18. Why is Toyota Pursuing Prius Car of the 21st century Brand Strengthening Broad Differentiation Strategy Competitive Advantage Government Regulations for Improved Fuel Efficiency
20. Factors Important for Project Success Meeting mass production, reliability, quality targets on time Technological success Corporate leadership Consumer’s perception of the new technology Estimated vs. Actual Demand
21. Factors Important for Project Success Pricing Ability to maintain P > MC Long term reliability of the product
Understanding the Automobile IndustryMarket PlayersChallenges Facing the IndustryToyota’s Fit in Market5 Forces AnalysisIntroduction of Hybrid TechnologyBuyer ValueToyota’s Strategic ApproachImportant Factors to Project Success
Prior to 1970: Competition was regional due to differences in demand. Example: U.S. consumers facing lower gasoline prices, drove larger and more powerful cars relative to European or Japanese consumers.Gas hikes of the 1970’s (causes: Arab oil embargo & Iranian Revolution) led to increasing U.S. demand for more fuel efficient cars. Opened the door for international producers to gain market share in U.S.The 1980’s brought another wave of changes: technological. New engine tech, sophisticated electronic controls, and extensive safety features. A major technological change, however, also took place outside of the car itself: Robotics and computers where introduced into the design and manufacturing processes. Lead to higher capital requirements for auto manufacturers, but also efficiencies from automation.The changes to the market in the 70’s and 80’s in part caused an intensified competition that resulted in industry consolidation and 12 major manufactures accounting for the majority of global auto sales.(Toyota Motor Corporation: Launching Prius, HBS Case 9-706-458)
There were two main categorical challenges facing the auto industry in the early 1990’s: Market challenges relative to where future demand growth could potentially arise and Governmental challenges concerning fuel efficiency and environmental regulations.About 80% of automobiles in the world where driven by less than 20% of the world’s population. Demand growth in emerging economies was not only expected, but also regarded as possible game changer. Increases in demand in these relatively untapped markets would mean significant increases in gasoline consumption leading to upward pressure in oil prices. The need for a fuel efficient alternative was beginning to be realized.Likewise, governments themselves progressed the need for a fuel efficient alternative by passing regulations such as the Corporate Average Fuel Economy (CAFE) standards as the U.S. Congress did.In addition to fuel efficiency standards, governments began passing legislation dictating emissions restrictions as well. In 1990, the California Air Resources Board (CARB) adopted a Zero Emission Vehicle (ZEV) program. While this was later revisited due to slow technological progress, it stands as a example of the perspective of many governing bodies.(Toyota Motor Corporation: Launching Prius, HBS Case 9-706-458)
Toyota was well positioned in the market, having gained more North American market share than any other foreign competitor (7%+).Toyota’s key success factor included it’s Toyota Production System (TPS), which encompassed to main focuses: (1) Continuous and open learning from mistakes and (2) a just-in-time production approach. Both of these focuses allowed Toyota to improve its production efficiency.Unfortunately, its product lines where considered by many to be less appealing than other brands. At the time, Toyota’s models were not in line with the consumer taste trends. However, for various reasons, including bringing a completely new design to market, Toyota found its most strategic opportunity in the Prius, a car for the 21st century.(Toyota Motor Corporation: Launching Prius, HBS Case 9-706-458)
<Review 5 forces>In order to determine the attractiveness of the Auto industry before and after the introduction of the prius (hybrid technology), we reviewed Porters five forces that shape competition in any industry. We identified three of these to be most significant and applicable to this industry.
Design and Production EfficiencyReduced Product Development TimeIncreased Globalization of the industry has intensified competitionDozen leading players vying for shares in all major marketsUntapped Market (cars in production)Very few current players (research & development) due to the fact that CARB regulations were extended
1.) There is an aspirational value to buyers through the environmentally clean aspect of the technology. Due to the significantly less use of gasoline a hybrid car causes a much lesser impact to the environment compared to conventional gasoline cars.2.) Savings on gasoline due to 100% increased fuel economy -Secondly and probably most important to consumers is the savings on gasoline. Hybrid cars have smaller and more efficient engines and something called a regenerative braking technology. This means that they save fuel by constantly recharging the battery while the car is cruising or decelerating and then applying the stored energy when it is needed to start or to supplement engine power during acceleration.
<Slide is animated>A demand supply graph of the gasoline market shows us that as more and more consumers start using the hybrid technology and the demand for conventional gasoline cars goes down, the demand for gasoline itself goes down causing the demand curve to shift left from D1 to D2. This causes a downward pressure in the prices of gasoline as we see here from P1 to P2 and of course quantity from q1 to q2.This is another way that consumers would save by reduced gasoline prices in the long run.Gasoline is 30% of total oil demand.
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