Toyota and the Changing Car Market a case of non-price competition

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Toyota, the world's third largest car maker, was having a hard time in the mid 1990s. Not only was it suffering, along with other car manufacturers, from a depressed car market, but it also had to face a high valued yen, making exporting difficult and domestic sales, with more and cheaper foreign competition, difficult to achieve.

Honda by contrast, a third of Toyota's size, and with only 13 per cent of the home market, saw its market share grow by 20 per cent in 1996 alone. The reasons for this disparity in performance lies in the fact that Honda was successful in developing 'new' segments within the car market, and Toyota was not. The new markets in which Toyota got left behind were for off-road vehicles and people carriers or minions, generally known as recreational vehicles. This segment in Japan now accounts for 30 peer cent of all vehicle sales. It took Toyota 15 to 18 months (which in car product development time is very short) to move into these markets with the Ipsum and RAVA 4.

Along with launching these new products, Toyota decided to reassert its position in the more traditional segments of both the Japanese and overseas markets. Many of its current car models were consequently redesigned and re-marketed.

Question Toyota's strategy has been one of non-price competition. Why might price competition prove to be ineffective in helping to restore Toyota's market position?

As well as developing new types of vehicle and relaunching existing ones, Toyota sought to slash production costs and by-pass the high yen by shifting car production overseas.

Toyota estimates that between 1986 and 1996 it was able to cut production costs by an average of $920 million a year. It also estimated that by 1998 65 per cent of its overseas sales would come from local production. This compares with only 48 per cent in 1994.

On top of this cost cutting and shifting of production, Toyota launched an aggressive advertising campaign, seeking to maintain and strengthen its market position. In September 1996, Toyota was estimated to be spending more than a $1 million a day in marketing its cars, and was believed to be prepared to spend anything up to $2 billion a year in advertising and product promotion. Given a 'war chest' of ¥1.18 trillion ($10 billion) – the estimated bank deposits at Toyota's disposal - the advertising offensive is likely to last for as long as Toyota wishes it to.