Yang 1Bobby YangMGMT 458:002Professor Edgell Business-Level Strategy Analysis: LexusI. Company and Industry Established in 1989, Lexus is a division of Japan’s most prestigious automanufacturer, Toyota Motor Corporation. Along side with Lexus, includes Toyota, Scion,Daihatsu, and Hino Motors. These companies form the Toyota Motor Corporation, which isthe world’s third-leading auto manufacturer. Together, the Corporation employsapproximately 190,000 employees in the United States and investments (in the U.S.) totalto $12 billion (Lexus, 2010). Today, Lexus is marketed and sold throughout 70 countriesworldwide (Wilson, 2009). Its business-level strategy involves a mix of broad differentiation strategy and best-cost provider strategy. Lexus is Toyota’s luxury vehicle division. The establishment of thisdivision was due to the creation of Acura, which is Honda Motor Company’s luxury division,in 1986 (Dawson, 2004). The division was also established to enter the luxury vehiclemarket as a best-cost provider. For instance, the first Lexus vehicle, LS 400, was created tocompete against Mercedes Benz and BMW’s mid-sized vehicles. With similar performanceand build quality, the LS 400 was priced a lot cheaper, by at least $15,000, compared toBMW’s 735i and Mercedes’ 420 SEL. As a result, the European manufacturers were caughtby surprise because of a decrease in their product’s sales (Dawson, 2004). Lexus’specialization themes consist of product reliability and engineering design. Quality,reliability, and enhanced customer satisfaction is associated with the Lexus marque brand. Generating approximately $365.2 billion in the United States, the automotiveindustry involves the designing, developing, manufacturing, marketing, and selling ofmotor vehicles. Of this amount, Lexus’ parent company, Toyota Motor Corporation, holds15.9% of the total market share (Derby, 2010). In the past five years, the automotiveindustry, as a whole, has been struggling in the global economy due to the worldwiderecession and the increase of prices on fuel. Although many consumers withdrew frompurchasing a vehicle at the time, those that did make a purchase aimed specifically for
Yang 2more fuel-efficient vehicles, hybrids. Lexus, and the Toyota Corporation as a whole,benefitted from the time period and may continue to do so (Wilson, 2009). Lexus’ obtains a large consumer base due to its variety in their product line. Thecompany manufactures vehicles such as sedans (IS, GS, LS models), SUVs (RX, GX, and LXmodels), convertibles, and coupes (SC model) (Lexus, 2010). In addition to the listedvehicles, most of the models are accompanied with a hybrid option if the consumer wishesto save money on fuel. Most of Lexus’ consumers consist of middle to wealthy classmenbecause of their luxury vehicle status. Its major competitors include Mercedes-Benz,Infiniti, BMW, Audi, Lincoln, and Acura. The competitors listed all carry similar productlines as well as maintain their focus on the luxury aspect of vehicles.II. Situation Analysis: Porter’s 6-forces analysis and SWOT Using Porter’s 6-forces model, below is an analysis of the automotive industry in theUnited States. Threat of New Entrants: The automotive industry is a sophisticated industry,especially for luxury vehicles, to take part in. It requires a lot of capital, time, andengineering investment to successfully enter into this industry. There are also manyexisting companies that are already participating in the United States market. Therefore,within the next year or two, threats of new entrants would be non-existent. However, it is adifferent scenario within Asian markets, though not many may be able to afford luxuryvehicles. Rivalry Among Car Manufacturers: Strong competition exists within the automotiveindustry. The average consumers are constantly looking for the best dollar value ofvehicles. Yes, quality also comes into play when purchasing a vehicle, however, a car maybe the second most valuable asset in the average person’s life. Competitors within theindustry are constantly coming out with new cutting edge technology, discounts, and after-sale specials for vehicles in order to increase sales (Derby, 2010). Substitute Products: There are different approaches in finding substitute productswithin the automotive industry. One approach would be the type of vehicle a consumerwould want to purchase. Would one want something of luxury or speed? The main purposeto own a car is specifically for transportation. In another approach, there are manyalternatives to purchasing a car. Would one consider purchasing a motorcycle, scooter, or
