Prius. Easy on gas. And now, easy on the wallet.

DA512 The context of new product development

Kevin Smeekens & Stijn Weterings

Abstract:
This report is about our learning activities and learning development during the assignment The context of new product development. This is done by analyzing the market strategy of Toyota for the Prius and finding out if this was successful and why it was or was not. In the end is a reflection on the learning development and further areas for development. The analysis of the Toyota prius is done by researching ad creating four marketing concepts which fits the case. We choose for market orientation to get better insights in for which the prius was developed, we choose the four success factors to analyze why the prius was a big success and what made the prius a success. We also choose the product life cycle and the adoption theory to get insights in how and to whom a car is sold in certain stages of its life. These four concepts together are the analysis of the Toyota Prius giving us a better view on why and how it became a success as the first ever mass produced hybrid car.

2 Prius. Easy on gas. And now, easy on the wallet.

Table of contents:
1. Introduction 2. Toyota and the Prius 3. Market Strategy & theories
3.1 Market Orientation
3.1.1 Theory 3.1.1.1 Costumer orientation 3.1.1.2 Competitor focus 3.1.1.3 Interfunctional coordination 3.1.2 Applying the concept 3.1.2.1 Costumer orientation 3.1.2.2 Competitor focus 3.1.2.3 Interfunctional coordination 04 05 06 06 06 06 06 06 06 07 07 07 08 08 08 08 09 09 09 10 10 10 10 11 11 11 11 12 12 12 13 13 14 14 14 15 16 16 16 17 18

3.2 4 Cs
3.2.1 Theory 3.2.2 Applying the concept 3.2.2.1 Clarity 3.2.2.2 Consistency 3.2.2.3 Credibility 3.2.2.4 Competitiveness

3.3 Product Lifecycle

3.3.1 Theory 3.3.1.1 Introduction 3.3.1.2 Growth 3.3.1.3 Maturity 3.3.1.4 Decline 3.3.2 Why the Product Life Cycle? 3.3.3 The car market 3.3.4 Applying the concept 3.3.1.1 Introduction 3.3.1.2 Growth 3.3.1.3 Maturity 3.3.1.4 Decline

3.4 Adoption Theory

3.4.1 Theory 3.4.1.1 Adopter Groups 3.4.2 Applying the concept 3.4.2.1 Innovators & Early adopters 3.4.2.2 Majority 3.4.2.3 Laggards

4. Conclusions 5. Reference list

3 Prius. Easy on gas. And now, easy on the wallet.

1. Introduction
For the assignment DA511, the context of new product development, we had to make a marketing analysis of a successful of failed product. The successful product was the Toyota prius, while the failure was the commercial television station Talpa/Tien. We choose the successful prius mostly because we wanted to analyze a real product, while a television station is more a brand and now a real touchable product. To analyze the marketing and the strategy of the prius we had to choose at least three marketing concepts to get better insights in the product. We decided on the following four; at first the market orientation, for which market is the prius developed, who are its potential consumers and why does the prius attract to this group. Secondly we choose to analyze the four Cs, the success factors of the prius. Why the prius did became a successful car while other former hybrid models were hardly sold. We also choose the product life cycle to see how the prius was marketed and tried to sell in the beginning stage and how its sales continued afterwards. The last concept we choose was the adoption theory, which is closely connected to the life cycle. The adoption theory gave us insights in how the sale of a car goes, who are the first to buy it and why and when does the mass starts to like and buy the car. This all together resulted in a marketing analysis of the successful Toyota prius.

4 Prius. Easy on gas. And now, easy on the wallet.

2. Toyota and the prius

The brand Toyota was created in 1937 when Kiichiro Toyoda set up the company Toyota Motor Company of TMC. This company was set up with money his father earned with the Toyoda spinning and weaving company, which was set up in 1918. In its home country, Japan Toyota was a very big and fast growing car manufacturer; it grew till market leader with nowadays a market share of 42% in Japan. During the fifties and sixties Toyota started exporting cars to America and Europe to become a world wide car company. In 1965 Toyota introduced the first version of the Corolla, nowadays still made and being the best selling car ever with over 23 million pieces sold. While still growing Toyota has build up a very good name, which is know by people for the reliability of the car they build and service the costumers get. Lately Toyota works very hard creating an innovative image for them; the prius is a big step forward in innovative cars. The first version of the Prius was introduced in Japan in 1997 and became a small nation success with a sell of around 160.000 cars in 6 years. A very good sell compared to other attempts of hybrid cars. In 2004 the new prius was introduced which became the European and America car of the year 2005. The prius 2 became an international success with so far over 500.000 pieces sold all over the world.

