FUNDAMENTALS OF MARKETING
ASSIGNMENT # 2

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ANALYSIS OF FIRM: LEXUS

Contents SUMMARY 3 OBJECTIVES: 3 THE FIRM: 3 THE PRODUCT: 3 THE ENVIRONMENT OF LEXUS 4 INTERNAL ENVIRONMENT OF LEXUS: 4 TOP MANAGEMENT: 4 EXECUTIVES AT LEXUS: 5 EMPLOYEES: 5 FINANCIAL ENVIRONMENT: 5 OPERATIONS: 6 EXTERNAL ENVIRONMENT OF LEXUS: 6 CUSTOMERS: 7 COMPETITORS: 7 MEDIA: 7 MARKETING MIX OF LEXUS 8 PRODUCT STRATEGY: 8 PRICING STRATEGY: 8 PROMOTION: 8 PLACEMENT: 9 TARGET MARKET 9 MARKETING SEGMENT 9 SOURCES 10

SUMMARY

OBJECTIVES:
The aim of this paper is to analyze a firm of choice and study how it has successfully managed to establish itself in the market with the aid of appropriate and effective marketing strategies. The following aspects will be studied: 1. The Environment of the Firm a. Internal Environment b. External Environment c. How these environments affects the firm

2. Define Firm’s Marketing Mix (focusing on any one product)

3. Target Markets d. Which markets does it target? Businesses or Consumers?

4. Define Firm’s Market Segments

THE FIRM:
The firm chosen for this paper is Lexus. Lexus is the luxury vehicle division of Japanese automaker Toyota Motor Corporation. First introduced in 1989 in the United States, Lexus is now sold globally and has become Japan's largest-selling make of premium cars. Lexus is headquartered in Toyota City, Japan, with major operational centers in Brussels, Belgium, and Torrance, California, United States.
THE PRODUCT: For the purpose of studying the marketing mix of a particular product of the firm Lexus, the product chosen is Lexus LS 430, 2000-2003.
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THE ENVIRONMENT OF LEXUS

The environment of a firm encompasses all those factors that affect a company's operations. There are two types of environments, namely the ‘Internal Environment’ and the ‘External Environment’.
The Internal Environment includes factors such as the management personals of the firm, its different departments with their employees, and the company itself. The External Environment includes factors such as customers, competitors, stakeholders, suppliers, industry trends, regulations, other government activities, social and economic factors, and technological developments. Following is the study of the Internal and External Environment of Lexus, and of the ways in which these environments affect the operations of the firm.
INTERNAL ENVIRONMENT OF LEXUS: To better understand a firm, one must understand its internal environment, as it is from here that one can pinpoint the ideals and philosophies which guide the actions of the firm. Studying the internal environment also helps one to understand the reasons behind the image which the firm aims to project of itself to the market. The internal environment of one organization is always unique and different from that of other organizations.
TOP MANAGEMENT:
The internal environment includes, among others, the top management of the firm. As the top management is that portion of the firm which is directly involved in strategic and long term planning, in most cases it is helpful to understand the psyche of the top management in order to fully comprehend the aims, objectives, and priorities of the firm.
At Lexus, the top management holds the following vision:
“The luxury of Lexus is different. We call it Progressive Luxury - automotive luxury that offers an engaging blend of: * Personally rewarding, enriching experiences * Intelligent and innovative luxury design * Socially and environmentally responsible solutions
At Lexus our aim is to be the benchmark of Progressive Luxury - measured not by the highest sales volume or market share, but by winning the hearts and minds of individuals, like you, one at a time. Our vision is not about being the largest, but about being the most special.”

