Lexus' Business Strategy in Germany

Alvin AlexImani Carrasquillo

Michelle ChinHoon Choi

Abhinav DadarkarKirby York

Eine Neue Dimension des Hochleistungsfahrens

AnalysesHistorySWOT, PEST, Industry AnalysisCorporate and Business Level StrategyMarket ResearchPerformance

ResultsGDP and Price Inelasticity for luxury goodsLack of establish history from LexusGerman pride in automobile industry

Recommendations and ConclusionsLexus should stay in GermanyCompetitive pricing away from value-luxury

History Lexus

Launch of Toyota into US○ 1989

Popularity Increase ○ Mid-1990’s

Separation and Globalization○ 2005○ Struggle with brand recognition in

Europe○ 2006 first hybrid and diesel vehicles

Lexus IS 220d did well in the United Kingdom

Strengths

•Expertise in the automobile industry.•Cost Advantage from know-how.•Top designs and functionality for the price.

Weaknesses

•Lack of prestige due to its relationship with to the parent company Toyota.•Price does not match up to the European conscience of luxury. •Lack of Brand equity.

Opportunities

•First-Mover Advantage.•New Distribution Channels.•Customer Taste and Preference.

Threats

•Existing Competitors follow you.•Well established local competition.•Customer Taste and Preference.•Unionization

Political

• Currently run by the Christian Democrat Union

• Powerful Green Party

• CDU and SPD minimum wage battle

Economic

• Steady decline in GDP

• Powerful Union makes doing business difficult

• High unemployment rates

• Two economic stimulus packages in 4 months

Social• Competition with US in

exporting goods

• Environmental activism

• C.A.F.E. (Clean Air for Europe)

• Friends of the Earth

• Anti-nuclear movement

Technological

• Known for engineering and innovation

• Hydroelectric power

• Wind energy

Threat of new entrants is Low. This is a capital intensive industry. Start up and R&D costs are very high.

The bargaining power of suppliers is Low. Lexus works with small, high quality suppliers the selection of which takes 3-5 years.

The threat of substitutes is relatively High. Competitors have a very similar line-up of cars. Differentiation is key

Bargaining power of consumers is Low: Consumers have weak bargaining power for luxury carsLuxury is high and price, therefore “What you pay for, is what you get”

Consumer ReportJD Power and Associates in 2008Lexus among the top five most reliable brands in its

annual car reliability survey

Mission StatementTo attract and retain customers with the highest

value products and services and the most satisfying ownership experience in America.

High quality with total quality management and precision

Pricing StrategyPrice with competition or lose “snob appeal”Lexus models

○ LS 600H will receive a huge price increase which would push the brand into the ultra luxury segment.

Temple students from GermanyInformal InterviewPrimary data and cultural perception

obtained3 important conclusions derived from data

“Luxury is something that has a high price tag and that there is no middle between value and luxury”

“If I had a choice between buying a Benz, Beamer, or Lexus I would definitely not choose Lexus.”

“There is no brand trust in Lexus because of the lack of history it has with Germany”

High price inelasticity for luxury goods, therefore no middle between value and luxury

German luxury brands are favored over foreign luxury brands

History of a company plays a huge role in gaining consumer trust in Germany

Sales/Net Income 2007 2008Toyota 14%/ 20% 10%/ 5%BMW 14%/ 9% (5%)/ (90%)

Mercedes-Benz .2%/ 6% (4%)/ (66%)

Audi 8%/ 23% 2%/ 32%

Gross Profit Margin 2007 2008Mercedes-Benz 23% 24%BMW 20% 14%Toyota 20% 18%Audi 17% 16%

Toyota vs. Indices (S&P,DOW,NAS)

Toyota vs. Luxury Competitors

In the News

April 21, 2009 Lexus improving on researchRe-enter its “LF-A” premium two

seater sports car in the Nurburgring endurance race in Nurburg German

May 21 to 24, 2009 Help build the Lexus brand among

German consumers

Conclusions

FailureMisuse of their self reference criterion

Arrogant based off of US performance

Beating BMW and Mercedes

Conclusions Lack of Research

In Germany the inelasticity for luxury goods is higher US

Per capita GDP is twice as high as the US GDPThe German students

○ “luxury is something that has a high price tag and that there is no middle between value and luxury”

○ “If I had a choice between buying a Benz, Beamer, or Lexus I would definitely not choose Lexus.”

Lack of Reasonable Strategy1% Market Share attributed to Lack of Strategy

—due to inadequate Market Research.

Recommendations Stay in Germany

Away from value luxury More competitive pricing

PricingLexus should not be in the middle

segment in terms of pricing Position Lexus as a luxury carBuilding on platforms (Strengthening

Current Relationships)

Recommendations Models

Minimize the diversification of models available in Germany

Eliminate American favored modelsExclusivity with more innovative

features

German citizensBuild Brand equity amongst German

Consumers

A. Lange & Sohne