Hybrid Auto Market Analysis

Overview

This analysis examines the hybrid automobile market and industry by taking a detailed look at the market, trends, competition, and a SWOT analysis. We will examine hybrid electric vehicles which typically combine the internal combustion engine of a conventional vehicle with the battery and electric motor of an electric vehicle. For purposes of our research, further attention is given to Toyota, a leader in the hybrid industry, in order to provide a standard for the industry and a benchmark for comparison and expectation of trends.

The Market

The target market, or part of the qualified available market pursued, for Hybrid automobiles can be identified by examining the major demographic, psychogenic, geographic, and behavioral segmentation variables.

Demographic Segmentation

The hybrid automobile target market is divided into various demographic groups including age, life-cycle stage, gender, generation, and social class. The consumer is between 30 and 50 years old and of no specific ethnicity, religious background, or gender (hybridcars.com, n.d.). They are affluent, well-informed, and educated adults classed in the socio-economic segment. They are commonly in higher managerial, administrative or professional occupations and of upper middle class. Additionally, they are likely to be married with family responsibilities. Therefore, they are not only driven to purchase environmentally-friendly vehicles but also able to pay a higher price due to their larger amount of disposable income.

Psychographic Segmentation

Within the identified demographic, two different groups, innovators and thinkers, were identified based on their varying personality traits, lifestyle, and values. Innovators are successful, sophisticated, and active with high self-esteem. Their purchases often reflect cultivated tastes for relatively upscale, niche-oriented products and services. Thinkers are more mature, satisfied, and reflective group of people who are motivated by ideals, knowledge, and responsibility. Thinkers recognize the environmental impact of motoring and would like to do something about it. They are seeking to express their concern and ease their conscience. The two identified psychographic groups for the hybrid automobile market were identified to have higher economic resources.

Geographic Segmentation

High portions of the target market for hybrid automobiles are in urban areas with populations that desire to buy a car with environmentally friendly features (hybridcars.com, n.d.). This can be attributed to the problems of pollution and congestion being more widely perceived as a serious issue in larger cities.

Behavioral Segmentation

Behavioral variables including benefits, usage rate, and attitude have been identified as starting points for constructing market segments for hybrid automobiles. Buyers can be classified according to the benefits they seek. Hybrid vehicle consumers anticipate fuel prices to rise more quickly than do non-hybrid consumers, therefore they expect a return on their investment as fuel prices increase. Hybrid consumers also drive fewer miles on average and keep their automobile longer than the average person, often more than five years (hybridcars.com, n.d.). Finally, they are willing to pay more for an environmentally friendly product and want to do something to help reduce vehicle pollution.

Quantitative Analysis

The hybrid automobile market can be described as being in the introduction or developmental stage of the product life cycle. The current market for hybrid vehicles is small, consisting of only 1.6% of all new light vehicles for the month January 2007. However, as Figure 1, Hybrid Percentage of Total US Light Duty Vehicle Sales, indicates the market has been steadily increasing in recent years and the expectation is that the market is anticipated to grow. In January 2007, hybrid sales increased 11% to 17,591 (Green Car Congress, 2007).

The future in this market looks especially bright for Toyota. They are already a major player in the automobile industry and more specifically, hybrid sales. Toyota’s sales for 2006 topped 2,542,524 making the company the third largest automobile manufacturer in the United States. Even more impressive is that Toyota sales increased 12.9% while GM and Ford, the top two sellers, showed a decrease of 8.7% and 8% respectively (Puskar, 2007). Refocusing on Toyota in the hybrid market; Toyota hybrids made up 80% of all hybrid sales for January 2007 which follows a 33% increase in hybrid sales over 2006, Toyota’s continued dominance in the hybrid market in depicted in Figure 2. While the hybrid market appears to be steadily increasing, Toyota is setting extremely high goals for itself. They are looking to increase global hybrid sales by 40% in 2007 to 430,000 units. To allow for such growth, the company has increased production of the Prius, the most popular of their hybrid line, by 40% to 280,000 vehicles (Reuters, 2007).