This mission statement is very telling of the internal environment of Lexus and the psyche of the top management. Instead of focusing on sales volume, they are instead more concerned with value, quality, and customer satisfaction. Despite this claim, Lexus does not intend to forsake the aim of also being profitable. On the contrary, by virtue of this claim, Lexus manages to achieve a twofold advantage over its competitors; firstly, due to the high importance it attaches to luxury, it manages to attract luxury seeking customers; secondly, due to the importance it lays on an enriching product experience, it manages also to keep these customers. Thus, by stressing on quality rather than volume, it indirectly and eventually

succeeds in claiming a large sales volume nonetheless. According to Bob Carter, Lexus group vice president and the general manager,
"At Lexus, we believe that the ultimate success is a satisfied and loyal customer. Our business model is based on treating every customer like a guest in our own home, which means providing the highest quality of attention and care at every level: from design conception to dealership and from purchase to service. This, more than any number, is our goal at all times."
EXECUTIVES AT LEXUS: * Managing Director : Kazuo Ohara * General Manager (Global) : Karl Schlicht * Vice President (Asia Pacific) : Vince Socco * Vice President (Europe) : Andy Pfeiffenberger * Vice President (USA) : Mark Templin
EMPLOYEES:
Employees make up another important portion of a firm. Empowered and skillful employees can become a source competitive advantage. At Lexus, a great deal of training, development, time, and money goes into making the employees excel at what they do. This is not surprising, as Lexus’s success depends upon the quality of its finished product, and therefore getting the product right is essential. To allow the employees to work at their best, Lexus works hard to cultivate a productive working environment in which employees from all segments of society can work with ease. The Official Lexus website boasts of the exceptional skills it has instilled in its employees and also applauses their commitment to the job. They say that each and every engine is personally inspected before it goes to the vehicle. The engine inspector can also quite easily tell if there is something amiss by simply listening to the noise made by the engine.
The employees working at the assembly centers are trained to sense the surface of the vehicle’s parts with their figure tips, and the employees have been so meticulously trained that they can even feel the difference between the front and backside of a piece of paper. “These guys and gals are trained to feel the difference, a skill that takes years to develop,” says an article by a Lexus employee. “It’s those same fingertips that go over engine parts before assembly, backing up the digital measurements with a craftsman’s touch—checking smoothness and curvature, and looking for any minute imperfections that must be rectified before assembly.” Moreover, the workers at the assembly line are regularly assessed by superiors who check the ability of the worker to quickly install different parts onto a Lexus vehicle while the superiors watch.
FINANCIAL ENVIRONMENT: Financial data of Lexus operations are not disclosed publicly. However, automotive analysts estimate that the Lexus division contributes a disproportionate share of Toyota's profits, relative to its limited production and sales volume. Interviews with retired division officials indicate that depending on sales volume, vehicle product development cycles, and exchange rates, Lexus sales have accounted for as much as half of Toyota's annual U.S. profit in certain years. Division executives have employed pricing strategies aimed at sustaining profit

margins rather than sales volume, with historically fewer price incentives than rival brands. In 2006, Lexus entered Interbrand's (a global branding consultancy) list of the Top 100 Global Brands for the first time, with an estimated brand value of approximately US$3 billion annually. In 2009, Interbrand ranked Lexus as Japan's seventh largest brand, between Panasonic and Nissan, based on revenue, earnings, and market value.
OPERATIONS:
Many Lexus vehicles are manufactured in Toyota's flagship Tahara plant, a highly sophisticated, computerized manufacturing plant in Japan. Lexus production techniques include methods and standards of quality control that differ from Toyota models. At the Tahara plant, separate assembly lines were developed for Lexus vehicles, along with new molds and specialized manufacturing equipment. Welding processes, body panel fit tolerances, and paint quality requirements are more stringent. Lexus plant workers, typically veteran technicians, are identified via repeated performance evaluations and ranked according to skill grade, with limited applicants accepted. The highest level takumi(Japanese for "artisan") engineers are responsible for maintaining production standards at key points in the assembly process, such as testing engine performance. Production vehicles are given visual inspections for flaws, individually test-driven at high speeds, and subjected to vibration tests.
The North American–market RX 350 (since the 2004 model year) is produced in the city of Cambridge, in Ontario, Canada, which is the first Lexus production site located outside of Japan.
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In 2005, J.D. Power and Associates bestowed its Platinum award for worldwide plant quality on the Tahara plant for the fourth consecutive year, stating that it has the fewest defects of any manufacturing plant in the world. In 2006, J.D. Power named the Miyata plant, then the site of ES and IS model production, as its recipient of the Platinum award for worldwide plant quality, and in 2009 the Higashi Fuji plant, site of SC production, received the same recognition. J.D. Power has named Lexus the most reliable brand in the U.S. fourteen times since 1995, according to its Vehicle Dependability Survey of over 53,000 vehicle owners and the first three years of ownership. In the 2000s, Consumer Reports also named Lexus among the top five most reliable brands in its Annual Car Reliability Surveys of over one million vehicles across the U.S.
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EXTERNAL ENVIRONMENT OF LEXUS: The external environment of a firm is large. It is also very important. The firm may have the most conducive-to-work internal environment, but as long as the firm is unable to adapt and react to its external environment, the firm will eventually fail. This is so because the firm, understandably, conducts business in and earns revenue from the external environment. Applying an analogy, if the internal environment of a firm is the cook (with all his skills and expertise), then the external environment is the grocery store/market place; no matter how good the cook is, if they cannot gain access to the grocery store and procure the required ingredients, they will never be able to cook. Therefore, it is essential for a firm to understand, react, and keep an eye at its external environment.

