Department of Agribusiness Management and Entrepreneurship

College of Economics and Management

University of the Philippines Los Baños
College, Laguna

Management 203:

CASE 1:

TOYOTA PRIUS: Leading a Wave of Hybrids

SUBMITTED BY:

Adonis T. Corales
2004-39143

DATE SUBMITTED:
March 22, 2019
Company Background
Toyota Motor Corporation, Japanese Toyota Jidōsha KK, Japanese parent
company of the Toyota Group. It became the largest automobile manufacturer in the world
for the first time in 2008. Most of its nearly 600 subsidiary companies are involved in the
production of automobiles, automobile parts, and commercial and industrial vehicles.
Headquarters are in Toyota City, an industrial city east of Nagoya, Japan.
Toyota Motor Corporation began in 1933 as a division of the Toyoda Automatic
Loom Works, Ltd. (later Toyota Industries Corporation, now a subsidiary), a Japanese
manufacturer founded by Toyoda Sakichi. Its first production car, the Model AA sedan,
was released in 1936. The following year the division was incorporated as the Toyota
Motor Company, Ltd., an automotive spin-off headed by Toyoda Kiichiro, Sakichi’s son.
Toyota subsequently established several related companies, including Toyoda Machine
Works, Ltd. (1941), and Toyota Auto Body, Ltd. (1945). However, faced with wrecked
facilities and a chaotic economy in the aftermath of World War II, the company was forced
to temporarily suspend its automotive production.
By the 1950s Toyota’s automobile production factories were back in operation, and
to gain competitiveness the company began a careful study of American automobile
manufacturers, owing to perceived U.S. technical and economic superiority. Toyota
executives toured the production facilities of corporations, including the Ford Motor
Company, to observe the latest automobile manufacturing technology and in turn
implemented it in their own facilities, yielding a nearly immediate increase in efficiency. In
1957 Toyota Motor Sales, U.S.A., Inc., was established, and the following year the
company released the Toyopet sedan, its first model to be marketed in the United States;
it was poorly received because of its high price and lack of horsepower. The Land Cruiser,
a 4 × 4 utility vehicle released in 1958, was more successful. In 1965 the Toyopet,
completely redesigned for American drivers, was re-released as the Toyota Corona,
marking the company’s first major success in the United States.
During the 1960s and ’70s the company expanded at a rapid rate and began
exporting large numbers of automobiles to foreign markets. Toyota acquired such
companies as Hino Motors, Ltd. (1966), a manufacturer of buses and large trucks;
Nippondenso Company, Ltd., a maker of electrical auto components; and Daihitsu Motor
Company, Ltd. (1967). For several decades Toyota was Japan’s largest automobile
manufacturer. The company continued to thrive in the American market as well, gaining
a reputation for its low-cost, fuel-efficient, and reliable vehicles such as the Corolla, which
was released in the United States in 1968.
The company took its present name in 1982, when Toyota Motor Company was
merged with Toyota Motor Sales Company, Ltd. Two years later Toyota partnered with
General Motors Corporation in the creation of New United Motor Manufacturing, Inc., a
dual-brand manufacturing plant in California, where Toyota began U.S. production in
1986.
The company experienced significant growth well into the 21st century, with innovations
such as its luxury brand, Lexus (1989), and the first mass-produced hybrid-powered
vehicle in the world, the Prius (1997). In 1999 Toyota was listed on both the London Stock
Exchange and the New York Stock Exchange. The company continued to expand to new
markets—specifically targeting younger buyers with the launch of its Scion brand (2003)
and unveiling the world’s first luxury hybrid vehicle, the Lexus RX 400h (2005). However,
the company subsequently faced significant financial challenges: plummeting sales
stemming from the global financial crisis of 2008 as well as an international safety recall
of more than eight million vehicles in 2010, which temporarily halted the production and
sales of several of its top models. Beginning in 2014, millions of vehicles manufactured
by Toyota and several other car companies were recalled by regulators in the United
States because of potentially malfunctioning airbags produced by the Japanese
automotive-parts supplier Takata. The recall was “the largest and most complex safety
recall in U.S. history,” according to the National Highway Traffic Safety Administration.

In 1997 Toyota introduced the Prius, an electric-gasoline hybrid vehicle.

