The document discusses Toyota's strategy of pursuing a low-cost leadership approach. It provides two major approaches for achieving low costs: 1) efficient management of value chain activities through economies of scale, learning curves, outsourcing etc. and 2) revamping the value chain through direct sales, increasing supplier efficiency, and reducing material handling. Toyota has been successful through this strategy by starting as a textile company and expanding internationally over decades to become a major automaker, introducing hybrid vehicles like the Prius to new markets.

1. BY
BHANUTEJA V.R

2. • Low–cost leadership through providing lowest cost provider in
the industry
• More than a competition surviving is important
• To have lower costs than rivals on the product of comparable
quality
The main intention of low cost strategy is to have either
low cost pricing on the units or to have a
consistent price on the units irrespective of market fluctuations
Two major approaches:
Approach 1 – Cost efficient management of value chain activities
Approach 2 – Revamping the value chain

3. Approach 1 – Cost efficient management of value chain activities
1. Economies of scale
2. Experiencing and learning curve effects
3. Full capacity operations
4. Improving supply chain efficiency
5. Using lower input costs
6. Company’s bargaining power to gain concessions
7. Technology up gradation
8. Outsourcing
9. Motivation & company culture
Approach 2 – Revamping the value chain
1. Use direct to end user sales / marketing methods
2. Increasing supplier's efficiency
3. Reduced material handling

4. When does a low cost strategy work best?
• Price competition is strong
• Products form rival sellers are identical
• Valued differentiation to buyers
• Most buyers use product in some ways
• Buyers incur low switching costs
• Buyers are large and have significant bargain power
• Newcomers with low prices
Key to Success Pitfalls

5. Success story of TOYOTA
• Began as a textile company in 1926 (Toyoda Automatic Loom
Works)
• In 1933 an automobile department was established within
Toyoda Automatic Loom Works.
• In 1937 Toyota Motor Co. was established as an independent
company.
• Becomes a major supplier of trucks to The Imperial Army during
WWII.
• Plants were scheduled to be destroyed by allies, but the war
ended first.
• In 1947 started passenger car production.
• In 1958 sold their first cars in the U.S.
• In 1959 opened first plant outside of Japan, in Brazil.
- Since then Toyota has maintained a philosophy of producing
and designing cars in the countries where they are to be sold.
• In 1989 the first Lexus was introduced after several years of
development.
• In 1997 Toyota introduced the first hybrid (Prius) to the
Japanese market.

6. Place
• Toyota started their hybrid technology in Japan
• After the high success in Japan, Toyota moved their Prius to the
US market where it has been very successful.
• The first introduction of the Prius was in 2002 and since then
Toyota has come out with the Highlander and Lexus RX 400H and
next year they will release the Camry.
• Most Toyota hybrid vehicles are available for purchase nationwide
• Toyota Prius is offered nationwide but there are waiting lists for
the vehicles
• Lexus first hybrid RX400H is available for purchase nationwide
• Toyota Highlander has limited availability as of right now,
consumers can order the vehicle but they are not available on sales
floors.

7. Promotion
• Toyota Overall Promotion
The main promotion for Toyota hybrids is the tax deduction given to
consumers who purchase hybrid vehicles
• Toyota Prius Promotions
Bluetooth technology
• Option with in the Prius that if the consumer has a Bluetooth mobile
phone, that allows customers with onboard navigation system and
hands free phone capabilities with the vehicle
Land Speed Prius
• Aiming for the younger market by having a race car that reached the
speed of 130.794 mph
Prius is the national sponsor for the American Lung Association
• Lexus RX 400 H
Being marketed as the First luxury Hybrid
The slogan for the RX 400 H “ The heart of a Hybrid; The soul of a Lexus.”
• Toyota Highlander
Limited promotion because the Highlander Hybrid has limited availability right
now
• Toyota Camry
Was recently announced that the hybrid Camry will be available in 2006

8. Product
• The Toyota Prius and Highlander are both in transition from the introduction
stage to the growth stage of the product life cycle
• Limited number of products are available through few competitors
• Other competitors are becoming attracted to the market and will have similar
offerings soon
• They are focused on building brand and customer loyalty.
• The Toyota Sienna and Camry are still in development but will be ready for the
introduction stage soon
• They are focused on promoting these products to create awareness
• The product life cycle of all of Toyota’s hybrids may be shortened by the
introduction of other alternative fueled cars

