The Secrets of Lexus' Success: How Toyota Motor Went from 0-60 in The
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THE SECRETS OF LEXUS’ SUCCESS: HOW TOYOTA MOTOR WENT FROM ZERO TO SIXTY IN THE LUXURY CAR MARKET CENTER ON JAPANESE ECONOMY AND BUSINESS SEPTEMBER 22, 2005 Back in the 1970s and 1980s, Toyota Motor’s image in the United States was one of a reliable, yet cheap, carmaker. If you had little money, but wanted minimal breakdowns with the vehicle that you drove to work every day, you bought a Toyota. Thanks to the introduction of the automaker’s Lexus line in the 1990s, that image has now changed. The Lexus brand is now synonymous with the world of luxury, even though car enthusiasts and purists would argue that Lexus is more of a middle-market luxury car line. However, Lexus sales surpassed Mercedes Benz and Cadillac sales—the two granddaddies of luxury cars—in the United States quite easily, thanks to Toyota’s brilliant and methodical marketing strategy. The firm’s philosophy of conducting meticulous research over much time and money has been widely admired and studied by other automakers and college students alike and has cemented Toyota’s position as one of the most successful carmakers in the world. For a firm that entered the luxury car market late in the game, how did Toyota jump over its competition? What was the difference in strategy between its domestic rivals Honda and Nissan and its U.S. competitors, like Ford and General Motors? To answer these questions, the Center on Japanese Economy and Business of Columbia Business School invited Chester Dawson, editor at Business Week magazine and author of a new book, Lexus: The Relentless Pursuit to speak on September 22. the Board of Directors behaved, leaked to him, oral interviews, operated, and utilized the infor- and other information. I now mation they were gathering, turn it over to him. because they decided that they didn’t need people like me talking to them about Japan’s role in the world. What they Toyota has quick HUGH PATRICK needed were engineers and learners. We see Director, Center on Japanese other strategic planners, which Economy and Business, was graduation in and of itself. that it has been Columbia Business School My personal view is that Toyota involved in here are now three win- is the best automobile company an incremental, ning Japanese automobile continuous T in the world, certainly the CHESTER DAWSON manufacturers of note: Toyota, most profitable by far. I think Editor, Business Week improvement Honda, and—now that it’s been its profits last year equaled the process. hank you for that warm restructured and revitalized— sum of Ford, General Motors, T introduction, Professor —Hugh Patrick Nissan. In a global sense, and Chrysler. Patrick. I am here today to talk Toyota is the most remarkable I’m delighted to introduce about Lexus and what made of these. I first visited Toyota in Chester Dawson because he that brand such a success for the mid-1980s, and back then, knows a great deal about the Toyota. Some history is in order I had the sense that I was meet- automobile industry and about on how this brand came to be. ing with a somewhat parochial Lexus. He is the Asian, European, Lexus was born out of a brain- group of people who didn’t and Emerging Markets Editor at storming session of Toyota’s know a great deal about the Business Week, and he worked chiefs on a hot August day in rest of the world except that in Japan for ten years. Before the summer of 1983. At that they were selling a whole lot that, he did an undergraduate point, even the most zealous of cars. In 1980, Toyota didn’t year in Japan. I guess that’s proponents of a Japanese lux- have any factories outside where he got hooked and why ury car program could scarcely Japan, but it was exporting he brings a lot of practical imagine what Toyota would a third to a half of its output. experience from working in unleash upon the market a Over time, it has grown into Japan. He’s written extensively decade later. Lexus has grown this global powerhouse. You on the Japanese automobile from a little more than an oxy- can’t say today that Toyota is industry, although his focus is moron when it debuted in a parochial organization by any mostly in finance, securities, 1989. Think of it—a Japanese means. In 1980, most of their markets, and banks. luxury car! It was laughable at team didn’t know any English. Lexus is an example of a the time; now it is the leading Most of them had not worked new automobile