Company Case: Prius: Leading a Wave of Hybrids 1.

What micro-environmental factors affected both the first generation and second generation models of Toyota Prius? How well has to Toyota dealt with these factors? In order for the reader to have an understanding of this question is important to begin by defining Micro-environment. This term is a factor of the Marketing Environment and it consists of the issues that, in one way or another, affect the company's ability to serve its clientele in a close and direct way. This includes factors such as customers, suppliers, competitors, shareholders, employees and media (among others). Having this in mind, it could be safe to state that the micro-environmental factors affecting the first and second generation of the Toyota Prius are the customers and the competitors. Consumers, getting affected by the gas prices, were looking for an answer to their prayers. Toyota gave them the answer, a vehicle that would allow people to save on gas as well as provide good and efficient service. Once the first generation Prius was released, although not too pretty or fancy, it served to its purposed and customers were buying it. The other factor, competitors, is pretty obvious. Everybody wants a piece of the pie. Auto makers such as Honda started developing and/or implementing the hybrid system on some of their vehicles. Toyota's answer was to keep developing what already has been a success, the Prius. A second generation was developed and released. This time the new generation was even more fuel efficient. It also included more technical advances, more room and several other factors that would make all types of clientele to be interested. 2. Outline the major macro-environmental factors demographic, economic, natural, political and cultural - that have affected the Prius sales. How well Toyota dealt with each of these factors? Macro-environmental factors deal the larger societal forces that affect the microenvironment. Some of the factors are demographic, economic, natural, technological, political and cultural forces. With that said, I believe the macroenvironmental factor that affected the Prius sales (in a positive way) is the Natural forces. Now, it would not be fair if I do not mention the technology force as well as the economic one. So there is a vehicle that saves on gas, which means that also helps with the pollution. Technological advances are probably the ... 1. What micro environmental factors affected both the first generation and second generation models of the Toyota Pries? How well has Toyota dealt with these factors? The Company: The Company has expended plenty of money on R&D and marketing of the Pries. Why? Toyota expects the Prius to set the standard for the entry of a line of hybrids from minicompacts to luxury vehicles. Thus, the car is an important component of company strategy. To successfully introduce the Prius and build this new line of vehicles will require coordination within the company. The second generation of Prius has already caused problems within the company. Production was increased at one plant necessitating a cut in production for other lines. Suppliers: With the successful introduction of the Prius, companies such as Panasonic may invest more in R&D to develop cheaper batteries. If they can do so, this will result in lower prices that, in turn, may further stimulate demand. Thus, it is to Toyota's advantage to work with suppliers to encourage this R&D. Marketing Intermediaries: The most important marketing intermediaries here would be dealers. Toyota had to prepare materials for dealers and their salespeople so that they could sell the Prius. Now, they have to "teach" purchasers how to drive the cars to get maximum fuel efficiency. A shortage of cars for the second generation of Prius is causing problems with dealers who want more and could sell the additional cars. In turn, dealers marking up the cars can negatively injure relationships with the company, who does not want to see the price of the cars inflated. There is also a major issue of why more cars were allocated to Japan when the United States is the bigger market. Customers: The case indicates that Toyota carefully studied the consumer market and adapted its marketing accordingly. It thought innovators and adapters who are likely to be techies would be the purchasers, and the evidence indicates that the company was right. With this market in mind, Toyota

pushed the technology of the car, used the Internet, and promoted environmental aspects of the vehicle. Techies are highly interested in the net and may be pro-environmental. They are certainly interested in technology given the description of owners modifying their Prius described in the case. For the second generation, Toyota broadened its market focus to include less-technical types (are these the customers who don't know how to drive the car?). They also redesigned the car to have more massmarket appeal, introduced more features and improved the performanceall aspects of the car that would be more important to a less technical market. (Jumping ahead to adoption theory, this is a good example of marketing to the techies as innovators with targeted promotion and then marketing to early adopters with more mainstream media. The techies have gotten the car on the road and in the view of early adopters.) Competitors: A major aspect of Toyota's strategy was to get a jump on competitors who will have to enter the market later. Again correctly guessing that American companies would be slow to introduce hybrids, Toyota and Honda entered first and that may help them in marketing hybrids in the future. They were the first may lead to they were the best. Toyota seems to have been more willing to enter this market and establish a technological lead, although American companies appear to begrudgingly plan on entering the market.

