Marketing Strategy: Learning from the Experts

Toyota had hit a ceiling. The Japanese automaker made great strides into the U.S. market with its reliable, fuel-efficient cars during the 1960s and ’70s. But by the 1980s, Toyota was having trouble penetrating two key demographic groups: the young and the wealthy.

Introduced in America 50 years ago, Toyota was embraced by Baby Boomers, who fueled the company’s rise. But according to Steve Sturm, group vice president of Toyota North America, as these consumers grew older and their incomes increased, they moved on to luxury brands such as BMW and Mercedes. And as the generation aged, its children avoided Toyota. “We couldn’t live off the Boomers forever,” Sturm told students in the Marketing Strategy class on October 16. “And by the early 1980s, the Boomers were entering their peak earning period. If we didn’t get into the high-end market, we were going to lose a lot of them.”

Marketing Strategy, an elective for second year students taught by Ravi Dhar, the George Rogers Clark Professor of Management and Marketing, focuses on understanding, developing, and evaluating brand marketing strategies for a variety of product types. Topics include marketing strategies for pioneering brands, growth strategies, strategies for mature and declining markets, and defensive marketing strategies. Case studies are used to highlight marketing strategies used in consumer packaged goods, high tech, pharmaceuticals, and luxury goods. Over the course of the semester, Dhar brings in speakers to address particular aspects of the class. In addition to Sturm, scheduled speakers include chief marketing officers for Visa, General Electric, and IBM.

Sturm, who has been with Toyota for nearly 30 years, guided the class through two case studies: Lexus and Scion. In 1984, Toyota launched the “F1 Project,” an intensive drive to create a luxury car that would rival what was coming out of Europe. Sturm said the company created 450 prototypes at a cost of $1 million each, studied how their target audience worked and played, and eventually moved the project’s engineering team to Laguna Beach, Ca. to immerse them in the culture of one of the country’s most affluent communities. Lexus debuted with two models in late 1989 and within two years, it had become the top selling import luxury brand in the U.S. “We taught the Germans how to make an American luxury car,” Sturm said. “They just sent cars over from Germany. They didn’t realize Americans have a different idea of luxury until we showed them.”

By the late ’90s, Toyota saw that while Lexus had become a roaring success, the company was losing the youth market. In 1999, the company created “Genesis,” a project aimed at marketing current Toyota products to younger buyers. The results were mixed. “We learned a major lesson,” he said. “You can’t take an entire generation and market to it the same way.” He said that market research broke down young buyers into two major groups: mainstream buyers and trendsetters. Toyota decided to go after the trendsetters as a way to entice the second group.

The first Scion vehicles went on sale at Toyota dealers in 2003. Boasting a slogan “united by individuality,” the brand represented a major break for Toyota. Sturm said Toyota turned a number of tried-and-true methods upside down in order to appeal to new buyers. No longer could a buyer negotiate on price; commercials never ran on mainstream TV channels, with much of the brand’s marketing coming through more grassroots forms; new products debut not at auto shows, but at “meet ups” for existing Scion owners. According the Sturm, Scion has been a dramatic success, bringing in buyers in their 20s and 30s to a company whose average buyers had been in their 40s. “The plan is that these buyers will eventually graduate into Toyota or Lexus,” he said. “It’s definitely working. We’ve attracted the customer, gave them a good dealer experience, they’re happy with what they’re driving, and they remain loyal to Toyota.”

Dhar said bringing in speakers such as Sturm is crucial to the learning experience. While traditional cases and lectures are effective ways to build skills and knowledge, he said that it’s just as important for students to see how companies execute their strategies and react to issues as they pop up. “Toyota is a particularly great example of this as it has thrived in a brutal environment where many others are struggling," said Dhar. "Toyota is an incredibly successful global brand, but as Steve explained, it’s not a company that believes it has all the answers. It was really beneficial to students to be able to be led through the thought process as the company launched new products in the marketplace."

Added Eric Mattes ’09: “The cases and discussions are very effective teaching tools, but there is no substitute to having marketing executives visit the class and speak to us about the issues they face, the development of a marketing strategy, and how they execute that strategy through their organization. Steve Sturm walked us through Toyota’s launches of the Lexus and Scion brands. Steve answered all of our questions in a vivid insightful manner which could only be done by an insider such as himself.”