Unmet Needs

The automobile industry has been around over a century and it was developed to meet the simple consumer need of transportation. Additional aspects of the consumer buying decision include safety, reliability, value, luxury, and esteem. All of these needs can be met be any number of conventional vehicles. However, the introduction of hybrid vehicles allowed poorly served needs of fuel efficiency and environmental benefit to be addressed. Conventional vehicles release harmful chemicals, or pollutants, as exhaust. These chemicals, such as oxides of nitrogen, volatile organic compounds, particulates, carbon monoxide, and carbon dioxide, are produced through the combustion of fossil fuels. In addition to causing “smog,” and possibly contributing to global warming, these chemicals have been determined to cause or aggravate human respiratory diseases, including bronchitis, emphysema, pulmonary fibrosis, and asthma (US Department of Energy).

Hybrid electric vehicles (HEVs) typically combine the internal combustion engine of a conventional vehicle with the battery and electric motor of an electric vehicle. The combination offers low emissions, with the power, range, and convenient fueling of conventional (gasoline and diesel) vehicles. The inherent flexibility of HEVs makes them well suited for fleet and personal transportation. Hybrid electric vehicles have the potential to be two to three times more fuel-efficient than conventional vehicles. The introduction of hybrid vehicles, with their increased fuel economy and reduced use of fossil fuels, emit fewer of these pollutants into the air we breathe and fill some of the unmet needs of consumers.

A trend is a direction or sequence of events that has some momentum and durability. Trends are more predictable and durable than fads and they reveal a shape of the future. The hybrid automobile market has relevant trends in each of the six macro trend categories- demographic, economic, natural, technological, and social-cultural- that support and detract from the demand for the hybrid vehicles.

Demographic Trends

Recent population trends are showing a geographical population shift toward warmer climates and coastal regions throughout the United States (US Census Bureau). As these areas, such as California, continue to experience high population growth, environmental issues resulting from urban congestion may increase the demand for hybrid technology.

Data on the national population age and ethnic mix indicates an increase in minority groups throughout the country. This represents a potential growing market for hybrid vehicles. Additionally, the United State’s population will continue to age over the next twenty years resulting in an increase of the 45 to 85 year olds (US Census Bureau). Because neither ethnic minorities nor the elderly are currently part of the target market for hybrid vehicles, they must become appealing to these groups in order to maintain an increase in demand.

Economic Trends

According to a recent study, an income gap is developing between high-income and low- or middle-income families throughout the United States. Despite the tremendous overall economic growth of the 1980s and 1990s and the low unemployment rates of the late 1990’s, the income gap is widening (Economic Policy Institute). This data indicates a potential increase in demand for hybrid automobiles because of the increasing number of high-income families. However, it also suggests a growing number of lower-income families that would not be able to afford the current costs of hybrid vehicles.

Natural Trends

As increased dependence on non-renewable energy sources continues to force up gasoline prices, a general target market shift is expected from the environmentally concerned to a consumer who is seeking a method to reduce their fuel expense. No longer will the hybrid consumer only be those who purchase the hybrid vehicle based on ideological concerns such as foreign demand on oil or global warming. As fuel prices continue to increase per gallon, the hybrid market will become more appealing to the general population.

Technological Trends

The future of the hybrid automobile market rests in the increased availability of hybrid models, including SUVs and pick-up trucks. Once the hybrid technology has matured, hybrids will become a product for those who are simply seeking efficiency, especially once their preferred model becomes available with hybrid technology.

Social-Cultural Trends

One of the biggest challenges to the hybrid automobile market is that some buyers are confused about the technology. For example, some fear that the vehicle’s battery might run dry and leave them stranded (Maynard, 2007). Another common concern over the hybrid vehicle is that the purchaser will not save enough on gasoline to make a hybrid worth the additional cost. Educating the public about hybrid technology will help increase demand for these vehicles in the long-run.

Political-Legal Trends

California recently passed legislation that allows hybrid cars to travel in high-occupancy-vehicle (HOV) lanes, typically reserved for vehicles with more than one passenger, on highways. The law was passed to support California’s goal of promoting fuel conservation and reducing air pollutant emissions (Reynolds, 2004). Although the legislation will not significantly shift demand for hybrids, it does provide rewards for those who purchase the environmentally friendly vehicles. As the technology is developed and performance improves among hybrid products, future incentives and favorable legislation is expected to pass throughout the country. This will gradually result in an increase in product demand.

