenty available and can offer more power and space

Threat from two-wheelers

Switching costs for customers are very low in minicar segment

2) Competition Global or Multi-country?

Multi-country competition exists when competition in one national market is localized and not closely connected to competition in another national market

Competition is global not confined only to Europe Huge competition from companies like

Honda, Mazda, Nissan, Hyundai, Kia which are from other countries

International strategy• Strategic Alliances• ‘learn local, act global’- strategic way of global

knowledge creation• The untouched production system of Toyota with

the excellent 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’s corporate cultures, technologies and processes

Key success factors

• Low manufacturing cost• High fuel prices• Economic uncertainty• Product innovation• Focused advertisement

• 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-car segment, feature a high-level of standard safety performance and offer excellent environmental achievements

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 for People)

– 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 the

biggest 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 meeting

diverse needs and high quality sales and services

• 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 the high costs of training and retraining labour

• OPPORTUNITIES

• Quota imposed by US government is beneficial for Toyota in the sense that it enabled Toyota to charge a premium 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 is targeted 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 a unique convertible, with models extending at their rear!

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

• THREATS

– Rising gasoline prices triggered by decisions of the OPEC oil cartel 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 United Sates 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

media attack 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

Question 7• The alliances were successful in creating synergies

between PSA and its 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 players in the sector

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

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

– Start-up costs and difficulties which a company faces while entering into a new market could be reduced greatly

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 customer base there, so convincing customers to buy Toyota brand above PSA for a product containing 93% common parts will be a tough task

Marketing Strategy for Aygo

• Phenominal design – seen at many European car shows

• Sweden - Initially it was not possible to buy Aygo. Until May 2006 they could only lease it as a monthly package for € 190/ month which also 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 young

mainstream audience

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

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

Question 9

• TME has already been successful in youth segment

• Based on the same model it can re segment its market

THANK YOU