What’s causing Toyota’s troubles?

March 1, 2010

The Toyota Production System is world famous for its focus on “continuous improvements.”

With all the improvements continuously taking place, why has Toyota suddenly found itself in dee ]]>

You might have your own theory, but here is mine: “Intended expansion.”

There isn’t just one Toyota production line. There are dozens. Currently the company produces 18 different Toyota models with starting prices ranging from $12,605 for the Yaris to $65,970 for the Land Cruiser.

There are also three Scion models sold in adjacent showrooms and also 15 different Lexus models.

In total, Toyota Motor Corporation produces 36 different models, up from 18 models a decade ago.

Then there’s the often-misunderstood notion of what a model is. Take Camry, the most popular Toyota model.

What’s a Camry? The buyer has a choice of two different engines (2.5 or 3.5 liters), two different transmissions (manual or automatic) and three different trim packages (LE, SE and XLE.)

In all, there are 10 different types of Camrys rolling down Toyota production lines, not counting interior or exterior colors, of course.

A dealer-driven business.

Why so many models? Like many businesses, the automobile business is dealer driven. Whatever the dealer wants, the dealer ultimately gets.

Dealers know best, goes the thinking at headquarters. They interact with customers and prospects every day. And what do dealers want? They want to have a model for every prospect that walks in the front door.

From cheap two-door sedans to expensive SUVs and sports cars. Plus a array of trucks, of course. Hence, the full line.

What makes sense from a dealer’s point of view doesn’t necessarily make sense from a marketing point of view. How do you get a prospect to walk in the dealer’s front door? You need to stand for something in the prospect’s mind.

And that’s extremely difficult when you market a full line under one brand name. That’s why most automobile brands are saddled with nonsensical marketing slogans.

Chevrolet . . . . “An American revolution.”

Toyota . . . . . . “Moving forward.”

Ford . . . . . . . . “Drive one.”

Honda . . . . . .  “The power of dreams.”

Nissan . . . . . .  “Shift__the way you move.”

Hyundai . . . .  “Think about it.”

Acura . . . . . . . “Advance.”

Infiniti . . . . . . “Inspired performance.”

Kia . . . . . . . .  “The power to surprise.”

Years ago, when I was working on the introduction of the Peugeot 404 into the U.S. market, the dealers wanted us to increase dealer margins and advertise a high price for the car.

Why? So they could offer the prospect a big discount.

But from a marketing point of view it made more sense to advertise a relatively low price for the car so we could get more prospects into the dealerships in the first place.

Two schools of thought.

In automotive marketing and in marketing in general, there are two diametrically-opposed schools of thought.

One school believes you win by offering prospects every possible option. As a result, the vast majority of companies today are focused on “more.”  More models, more variations, more flavors, more sizes.

That’s why there are six types of Saltine Premium crackers, seven types of Grey Poupon mustard, eight types of Windex glass cleaner, 11 types of Thomas’ English muffins, 16 types of Listerine mouthwash, 26 types of Pantene shampoo, 32 types of Gatorade sports drink and 42 types of Crest toothpaste.

Left-brain management thinks, Let’s not make the same mistake Henry-Any-Color-As-Long-As-It’s-Black-Ford made. Let’s not give the prospect any reason not to buy the brand.

Most of this product proliferation is harmless, but not when it involves highly-technical products like automobiles.

The second school of thought, one definitely in the minority, believes you win by narrowing your focus to build a powerful brand that can ultimately dominate its category.

In his book, Inside Steve’s Brain, Leander Kahney tells what happened when Steve Jobs returned to Apple in 1997. At the time, he found the company’s computer offerings totally confusing. There were four major lines: Quadras, Power Macs, Performas and PowerBooks, each with a dozen or so different models.

So he drew a box with four quadrants. Across the top he wrote “Consumer” and “Professional.” Down the side, he wrote “Portable” and “Desktop.” That was it. Four machines to cover everybody.

Apparently the simplification is working. Apple’s share of the computer market has been increasing. (Even today, Apple still has only nine computer models in its lineup.)