The external environment, among other factors, includes customers, competitors, media, suppliers, and distributors/intermediaries.
CUSTOMERS:
One of the most important factors of the external environment, customers have the potential to determine the firm’s success or failure. This is so because customers are the source of revenue for firms. The firm that holds the most customers is the winner. However in today’s extremely saturated and competitive market place, customers fluidly jump from one brand to another, depending upon which brand offers them more for less. Greater the satisfaction achieved by the customer, better the chances of a brand to succeed. In short, a satisfied customer is the ideal asset that all firms aim to have. Lexus, as we saw, has no qualms when it comes to trading off sales volume in favor of better product quality and customer satisfaction. This is, in fact, their guiding philosophy. As Lexus provides exquisite quality luxury cars which are more durable and reliable than their American and German competitors, customers have consistently flocked around Lexus. Moreover, the price of a Lexus sedan is slightly lower than the price of a competitor firm’s luxury sedan. Therefore, it is no surprise that in a relatively short span, Lexus has been able to completely dominate the American luxury sedan market. It simply offers more for less. Thus, this portion of Lexus’s external environment is being dealt with in a good way.
COMPETITORS:
Toyota introduced its luxury vehicle division for the first time in 1989 in the U.S. Back then, the rulers in the luxury vehicle arena were Mercedes, BMW, Cadillac, and Audi. In 1991, Lexus became the No. 1 luxury import in the U.S. for the first time, topping Mercedes Benz and BMW with over 70,000 units sold. Fifty-two percent of Lexus sales that year were LS 400 sedan. Today, Mercedes and BMW are perhaps the closest competitors of Lexus, and the competition is quite fierce. All three of these firms have now begun to incorporate user friendly technology into their luxury cars. They all constantly engage in concentrated marketing, and try hard to keep on top of one another. As far as prices are concerned, to the target market, price is of medium importance since money is only a secondary factor in the buying purchasing decision. Nonetheless, Lexus still has the competitive advantage, as its sedans are at a relatively lower price in the market.
MEDIA:
As the voice of media echoes around the world, the importance of this particular external factor should never be taken lightly. A firm relies heavily on its ‘image’. This image I created by the firm for its target market, and its purpose is to make the firm appealing to its customers so as to attract more business. Firms pay huge sums to advertising firms, research agencies, designers, and marketers to create an effective and appropriate public image for itself. Though media is a great channel though which a firm can propagate its image, the destructive characteristics of media are also just as potent. A bad news about a firm can shatter its image, sometimes irreversibly.
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Lexus so far has been projected in a very positive light by the media. Lexus’s image projected by the media is that of a durable, reliable, luxurious, exquisite, classy, and relatively cheaper vehicle.
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MARKETING MIX OF LEXUS Marketing mix is a broad concept which includes several aspects of marketing which are related to creating awareness and customer loyalty. The term is often summarized as referring to the "four P's": product, price, promotion, and placement.
PRODUCT STRATEGY: The product of Lexus chosen is the Lexus LS 430, which first manufactured in 2003. The idea behind the LS 430 was to come up with a luxury sedan that would compete with the luxury sedans of such seasoned luxury vehicle makers as Mercedes, BMW, and Cadillac. This new sedan by Lexus had to have a distinctive image, one that would set it apart from its competitors. The third generation of Lexus LS vehicles saw the increase in engine power from a 4.0 liter engine to a 4.3 liter engine. In addition to the changes in engine displacement, the other big change was to the actual design of the car. Across the board in car manufacturing, a move had been made to a more aerodynamic designs; designs that also happened to look better than the rigidly rectangular design a car tended to have before the move was made. The LS 430 was completely re-designed from a style look on the outside and had a number of convenience features such as an LCD screen on the dashboard on the inside.
PRICING STRATEGY: In the first year that the LS 430 was sold within the United States, it topped 30,000 in sales and once again placed number one in the prestige class of vehicles. This success was primarily due once again to the lower price that the LS 430 was sold at and even the ultra-luxury version of the vehicle was cheaper than the typical prestige vehicles being offered by European and American companies. Thus pricing was done according to a competitor based as well as a psychological base. The car did so well in fact that Lexus felt comfortable refitting it with a couple of changes in 2004; changes such as stylistic upgrades as well as functional upgrades to the lights and wheels. The LS 430 remained the face of the Lexus brand until 2005, when it was replaced by the LS460.
PROMOTION:
To promote their new luxury sedan, Lexus used advertisements. Before the car was opened to the market, Lexus used TV commercials, which informed the customers about the new design and features of the new LS 430. Commercials were run at a time at which the most number of wealthy people were more likely to view them i.e. around the evening news. Similarly, such adverts were also printed in the newspapers, particularly the high class papers, magazines, and business newspapers. Again, this particular for of media was chosen so as the wealthy would read them. Advertisements were also pasted on billboards at strategic locations where there was sure to be a high volume of traffic. The new LS 430 was also exhibited at car shows where car enthusiasts came to look. The message that was promoted was that which talked of luxury, social status, durability, reliability, style, and class.