Competitor Asessessment

In order to analyze the hybrid automobile market and industry, one must examine the role competition plays and how marketers can best manage their brands based on their market position.

Hybrid Automotive Industry

The Automotive Manufacturing industry has seen some changes in the past several years and those new developments have led to the creation of the smaller Hybrid Automotive Manufacturing industry. In the beginning, automakers didn’t want to look into the development of hybrid powered vehicles because of the high cost and the many risks involved. Because of new legislation, they had no choice and had to come up with the technology to make fuel-efficient cars. Automakers decided that electric cars would be the best way to meet the legislation demands. “Early models were unpopular because of slow cruising speeds and lack of performance, but by the end of the century, electric car production began to be practical.” (Motor Vehicles). At the end of the 1990’s manufacturers was coming up with the technology to produce internal combustion engine with an electric motor. Toyota pioneered the hybrid automotive industry by providing a mass-market hybrid vehicle to consumers in the United States in 1999. While the first five years were somewhat of a learning period for the hybrid automotive industry, 2004 marked a turning point as an increasing number of new models and manufacturers begin to incorporate the hybrid system. The industry consists of companies around the world. Toyota Motor Corporation leads the industry in revenue, with Honda Motor Company, and Ford Motor Company following. Currently only 1.26% of automobile sales in the United States are hybrid vehicles (Blogspot.com, 2007).

Hybrid Automotive Industry’s Five Competitive Forces

Competitive advantage is a company’s ability to perform in ways that competitors cannot match, but few competitive advantages are sustainable. According to Michael Powers, there are five forces of competition that determine the long run attractiveness of a market or market segment. The five competitive forces consist of threat of new entrants, power of suppliers, power of buyers, availability of substitutes, and competitive rivalry as seen in Figure 3, the Five Forces Determining Segment (Kotler & Keller, 2006).

Generally, the threat of new entrants to various industries is high if economies of scale are low, but because only 466,875 hybrid vehicles were sold compared to 3,238,482 non-hybrid vehicles in 2006 (Blogspot.com, 2007), it can be argued that the low economies of scale open the door for new threats. On the other hand, there are many factors that counter the threat of new entrants into the hybrid automobile industry. Hybrid automobile product differentiation is fairly high as each of these vehicles varies in areas of design, size, gas mileage, and hybrid technology. The automobile industry requires high capital and requirements to enter the hybrid industry can be even higher. Additionally, switching costs to the buyer are high because of search costs, financial risks, research and education, negotiation, and efforts to sell pre-existing vehicles. Even though the threat of new entrants is fairly low, the power of suppliers in the hybrid industry is higher than desirable. The raw materials to manufacture automobiles are easily available, but the batteries, regenerative breaks, and the software engineering specific to hybrid technology are difficult to find among suppliers and there are limited substitutes. The importance of the customer to the suppliers is low, because the suppliers don’t necessarily depend on hybrid vehicle buyers to sustain business. There are other products on the market that utilize similar suppliers for similar items. Costs to switch from one supplier to another are fairly high. Costs include relationship building efforts, financial risk, potential exit fees, and search costs for locating suppliers who offer specific hybrid technology.

Unlike suppliers, buyer’s have little power in the hybrid industry. The volume of purchase is low as only 1.26% of automobile sales in the United States are hybrid vehicles. The hybrid vehicles do differ significantly between one another. The cost savings from the products are low in the short term and high in the long term. Although only six major companies sell hybrid vehicles, they are major players within the industry and hybrids are highly available and sold at thousands of dealerships across the country, online, or through independent sellers. Hybrid vehicles are still fairly new products and the availability of substitutes within the industry is currently low. Those that do exist are not significantly experiencing substantial profitability over one another and the quality of substitutes is not drastically high or low compared to one another.

Competitive rivalry is minimal in the hybrid automobile industry today. There are only eleven competing products and six competitors within the industry. Exit barriers are fairly low as all companies that manufacture hybrid vehicles also manufacture non-hybrid vehicles. The millions of dollars spent on plants, equipment, and human resources would not necessarily be lost if they were to leave the hybrid industry. There are some specialized engineering and technical staff exit costs, but not enough to consider the exit barriers substantially high. The industry growth rate is high, hybrid car sales increased 26.6% from 2005 to 2006 (Blogspot.com, 2007), therefore the potential for competitive rivalry is reduced. Additionally, because product differentiation among hybrids is high and switching costs for the customers are high, competitive rivalry becomes lower.