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American companies are following a different strategy as they believe that gas savings are greatest on vehicles that use the most gas. Rather than small cars, they aim to introduce hybrids on bigger cars. They also point out that savings are much greater when hybrids are used in mass transit. Publics: There is little mention of publics in the case, but Toyota did flood the media and news groups with videos and press releases on the cars. Their Earth Day promotion got them additional media coverage and may have helped their relations with environmental groups. Successful sales of the car will lead to sales of more hybrids in the future that would endear the company to financial publics such as investors. Given the general attention shown to the vehicle in the media, the general public may be favorably disposed toward a company that aims to reduce emissions and lower gas mileage. They have placed ads in more general interest magazines with the second generation vehicle. Another public that Toyota studied was the government. They understood correctly that American politicos will be pushing for higher gas standards and willing to supply a tax deduction for consumers purchasing more environmentally friendly cars that get higher gasoline mileage. These are helpful factors in overcoming the higher prices when selling to consumers. 2. Outline the major macro environmental factorsdemographic, economic, natural, technological, political, and culturalthat has affected Prius sales. How well has Toyota dealt with each of these

factors? Demographic: Baby boomers are the major market in the United States and they have reached the stage where the kids are grown and gone. This means that they can pay more for cars (overcoming the higher price). They have always been known for an interest in quality and willing to try the newboth factors that might incline them toward purchase of a Prius. Younger generations may be more environmentally concerned and want a Prius, but few may be able to afford one. Economic: Because it does cost more, Toyota has sought tax deductions to help with the "sticker shock." The price of the car, however, is in line with what Americans are paying for cars. This is not priced as a luxury car. To be one of the first to own such a car may be worth the higher initial price. Success of selling the car should lead to an increase in supply, which would result in a lower price, and is the essences of basic economics. With the increase in gas prices, the Prius offers even greater savings and in the summer, some consumers shifted to smaller cars and demand for the Prius grew. Although increased gas prices alone cannot account for the increase in demand, they certainly didn't hurt Prius sales. Natural: The Prius claim to be better for the environment has some impact on the natural worldless air pollution and less need for oil exploration and gasoline production. Technological: This is the Prius' primary strengthits technology. Toyota has played this up in their marketing and aimed the car at the "techie" part of the market. This supports the Japanese cars in their claim to be technologically advanced. As the case indicates, the introduction of the car is likely to lead to other technological advances (such as the batteries). The second general vehicle adds more features such as the six-disc CD player and cruise controloptions that the first generation, stripped-down car did not offer. Political: Obviously Toyota took this into account. Recognizing that some senators may adopt a tougher stance toward gas emissions and mileage standards, they would be favorably inclined toward the car. Some detail on tax incentives is given in the case. Cultural: Cultural factors are Americans' love of automobiles, our willingness to adopt technology and progress, our claim to care about the environment, and our rebellion against gasoline price increases. These are given in the first paragraph of the case and these are all factors that will favor introduction of the vehicle. Even though it may not be a cultural characteristic, we also like tax deductions.

3. Evaluate Toyota's marketing strategy so far. What has Toyota done well? How might it improve its strategy? Toyota did a superb job of introducing the Prius. They created clever ads that highlight the car's major features and utilized the Internet well. This is all based on a careful, thorough, and accurate analysis of their market. Although they have used traditional media, they relied on the Internet that would be heavily used by this market. To overcome price differentials, they have worked on securing tax deductions while realizing that price will not be the major motivator of purchase for this car. They have secured a lot of distribution for a vehicle that will not sell at present in large numbers and has a lower margin. This indicates their recognition that access to the product is key. They have also not made the mistake of trying to sell over the Internet. That could antagonize dealers and decrease the extent of distribution.

The broadening of their marketing with the second generation is only to be expected. They are selling to a different consumer market and they are using different media appropriate to that market. Their promotion is far less targeted, but it does not need to be given the successful introduction of the car. Where Toyota scored big was with a successful introduction that gives them a good sales base from which to expand. 4. GM's marketing director for new ventures, Ken Stewart, says, "If you want to get a lot of hybrids on the road, you put them in vehicles that people are buying now." This tends to summarize the U.S. auto makers' approach to hybrids. Would you agree with Mr. Stewart? Why or why not? Think back to the Arab oil embargo of the '70s. Once Americans were scared that gas could be rationed and prices rose, they bought small cars in large numbers. Since then, they have switched to buying bigger cars than they bought before the oil embargo (SUVs). Basically, most Americans love big cars. We're big people and we want room. So, Mr. Stewart has a point. Given the big share of the market that large vehicles (cars and trucks) have captured, sales of hybrids will be greater if they're put on large vehicles rather than small ones. (Large vehicles have a bigger share of the market if you add SUV, van, and truck sales together.) If the goal of the firm is to sell more hybrids in models with higher price tags (possibly creating greater profits), then his argument makes sense. However, SUVs and trucks are usually performance vehicles, so one has to wonder if a hybrid truck (for example) is an oxymoron. Would consumers believe that a truck or a Jeep hybrid could be a big, tough vehicle? Promotion for these vehicles tends to emphasize performancespeed, toughness, driving through rough terrain and around hairpin turns. Is that consistent with the image of a hybrid? Are owners of such vehicles interested in gas efficiency and environmental issues? Obviously, Toyota thinks that those consumers most likely to respond to these appeals are those who buy smaller cars. So far, they have been successful selling their cars, but they are still not selling them in such large numbers as to affect their bottom line. The market may not be that large at this time.