Executive Summary When Toyota launched Lexus in 1989, the idea that a Japanese brand would be able to
compete with top-line automakers such as BMW and Mercedes-Benz was an idea that would
eventually shock the world. The production of the LS400 covered new territory and was the
result of hundreds of prototypes, more than 1,000 engineers and almost $1 billion in research and
development.
Within a few years after launch, Lexus created a niche and had transformed itself from an
idea that many thought would not survive, to a world-class company that redefined the idea of a
luxury vehicle and prided itself on the best customer service a company could provide. As of
2010, coordination of global Lexus division product strategy involves Kazuo Ohara.
In the United States, Lexus operations are headed by Mark Templin who is the vice
president and general manager of the U.S. Lexus division, located in California. Andy
Pfeiffenberger heads Lexus Europe that is located in Brussels.
Automotive analysts estimate that Lexus contributes a disproportionate share in Toyota’s
profits, in comparison to its limited production and sales. Officials say that depending on sales
and vehicle development, Lexus can contribute to as much as half of Toyota’s yearly sales.
Lexus focuses more on the profit margin than that of the actual sales volume. Although they do
not sell as many vehicles as rival companies such as BMW and Cadillac, they have a bigger
profit margin on each vehicle and have an estimated brand value at $3 billion annually in the
United States. Lexus is also the seventh largest brand in Japan behind Panasonic and in front of
Nissan, based on revenue, earnings, and market value.
Lexus is able to keep up with its reputation of being the “best” with their strong
commitment to technological excellence and advancements and not straying from the fact that
this is what made them successful and they continue to believe in this. Customers from other
competition, who had been loyal to one brand, eventually were willing to explore different routes
and other products that had a better quality, better performance, and best of all, excellent service
which is where Lexus made their mark in the market. Engineers from Toyota were able to take
Lexus through technological advances in speed, fuel efficiency, safety, and overall driving
experience, along with a few other advances which, yet again, helped them create a market for
themselves because they would focus on the smaller details that some other competitors fail to
recognize.
Lexus was given all the care from the Toyota team. Built with a great sense of pride they
were pursuing perfection as their tagline stated. Lexus was successful both because they
pioneered in technological advancements more than any other competitor and kept up with this,
and also they had better pricing standards and provided the best value to the consumer for the
money not only for the initial consumer but also to the second-hand markets because of the
award-winning service and value.
Market Review1.
Luxury car sales are down as are car sales in general due to tough economic times
associated with the recession. A good thing though is that Lexus was the best selling luxury
vehicle for the 10th straight year in 2009. This chart showcases the decreased sales suffered by
Lexus from 2008 to 2009 for each sedan model:
December
2.
Year to Date
2009
2008
% CHG 2009
2008
% CHG
IS
4,153
3,539
9.0
38,077
49,432
-23.0
ES
6,531
5,236
15.8
48,485
64,135
-24.4
GS
1,063
1,200
-17.7
7,430
15,759
-52.9
LS
2,085
1,451
33.4
11,334
20,255
-44.0
Total Cars
15,862 11,542 27.6
112,745 151,567 -25.6
The automobile industry is broken down in to several market segments. Lexus focuses
on several distinct segments. They feature sedans for business class and older consumers and
convertibles for business class. They also have a SUV line which is geared toward families.
They also feature high performance luxury vehicles for car enthusiasts. They also have hybrid
options for some of their most popular vehicles.
3.
Lexus sedans are high quality luxury vehicles produced in Japan. The primary target
market is businessmen in their 30’s and 40 who are looking for high quality and sporty luxury
sedans. A secondary target market will be older individuals who are looking for dependable and
stylish luxury sedans. There sedans prices start as low as $32,000 While the vehicles will be
marketed and sold globally the most effort will be placed on customer in the United States
market, this is Lexus’s largest market worldwide and responsible for the most automobile sales.