5 Prius. Easy on gas. And now, easy on the wallet.

3. Marketing strategies & theories

3.1 Market Orientation
The concept of market orientation is meant to create a better view on the market and helps to define your specific market. It gives you information about the wands and needs of the market, and enables you to develop your product especially for this market. We have chosen this marketing concept to get a better view of the market for which the Toyota prius was developed. It should help us get insight into the need and wands of the costumers and why this made Toyota develop the prius. 3.1.1 Theory Market orientation is a very wide concept which holds many topics. To enable us to get insight to a certain depth we choose a focus in this concept, being the target market of the prius. For who is the prius developed, who are its potential buyers and why do these people want to buy a hybrid car. According to the article [article 1] we found on market orientation there are three main components being; costumer orientation, competitor focus and interfunctional coordination. 3.1.1.1 Costumer orientation Information about costumers is very important for companies; it helps them getting to know the need and wands of the costumers, enabling them to change their products to the wishes of the client. It is important to see who will buy your product, not only at a certain moment, but also how the buyers will evolve over time. Therefore many companies spend lots of time and money into researching costumers and their needs. 3.1.1.2 Competitor focus Knowing your costumers is not the only part about marketing; a big issue is the companies which create the same products as yours, the competition. To be able to get a higher market share requires several superior market values. Values which your product has, but your concurrents dont. Understanding youre own and your competitors strengths and weaknesses enables a company develop a better product which beats the opponents at the market. 3.1.1.3 Interfunctional coordination A product never develop itself, it needs the help of many people to develop to good selling product. The focus and coordination of all these people needs to done well to stimulate them in developing the product. It is important to make sure everyone recognize there role in adding value to the product. To achieve this companies have developed a structure in which all factors, engineering, design, production, and marketing work together to increase efficiency and to make sure no unnecessary steps are taken. 3.1.2 Applying the concept The market of the Toyota prius can been in mainly 2 different ways, first of all it is hybrid car. Since there are not many 6 Prius. Easy on gas. And now, easy on the wallet.

competitiors yet the market is pretty small and very much dominated by Toyota. The other market in which the prius is in is the so called C-segment. The segment in which al medium sized family cars are is, next to the prius this is the segment for the Volkswagen golf, BMW 1 series, Skoda Octavia, Volvo c30, Kia Cerato and many more. 3.1.2.1 Costumer orientation For who is the Toyota prius firstly developed? The first version of the prius was only available in Japan, but after the small success Toyota made there they decided to export the prius2 to America and later also to Europe. From a marketing plan for the Toyota prius [article 2] we got information about the specific people in Europe the prius was developed. There are mainly two groups, the costumers and consumers. The costumers are car dealers and companies, the prius was not developed for them but it could be a good alternative for leasing, because of its low operational costs. The consumers, the people who actually buy the prius are midlife people in the age of 30 to 50 years old. In this age group there is no difference between male and female concerning the buying of the prius. The people who buy the prius are very likely to be married and have family responsibilities. Educational wise the buyers are mainly well informed and higher educated. They are called the upper midclass which mostly has an administrative of professional occupation. The most important fact about the buyer is that they should be willing to buy an environmentally friendly car and they should even be willing to pay more for this car. 3.1.2.2 Competitor focus The segment in which the prius is in is the C-segment, in which there is much concurrence because of the many cars that are in it. Because the prius is not the cheapest car in the segment, it costs about 10.000 euros more then for example the Kia, it needed to have different superior values to be able to beat the competition. The biggest superior value is of course the hybrid engine, which makes the car using less petrol to the mile and causing much less exhaust gasses to be produced. Next to the engine the Toyota prius advertises with the fact that it is a very complete car for its segment, it is standard very complete with things like air-conditioning and a parking assistant. This assistant is able to park the car anywhere without any help from the driver; the car full automatically parks it. Next to these two main extras of the prius the brand Toyota is widely know for its reliability and innovativeness, this being to extra superior values, not especially for the prius but for all the car Toyota builds. 3.1.2.3 Interfunctional coordination The research and development structure of Toyota and in particular the prius is an aspect we did not focus on, and therefore did not researched and thus are we not able to fully discuss this topic. Toyota is the third largest car manufacturer in the world and is holding the record for the best selling model, the corolla with an astonishing 23 million pieces sold already. There also the market leader in there home country Japan and there expanding much in America and Europe at the moment. Although this are no guarantees the structure inside the company needs to be well working to run and business this big and successful, and with any newly developed car being a success we assume that the inside structure is performing in a good way.