9. Price
• Toyota is offering high quality at a relatively low price in order to penetrate the
market
• The Prius is priced the same as other five seater hybrids in its class but gets
much better gas mileage
• Same price as the Honda Insight but holds three more people
Comparison
• A hybrid Highlander SUV costs $5,000 more than the conventional Highlander
• It delivers more horsepower than the conventional Highlander (30
horsepower)
• It gets 10 more miles to the gallon
• It greatly reduces the tail pipe emissions

10. FAILURE STORY OF WAL-MART IN GERMANY
There is fierce competition in the German grocery industry, and thus, low
profitability in the food retail sector; profit margins range from 0.5-1%. The main
feature of Wal-Mart's business model is to continuously cut costs and so offer
lower prices than its competitors. Wal-Mart also continuously pressures its
suppliers to cut costs.
In 1997-1998, Wal-Mart acquired over 95 stores from existing
German supermarket chains, making it the fourth biggest supermarket operator
in Germany. The objective was to expand to 500 stores. However, Wal-Mart never
grew from the original 95 stores. By 2007, it was bought out by one of Germany's
largest retail groups. Ultimately, Wal-Mart left the German market with a loss of
one billion dollars before tax.
There are four key issues related to Wal-Mart's failure in Germany:
(a) market structure and business model
(b) cultural and communication
(c) politics and regulation
(d) product/service failure.

11. Market structure and business model
A retailer that wants to follow Wal-Mart's strategy of low prices needs to expand rapidly.
In Germany, there were not enough appropriate locations to support such expansion.
Wal-Mart did not build their own stores, but took over existing supermarkets that had a
completely different business model - they were very small and had a limited range of
goods. They were also located far apart, which resulted in high logistical costs.
With their strategy of "everyday low prices," Wal-Mart is very successful in the United
States and elsewhere. However, due to the extreme competition, Germans are
accustomed to the low prices that are offered by numerous discount supermarket chains.
For this reason, Wal-Mart's low price strategy did not create sufficient competitive
advantage.
Culture and communication
When products are introduced, it is important to consider cultural factors. Wal-Mart
decided to operate its German locations from the UK. Thus, its "corporate language" was
English. However, many of the older German Wal-Mart managers did not speak English.
Some managers did not stay on after the Wal-Mart acquisition. Key business connections
were lost, which resulted in the loss of major suppliers. It would have been far better to
retain and communicate effectively with the German managers who had know-how about
the local market.
Politics and regulation
Wal-Mart's managers violated German laws repeatedly, simply because they were
unfamiliar to them. For example, Wal-Mart always stays union-free, but Germany has a
history of strong, politically powerful

12. unions. Ver.di, one of Germany's biggest unions, sued the company for failing to publish
key financial statements in 1999 and 2000. A fine, as well as much negative press, harmed
Wal-Mart's reputation.
After its expansion strategy failed, Wal-Mart began a price war to drive small competitors
out of business. One part of the price war was to introduce a private label called "Smart
Brand" and sell most of these products below manufacturing costs. The reaction of many
competitors was also to decrease their prices, which led to a profit setback for the entire
industry. Finally, the Federal Cartel Office interceded and stopped the price war.
Product/service failure
Good customer service, combined with low prices, could have been a new market niche in
Germany. One part of Wal-Mart's customer service program was to ensure someone was
always there to help. However, customer reaction was negative, because customers who
normally do their grocery shopping in discount supermarket chains are used to self-
service. They found this annoying, and it did not create a reputation for providing good
customer service.
Conclusion
Wal-Mart tried to apply its U.S. success formula in an unmodified manner to the German
market. As a result, they didn't have sufficient knowledge about the market structure and
key cultural / political issues. In addition, structural factors prevented Wal-Mart from fully
implementing its successful business model. The final outcome was that it had to abandon
its offerings in Germany. Had Wal-Mart paid careful attention to these issues prior to
entering the German market, it could have had a very different outcome.

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