Yang 3even a bicycle? These options are a fraction of the cost of a car. Lastly, would a consumerwant to save their money and take public transportation or car pool for a friend? Buyer Power: It is safe to say that it is a consumer’s market in the automotiveindustry. With the existence of many competitors and availability of substitute products,many buyers in the market often find themselves bargaining with their carsalesman/dealership. It is well known that dealerships often mark up the prices on vehicleswith fees that include shipping and a cup of coffee from the showroom that has a $100value. Cars are expensive assets that require a one-year turnover, therefore, mostdealerships will negotiate in order to make a sale. Supplier Power: On a business level, a dealerships’ main supplier is its owncorporation. The supplier and company are equally dependent on each other because ofproduction and sales forecasts. Manufacturers would produce X amount of cars per yearand expect the independent dealers to sell these cars. On the other hand, if the vehicle is abest buy, the dealerships depend on the manufacturer to supply more (Derby, 2010). Below is an in depth, yet concise, SWOT analysis of Toyota’s luxury vehicle division,Lexus. Strengths: Lexus marque has strong brand equity and strong global presence. With aparent corporation that is the world’s third leading auto manufacturer, Lexus carries aremarkable upper hand in the automotive industry. As stated on Lexus’ Corporate website,“The brand reputation grew quickly until, barely a dozen years after its founding, Lexusbecame Americas best-selling line of luxury motor vehicles (Lexus, 2010).” Not only istheir recognition in America, but Lexus’ caters to 70 countries worldwide (Wilson, 2009).Many consumers also acknowledge Toyota’s Production Systems. The culture of thecompany is to manufacture reliable and quality products at an efficient rate (Vasilash,2009). “No matter where a Lexus is built, one thing remains constant: The idea that everystep of the production process should reflect the Pursuit of Perfection (Lexus, 2010).” Weaknesses: All, with the exception of one, of Lexus’ manufacturing facilities arelocated in Japan. Last year, Lexus sold 215,965 vehicles in the United States (Ramsey,2010). With the United States being its top selling country, Lexus spends a significantamount of money on shipping costs, and also, the amount of time that dealerships wait forthe vehicles. Secondly, compared to Mercedes Benz and BMW, the driving performance on
Yang 4Lexus products do not equate to these companies. Though the performance reachescustomer satisfaction, Lexus products are not the “ultimate driving machines.” Opportunities: The growing economies in China and India are becoming globallyrecognized. These markets have the ability to expand and citizens of these countries areacquiring money. China also has the world’s largest auto market (Kutamura, 2010). Asyears progress, consumers become more environmentally friendly. As of today, Lexusalready have the reputation for manufacturing environmentally friendly vehicles. Threats: Within the past year, Toyota has recalled thousands of vehicles due tooperational malfunctions (Dapena, 2010). With the existing recalls, this questions thereliability of Toyota’s Production System. With consumer doubt, vehicle sales may decreasewhich may not help the second threat of a stiff competition. In an industry with strongcompetition, there is almost no room for mistakes.III. Strategy Options: Below are the strategy options that are based on the TOWs matrix. Some of thesestrategy options mentioned are in the process/already occurring. The possible strategy options for Lexus to generate more revenue are based on theIndustrial Organization I/O model. In order to generate higher revenue, Lexus has theopportunity to take part in the emerging markets of China and India. As of this year, theglobal recession has come to an end, therefore, the production, forecasting, and marketingof Lexus vehicles should be as effective as possible (Irwin, 2010). If Lexus chooses to beconservative on production, a possible strategy may be to concentrate more on researchand development. One of their weaknesses includes the lack of performance engineering.With the availability of time, Lexus may conduct research on post-recession consumerbehaviors to imply what the next company step will be. By doing so, it may be possible tobreak into new consumer segments or gain a higher volume in the U.S. market. Lastly,Lexus has another option of expanding its facilities. By expanding production facilities, inthe United States for instance, Lexus has the chance to cut shipping costs and deliverydelays to its dealerships. These options have their ups and downs. Even though therecession is over, the demand for vehicles may not come into play until the market issecure. Therefore, the forecasting of production needs to be efficient and accurate.