Barriers to Entry

In the hybrid industry, there are three main barriers to entry: technology, cost, and brand loyalty. The technology to enable a hybrid petroleum-electric vehicle is new and expensive. The research and development costs are much higher than for conventional petroleum engines. On top of the expenses, the time needed to develop the technology is also another barrier. There are options around that, such as licensing the technology from a competing company, but that information will not come cheaply. The extra costs of the technology end up being subsidized by higher initial costs for the consumer, as hybrids typically cost around $2500-$3000 more than their non-hybrid counterparts. Finally, consumers can be extremely loyal to a certain make or model of vehicle due to past experiences. This not only includes particular makes or models, but also other factors such as where the car was manufactured. A new hybrid vehicle will have the same difficulties any new model vehicle will have on top of the other barriers to entry.

Hybrid Automotive Industry’s Driving Forces

The hybrid automobile industry’s driving forces consist of value, protecting the environment, safety and reliability, reputation and loyalty, and finally innovation.

Research studies have proven that all hybrid vehicles have a better total cost of ownership over five years or 70,000 miles than the non-hybrid vehicles. More specifically, the study concludes that a Toyota Prius owner over five years will have $13,408 over a similar size sedan that is not a hybrid (O’Dell, 2007). These facts allow the industry to argue that even though their products initially have higher price points, approximately $2500 to $3000 more, eventually the initial costs will turn into substantial savings.

There are several other consumer benefits that offer value and help market hybrid vehicles. The most well known benefit is that of improved fuel economy. Some hybrid vehicles allow consumers to achieve 44 miles per gallon compared to other vehicles at about 20 miles per gallon. This benefit allows consumers to travel much further without having to refuel, but more importantly saves them substantial dollars by not having to pay for as much gasoline. Other consumer benefits include tax credits ranging from $250 to $3,150, special access to HOV lanes on busy highways, employee incentives from employers, and insurance discounts where insurance companies such as Farmers Insurance offer a 5-percent discount to hybrid vehicle owners in California and St. Paul Travelers offer a 10-percent discount to hybrid owners nationwide (Mello, 2006).

The environment is another driving force behind the hybrid automobile industry. A common trend seen today is the desire to produce “green” products, those which are environmentally friendly. The automobile industry is responsible for creating many products which send pollutants into our ozone, so the creation of hybrid vehicles served not only to provide a product which was attractive to the newly growing target market, but to also display corporate responsibility by contributing efforts to protecting the environment.

Another driving force of the hybrid industry is the competitive quality. Hybrid vehicles have proven to exist without compromising the quality and safety of vehicles. They are just as practical and safe as other non-hybrid vehicles and their performance has met or exceeded competition. They offer the same amount of power, their maintenance costs are equivalent and some of the products, such as the Toyota Prius, have regenerative breaks which allow customers to go 85,000 miles before having to replace their brakes (Mello, 2006).

Most companies producing hybrid vehicles have advantages because their pre-existing non-hybrid vehicles have already established good reputations and customer loyalty. Consumers will most likely be inclined to purchase hybrid vehicles from companies with whom they have purchased past vehicles. For example, Toyota has strong brand recognition and a reputation for manufacturing high quality vehicles which can easily be carried over to the hybrid vehicles with little effort. Lastly, consumers today are obsessed with having the latest technology and hybrid vehicles are the epitome of high tech vehicles that continue to meet consumer’s basic needs in a vehicle today.

Hybrid Automotive Industry Success Factors

The ability for hybrid automobiles to succeed today is measured according to several key success factors. Limitations among suppliers cause poor or restricted manufacturing efficiency. The industry needs to be able to decrease supplier power thus increasing control of production quality and quantity. While the cost recovery of hybrids is a selling point, for the industry to be successful it is necessary that hybrid products appeal to consumers independently of fluctuations in the economy. The industry needs to make efficiency and reduced emissions a priority above saving money at the pump. As with any new technology consumer education must preempt adoption. The novelty of a new technology only draws a small crowd, for hybrids to be fully successful manufacturers need to ramp up efforts to educate and inform consumers about the hybrid engine and break down myths which might hurt their industry. Another key success factor involves continuing to introduce hybrid vehicle technology through already familiar products. Pre-existing models, such as the Lexus RX, simply incorporated hybrid technology into the already popular vehicle. This allows for better ease of adoption and the ability for consumers to keep purchasing their favored vehicles.