Today Toyota has assembly plants and distributors in many countries. In addition to
automotive products, its subsidiaries manufacture rubber and cork materials, steel,
synthetic resins, automatic looms, and cotton and woolen goods. Others deal in real
estate, prefabricated housing units, and the import and export of raw materials.
1) Outline the major macro environmental factors- demographic, economic,
natural, technological, and political and cultural- that have affected the
introduction and sale of Toyota Prius. How well has Toyota dealt with each of
these factors?
Demographic Factors
Demographics is an important factor influencing Prius sales. Demand for vehicles
has been rising since population is growing rapidly. The baby boomers, those who were
born after the World War II till 1966, are starting to choose hybrid cars rather than regular
cars, despite the higher prices of the first. Some of them are close to retirement and
therefore enjoy high salaries due to having worked all their lives. Researches show that
‘’links between displays of caring, environmental behaviors, and competition for status’’.
Before they make their choices, these people are more likely to compare the different
products. At the beginning, Toyota only focused on the “techies”; nowadays, they also
target eco-friendly customers, those who are interested by fuel-efficiency vehicles but
also a larger audience, like families and “the baby boomers”.

Economic Factors
It is important to know how the economic forces have an influence on the marketing
strategy of Toyota. Therefore, they include the current state of the economy, determine
consumers’ activities and buying decisions and can be affected by factors like the cost of
living, inflation and interest rates.
These forces had an important impact on Toyota’s strategies. After the financial
crisis, the worldwide automobile industry was in a bad situation, with sales decreasing.
Due to this crisis, Toyota lost about $6 billion in 2009, and its sales went down of 15.1%
on the previous year. However, sales of the Prius reached 2 million sales.
In addition, the situation about oil price in recent year has influenced the success
of the Prius. The rising cost of fuel price boosted the sales. A report by Consumer Reports
revealed that the Prius is one of the few hybrid cars to recover the premium price and
save their owners money after five years and 120,000 kilometers.
Competition among the manufacturers had urged Toyota to conduct more
research and development on Prius. Therefore, Toyota launched a second generation
Prius where they continue making amendment according to the latest technology and
preferences of their buyers.
Political Factors
Political forces are measures, policies and standards implemented by the
governments. These can influence the companies’ decisions. In this case, politics have
had a good impact on the marketing strategy of the car and influenced the sales in a good
way. The United States of America helps to promote eco-friendly vehicles by supporting
cars such as the Prius. The biggest incentives are monetary. The federal government
offered tax breaks (amounting thousands of dollars), free-parking places to whom will buy
the Prius.
Therefore, some states in the US permits for Hybrid to drive in HOV (High
Occupancy Vehicle) even if there is only one occupant. Some eco-friendly companies like
Google and Timberland joined the incentive by offering $5000 for the purchase of a hybrid
car. Insurance companies lastly offer discount to these cars.

Sociocultural Factors
These are forces that have an influence on the society’s concerns and culture and
they may lead to a change in attitude, beliefs, and lifestyles. Changes in lifestyles may
result in different values and priorities and can shift the consumers’ needs and wants.
Concerns about the environment are constantly increasing and people become
conscious that the world is facing a major problem of pollution and lack of resources.
There’s an increasing urgency of the population to bring into operation new pro
environmental behaviors. They try to reduce their impact on environment. In response to
this problem, Toyota introduced the Prius and nowadays, this innovation is beneficial to
the firm, because of the growing demand for eco-friendly vehicles.
Another trend in the society is that more households are getting two revenues. As
more women are joining the workforce, the disposable income is increasing and more
people can afford to buy a more expensive car or to have a second. The Prius would be
also considered as a car, used frequently rather than a second car, used for commuting
to work.
As families want to save money, Toyota is targeting a broader audience through
narrow targeting. Toyota hopes that families will choose the Prius as an affordable family
car with comfort, style and low cost servicing.
Technological Factors
The application of knowledge and creativity in solving problems and increasing
efficiency. Industries can get a competitive advantage if they can come up with technology
advances and new ideas. The Prius was the first hybrid car launched in the market.
Because of rising concerns about environment, pressure appeared on vehicle
companies, in order to develop green cars. Thus, Toyota saw this opportunity and
responded to it by introducing the first hybrid car in the world, the Prius. This one uses a
combination of petrol and electricity to power and motor and that leads to fuel economy.
In addition, gas emissions are lowered.
The Prius also uses new technologies. The “Solar Ventilation system” are panels
embedded in the roof that cool the cabin when it is parked during the day. The “Multi
Information display” provides feedback on fuel efficiency and power flow and the “Head
up display” shows speed and driving information on the car’s screen. There is also an
intelligent parking assistance and an active cruise control.