Yang 5Conducting research and investing more in research and development may require timeand at the end of research, Lexus may already be late. With the utilization of Lexus’ current competencies, based on the Resource-Basedmodel, the company has already made the jump in obtaining the reputation of being anenvironmentally friendly car manufacturer. The strategy can possibly overcome the threatof rising oil prices and maintenance costs. With the presence of the Toyota ProductionSystem, Lexus could perhaps invest in improving the production system preventing anyfuture recalls to maintain a reliable reputation. With their existing brand equity and globalpresence, Lexus and Toyota Corporation still has room to strengthen these aspects. Similarto one of its rivals, BMW, Lexus should design and manufacture a small-sized vehicle. Bydoing so, Lexus has the opportunity to expand to more of the younger consumers byoffering a high-end luxury sport compact car. Recommendations The original strategies of Lexus shall remain the same because of the direction themarket is flowing. It’s original business-level strategy that consists of a broaddifferentiation and low-cost provider strategy fits well with the current economicconditions. The recession is over and consumers are beginning to gain a source of incomeagain. Though many may not be able to afford a Mercedes or BMW, consumers cancompromise with a Lexus, which is just as luxurious as the former two companies butcheaper. Lexus has incorporated two great strategies. (1) Offering hybrids for most of itsproduct line up and (2) Designing and manufacturing lost-cost cars for the China and Indiamarket (Kutamura, 2010). By offering hybrid options, Lexus covers the environmentallyfriendly consumers with a wide variety of vehicles. Secondly, as stated above, developing a luxury sport compact vehicle may become abest seller for Lexus. Similar to the BMW 1 series, Lexus has the opportunity to reach out toyounger consumers with an affordable car. Not only would this approach reach out tomore consumers but also it may solve the threat of change in demographics. If a person’sincome has changed and can no longer afford a mid-sized Lexus, this specific consumermay consider downsizing due to financial reasons. Personally, I am comfortable with Lexusvehicles and its performance. Many, however, may disagree and there may be plenty ofroom for improvement.
Yang 6Internal Strategic Factors Weight Rating Weighted Comments ScoreStrengthsS1 Strong brand equity .20 5 1 Being the luxury vehicle division of Toyota Motor Corporation, allows Lexus to become its own brand.S2 Lexus (Toyota) .15 4 .6 Manufacturing quality products efficientlyProduction Systems- has been the culture for all divisions ofmanufacturing efficiency Toyota Motor Corporation.and product qualityS3 Diverse vehicle product .05 3.6 .18 Lexus group carries an intense variety ofline up reaching out to a vehicles that cater to drivers of all ages.variety of customersegmentsS4 Strong Global Presence .10 3.2 .32 Lexus vehicles are available in 76 worldwide countries.S5 Enhanced training for .05 2.8 .14 Fuji Lexus college trains and recruitsprospective Lexus dealers future Lexus dealers.WeaknessesW1 Production of vehicles .15 2.7 .41 High cost of shipping and delivery waitis concentrated in Japan time.W2 Reduction in R&D .05 2 .1 Cutting operation costs because the recentcosts and capital spending global recession.due to decrease in sales.W3 Lack of a small vehicle .10 2.1 .21 The smallest vehicle that Lexus offers is aproduct in major markets mid-sized vehicle. Competitors’ may/already have developed a small vehicle.W4 Not having a dominant .10 2.9 .29 Although Lexus produces andlevel of mechanical design manufactures quality products, theas opposed to a high level performance of its actual vehicles is notof production. the best of the market.W5 Major job layoffs due .05 2.6 .13 Lay-offs could affect shareholders’ decisionto lack of sales in North in investment as well as faith in theAmerica internal work environment.Total Scores 1.00 3.38 Internal Factor Analysis Summary (IFAS) Table