7 Prius. Easy on gas. And now, easy on the wallet.

3.2 4 Cs
The four success factors of marketing are closely connected to the four Ps of marketing. The four P are made for thinking product wise, while the four Cs are made are made for thinking costumer wise. The meaning of the Cs and Ps is closely related the only problem with Cs is that because of its newness there is not a standard yet, therefore many words with a C are used varying from; competition, cost, consumer communication, convenience, connection, change, commitment and consistency. Using the four Cs should give us a better insight in the success of the Toyota prius. Why the prius did became a success where other former hybrid cars failed. 3.2.1 Theory The four Cs given in the presentation; clarity, consistency, credibility and competitiveness are not the most frequently used word. According to an article [article 3] we found the most used words are; Consumer, cost, convenience and communication. These terms are all closely related to one of the four main Ps. What used to be product is now called consumer (wands and needs). Instead of developing products and then try to sell them to a mass market doesnt work anymore. Nowadays research is done to find out what the costumers want, and when that is know the companies will try to create that product. What used to be called prize is now changed into cost. The prize of the product is not the only thing that matters anymore, its about the cost to satisfy a costumer, this includes for example; driving to a store and the convenience of buying a product. The P of place is now changed into convenience; a shop is no longer the only place of buying products. Many costumers find it more convenient to buy a product over the internet of telephone with a credit card. The promotion of products is replaced with communication of products. Promotion is manipulative while communication should be interactive by using phone numbers or websites. The four Cs used in the presentation are somewhat connected or other words for the four Cs that are mostly used. The clearest one is competitiveness which can be seen as communication, promotion of the product, and seeing where the competition is. Clarity and consistency both have areas which belong to costumer, keeping the products consistent and clear to the costumer to fulfill its needs and wands. The cost of the product are connected to credibility, a product should get the credits for what it is worth, not more or less. 3.2.2 Applying the concept 3.2.2.1 Clarity Clarity means keeping the message to the costumers simple and understandable. The slogan of Toyota; today tomorrow Toyota is a very clear slogan basing on the reliability of Toyota, an aspect which is frequently used when the brand is promoted. When the prius is brought into the attention of people it used several aspects, first of all the environmentally friendly engine which saves money and the completeness of the car.

8 Prius. Easy on gas. And now, easy on the wallet.

For this segments can it is very complete and has many luxuries extras. 3.2.2.2 Consistency The commercials of Toyota and the prius are mainly based on reliability and the environmental friendly characteristics of the car. These two main strong points of the brand and the car are always used in commercial for the brand and car, therefore Toyota is very consistent. 3.2.2.3 Credibility The prius is a car for the C-segment of the market, the middle sized family cars. The car advertises with being a very complete car for this segment, which several luxuries feature. Since it is in the credibility of the C-segment the car has a high value because it is offering much for a car in this segment. 3.2.2.4 Competitiveness There is not much competition between hybrid cars; the prius is by far the world leader with a share of over 90%. There are two other mass produced hybrid cars, the Honda Insight and the Lexus RX400. The brand Lexus is owned by Toyota, it produces the more expensive higher class cars. What Audi is for Volkswagen is Lexus for Toyota. Therefore the Honda insight is the only real competition, but the Honda is a two person coupe, and not a c segment family car. The other competition Toyota has is the whole C-segment, from the cheap foreign cars to the exclusive BMW 1 series. Toyota is very well able to handle the competition there, since there in the middle of the segment if we talk about the prize and they offer a very complete car, which has several superior values over the competition being the hybrid engine, and the luxury extras like the parking assistant.