Direct and Indirect Competitors

There are both direct and indirect competitors that satisfy the same customer need that hybrid vehicles offer.

Direct competitors consist of the following:
Toyota Prius Lexus RX Hybrid
Toyota Camry Ford Escape
Toyota Highlander Saturn Vue Green Line
Honda Civic Mercury Mariner
Honda Accord Nissan Altima
Lexus GS Hybrid

Indirect competitors consist of the following:
Scooter Subway
Motorcycle Bus
Light rail Non-hybrid vehicles

Almost all of these competitors, with the exception of non-hybrid vehicles, offer modes of transportation with reduced customer costs and some form of environmental benefit.

Competitor’s Competitive Advantages and Disadvantages

Hybrid vehicles are one of many alternative fuel technologies seeking to fill the needs of fuel efficiency and reduced emissions. These technologies are being researched by private institutions, government facilities, automotive startup companies, and existing automotive manufacturers. Two competing technologies explored here are Hondas research into a cleaner diesel engine, and Ford’s R&D incorporating E85 ethanol based fuel.

Honda has also jumped onto the hybrid bandwagon, improving upon their already fuel efficient cars. While Honda is also pursuing hybrid technology in their vehicles, they have also invested in new diesel technologies. The new diesel engines will meet all pollution requirements across the United States. While diesel is even more expensive than normal gasoline in the United States, diesel vehicles can provide 30% more fuel efficiency (Ohnsman & Lippert, 2006). Diesel in the United States has a reputation for not only being more environmentally damaging, but also more expensive. The challenge for Honda will be in educating and convincing consumers that their new diesel engines are not the same as those that are currently out on the road.

Ford has decided to pursue E85 ethanol based fuel for their new hybrid vehicles. Dubbed FlexFuel, this alcohol based fuel can reduce emissions by about 25% (Ford unveils flex-fuel hybrid research vehicle, 2005). Another advantage is that FlexFuel engines are capable of running both E85 fuel as well as regular gasoline, thus allowing the consumer more options. Unlike hybrid vehicles, FlexFuel vehicles do not carry a premium on the sticker price. This will allow for a higher level of market penetration, while delivering more value to the consumer. Although this seems like a winning strategy for Ford, the lack of available E85 fuel stations and producers has increased fuel prices. On top of this, E85 delivers 40% less fuel efficiency, thus requiring more fuel to travel the same amount of distance.

Toyota’s Advantages and Disadvantages

Even though the number of competitors is small, Toyota leads the industry and must keep a close eye on its own advantages and disadvantages. By introducing a brand new vehicle with a distinct new look, Toyota has also made it easy for consumers to not only drive a more environmentally friendly vehicle, but proudly show it off as well. In 2003, Toyota brought 26 Prius model hybrids to the Oscars, where celebrities such as Cameron Diaz were being photographed with them (Welch et al., 2007). This has helped with the trend of going green, and that it is not only good for the environment, but also the cool thing to do. Toyota sponsors various environmentally based awards in Los Angeles as well, with their logo at the forefront.

Toyota’s Hybrid Synergy Drive is the leader in hybrid PEHV technology. They have used this fact heavily in their marketing, and it has paid off. Whenever a consumer thinks hybrid, Toyota is always going to be on that list, with the Prius at the top. Toyota is constantly re-factoring and improving their technology which is now in its fourth generation. They have been able to keep their vehicles ahead of the game, while making money off their older technology by selling it to other manufacturers such as Nissan, who is going to be incorporating the technology into their Altima (Hybridhippie, 2005). Toyota will also be able to use the R&D from their current line of hybrids well into the future and as new fuels and technologies become available; they will be integrated into the next generation hybrid (Rowley, 2007).

