FT MBA 2007 - HKUST Group G Stefano Di Genua David Dore Hilda Kwok Mark Li Sushma Srinivas LEXUS GLOBAL BRANDING

LEXUS’S CHALLENGE GLOBAL BRANDING As Lexus expands around the world, there is growing stress on the brand

It maintains its constant position above the Earth LEXUS’S CHALLENGE GLOBAL BRANDING Lexus Brand Stakeholders The Lexus brand must be clear, consistent and credible to all stakeholders

LEXUS’S CHALLENGE OUTLINE BRAND VALUE drivers behind the brand GLOBAL POSITIONING US, Japan, EU, China LEXUS 360 our approach to brand governance RECOMMENDATIONS

BRAND VALUE drivers behind the brand

GLOBAL POSITIONING US, Japan, EU, China

LEXUS 360 our approach to brand governance

RECOMMENDATIONS

“ Even the best managed companies have opportunities to better leverage their brand and generate more value for stakeholders” [Millward Brown Optimor, BRANDZ] LEXUS BRAND VALUE BRAND VALUE

LEXUS Brand Value in 2007 5,421,000,000 US$ (*) (*) according to BRANDZ LEXUS BRAND VALUE BRAND VALUE

Intangible Earnings : Corporate Earnings based on analysts reports, etc. Brand Contribution : Portion of Intangible Earnings attributable to brand Brand Multiple : Calculated based on market valuations (*) This approach is suggested by BRANDZ and Interbrand LEXUS BRAND VALUE OUR APPROACH (*) Corporate Earnings calculation based on discounted EVA (Economic Value Added) Evaluation of NOPAT, WACC and Capital Employed Intangible Earnings and Brand Earnings defined through % analogy of BRANDZ Brand Contribution and Brand Multiple factors calculated and then averaged in terms of Total Sales by country 331,914,360 356,897,160 15.19 Brand Multiple 494,615,010 531,844,100 0.67 Brand Contribution 31 % 27 % 42 % 209,893,900 225,692,370 Corporate Earnings 5,041,530,000 5,421,000,000 BRAND VALUE (*) 151,175,050 162,553,820 Brand Earnings 133,546,050 143,597,910 Intangible Earnings 2006 2007

Intangible Earnings : Corporate Earnings based on analysts reports, etc.

Brand Contribution : Portion of Intangible Earnings attributable to brand

Brand Multiple : Calculated based on market valuations

(*) This approach is suggested by BRANDZ and Interbrand

Corporate Earnings calculation based on discounted EVA (Economic Value Added)

Evaluation of NOPAT, WACC and Capital Employed

Intangible Earnings and Brand Earnings defined through % analogy of BRANDZ

Brand Contribution and Brand Multiple factors calculated and then averaged in terms of Total Sales by country

“ If we apply a lot of localization, we may be able to increase volumes faster, but that’s not the right approach. We have to maintain the identity of the brand. That’s different from Toyota, which should be local. Lexus should be global” [Yuki Funo , Toyota’s Board Member and Automakers Top Manager in North America ] LEXUS GLOBAL BRANDING

Characteristics evaluated in Products: Design, Performance, Price, Consumption, Space, Quality, Image, Driving experience, Security, Innovation. Characteristics evaluated in Brand: Innovation, Domain, Reputation, Affinity, Service, Performance, Quality, Recognition, Message, Passion, Integrity LEXUS IN THE WORLD NORTH AMERICA THE MARKET US luxury car market divided into comfort, performance and prestige Home to some of the greatest brands FACTS Introduced in the USA in 1989, in Canada in 1990 In USA, Lexus associated with a main benefit, quality (*) (*) durability, fit and finish, quality, reliability, and refinement THE CUSTOMERS They rank fuel economy and safety features in the middle of the pack Choice driven by purchase price, value, reliability, and styling

THE MARKET

US luxury car market divided into comfort, performance and prestige

Home to some of the greatest brands

FACTS

Introduced in the USA in 1989, in Canada in 1990

In USA, Lexus associated with a main benefit, quality (*)