This sales chart describes how Lexus vehicles sales are circulated worldwide:
Total sales and production
Regional sales, 2009
Units
Japan
28,167
Europe
25,921
United States
215,975
Competitive Review –
Lexus’s product width consists of five product lines ranging from two to four product
items or models in each line. These four lines are sedans, luxury utility, convertibles, hybrids,
and performance. However, since we are focusing our marketing plan on one specific line, that
being sedans, it is important to distinguish specific features and components of each model in
order to analyze an effective competitive advantage combining internal strengths and external
opportunities derived from the SWAT analysis. Recall the marketing mix or four Ps, Product,
Place, Promotion, and Pricing. As seen in the average price of Lexus automobiles in comparison
to other car manufactures such as Ford, Honda, and KIA, Lexus is much more expensive. The
marketing managers at Lexus have the ability to control the marketing mix including pricing
strategies. They’ve decided to use the opposite of Michael Porter’s Cost Leadership Strategy by
stressing product differentiation with unique features, quality parts, and brand equity. It is
important to review each component part and unique feature of every sedan model in order to
differentiate the competitive advantage from the competition, in addition to making it a nonsustainable competitive advantage.
The first model the LS 11 has a 4.6-liter V8 engine, 380 horsepower, and eight-speed
sequential-shift automatic transmission. The LS 11 can do 0-60 in 5.4 seconds which is
considerably fast for a 4 door sedan. In comparison to competitors Mercedes and BMW the 2011
Lexus LS has a combined fuel economy of 18 city/highway, all-wheel drive, and 203.9 inches in
length. While the BMW 7-serises has similar features to the Lexus LS, the 7-serise starts at
71,525 thousand dollars and the Lexus LS starts at 66,225. The Mercedes S Class only has 275
HP V6 and starts off at $87,950.
The Lexus ES is a luxury car that starts off at the affordable price of $36,400. In
comparison to the 2011 Cadillac CTS Sedan 3.0L base, the ES has several advantages in many
areas. The comparably equipped price on the ES is $2,340 less than the CTS Sedan 3.0 L base.
Lexus’s combined fuel economy is 22 mpg while Cadillac CTS is 19 mpg. Real time traffic
information is optional on the Lexus ES while it is not available on the CTS. In comparison to
the 2011 Lincoln MKZ FWD the Lexus ES out performs in many areas. Rear seat side airbag is
standard on the ES 350 while not available on the MKZ. Exterior mirrors with integrated turn
indicators are standard on the ES and not available on the MKZ. You get more than two inches
more of leg and hip room in the ES than in the MKZ. Finally in comparison to the 2011
Mercedes Benz C-Class C300 Luxury Sedan, the IS was stronger in many areas. The ES is
$5,790 less than the C-Class C300. The IS has more torque and horsepower and the IS has an
unlimited anti-corrosion warranty, and the C300 has a 50,000 anti-corrosion warranty.
The third model the Lexus GS, has many competitive advantages over other cars in its
market. The Lexus GS 350 AWD compared to the 2011 BMW 535i, 2011 Mercedes-Benz E
class sedan, and 2011 Infiniti M 37, is stronger in many areas. Out of the 4 cars listed above, the
Lexus has the best equipped price, most horsepower, and most power train warranty miles. The
last sedan model is the IS 350. The IS 350 is equipped with a 3.5 liter 306-hp V6. The IS 250
features a 2.5 liter 204-hp V6. All IS 350 models carry an Ultra-Low Emission Vehicle (ULEV
2) certification from the EPA. The steering-wheel-mounted paddle shifters allow IS drivers to
have more control of the available automatic transmission. The IS 350 out ranks competitive cars
BMW 128i coupe, BMW 328i, and Audi A4 2.0T in comparably equipped price, mpg city,
seating capacity, power train warranty miles, in addition roadside assistance is standard.
