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Strategic analysis of lexus


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Strategic analysis of lexus

  1. 1. STRATEGICAL ANALYSIS OF LEXUS: Introduction: In recent years brand management has become one of the most important variables in marketing and in the wholesale business strategy of a company. The main purpose of brand management is to increase the product’s perceived value to the customer and thereby increase brand equity. A brand is like a promise made to the customers of the level of quality they can expect with future purchases of the same product. When the brand strategy is well done it may increase sales, profit, market participation and the overall reputation of the company’s products. Lexus is the luxury car vehicle division of the Japanese automaker Toyota Motor Corporation. Lexus brand name vehicles are sold in North and South America, Europe, Asia, Oceania and Africa. It started its operations in 1989 selling only in the United States; it was finally introduced in Japan in August 2005, where the brand reputation did not succeed as well as in the United States market. Historical Background: Toyota Motor Company was established in 1937 by Kiichiro Toyoda. However, it started the production of automobiles some years later as a division of Toyoda Automatic Loom Works, in 1933. He was interested in automobile production, so in 1929 he travelled to Europe and the United States where he studied Gasoline- Powered Engines in 1930. Toyoda Automatic Loom Works was supported by the Japanese Government in order to develop Automobile production. In 1934, the division produced its first Type A Engine, which was used by the Model A1 passenger car in May 1935 and the G1 truck in August 1935. The production of AA passenger car started in 1936. Although the founder family’s name is Toyoda, the company’s name was changed in order to separate work life from home life, to simplify the pronunciation, and to give the company a happy beginning because in Japan Toyota is considered luckier than Toyoda due to number of strokes that it takes to write Toyota Katakana. In 1982, the Toyota Motor Company and Toyota Motor sales merged into one company, the Toyota Motor Corporation. Two years later, Toyota entered into a joint venture with GM called NUMM I, the New united Motor manufacturing Inc. operating an automobile manufacturing plant in Fremont, California. The factory was an old General Motors plant that had been closed for several years. Toyota then started to establish new brands at the end of the 1980s, with the launch of their luxury division Lexus in 1989. LEXUS: In 1983, Toyota started a project named F1. The F1 project, which eventually became known as the Lexus LS 400, aimed to develop a luxury car that would expand Toyota’s product line. The
  2. 2. F1 project was inspired by the success of the Toyota Supra sports car and the luxury Toyota Cressida models. In 1985, Toyota researchers visited the U.S. in order to conduct focus groups and market research on luxury Car consumers. They observed many characteristics of the lifestyles and tastes of North American upper class consumers. Toyota’s market research concluded that a separate brand and sales channel were needed to present its new luxury flagship and plans to develop a new network of dealerships were made. In 1989, after an extended development process involving 60 designers, 24 engineering teams, 1400 engineers, 2300 technicians, 220 support workers, around 450 prototypes and over $1billion in costs, the F1 project was completed. The Lexus debuted in January 1989 at the North American International Auto show in Detroit. GROWTH:
  3. 3. Lexus luxury line aims to grow 10 percent annually for the next thirty years as it expands in the U.S. , its biggest market as well as in emerging markets from China to Vietnam. It expects the biggest volume gains from the U.S., even as emerging markets reduce the American share of the unit’s global deliveries. SWOT OF LEXUS: Strengths: The focus of Lexus design efficiency is to build a vehicle that is exceptionally lean in its use of raw materials, its fuel and its impact on the environment—all the while pushing the boundaries of performance, luxury and quality. All Lexus engines employ continuously Variable Valve Timing with intelligence (VVT-i), which eliminates the compromise between low-end torque and high-rpm horsepower by optimizing valve overlap throughout the engine’s speed range, not just at one or two set speeds which is the main strength of Lexus. The world’s first eight- speed automatic transmission. This advanced transmission allows the driver to shift manually using either the console or steering wheel mounted vehicle. The vehicle dynamics integrated management which includes electronically controlled brakes that reduces the damages caused by accidents. Weakness: Lexus produces its cars that look similar to Toyota models. For example, Toyota Camry and Lexus ES and Toyota Land Cruiser and Lexus LX. These two models almost looks
  4. 4. similar that declines its share in the market. Both vehicles are marvellous but there are major similarities between both of them. Its technology failed to control the heat that is generated by the engine which leads to shrinking and meltdown of back seats. Opportunities: Most of the automobile industries including Lexus concentrate more on their external value system rather than internal value system which resulted in overcapacity, complex and inflexible production practices. These days Customer expectations of vehicle quality, reliability, safety, and utility are at all-time high. At the same time, worldwide overcapacity has put pressure on the industry to maintain, and even reduce, vehicle price. Lexus is integrated with various technology providers to achieve those that customer standards that later help on to achieve its goals. Technological advancements in the automobile industry also provides Lexus with various opportunities like accommodating & expanding automobile market and leveraging the early movers advantage in hybrid & concept car segments. The advancement also helps to acquire newer customers by increasing market penetration. More inclination of affluent customers to purchase international brand and augmenting the distribution and service network. Threats: Limited exposure to potential customers as it has seminal over sports and costly cars only. Technology is not confined to one company, it is universal by this other competitors can also improve their technology and increase their competitive advantage. Product innovations and frugal engineering by competitors enables them to produce their cars at cheaper rates with high quality. Five- Force Analysis of Lexus: • Threat of New Entrants: It is relatively low in the luxury car market because of colossal initial investment. For a company to enter into luxury car market it must be currently acting in the car market. Companies who have a firm place in the luxury auto industry have achieved almost perfect economies of scale. The firms are so big that fixed costs are limited and revenues and profits can be maximized. New entrants into the luxury auto industry will struggle to attain economies of scale. 2. Bargaining power of Buyers: It is very high. One of the biggest threats of the luxury automotive industry is substitutes. Customers who shop for luxury automobiles know they are looking the best car money can buy.