(*) durability, fit and finish, quality, reliability, and refinement

THE CUSTOMERS

They rank fuel economy and safety features in the middle of the pack

Choice driven by purchase price, value, reliability, and styling

Characteristics evaluated in Products: Design, Performance, Price, Consumption, Space, Quality, Image, Driving experience, Security, Innovation. Characteristics evaluated in Brand: Innovation, Domain, Reputation, Affinity, Service, Performance, Quality, Recognition, Message, Passion, Integrity LEXUS IN THE WORLD JAPAN THE MARKET Tax prices have inflated the prices of cars In 2006 it grown by around 10% FACTS Launched 2 models in 2005 that turned out to be too sporty Lexus wants to be perceived at the same level of European brands THE CUSTOMERS They prefer European brands to Japaneses’ High brand conscious

THE MARKET

Tax prices have inflated the prices of cars

In 2006 it grown by around 10%

FACTS

Launched 2 models in 2005 that turned out to be too sporty

Lexus wants to be perceived at the same level of European brands

THE CUSTOMERS

They prefer European brands to Japaneses’

High brand conscious

Characteristics evaluated in Products: Design, Performance, Price, Consumption, Space, Quality, Image, Driving experience, Security, Innovation. Characteristics evaluated in Brand: Innovation, Domain, Reputation, Affinity, Service, Performance, Quality, Recognition, Message, Passion, Integrity LEXUS IN THE WORLD EUROPE THE MARKET World's No. 1 luxury car market Gas can cost twice as much as it does in the United States A car in Europe tends to be more of a luxury good FACTS In 2006, Lexus sold fewer than 37,000 vehicles in Europe In Europe, hybrids are turning out to be Lexus's big advantage THE CUSTOMERS They appreciate innovations and advanced technology People buy cars because they like them

THE MARKET

World's No. 1 luxury car market

Gas can cost twice as much as it does in the United States

A car in Europe tends to be more of a luxury good

FACTS

In 2006, Lexus sold fewer than 37,000 vehicles in Europe

In Europe, hybrids are turning out to be Lexus's big advantage

THE CUSTOMERS

They appreciate innovations and advanced technology

People buy cars because they like them

Characteristics evaluated in Products: Design, Performance, Price, Consumption, Space, Quality, Image, Driving experience, Security, Innovation. Characteristics evaluated in Brand: Innovation, Domain, Reputation, Affinity, Service, Performance, Quality, Recognition, Message, Passion, Integrity LEXUS IN THE WORLD CHINA THE MARKET China is the fastest growing market for luxury products The most competitive market for all luxury car makers FACTS The only brand that provides a 4 years warranty It invites every potential buyers to drive every car they want to buy THE CUSTOMERS Wealthy Chinese are only a small percentage of the current population They are picky and want to be unique

THE MARKET

China is the fastest growing market for luxury products

The most competitive market for all luxury car makers

FACTS

The only brand that provides a 4 years warranty

It invites every potential buyers to drive every car they want to buy

THE CUSTOMERS

Wealthy Chinese are only a small percentage of the current population

They are picky and want to be unique

“ The best brands follow their stakeholders’ journeys so that they provide effective, consistent and appropriate messaging throughout the experience” [ Jez Frampton, Chief Executive Interbrand ] LEXUS 360 THE NEW LEXUS BRAND GOVERNANCE

Brand Voice Clarity Lexus 360 = Brand Expression Consistency Brand Message Credibility LEXUS 360 3 POINTS FOR BRAND GOVERNANCE

Brand Governance Steering Committee HQ Regional Brand Stewards Central Brand Data Repository Brand Focus groups Customers Community Employees Distributors Management Internal Stakeholders External Stakeholders Lexus 360 = Clarity + Consistency + Credibility Brand decision makers Brand Enablers LEXUS 360 BRAND GOVERNANCE STRUCTURE

Unified Brand Identity awareness as a mean to attaining high fidelity adherence to Brand Values across multiple markets, stakeholder groups and channels LEXUS 360 CLARITY Lexus 360 = Clarity + Consistency + Credibility

Lexus Value focused Events Host Hybrid Technology Symposiums; Benefits : Communicate LEXUS’s hybrid design Innovations Build awareness and acceptance among the masses Sustain competitive advantage over rivals Collaboration with industry and technology fraternity LEXUS 360 CLARITY - RECCOMENDATIONS Lexus 360 = Clarity + Consistency + Credibility

Lexus Value focused Events

Host Hybrid Technology Symposiums;

Benefits :

Communicate LEXUS’s hybrid design Innovations

Build awareness and acceptance among the masses

Sustain competitive advantage over rivals

Collaboration with industry and technology fraternity

Maintain Consistency of Brand Image across channels and segments, to build a mechanism to track exceptions and ensure a unified Brand Experience for the Customer Lexus 360 = Clarity + Consistency + Credibility LEXUS 360 CONSISTENCY

Repository of all Brand related feedbacks Track Qualitative, Quantitative data for every interactions Measure internal employee factors of Brand Awareness, Trust and Commitment Circulate a Scorecard to the Brand Steering Committee for periodic review Lexus 360 = Clarity + Consistency + Credibility LEXUS 360 CONSISTENCY - RECCOMENDATIONS LEXUS Listening System

Repository of all Brand related feedbacks

Track Qualitative, Quantitative data for every interactions

Measure internal employee factors of Brand Awareness, Trust and Commitment

Circulate a Scorecard to the Brand Steering Committee for periodic review

Optimize & sustain Brand Loyalty and Credibility among customers, community LEXUS 360 CREDIBILITY Lexus 360 = Clarity + Consistency + Credibility

LEXUS for Life Luxury Chauffer driven service to customers across the globe; Benefits: Introduce new models, technology to potential customers Increase customer touch points Boost Word-of-Mouth publicity Value added service to existing customers LEXUS 360 CREDIBILITY - RECCOMENDATIONS Lexus 360 = Clarity + Consistency + Credibility

LEXUS for Life

Luxury Chauffer driven service to customers across the globe;

Benefits:

Introduce new models, technology to potential customers

Increase customer touch points

Boost Word-of-Mouth publicity

Value added service to existing customers

“ Branding requires a clear and consistent message” [P. Kotler, G.Armstrong] LEXUS BRANDING

Customers Community Management Employees Distributors LEXUS 360 SUMMARY Brand Earnings: 162,553,820 US$ Brand Earnings: 186,962,380 US$ Customers Community Management Employees Distributors

Q&A THANK YOU!

LEXUS IN EUROPE REASONS Lexus brand appears to be positioned in the same place of Mercedes Let’s then look at a comparison to the top models to understand where Lexus stands out: 79 80 TOTAL 7 V12 bi-turbo, 5500cc 10 Hybrid V8 dir inj, 4960 cc Innovation 9 Powerful brakes, reactive steering 9 Electronic controls that change the steering incidence Security 9 Lively 6 Relaxed Driving experience 6 Customers have mixed view on the car. Many would rather buying a different brands for the same price 8 Customers look at Lexus as synonim of eco-friendly cheaper luxury car Image 10 Top quality in all the parts 10 Top quality in all the parts Quality 9 Space is more than enough 7 Hybrid engine limits space Space 6 Mixed: 14.3 l/100km City: 21.7 l/100km 10 Mixed: 9. l/100km City: 11.3 l/100km Consumption 6 € 150,000 7 € 110,000 Price 8 4.6 sec for 0-100 km/h 7 6.3 sec for 0-100 km/h Performance 9 Sportive, innovative; clean cockpit 6 Elegant, traditional; too many buttons Design Mercedes S 600 Lexus LS 600h Parameter

Lexus brand appears to be positioned in the same place of Mercedes

Let’s then look at a comparison to the top models to understand where Lexus stands out:

“ If brands are managed correctly they can move seamlessly across geographies, creating demand for their products around the world” [ Jez Frampton, Chief Executive Interbrand ] LEXUS IN THE WORLD GLOBAL POSITIONING

“ Brands are important assets requiring proactive and consistent investment, management, and measurement” [ Jez Frampton, Chief Executive Interbrand ] LEXUS 360 BRANDING