9 Prius. Easy on gas. And now, easy on the wallet.

3.3 Product lifecycle

3.3.1 Theory The product life cycle is about the life of a product in the market. The market strategy of a company must change as the market, competitors and buyers change over time. Every stage of the product life cycle has its own needs for the marketing strategy. The product life cycle consists of 4 phases; Introduction, Growth, Maturity and Decline. 3.3.1.1 Introduction This is the first period of the product life cycle. This is a period of slow sales growth. The reasons for this slow sales growth can have different reasons like distribution to the dealers, delays in expansion of production capacity, technical problems because the product is new and customer reluctance. The company had heavy expenses to introduce the product. They have to inform potential customers, induce product trial and secure the distribution in retail outlets. When this wouldnt be done by the company the people wouldnt be aware of the product or retail outlets wont know that the product is available so they wont sell it. Because of the high costs there are no or even negative profits in this stage. 3.3.1.2 Growth This period is about rapid market acceptance and therefore the sales climb rapidly. The early adopters of the product will like it and therefore other people get interested. This means that additional customers start buying. The company tries to get as much money as possible in this stage and therefore new product features are launched and the distribution is expanded. In this stage the promotional costs are increased to stay ahead in the competition with other companies. Because the sales increase a lot faster then the increase in promotional expenditures the costs get lower. Also the costs per unit for manufacturing are lower because of the higher production. The prices remain the same of fall slightly. Because of this combination in lower costs, higher sells and the same or a bit lower price the profits rise.

10 Prius. Easy on gas. And now, easy on the wallet.

3.3.1.3 Maturity In this period there is a slowdown in sales growth because the product has achieved acceptance by most potential buyers. Because of increased competition the profits stabilize or decline. Normally this phase is longer than the previous phases. This Maturity stage can be divided into 3 phases; a growth, a stable and a decaying phase. In the growth phase the sales are still growing, but it is slowing down. This is because there are no new distribution channels to be filled. The stable phase is when the sales flatten and the market gets saturated. The sales which are taking place are based on population growth and the demand for replacement. In the decaying phase finally the sales are declining and the customers switch to other products. 3.3.1.4 Decline This is a period when the sales are going down and that the profits go down to zero. The lower sales give an overcapacity. To stimulate customers to buy the product and to get rid of the products the prices are cut down. In this phase also the promotion budgets are cut and the products can be withdrawn from the market. 3.3.2 Why the Product Life Cycle? When we look at the case of the Toyota Prius, it is weird that a car which can last more than 20 years has only a Product Life Cycle of approximately 3 years. Also there are no extreme technological improvements in this market. The competition on the car market is strong and there are new cars introduced all the time. It is interesting in our opinion to look what the causes of this short Product Life Cycle are and especially how a car manufacturer manages to guide his product throughout the stages of a Life Cycle successfully. Therefore we start with a short part about the markets history and then we continue with analyzing the marketing strategy of the Toyota Prius regarding to the Product Life Cycle. For this Product Life Cycle we make use of a marketing plan for the Toyota Prius introduction in the United Kingdom. 3.3.3 The car market In the previous part we already told that it is weird that a product which can last more than 20 years and without extreme technological improvements in the market has a Product Life Cycle of only 3 years. For the reason for this we have to go more than eighty years back in time. The Model T motorcar of Henry Ford I was brought down in fifteen years from $780 to $290, by sticking to a basic design except for minor changes and efficient working in the factories. Because the price was already extremely low competition over price was very unattractive for other car manufacturers. General Motors knew that they couldnt match Ford in production know-how or pricing so they decided to work towards yearly changes. In the beginning (20s & 30s) this were mostly significant technical innovations like for example balloon tires, shock absorbers and fourwheel brakes. In the fifties they ran out of significant technical innovations and they had to look for new ways to sell cars every year or 2 years. All the American car manufacturers were putting more and more importance on styling.