PLACEMENT: As most of the Lexus cars were made in japan, they had to be imported into other countries. Usually, certain pre-existing car dealers would enter into a contract with Lexus and then have the cars imported in. These dealers therefore acted as the intermediaries. But in many countries Toyota’s showrooms would be used if the showrooms of Lexus were not yet established.
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TARGET MARKET

Lexus targets individual consumers. As the vehicles are luxury cars, they are specifically made for private and personal use.
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MARKETING SEGMENT

Lexus is the maker of luxury cars. Their vehicles are too expensive for the normal man to buy. The marketers at Lexus know this fact well. For this reason, Lexus targets not the whole car buying market, but instead targets a smaller segment of this large market. Lexus segments its market according to the following factors: * Income of customer * Life style (occupation, background etc.)
Only these two factors affect who Lexus decides to target. People with high incomes are a sure target. Not only can they afford such vehicles, to these individuals, price is a secondary factor in the purchasing decision. They instead focus on the product quality, durability, reliability, comfort, and class. As Lexus is world renown for providing all of these sought out qualities, these individuals are most likely to buy.
However, Lexus does not focus on a particular geographical location. It targets all the wealthy individuals, no matter where they are.

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SOURCES

* http://www.usfca.edu/fac-staff/weihrichh/docs/benz.pdf

* http://books.google.com.pk/books?id=8MMzsvyatyMC&pg=PA104&lpg=PA104&dq=internal+environment+of+lexus&source=bl&ots=Yt6g5Kr6rY&sig=pBp_BCuPLnMCssNx3VZAhGrJbgY&hl=en&ei=RRXbTvOrI8brrQfCjtXRDQ&sa=X&oi=book_result&ct=result&resnum=5&ved=0CDQQ6AEwBA#v=onepage&q=internal%20environment%20of%20lexus&f=false

* http://www.lexus-global.com/craftsmanship/index.html#../magazine/10reasons

* http://www.lexus-global.com/magazine/index.html#meetTheDesigner01

* http://www.lexus-global.com/about_lexus/index.html#ourvision

* http://www.toyota-global.com/company/profile/toyota_group/

* http://www.slideshare.net/kjbrazil/lexus-customer-insight-project

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