Toyota also has a strong public relations background, which has been particularly effective in marketing their hybrid vehicles. Combined with Honda, Toyota lobbied for the inclusion of the hybrid tax credit. One of the sponsors of the bill, Jay Rockefeller, received a $1 million grant from Toyota for the Blanchette Rockefeller Neurosciences (Welch et al., 2007). Before the Prius launched, Toyota asked for a seal of approval from the director of global warming initiatives at the Sierra Club. It was a little later that the Sierra Club created an award for the best hybrid technology, which the Prius won the following year. With Toyota having many of their factories within the United States and employing over 38,000 Americans, some have argued that Toyota is even more American than the American companies are. Although there has been cultural bias in car purchasing in the past, Toyota has managed to shape itself into a strong American brand by also sponsoring livestock shows, bass-fishing tournaments, and NASCAR.

Toyota will be challenged with the new EPA MPG estimates this year. Because all vehicles will be measured differently, almost all will see a percentage decrease in their estimated fuel efficiency, but hybrids will take the largest hit. The gap between hybrids and non-hybrids will be smaller than before, and with gas prices stabilizing again, sales are also slowing down. Tax incentives are also no longer going to be provided by the government, thus increasing the cost of ownership once again.

Toyota will also have a disadvantage if the technology used in their hybrid vehicles no longer increases by a significant amount after each generation. Although it is unlikely that Toyota won’t be able to continue to innovate, certain technologies, such as the battery, have already hit technological walls. Even outside the automotive industry, batteries have barely improved. This could be an issue that even Toyota will not be able to address in a timely fashion.

Competitive Responses

Since the hybrid technology is young and rapidly changing, the likelihood of competitive responses to the industry is high. Alternative or improved technologies such as plug-in hybrids, bio-fuels, and new diesel will most likely appear and increase competition. As the hybrid automobiles’ become more common and unit sales increases, it is most likely that price points will drop as a competitive response. Other responses might include extra resources dedicated to hybrid marketing strategies, and the development of new hybrid vehicle designs to satisfy the needs of high-end consumers who desire “sexy” vehicles.

SWOT Analysis

Toyota has different strengths, weaknesses, opportunities, and threats as it relates to the company as a whole and, specifically, to their hybrid vehicles. Figure 4, Toyota Hybrid SWOT Analysis, outlines each component of the SWOT analysis as it relates to the marketing mix as well as key macro environments. Specific to Toyota hybrids, they leverage the strength of Toyota’s strong brand elements and leadership in this emerging technology while significant weaknesses include cannibalization of existing Toyota products.
Toyota faces the threat of consumer perception and reputation of hybrids that often includes poor acceleration and a lack of power. This threat is not unique to Toyota and is an issue that all hybrid manufacturers must address. Opportunities surrounding the hybrids for Toyota and other manufacturers include the “Green” movement, which promotes environmental responsibility, and legislation that supports this movement.

Toyota’s strengths as a company include an increase in profitability in recent years, highly targeted and successful marketing, and a commitment to lean manufacturing. Fluctuating economic and political conditions present a threat to Toyota. Opportunities for Toyota have been generated by unique and innovative new-product designs while threats the company faces as a whole include product recalls. See Appendix 1, Toyota SWOT Analysis, for a comprehensive assessment of Toyota’s strengths, weaknesses, opportunities, and threats.

Environmental Protection Agency MPG Estimates

The automotive industry is facing a change with the upcoming changes to the Environmental Protection Agency’s miles per gallon ratings (EPA MPG). In 2008, all automobile manufacturers must adhere to new EPA MPG calculation formulas that will include air conditioning use and winter driving conditions. Kettering University professor Craig Hoff stated that “They’re trying to make them (fuel economy figures) more representative of what you’re going to get when you have that vehicle” (Devine, 2007). As stated before, while this change will impact all makes and models, it will have a significant impact on vehicles with high EPA MPG estimates, including Hybrids. The Toyota Prius EPA MPG City will be revised from 60 MPG to 48 MPG in 2008.

This change results in a threat to hybrid vehicles as the miles per gallon estimates are one of their strongest selling points and will be most severely impacted by the change in EPA MPG.