Product Review Lexus sedans are quick, stylish; rear-wheel drive automobiles combine world-class
handling with luxury performance. The Lexus sedan line offers vehicles that are sleek and
relatively light. They offer paddle shift transmissions, have an excellent set of brakes and, as in
the IS 350, offer acceleration to 60mph in as little at 5.3 seconds. All the sedans in the Lexus
lineup are meant to compete with rival vehicles such as the BMW 3 Series and the Mercedes
CLK350, but of course, at a lower price.
A broad range of engines and transmissions are available in the whole sedan line. The
306 horsepower IS 350 is the performance leader of the group. For those of automotive world
who enjoy a more involved ride, the IS F has a top speed of 170 mph and is launched by a 416
horsepower V8 engine that is able to compete with the BMW M3.
Along with a great handling automobile, consumers also enjoy good sound from a clear
crisp sound system. The standard Lexus Premium Sound system now includes auxiliary jacks for
Ipod connectivity and USB connectivity, Bluetooth, and satellite radio. The current navigation
system features a voice recognition system and audible Bluetooth phonebook that connects to
your cell phone and calls the name of the person that you say.
The Lexus brand prides itself on safety and service and with Safety connect, which
resembles the OnStar feature in GM vehicles, creates a sense of safety and security to its
customers.
SWOT –
Strengths
Lexus emerged as the top selling luxury vehicle in the United States in 2009 for the 10th
straight year. This shows customer satisfaction and their dedication to providing their consumers
with the finest luxury vehicles on the market.
Weaknesses
One of the biggest weaknesses is Lexus is young as a brand and needs to market why
they have the best luxury vehicles and why they should be the dominant player in the luxury
vehicle market. Another weakness is that outside of the United States Lexus has much lower
sales due to competition from well-established European brands such as Mercedes and BMW.
Opportunities
With the right marketing strategy there is great potential for expanding the Lexus brand
in Europe and Asia. They have had great success in the United States which will allow them to
grow and increase their customer base as they continue to create innovative luxury cars that
satisfy their customers.
Threats
Lexus has some well-known threats such as Mercedes and BMW. Mercedes-Benz
founded in 1881 is one of the most well-known and car brands and one of the leaders in the
luxury vehicle segment. Another major competitor is BMW also a German company who hold a
big portion of the luxury car market; they along with Mercedes control most of the luxury car
market in Europe.
Goals and Objectives –
The Lexus Covenant is this
“Lexus will enter the most competitive, prestigious automobile race in the world. Over 50 years
of Toyota automotive experience has culminated in the creation of Lexus cars. They will be the
finest cars ever built. Lexus will win the race because Lexus will do it right from the start. Lexus
will have the finest dealer network in the industry. Lexus will treat each customer as we would a
guest in our home. If you think can’t, you won’t If you think you can, you will. We can, we will.
The most important goal of Lexus automobiles are from the cars designed with the driver
in mind to dealers that make customer satisfaction their most important goal. This commitment
to excellence not only makes a Lexus more enjoyable to drive, but also a joy to own. So basically
the number one sales objective of Lexus is targeting loyal customers or people who buy their
products all the time based on their brand quality and equity. Leasing and frequent customer
rewards attract loyal customers. Bonus packs that give loyal consumers an incentive to stock up
or premiums offered in return for proofs of purchase. Lexus can offer a variety of coupons and
premiums, and engage in loyalty marketing programs promotional programs designed to build
long-term, mutually beneficial relationships between a company and its key customers. Frequent
buyer programs loyalty programs in which consumers are rewarded for making multiple
purchases of a particular good or service. All of these strategies are used by Lexus in order to
have consumers returning to buy their cars.
According to Kelly Bluebook, Lexus was 2010s best resale value in luxury brand. The
marketing objective however needs to be critiqued to be a little more specific, and timed. Their
main objective is customer satisfaction. How much satisfaction? And it how long do you wish to
accomplish this? This not an example of a smart goal because a smart goal has to be specific,
measurable, aggressive, realistic, and timed, however Lexus has been making more and more
hybrids in order to appeal to the environmentally inclined consumer. This would be an example
of social orientated marketing. In addition Lexus advertises heavy online, in television,
magazines, and on the radio.