External Strategic Factors Weight Rating Weighted Comments Score Yang 7OpportunitiesO1 Growing demand for .20 4 .8 There are Hybrid options for most of Lexus’hybrid electric/fuel- product lines.efficient vehicles.O2 Emerging markets in .10 3.6 .36 This opportunity allows Lexus to enter in aChina and India market sector with high demand of vehicles and economic growth.O3 The end of the global .10 3 .3 The global recession was a result ofrecession decrease in vehicle sales throughout the industry. With the recession over, manufacturers may want to pick up production again.O4 Ability to adjust to .05 2.8 .14 With the recession recently ending, Lexuspost-recession demands has time to research consumer needs in order to increase vehicle sales.O5 Finding alternative .05 2.4 .12 Lexus may have the opportunity to relocatelocations for production. its production of vehicles. This may be costly, however it may save shipping costs and delays.ThreatsT1 Rising oil prices and .10 2 .2 The more expensive it is to operate a carother car maintenance will lead to a lesser desire of owning acosts vehicle.T2 Alternative forms of .05 1.8 .09 Governments in metropolitan citiestransportation encouraged encourage citizens to car pool or takeby government. public transportation in order to lower emissions. With the availability of alternative transportation, Lexus may lose out on vehicle sales.T3 The recent recall of .20 2.8 .56 There have been massive recalls onToyota Motor Corporation millions of vehicles by the Toyota Motorvehicles and the affect of Corporation. It has made headline newsmedia about the issue. and created bad publicity for the corporation as a whole.T4 Stiff competition and a .10 2.6 .26 As with any other car manufacturer, Lexusfluctuating market faces tremendous competitive rivalry in the car industry.T5 Change in .05 2 .1 Lexus produces a variety of cars such asdemographics (ie. Income, SUVs and family sedans. With possiblefamily size, etc.) change in demographics, the demand for Lexus vehicles may decline.Total Scores 1.00 2.93 External Factor Analysis Summary (EFAS) Table
Yang 8Strategic Factors Weight Rating Weighted S I L Comments Score H N O O T N R M G T D T.S1 Strong brand .20 5 1 X Being the luxury vehicle division ofEquity (S) Toyota Motor Corporation, allows Lexus to become its own brand.S2 Lexus (Toyota) .10 3.8 .38 X X Manufacturing quality productsProduction Systems- efficiently has been the culture for allmanufacturing divisions of Toyota Motor Corporation.efficiency andproduct quality (S)S4 Strong Global .15 3.6 .54 X Lexus vehicles are available in 70Presence (S) worldwide countries.W1 Production of .10 3 .3 X X High cost of shipping and delivery waitvehicles is time.concentrated in Japan(W)W4 Not having a .05 2.8 .14 X Although Lexus produces anddominant level of manufactures quality products, themechanical design as performance of its actual vehicles isopposed to a high not the best of the market.level of production.(W)O1 Growing demand .10 3 .3 X X There are Hybrid options for most offor hybrid Lexus’ product lines.electric/fuel-efficientvehicles. (O)O2 Emerging .10 3 .3 X X This opportunity allows Lexus to entermarkets in China and in a market sector with high demandIndia (O) of vehicles and economic growth.T3 The recent recall .15 2.6 .39 X X There have been massive recalls onof Toyota Motor millions of vehicles by the ToyotaCorporation vehicles Motor Corporation. It has madeand the affect of headline news and created badmedia about the publicity for the corporation as aissue. (T) whole.T4 Stiff competition .05 2.4 .12 X As with any other car manufacturer,and a fluctuating Lexus faces tremendous competitivemarket. (T) rivalry in the car industry.Total Scores 1.00 3.47 Strategic Factor Analysis Summary (SFAS) Table