11 Prius. Easy on gas. And now, easy on the wallet.

The car market was becoming an imitation of the womens fashion stylists. Because there were new cars every year or two years, cars started to look old very fast and people wanted to buy new cars all the time after only a few years. Also the second hand cars dropped in price rapidly which made the Life Cycle of a car very short. In the beginning this was only happening in the United States, but after a while this marketing strategy became normal throughout the whole car market. 3.3.4 Applying the concept

3.3.4.1 Introduction In the introduction phase it is important to get people aware of the new product. Toyota does this by awareness mailers, press releases and exhibitions on motor shows. A lot of potential buyers are reached in this way before the car is on sale. Because there are no experiences of people having the new car, pre-testing for magazines gives people some information how good the car is driving. In the introduction phase it is also very important to get everything ready for the introduction like dealers, distribution and production. To make sure that the cars will be sold at the dealers and that the dealers will give quality information the staff is trained for the new car and the dealers receive a lot of information about the new car.

3.3.4.2 Growth In the growth stage the promotional costs are very high and there are all sorts of ways in which they do this. They do this for example by television, print and billboards. As it is important for people to know if the car is driving good and that they can have a bit of reluctance the first buyers are getting some extras. This stimulates people to buy, and those first adapters will tell others about the car. Also there are again tests with the car to let people know how the car is driving.

12 Prius. Easy on gas. And now, easy on the wallet.

3.3.4.3 Maturity In the Maturity stage the promotional costs are lowered and the focus is getting more from attention to satisfaction and trust. In this way they try to reach the more conservative people. The dealer activities become more important and the marketing is getting more specific in focusing on the target group. Also a lot of people are using the product already which means that people will hear from them how good the product is.

3.3.4.4 Decline In the last phase of the Product Life Cycle the promotional costs are cut down a lot. The sales are dropping and there is an overcapacity. At Toyota they plan to have a sales promotion in this phase for selling the car to some late buyers and in that way they can get rid of the old model. Also in this phase the whole marketing campaign is evaluated.

13 Prius. Easy on gas. And now, easy on the wallet.

3.4 Adoption theory

3.4.1 Theory The consumer adoption theory is about how potential customers learn about new products, try them and finally adopt or reject it. Adoption is an individuals decision to become a regular user of a product. The consumer adoption process is about the mental process through which an individual passes from learning about the new product to adoption. There are five stages through which adopters move. The goal for marketers is to move consumers through those stages to adoption. 1. Awareness 2. Interest 3. Evaluation 4. Trial 5. Adoption In this stage the consumer becomes aware of the new product but he doesnt have a lot of information and knowledge about it. The consumer gets interested and starts looking for information. The consumer is considering if he shall try the product or not. At this point the consumer is trying the new product and is determining the value the product has for him. The consumer decides to make full and regular use of the new product.

When the marketers try to move the consumers through the adoption process there are various factors which influence the adoption process. These characteristics are individual readiness for new products, the effect of personal influence, rate of adoption and the organizations readiness for new products. Personal influence is the effect one person has to another person in the sense of attitude or buying behavior. This is an important factor but the importance differs in different situations and individuals. It is most applicable in the evaluation stage and has more influence on late adopters than on early adopters. The rate of adoption of a product is about all the product characteristics which influence the time which is needed for getting acceptance and the adoption. This can be for example the costs, risks, relative advantage over other products, compatibility and complexity. One of the characteristics named, individual readiness (Adopter Groups) we are going to explain further in the next part. 3.4.1.1 Adopter Groups First we start with a short explanation of the individual readiness for new products. Consumers can be divided into five adopter groups. Mostly companies are focusing their new products on the innovators and early adopters. These are

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the groups who can be the easiest attracted to try a new product and after they have accepted the other adopter groups will follow. Therefore the company should have good knowledge about who the innovators and early adopters are and how to direct communication to them. 1. 2. Innovators Early adopters These are often people who like to try new ideas. Early adopters are the opinion leaders in their communities and they adopt ideas early but carefully. The people in this group are mostly younger people, are having higher social status and a better financial position. A large group with people who adopt a product earlier than average. Mostly skeptical people who adopt an innovation only after a majority tried it. This group consists with people who are tradition-bound. People in this group are suspicious of change, mix with other tradition-bound people and adopt the innovation only themselves when the product becomes a bit of a tradition itself.

