International Institute of Planning and Management (IIPM)

CHENNAI
Mid-Term Exam (for earlier Absentees)
MARKETING RESEARCH/ November 2010

COMPULSORY CASE STUDY

Answer all questions at end of case study
Assessment will be based on demonstrated understanding and application of
marketing/marketing research principles and offering creative solutions

LEXUS: Imparting Value to Luxury and Luxury to Value

In the 1980s, Toyota developed a concept for a new car that was destined for success.
The concept of the car, to be called Lexus was based on the observation that there is a
large, affluent market for cars that could boast exceptional performance. A significant
portion of that market ranked value highly but were unwilling to pay for it if priced as
for Mercedes cars. Toyota planned to target this market by creating a car that matched
the Mercedes on performance but priced much lower.

Toyota introduced the Lexus in 1989 with much fanfare along with a clever ad
campaign showing the Lexus next to a Mercedes with the headline” The first time in
history that trading a $73000 car for a $36000 car could be considered trading up !”
The Lexus had all the details that the Mercedes had- a sculpted form, a quality finish
and a plush interior. Separate dealerships were also appointed to create this overall
luxury experience.

Toyota placed a lot of importance on the car’s performance and had also created
videos to emphasize its superior engineering compared to the Mercedes (e.g keeping
a glass of water virtually still on the Lexus engines block while it shook on the
Mercedes!) This attracted a lot of customers making it a great success. Then, Toyota
decided to increase its prices- a strategy which did not work- since they realized that
price alone does not signify luxury. They realized that their cars lacked the heritage or
prestige that European luxury cars like BMW or Audi had. They then turned to a new
advertising campaign to inspire an emotional response to its cars. The campaign was
extremely powerful as it had to combat the decrease in growth of the luxury car
market, though the overall car industry was not doing so badly. The “near luxury”
cars like Toyota’s own Avalon, Nissan Maxima, Mazda Millennia, BMW 3 series and
Mercedes C class- all chipped away at the potential “true luxury” customers.

Again, Toyota responded to this competition thro more traditional advertising and
promotion to bridge this customer perception gap between “near and true luxury”
segments. They were very successful during the early part of this decade and the
Lexus won several awards during the 2003-2005 periods for its luxury, performance
and style.

Since then, Toyota is faced with the challenge of how to retain and grow its Lexus
customers, especially when the population demographics moving in favor of
progressively younger customers. Their target group now for the luxury sedan is with
a median age of 47-55 years as against earlier 58 years old, which could drop even
more rapidly to say 35-45 years age groups in coming years.

With these developments in mind, the Toyota management is now contemplating

doing a marketing research study to help it understand its current and potential
customers more thoroughly. They plan to modify their product design, styling, and
overall offering that matches the expectations of a new generation of luxury car
buyers. These efforts are consistent with the Lexus philosophy of imparting value to
luxury and luxury to value.

Based on the case study situation, answer the following questions. Each question
carries 10 marks.

1. Describe the Toyota management problem as it gets ready to face competition

from both “true luxury” car makers like Mercedes, BMW and Audi and other
“near luxury” car makers as mentioned in the case. And formulate the
marketing research problem corresponding to the identified management
problem(s).

2. What would be the kind and/or type of marketing research you would
recommend to be done in this case? Do elaborate on the detailed research
methodology you will adopt for such a study.

3. Elaborate on at least 4 areas of enquiry or research questions that you will

look into (before designing a formal questionnaire) to help achieve the research
objectives.

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Note: - This question paper/case study is specially prepared for the exclusive use
of IIPM, Chennai and not to be used elsewhere in any form.
-Prof K. Sashi Rao/ 18.11.2010