Yang 9 Internal Factors (IFAS Table) Strengths (S) Weaknesses (W) S1 Strong brand equity W1 Production in Japan S2 Lexus Production W2 Reduction in costs Systems W3 Lack of small vehicles S3 Diverse Product Line W4 Lack of performanceExternal Factors S4 Strong Global presence engineering(EFAS Table) S5 Enhanced Employee W5 Major lay-offs training Opportunities (O) SO Strategies WO StrategiesO1 Growing demand for Hybrids Easy expansion into China/India Design and manufacture aO2 Emerging markets in due to Lexus’ marque brand and vehicle of smaller stature for theChina/India strong global presence. China/India markets.O3 End of Global Recession Respond to post-recession Establishing a new productionO4 Adjusting to post-recession demands with efficient production facility would increase job force.Demands and forecasting of products. Invest more into the engineeringO5 Alternative Production Although costly, consider a new of performance Hybrids.locations production location with the advantage of having a strong global presence. Threats (T) ST Strategies WT StrategiesT1 Rising oil prices and With the offering of Hybrid The production of smallermaintenance costs options for most of Lexus’ vehicles can solve the threat ofT2 Alternative forms of products, Lexus may be able to change in demographics.transportation overcome the increase on fuel Reduce R&D costs in order toT3 Corporation Recalls prices. sell more affordable vehiclesT4 Stiff Competition Improve Lexus’ Production allowing the demand for non-T5 Change in Demographics systems in order to reduce the hybrids to increase. possibility of recalls. Increase research in Increase brand equity and global performance engineering to presence to overcome stiff create an all-around luxury competition. vehicle to overcome competition. TOWS Matrix
Yang 10 Works CitedDawson, Chester. Lexus: The Relentless Pursuit. New York, NY: Wiley, 2004. Print.Derby, Sarah Jane. " Automobile Wholesaling Industry Research in the US by IBISWorld." IBISWorld USA - Industry and Company Research Reports and Information. N.p., n.d. Web. 13 Oct. 2010. <http://www.ibisworld.com/industry/default.aspx?indid=913>.Irwin, Neil, and Nia-Malika Henderson. "Recession is officially over, but anxiety lingers." Washington Post - Politics, National, World & D.C. Area News and Headlines - washingtonpost.com. N.p., n.d. Web. 13 Oct. 2010. <http://www.washingtonpost.com/wp- dyn/content/article/2010/09/20/AR2010092006355.html>.Kitamura, Makiko. " Toyota Plans Low-Cost Car for China, India, Thailand - Bloomberg ." Bloomberg - Business & Financial News, Breaking News Headlines Web. 13 Oct. 2010. <http://www.bloomberg.com/news/2010-10-05/toyota-to-sell-21st-century-corolla-in- thailand-funo-says.html>."Lexus Japan Layoffs | The Lexus Enthusiast." The Lexus Enthusiast | Lexus News & Information Blog. N.p., n.d. Web. 13 Oct. 2010. <http://lexusenthusiast.com/2008/08/06/lexus-japan-layoffs/>."Lexus Manufacturing." Lexus: New Luxury Cars and SUVs from Lexus USA. N.p., n.d. Web. 13 Oct. 2010. <http://www.lexus.com/about/corporate/manufacturing.html>.Ramsey, Mike . "Toyota‚Äôs Lexus Holds Off BMW, Keeps Luxury Lead for 10th Year - Bloomberg." Bloomberg - Business & Financial News, Breaking News Headlines. N.p., n.d. Web. 13 Oct. 2010. <http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2txYe.J5ma8>.Vasilash, Gary. "Feature Article - Lexus Comes into Its Own - 09/06." Automotive Design &
Yang 11 Production - Field Guide to the Automotive Revolution. N.p., n.d. Web. 13 Oct. 2010. <http://www.autofieldguide.com/articles/090601.html>.Wilson, Tom. "View the latest first drive review of the 2010 Lexus RX 350 & RX 450h. Find pictures and comprehensive information about Lexus cars at RoadandTrack.com." Automotive Magazine - Expert Car News | RoadandTrack.com. N.p., n.d. Web. 13 Oct. 2010. <http://www.roadandtrack.com/tests/drives/2010-lexus-rx-350-rx-450h>. Student StatementOn my honor, I have neither given nor received unauthorized aid on this assignment.___________________________Bobby Yang