Marketing Mix –
ProductLexus is the luxury auto division of the Toyota Motor Corporation. Lexus first began in
1989 with the pioneering of the LS400 sedan. Lexus has created a niche for itself in the luxury
market and prides itself on their value and, more importantly, their award-winning service. The
Lexus sedan line which includes the IS, ES, GS, and LS sedans was created to compete with
rival companies such as BMW, Audi, and Acura. The IS sedan, which although the cheapest, it
is the performance leader of the group. The entry-level ES is based on the Toyota Camry and is
a good alternative to those who was a luxury sedan without the high price of one. The GS sports
sedan is a midsized vehicle aimed at Germany’s sports sedans and also comes in a hybrid model.
The brand new flagship of the sedan line is the Lexus LS 460. This sedan offers luxury at its
finest. Is also comes in an “L” model which stretches the car into an even more comfortable
length for the rear passenger. The LS 460 broke new ground with the first ever V-8 hybrid which
is meant to compete with Germany’s V-12 engines.
Distribution –
The Lexus sedan line is offered all over the world as the same models it is offered in the
United States. Lexus cars and SUVs are sold in North America, the Middle East, Europe, Africa,
Latin America, Asia and in the United States, is the top-selling luxury brand. Lexus is the fourthlargest automaker in the world. The Lexus marque was introduced to the Japanese market in
2005, previously the autos were labeled as Toyotas. There are more than 160 profitable Lexus
dealerships in Japan alone and another 7,600 across the United States. Plans announced in 2006
were to expand from 68 countries to 76 countries worldwide by 2011.
Promotion –
Lexus has always set the standard high when it comes to advertising. In all of the
commercials the company produces the emphasis is always on prestige and luxury. Most
advertising will takes place through television commercials and print ads but will encompass a
wide range of media. Television is the best way to get the message across to the target market.
Commercials can be placed during strategic time slots and on certain channels that will be
viewed by the target market and may appeal to them and entice them to go and look at or even
buy that specific automobile such as an older woman watching a soap opera or introducing the
vehicle into TV shows that the consumers watch.
Price –
With their consistency in technological advancements, innovating designs, and over $1
billion spent last year on advertising Lexus has become an attraction to many luxury automobile
consumers worldwide. Toyota believes the role of purchasing is through long term and stable
production of quality products at the lowest price in a fast and timely manner (Toyota Co.
sustainability report 2006). The main point of setting a price in any company in the auto industry
is profitability and to continue to increase efficiency to create the lowest price possible for a
product. Toyota takes on a sales-oriented approach with Lexus in that its market and consumers
are what determine the selling price. Elimination of any waste is a top priority because it reduces
costs and eventually will result in adding to the company’s profit growth.
Action and Implementation –
Lexus’s media planning encompasses a variety of outlets in order to use effective
advertising. Examples are television, internet, print, and radio. Most of all, Lexus can promote
their cars via word of mouth and reputation. Lexus’s brand equity is so respected that people buy
Lexus automobiles just so they can say “I drive a Lexus.” While effectively advertising, Lexus
has to consider budget constraints. The exact number is unable to be determined unless someone
from marketing at Lexus contacts us.
Lexus’s distribution strategies effectively meet convenience, number of outlets, direct
versus indirect distribution, location, and scheduling. Lexus’s knows that their target market is
not going to include demographic characteristics of lower income people because their vehicles
are typically more expensive than the average car. If you noticed where all the concentrated
Lexus car dealerships are you begin to notice the pattern that they are in major metropolitan
areas.
For example, if you live in the New York area and watch television frequently, at the end
of each commercial they say “visit your tri-state Lexus dealership,” tri state being New York,
New Jersey, Connecticut. Remember, the location of service mostly clearly reveals the
relationship between the target market strategy and distribution strategy, and Lexus’s target
market is high income individuals.