One model vs. many.

And what was wrong with Henry Ford’s approach? For 19 years in a row, from its introduction in 1908 to the year 1926, the Ford Model T was the No.1 selling car in America with an average market share of 43.4 percent. (The following year, 1927, Ford shut down its Model T production line in order to convert to the Model A.)

By way of comparison, Toyota’s share of the U.S. market last year, all three brands and 36 models, was 19.5 percent in cars and 13.9 percent in trucks.

Well, you might be thinking, there were a lot fewer car brands in Henry Ford’s day. That’s not true, of course. There were hundreds of automobile brands in the early 1900s which is consistent with the way any new category develops.

Early on, for example, there were hundreds of brands of personal computers. Now just a handful are left.

When you expand your brand, you weaken your brand in the minds of consumers. But the situation at Toyota suggest that you also might weaken the quality of your brand.

Toyota’s troubles are being repeated in many, many corporations around the world. In our consulting work, the one word we keep hearing over and over again is “expansion.”

How do we expand our brand to increase its market share?

That’s exactly the wrong question to ask. The right question to ask yourself is, How do we narrow out focus to enhance the power of our brand.

Toyota loses focus.

Toyota is the leading car brand in America. It’s one of the first brands consumers think about when considering a new car. It’s also perceived as the highest-quality entry-level brand.

Last year, Toyota sold more cars in America than any other brand. (That could change this year.)

Toyota . . . . . . 938,468 (Toyota leads Honda by 47 percent.)

Honda . . . . . . 638,465

Chevrolet . . .  616,803

Ford . . . . . . .  486,599

Nissan . . . . . . 458,653

Hyundai . . . .  325,667

The biggest mistake Toyota made was getting into the light-truck business. It’s difficult for a brand to be considered the best “car” brand as well as the best “truck” brand.

And sure enough, Toyota success in cars didn’t translate into trucks. Here are 2009 U.S. sales of light trucks.

Ford . . . . . . . . 954,054

Chevrolet . . . . 721,809

Toyota . . . . . .  557,743

Honda . . . . . . . 406,596

Dodge . . . . . . . 360,568

GMC . . . . . . . . 253,053

Consider the two large American brands: Chevrolet and Ford. Chevrolet is usually considered the best American “car” brand and Ford is usually considered the best American “truck” brand.

Sure enough, Chevrolet leads Ford in cars by 27 percent.

And Ford leads Chevrolet in trucks by 32 percent.

It’s like a teeter-totter. When one side (trucks) goes up, the other side (cars) goes down. You can’t be all things to everybody.

That’s one reason why Toyota should have focused on “cars.” But there’s another reason, too. 

A line of retreat.

Marketing strategy is like military strategy. When attacking a strong enemy, it’s always wise to give the enemy a “line of retreat.”

You don’t necessarily want to box them in a corner where they will fight to the last man. That way, both sides will take enormous casualties.

By staying out of the truck bu siness, Toyota could have given the big American brands a profitable line of retreat.

Instead, Toyota launched a full line of both car and truck models, forcing its American competitors to fight back with huge discounts. Both sides suffered, although the American brands suffered the most.

They never learn. Next up in the automotive arena is Volkswagen AG. Two years ago, its CEO Martin Winterkorn said he was determined to become the world’s biggest automaker. And how was Volkswagen going to do that? More models, of course.

But Volkswagen, at least in America, already has more models. The VW Group, which includes Audi and Bentley, markets 20 different models, yet total sales were just 297,537 vehicles last year, one sixth as many vehicles as the Toyota-Scion-Lexus trio managed to sell.

Modelitus is the biggest disease facing the automobile industry (and many other industries for that matter.) It’s an incurable disease that affects top management in companies everywhere.

More models, goes the thinking, means more sales and a greater market share. That’s why Chevrolet markets 15 different models of cars and trucks. And Ford markets 14 different models.

But modelitus undermines the brand-building process. And in the long run, if you don’t build a strong brand, you can’t sell your products at profitable prices.

And if the Toyota experience is any guide, modelitus also undermines the quality of your brand.