Natural Factors
Oil prices have been increasing so far. Consumers began to shift to vehicles that
are more fuel efficient and depend less of oil. Furthermore, fuel is a non-renewable
resource. Thus, consumers are more and more focusing on the environmental problems,
and they prefer to buy a car with low consumption and emission rather than any regular
car.
Toyota’s compromise with the environmental sustainability is expressed in its
vision as “Continued awareness for the Earth and environment” and “Lead the way to the
future of mobility”.

2) Evaluate Toyota’s marketing strategy so far? What has Toyota done well? How
might it improve its strategy?
Based on the market environment, Toyota has adopted a strong and effective
marketing strategy to launch the Prius. The firm targeted first a specific consumer and
then decided to broaden its horizon. The market for this car can be divided into two major
categories: Customers (B2B) and consumers (private buyers). Customers buy cars either
for hire/rental or for company fleets but these are few and already known to Toyota. The
environmental features make the Prius particularly interesting for business buyers,
because of its low operating cost.
Private people are the most important market. Consumers are either male or
female and between 30 and 50 years old. They are likely to be married and with family
responsibilities. Most part of them is well-informed and educated, and belongs to the
upper-middle class.
The target market identifies three profiles of potential buyers. First, the ‘techies’
are interested in the latest technology and must be the first to own the car. Then the
environmentally friendly consumers are aware of the actual environmental issues. They
would be keen on buying an eco-friendly car because they know the impact of motoring
for the earth. Consumers also interested by values and looking for the ideal combination
of high fuel economy and low cost of maintenance in the long run, as families, are targeted
by Toyota. All three groups are likely to be exposed to the same degree of outdoor and
ambient advertising.
Prius got a strong strategy by launching a “green car” in a period where issues
about the environment and pollution seem to be a current question of debates. Toyota
has used the penetration pricing strategy. Therefore, politics have helped the car to
become successful thanks to the benefits granted to Prius’ owners.
As the demand for hybrid cars is elastic, the company is able to compete with other
car makers in the United-States. Currently, Toyota controls about 16% of the market
share and has five major assembly plants in the U.S to support its distribution network.
The company did not offer online purchase facilities to the customers, but hired marketing
intermediaries to advertise the new hybrid. These intermediaries helped to provide
professional training to offer the best satisfaction. They also used taglines with emotions
that were very effective in this promotion.
Therefore, The Prius is promoted in different ways. Advertising, sales promotions
and personal selling are the most familiar ways of promotion. In addition, the Prius has
appeared in movies and TV shows.

3) In your opinion, what are the advantages of Toyota’s early entry into the hybrid
market? What are the disadvantages? Should Toyota have waited – like Ford, GM
and DaimChrysler?
The Prius is a car model that has a lot of benefits. We can outline its comfort, its
good performance. It has also a high scoring on crash tests, and a minimal impact on
environment. However, it remains reliant on fossil fuel which is non-renewable, and a
special attention is needed for repairs and servicing. In addition it requires many unique
components that may make long-term part availability difficult.
In the future, Toyota would have the opportunity to evolve into a “Plug-in Hybrid”
with higher capacity batteries and to spread into other market sectors. The company
would also be confronted to a high demand for hybrids since the awareness on
environmental issues have been increasing.
Unfortunately, various rumors attempting to undermine the Prius exist. These
rumors serve to decrease credibility or consumer confidence. For example, we can outline
“I heard that Prius is more damaging to the environment than a Hummer”, which is
completely false.
The firm might also improve its strategy by offering a wider range of products.
Currently, there are only 4 types of Toyota Prius on the Market. The first model was very
basic, Toyota got a good idea to improve the second model, with specifically technological
improvements. Therefore, we can focus on its internal marketing, how Toyota could
reduce its costs without compromising the product’s quality and customers’ satisfaction.
 As the world is running short of resources, especially fuel, Americans have decided
to solve the problem through introducing the Hybrid Technology. However nowadays,
consumers still prefer to buy more performing cars and big engines like trucks and so on.
We can say that the current approach to hybrids is seemed to be not working right now.
Due to the last financial crisis, people focus on cheapest prices and good value cars
(compromise between quality and price) and do not especially think about environment.
Putting hybrid motors in each car do not seem to be an efficient way nowadays. Although
people are getting more concerned about environmental issues, the approach to hybrids
could be at its best in a few years. This technology should be present in each car and
presented like a “norm” for environment and against pollution.