Toyota Scion’s revolution
How Japanese automaker transformed to create new business model
By Emi Osono
In many industries, the prevailing model is being challenged by an all-new business model.
A most recent example of this is “iTunes” in the music delivery industry. Pharmaceutical companies are looking into the possibilities of customized drugs. Automobile manufacturers are thinking about how to make a car part of the home’s energy management system. Sometimes, a company must undergo a transformation because the new business model requires new capabilities.
Let me introduce Toyota’s Scion, a model launched in the U.S. in 2004 and targeted at the youth segment. This new auto model was one of the first to successfully appeal to “Generation Y,” the children of baby boomers ― born between 1980 and 1994.
This segment is large, but difficult to attract youngsters who have been exposed to mass marketing since childhood, and are not easily convinced.
Moreover, they do not like to shop for cars. Many Americans do not enjoy car shopping, but this generation is even less tolerant to it than most.
Toyota had a very productive dealer network, but it relied on a conventional sales process, which would not work with Gen Y. To make matters worse, young people considered Toyotas “uncool.”
Toyota ended up changing everything to win acceptance by Gen Y. The company reduced variations in the basic model, but offered 40 factory accessories. In addition, it encouraged third-party accessory manufacturers to design for the Scion.
It changed its pricing system because Gen Y, which valued transparency and fairness, did not like to engage in price negotiations when buying a car.
Toyota responded by introducing “pure pricing.” Dealers were asked to display all product, financing, and insurance prices, and sell at those prices. Also, prices should be the same wherever displayed ― on dealers’ web sites, in store fronts, and in any media used.
The automaker also substantially reduced dealer inventory so that dealers would not put pressure on customers to buy models they might not want just to reduce inventory. It changed the logistics system.
Toyota also changed the sales process at dealerships by introducing a case manager system, enabling a single salesperson to complete all the necessary procedures. Normally, a customer would have to talk with people from different departments such as sales, finance, insurance. The overall process would take over four hours.
The firm switched from mass marketing to grass-roots marketing. For instance, instead of using TV commercials, magazine and newspaper advertisements, Toyota sponsored music, art, and extreme sports events.
In this way, Toyota redesigned every aspect of its business model for the Scion, to meet Gen Y’s needs. By offering the Scion as a “total solution,” it successfully attracted Gen Y and others who had never considered buying a Toyota before.
This transformational process was quite disorganized ― there was no conductor to orchestrate it. Rather, each department began experimenting, well aware that attracting the youth segment would be a strategic problem for Toyota.
Innovations were made in the process of developing a low-cost car that would appeal to young customers. This project was undertaken by a team of young designers in Japan several years ahead of the Scion. This project resulted in the bB, which was introduced only in Japan and adopted as the Scion xB later on.
It was Toyota Motor Sales, the automaker’s distributor in the U.S., which experimented with grass-roots marketing. Because Tokyo Motor Sales could not involve the product development department in Japan, it used three models that happened to have major model changes around the same time ― the Echo, the Celica, and the MR Spider.
This new marketing approach succeeded in lowering the average customer age, but only temporarily. These models were not right for the youth segment in terms of design and price, however, and the average age went back up several months after the marketing events ended.
These are just a few examples of the experiments undertaken by Toyota. By learning from such experimentation and incorporating this learning into the Scion project, the company could create a “total solution” that met the needs of the youth segment.
Changing the current business model is not easy, as it requires changing the priorities, processes, and often even the values shared by employees.
If this transformation can be viewed as a series of small experiments, success is more likely. The following recommendations may facilitate this process of transformation:
_ Raise awareness among employees regarding the major issues that could necessitate a change in the business model.
_ Nurture your employees’ problem-solving capabilities and foster an action-oriented culture so that experimentation can be initiated on a small scale in various parts of the organization.
_ Consider such experimentation as a learning project, and patiently accept the trial-and-error process that is involved.
_ The leader should determine the appropriate timing, and assign a team to collect and integrate the new knowledge.
_ Continue improving the new business model.
Emi Osono is a professor at the Graduate School of International Corporate Strategy of Hitotsubashi University.