luxury market luxury brand in the U.S. for the abroad. That’s no longer true. that Toyota has developed quite past five years running. That Toyota has quick learners, successfully. Mr. Dawson has means Lexus has greater sales and we see that it has been written, Lexus, The Relentless than Cadillac, Lincoln, BMW, involved in an incremental, Pursuit, a fascinating book that and, yes, that former bench- continuous improvement utilizes a combination of inter- mark of luxury, Mercedes Benz. process. We saw it in the way nal documents that somebody 2 The Secrets of Lexus’ Success Sales rose from less than 20,000 those prescient remarks by Another reason was trade units in the first year to just saying, “Getting the Lexus out sanctions. You may not recall under 300,000 units last year, of Toyota, whose forte is rolling this, but in the 1980s, there up 10 percent over the previ- out wheels for the millions, is was a lot of pressure on the ous year. There are more than like producing Beef Wellington Japanese to adopt Voluntary a million Lexus vehicles being at McDonalds.” But before I go Export Restraints because there driven on the roads of America into the details of how Toyota were so many cars flooding today. That’s a testament not succeeded in making Beef onto the U.S. market. In fact, only to their marketability, but Wellington for the masses, I’ll there was a period when there also to their durability. You speak briefly about why Lexus was an informal quota on how still see a lot of the very first was created by Toyota in the many Japanese cars could models being driven today. first place. With that insight, it’s come in. Thus, if you’re think- Lexus is synonymous with the easier to grasp the marketing ing about how to grow the word “luxury,” from which it success that came with these cars. products of a company at a was derived. Like Kleenex, it’s There were a lot of reasons time when exports are under another “X” word that’s crossed for the creation of Lexus, strict limitations, one way to go the divide between corporate including that it was a logical is value, rather than volume. jargon and into the popular lex- next step for Toyota. By the From quantity, Toyota went to icon. These days, people think early 1980s, it had cleared an 8 quality. If they could sell just nothing of describing things as percent global marketing share. as many or even fewer cars but “the Lexus of espresso makers” The types of cars it was most charge more per vehicle, then or, mundanely, “the Lexus of successful with were initially it was a way to clear the hurdle vacuum cleaners.” Recently, the sub-compact and compact for profit growth. And Toyota I met a young woman whose cars, or the Tercels and Corollas was keeping up with the first name was, yes, Lexus. In of the 1970s, which were some- Joneses. Nissan was developing fact, the Wall Street Journal thing the baby boomers came its own luxury line called has reported that Lexus has to feel that they had discov- Infiniti. Honda had its Acura, surpassed Mercedes and Chanel ered. As the baby boomers which debuted three years To keep the loyalists as the most popular luxury moved past college, from before Lexus in 1986. Toyota who’d supported brand name for newborns. single, first-time car buyers, to certainly didn’t want to be left the brand’s growth Now THAT’s power branding! getting married and having set- behind. When Toyota first came through the 1970s Even though I’m an employee tled careers, they were buying to the U.S. in the late 1950s, and 1980s, Toyota of Business Week, I will tip my mid-sized cars like Camrys. they tried to sell their Crown felt it needed to go hat to Fortune, a rival publica- However, by the early 1980s, line. They actually opened up a to a new level. tion. Fortune wrote something they were leaving the brand showroom in Beverly Hills with with great insight fifteen years entirely because Toyota didn’t a lot of fanfare, but the car was —Chester Dawson ago, in an article titled, “The have an equivalent to a Jeep so underpowered that it was Inside Tale of How Lexus Came Cherokee or a BMW 3 Series. quickly dismissed by the auto into Being Is Rich in Lessons To keep the loyalists who’d press. Toyota had to turn tail and for Anyone Who Yearns to supported the brand’s growth head back to Japan. It wasn’t Develop Up-Market Products.” through the 1970s and 1980s, until twenty years later that Of course, Fortune doesn’t Toyota felt it needed to go to they came up with a product always get it right.