  5. 5. 3. Threat of Substitutes: It is very moderate in the luxury car market. The prevailing economic conditions and the technology. Technology is growing rapidly, previously touch screen is considered as a luxury but now it is available even in a small car. On a scale of 10, we can give 5 for the threat of substitutes. 4. Bargaining Power of Suppliers: Suppliers of luxury vehicles have a good amount of power. The inputs of luxury vehicles are going to be different than those of lower end, value vehicles. Lower end, value vehicles use plastic, fake wood, and fake leather in many of their cares. When it comes to luxury brands they use real leather, real wood, and rarely will use plastic in their consoles. 5. Degree of Rivalry: It is high with the current market players. The luxury automotive industry is well established. Consequently, there is not much more new market share to grab hold of. Luxury car companies must take market share away from one another. Many times in on television it is not uncommon to see comparative advertisements between car companies.
  6. 6. Environment analysis of Lexus (Germany): • Economic: There is a steady decline in the current GDP of the Country. Germany has a powerful union that makes doing business difficult. Because of facing recession, the unemployment rates are high in Germany that reduces production which in-turn decreases the profits. • Social: Germany faces heavy competition in exports with U.S. so, the Government policies forces the company to export more. In Germany, people follow C.A.F.E. (clean air for Europe) policy. As we all know that clean environment and heavy production cannot be achieved simultaneously. So, it reduces the production of cars. • Technological: Germany is known for its technology and innovation. People are creative and with the heavy R&D investment Lexus can achieve maxim resource utilization. The Hydroelectric power and wind power in the Germany also helps the company to achieve its production growth. • Demographic: Population Growth in Germany is increasing and the technological growth helps the people to earn more to afford luxury cars. Youth are the main target customers of Lexus as they are more interested in technology and luxury. • Political: This factor is most related government policy such as taxation policy and trade tariff. Because manufactures import some vehicles and parts from other countries, firms need to pay for the tariff for buying. Costs of products will be increase, if government increase import tariff. This is the challenge that company faces fluctuation of cost. The Company should plan to cope with economic change which can affect buying power. However, using technology in the market, Toyota has own advance technology such as technology of hybrid car that can gain more opportunities because people are more conscious about environmental issues. Concern with industry sector the bargaining power of buyer is high and there are more competitors producing similar products that people have more choice to select products. Competitive strategy:
  7. 7. When Lexus was introduced in 1989, it used a focus strategy because they presented a unique product produced using a lean production system in a specific market: United States. At the present time, among the three generic competitive strategies established by Michael Porter: Lexus has chosen a differentiation strategy because it is a brand that presents its uniqueness between its competitors and consumers choose this among its competitors. Moreover, this strategy helps the company in many ways: • Less competition: The Japanese government passed a law forcing the market leaders Ford etc., to leave Japan. Also, failure of the government to encourage the large Japanese conglomerate to enter the industry, made the government to provide incentives for Lexus. • Portfolio Diversification: Lexus is the luxury car division of Toyota. Toyota would be making vehicles alongside handlooms, which would help both to broaden their scope and grow as a group. • More Customers: The diversification strategy helps the company to compete in various markets. So, a company can earn more customers either in one or all the markets. References: