Toyota's Prius With the Increased Level of Term Paper
- Length: 10 pages
- Subject: Transportation
- Type: Term Paper
- Paper: #81530266
Excerpt from Term Paper :
With the increased level of awareness of the environment, automotive car manufacturers vie on the viability of selling environmentally hybrid cars. Leading this group are Honda and Toyota. The following is a market analysis of the position of Toyota's Prius. It analyzes the following factors:
Situation of the firm in the market
The industry of hybrid cars
The strategy adopted by Prius and how it is faring in the market
The barriers of the market
Some alternative strategies to rectify the weakness of Prius and The implementation of one of its alternatives.
Toyota Motor Corporation with its subsidiaries all around the world reports $5,447 billion for the fiscal year 2001. With more than 5.5 million cars, trucks, and buses worldwide sold annually, the company boast of high profits and symbolizes the ideal in automotive industry. Spread to 24 nations and regions worldwide, Toyota with its new innovative concept of business has recently introduced Prius, an environmentally friendly hybrid car in direct competition with Honda Insight. Only second to Japan, North America is the largest market for its products with 1734 thousand units for the year 2001 alone. This has inspired the company to target the American market for the new Prius [http://global.toyota.com/ir.html].
Threats of entry: Currently, the automotive industry is categorized by high level of technological development. Although Honda and Toyota are known for innovations, it is also common knowledge that technological development in this arena is being categorized by the need of the consumers to have environmentally friendly products. The threat lies in the fact that hybrid cars will become dominant opening doors for new entrants to manipulate this technology to meet their business needs. Soon all mode of transportation will become hybrid.
Threats o f substitute products: Gasoline operated cars is gradually being pushed out of the picture in favor of the electric cars. Hybrid cars will also become extinct like Gasoline cars when alternative fueled cars become common such as solar powered, hydrogen fuel etc. become common technology for car manufacturing.
Bargaining power of suppliers: Currently, hybrid cars technology is still new for the market. Furthermore, hybrid car technology is still new for the consumer market to digest. In order to fetch a good price, the model, designs and convenience of the products must be enhanced in order to generate the level of consumers desired for its successful sales. The bargaining power of the suppliers is still limited as compared to the technology they have on hand because the demand is still low.
Bargaining power of buyers: Buyers at the moment still find gasoline cars more convenient due to the convenience of achieving fuel. Electric powered cars is still costly when compared to gas cars in terms of fuel and maintenance. Hence, the buyers at this initial stage command the pricing of their productions. Due to their high price, the buyers are also cautious of buying the "technology" and do not consider it as an investment.
Competitors: Cars are considered to contribute to 90% of the pollutants to the environment. Smog free products are much favored today then they did two decades ago. Hybrid cars like Prius by Toyota and Insight by Honda are considered to be environmentally friendly, with only periodical recharge requirement. Due to this demand by the niche segment of the society, the two companies have been trying to dominate one another in the hybrid cars market. The competition will further increase when the government takes steps to promote. Low Emission Vehicle Program, adopted by the Air Resources Board in 1990 [Weiss, 2000]. Also, seeing the success of Prius, American local companies like GM and Ford are also coming up with their own brands of hybrid trucks by 2004 and Chrysler's hybrid Durango and Ram from 2003. Prius and Honda may be the leaders but they will be faced with harsh competition from the other industrial leaders.
As the consumers behavior veer towards environmentally friendly cars, there will be little barriers for entering into this industry. Hybrid cars in fact will come to dominate the automotive industry especially by brands like Toyota and Honda who feel that the position of their products is dependent on the "zero emission" scale. The hybrid power systems will allow the consumers to look into fuel efficiency and convenience. That is why names like Volkswagen, Chryslers and Ford Motors have also started to introduce their prototype engines that would run on electric powered engines as well.
However, hybrid technology is still comparatively expensive. With the current economic scenario, consumers will not be spending much on this kind of technology which is considered to be among luxury items [REITMAN, 1997].
Furthermore, the development of hybrid cars industry will be categorized by the involvement of the government. Since the Clinton administration, the U.S. government have tried to promote car manufacturers but limited to the local car manufacturers only known as Partnership for a New Generation of Vehicles. Although it was a "major flop" it is also clear that the Japanese government has more potential in promoting hybrid cars then the U.S. industry. The changing global economic conditions as well as the government's inability to provide efficient subsidies for cars like Prius would gradually give way to Toyota and Honda [Japan] to penetrate the U.S. industry more [Lehrer, 2001].
Objective of the strategy: The objective of the strategy is to increase the level of demands for hybrid cars and to create to lead its brands in this new genre of automotive.
Analyzing the environment:
Market situation: Despite the speculation hybrid cars are in demand only about 30,000 hybrids has been sold during December 2001. This was lesser then one percent of Honda's and Prius' output level. This indicates that the market of hybrids is comparatively small against those of gasoline cars. Prius is thought to be THE green car because it emits 10% fewer pollutants but it still does not temp the consumers to buy the products as consumers are still feeling the repercussion of September 11 attacks [GAROFOLI, 2002].
Product situation: World wide there is a gradual increase in the demand for fuel-efficient cars. However, the improved version of efficiency of fuel is still to come. For the increase in the demands for environmentally friendly cars is yet to come. As Toyota's Dave Hermance says "Hybridization allows you to improve both of those things, while having room for passengers and packages makes the car practical and useable." . Hence there is still time for the Prius to become fully acceptable.
Sales: Toyota plans to aim its hybrid cars to the mass market. But its success will depend on how it prices its product. Currently high priced cars are designed for electric cars alone. Hybrid cars should be sold at a lower price. Sales therefore will be low in the face of the low demands.
Competitive situation: the competition is inherent in the fact that both Honda and Toyota are vying for the same market - the American market. Although both companies report high demands for their new products, it could be seen that their products still need improvements in areas of cost per person, fuel recharge and design [CHAO,2001]. Prius is competing against Insight, Saturn etc. [Weiss, 2000].
Distribution situation: Large consumers products like automotive usually start their distribution when demands exceed their production. Despite order calls, Prius is still at initial stages of production. There is in need of more time for mass distribution. Yet one see that Prius manufacturers have already taken steps for mass distribution to the consumers which will cost them in terms of process production.
Strength and weaknesses: Currently, the company is focussed on external environment more then its internal environment. This is because having established its organization on concrete structure right from the beginning. Set on a hereditary mode of operations, Toyota operates on hierarchy basis. The company believes in not firing its employees, which could be one of its greatest disadvantage resulting in redundant retainment. However, at the executive level, Toyota is one of the most admired companies due to efficient management planning.
The key to its success among consumers is its ease of sales through its drive-away pricing systems that takes away the issue of negotiation of new cars. Individual model prices are set in all geographical location therefore consumers are not subjected to dealer's manipulation.
Opportunities and Threats:
The company is faced with high level of new entrants' threats with its new product Prius. This is one of the reasons why it must build on its brands to lead cars in this genre. Although there is plenty of opportunity for the company to explore in the alternative fuel automotive genre, the market for the product is still at its initial stages.
Market action and strategy analysis
Target market: Prius was launched to target the commercial market directed at environmental friendly consumers. By using various media, the company planed to communicate to its consumers the theme of "Prius / genius" and enhance…