3. 4. 5.

Early majority Late majority Laggards

3.4.2 Applying the concept In general it can be seen that Toyota is looking at the five stages through which adopters move. In the beginning of their marketing campaign they are focusing a lot on awareness and creating interest. Then they move to more personal and in depth information to make the consumer well informed. Then the customer will move to the stage where he will make the decision to test the car and if he wants one or not. Toyota stimulated the innovators and early adopters with sales and the new technology and in this way they attracted them to buy the car. Those innovators and early adopters will experience the car and influence the Majority by their opinion. This will help getting the Majority faster through the adoption process. Toyota is also giving people the opportunity to test drive a car before they buy it. This may help them through the testing stage after which people will make the decision to buy or not.

15 Prius. Easy on gas. And now, easy on the wallet.

3.4.2.1 Innovators & Early adopters In these groups they like to try new ideas and technologies. Normally this group consists of young people with better financial positions, but in this case Toyota focused on people of approximately 40/50 years old with better incomes. Toyota has the name to be trustworthy and this group cares also more about the environment than younger people. Toyota tries to catch these groups by giving promotions to first buyers, in this way they will be attracted to the new product. The Toyota Prius had the advantage that it is the first and only hybrid car on the market. Therefore the innovators got interested by the car. When this group is satisfied with the product they will have a high influence on the Majority. 3.4.2.2 Majority When the Innovators and early adopters are using the product and are satisfied with it they will tell to the Majority. The innovators and early adopters are often high in social status and therefore a high influence on the Majority. The Majority needs trust in the product and will only buy it when the product proves to be good. Therefore they will only start buying when they here of other people that it is trustworthy and of good quality. Toyota tries to stimulate this trust by more personal dealer promotion and to promote more on events where the specific target group is coming. 3.4.2.3 Laggards The last group, the laggards are difficult to reach. They will only shift to buying when the product has a sort of tradition in it and when it is really trustworthy. Often this group has a weaker financial situation. Therefore Toyota tries to catch this group in the end of their product life cycle when it has proved to be good and in the way that they can be best reached. By discount and by the personal contact with the dealer.

16 Prius. Easy on gas. And now, easy on the wallet.

4. Conclusion
The Toyota prius is the worlds first mass produced hybrid car and although other hybrid cars were no success the prius is sold very good all over the world. From there home country Japan to the United States and also in Europe now. Everywhere people welcome the prius with open arms. Why the prius did become such a successful car? The biggest reason for the prius to become a success is its hybrid engine, people like it, not mainly because of the low exhaust gasses it produces, but mainly because of its high mile to the gallon number. The fuel keeps getting more expensive and with the prius being affordable for many people it saves them money on the fuel. The second part which help the sales of the prius is the very good name of Toyota, know for its reliability. If a new company, unknown to the crowd would have produced the same car it would probably never been such a success. It a new technique which might scare people away, but the name of Toyota made them believe that although it was new and different it still was a reliable car. Next to that the prius is very well able to stand up in the busy C-segment. Although the segment has cheaper cars, the Toyota offers a very high amount of value for money. The car is standard very complete and many extras are available. The prius is therefore usable for many different kinds of people, from familys businessman, the prius fits all. Overall Toyota introduced the prius at the right time; the world was ready for a hybrid car, saving the environment and the wallets of its consumers.

17 Prius. Easy on gas. And now, easy on the wallet.

Reference list
[Article 1] Market orientation, customer value, and superior performance. Publication: Business Horizons, March-April 1994 By Stanley F. Slater & John C. Narver. http://findarticles.com/p/articles/mi_m1038/is_n2_v37/ai_15419777/pg_1 Toyota Prius; Marketing Communications Plan. Publication: April 2003 By Andidas.com andidas.deviantart.net/projects/academic/MaketingCommunications _ToyotaPriusMarketingPlan.doc Marketing 101 - 4 C's versus the 4 P's of Marketing. By Roy McClean, Principal The Custom Fit Communications Group http://www.customfitfocus.com/marketing-1.htm Marketing management. By Philip Kotter

Link [Article 2]

Link

[Article 3] Link [Book 1]

18 Prius. Easy on gas. And now, easy on the wallet.