Figure 4: Toyota Hybrid SWOT Analysis

MARKETING MIX STRENGTHS WEAKNESSES
Product • Strong Brand & Reputation
• R&D • Cannibalization of existing market
• Recalls
Price • Gas-electric hybrids are the most fuel-efficient passenger cars on the road and ecologically speaking, there isn’t a more viable option • Hybrid costs more to build so a premium on price; few sold so few economies of scale
• Declining operating margin
• The industry-high efficiency can’t economically offset the steep sticker price
Promotion • Can capitalize on the existing Brand • High cost
• Long ROI
Place • Growing global market (more interest in environment)
• Well placed in emerging markets like China • Remains a small niche market
Area • Opportunities • Threats
Social • People from all walks of life are becoming agents of change. Everyone has their own reasons for supporting Toyota hybrids and if we could only see these reasons, the variety would be as astonishing as the technology itself. • Hybrid reputation: stop gap measure, poor acceleration, not as much power
Technological • Get into the market early expertise in hybrids
• Improved hybrid performance • Mild hybrids, fuel cell cars, alternative fuels
• Highly competitive market
Economic • Environmentally friendly reduces emissions • Globalization and Consolidation
• Price of Gas
• Rising cost of cleaning pollutants
• Decreased consumer spending
Political • In line with government requirements to reduce emissions
• Reduces reliance on foreign fuel • Kyoto Accord
Primary Market Research – Toyota Dealerships and Hybrid Consumers
In conducting primary market research, we found a variety of factors that influenced buyer behavior among hybrid customers and potential customers and encountered some surprises as it relates to hybrid sales at Toyota dealerships.
Mountain States Toyota is a significant Toyota dealer in the Denver metropolitan area, located at Highway 36 and Interstate 25. Our research found that Mountain States Toyota was much less knowledgeable about Toyota Hybrid vehicles than traditional Toyotas. The salesman at Mountain States Toyota continually repeated that Toyota has sold their previous generation hybrid technology to Honda and that Toyota hybrids utilize a fourth generation technology (personal communication, February 16, 2007). When literature on Toyota’s Prius and Camry hybrid models was requested, we were told that they were currently out.
During an interview with a current Toyota Prius owner, we asked Gary Gaudin of Erie, Colorado (personal communication, February 17, 2007) what motivated him to purchase a hybrid and why he chose a Toyota. He indicated that he chose to purchase a hybrid primarily to maximize his miles per gallon and reduce his fuel expense. Gary also indicated that he felt good about lessening the environmental impact he was having, though he was clear that this was not a significant factor in his buying decision. Since purchasing his Toyota Prius hybrid in May of 2006, Gary indicated that he has been disappointed in the miles per gallon he is realizing at an average of 45 MPG. However, he also indicated that he would purchase a hybrid again and would still have a preference toward Toyota.
Jim McKenna of Erie, Colorado, (personal communication, February 17, 2007) was considering the purchase of a Honda Civic hybrid in December of 2005 but opted for a traditional Civic. At this time, the Civic hybrid allowed for no customization and had severe availability issues. Jim could not test drive a Civic hybrid before purchasing it and if he wanted to specify the color of his hybrid he would need to wait up to six months for delivery. Finally, he noted that the Honda Civic and Honda Civic hybrid both offered high MPG estimates, making this factor negligible.
Our primary market research indicates that Toyota has significant weaknesses to overcome related to their hybrid models. Sales force education and hybrid availability are both significant weaknesses for Toyota Hybrids while we were able to validate the strength of the Toyota brand elements and reputation.

Hybrid Positioning Map
Appendix 2, Hybrid Positioning Map, provides a visual representation of where all available hybrids fall when considering average city and highway MPG estimates and base MSRP (Manufacturers’ Suggested Retail Prices). The Toyota Prius and Honda Civic represent the second quadrant with high EPA MPG estimates and low base MSRPs while Lexus represents the fourth quadrant with low EPA MPG estimates and high base MSRPs. The majority of hybrid models fall in the third quadrant with a low EPA MPG estimate and low base MSRP, while there is no hybrid model currently available representing quadrant one with a high EPA MPG estimate and high base MSRP.

Marketing Management
March 5th, 2007

Mark Bales
Amanda Davies
Bryan Harmsen
James Nguyen
Stephen Shirley
Nima Williams

University of Denver
Daniels College of Business

* reproduced on W303.com with permisson of the authors

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