Case Study of Toyota: Birth of Lexus

Toyota’s most popular car in North America is the inexpensive Camry, the car targeted at the lower end of the market. Based on informal information from sales records and competitor sales, Toyota executives, especially CEO Toyoda, perceived a need to move into the luxury car market. The people who for years bought Camrys were moving up in life and wanting more expensive cars, such as the BMW, Mercedes, Porsche, and Cadillac.

To fully define the decision requirements, Toyota dispatched 20 designers to the United States to study what customers wanted. They visited dealers, buttonholed car buyers, and organized focus groups. They learned that the need was for a luxury car that would suit younger buyers who wanted to buy European cars but could not yet afford them. Because the United States was the major market, a small team stayed in California designing clay models. In the meantime, the U.S. subsidiary, Toyota Motor Sales USA Inc., staged expensive consumer research and discovered that the average sales prospect was a 43-year-old male with a household income of $100,000. A separate dealer network to handle the luxury car was also recommended.

After all this information was pulled together, the Lexus was born. Now Toyota and the rest of the automobile industry is waiting to see whether the problem was properly diagnosed and whether the new automobile will provide the conspicuous consumption that affluent Americans love.

Lexus was destined to be success based on a large and affluent market for cars with exceptional performance. However,the market was unwilling to pay the expensive price that Mercedes charged for their kind. Toyota targeted this market & introduced the Lexus in 1989 along with clever advertising. Lexus included with all the features that Mercedes had but in addition Toyota focused on the performance & stability of the car.

“Lexus was born out of a unique situation,” says Toyota CEO Akio Toyoda. “A single company giving birth to two brands is unique. We wanted a car to compete with the S-Class. However, back then we did not regard Lexus as a brand, but as a distribution channel.” And that’s a key insight. It’s why Lexus vehicles were sold for many years in Japan as Toyotas, and why Lexus did not have brand or product champions at a senior level within the Toyota organization in Nagoya.

To fix Lexus, Akio Toyoda has created a stand-alone Lexus division responsible for the design, development, and marketing of Lexus vehicles worldwide. Its senior managers all report directly to him, an organizational structure that is unique within Toyota.

About Abey Francis

Abey Francis is the founder of MBAKnol - A Blog about Management Theories and Practices - and he's always happy to share his passion for innovative management practices. You can found him on Google+ and Facebook. If you’d like to reach him, send him an email to: francisabey@g[email protected]
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