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Introduction
Lexus Corporation was established in 1989 as subsidiary firm to Toyota Motor Corporation. The firm has its headquarters located at Toyota, Aichi in Japan. The corporation has attained global market recognition over the years it has been in operation. In 2009, Lexus cars were marketed in more than seventy countries globally. This is inline with the companys internationalization strategy. Some of the reasons which contribute to the firms success relates to manufacturing of luxurious and superior quality cars.
In addition, the firm is committed towards delivering a high level of customer satisfaction. Considering the changes in customer tastes and preferences, the firm undertakes continuous innovation on its car models. As a result, the firm has managed to develop a portfolio of car models which include sedans, convertibles, hybrids, luxury utility, F Performance.
The firms innovation strategy is aimed at ensuring that the firms products appeal to the global market. In an effort to improve its performance, Toyota Motor Corporation undertook corporate reorganization in 2000. As a result, Lexus attained autonomy to design engineer and manufacture cars which are solely for the division. The firms sedan models which include IS, LS and GS are designed as global models.
In an effort to expand its global market share, the firms management team has identified United Arabs Emirates [hereafter referred to as UAE] to be a viable market for its Sedan IS model. Therefore UAE forms the firms geographic basis.
In designing and manufacturing Lexus IS, the firms relevant market is the entry-level and mid-level sedans. However, the firm is faced from intense competition from other firms such as BMW, Mercedez and Audi.
In the process of formulating a marketing strategy, a firms management team is presented with two main choices. One of these relates to primary demand strategy while the other entails selective demand strategy. According to Pride, Hughes and Kapoor (2009, p.85), primary demand strategy entails increasing a firms market share in its relevant market. Alternatively, primary demand is present when potential customers portray interest to purchase a certain product or service.
Primary demand may arise from existence of a gap in the firms marketing communication strategy. As a result, the potential customers may not have information regarding the product. One of the ways through which this can be attained is by attracting non-users to consider the firms product in their purchasing patterns.
Selective demand strategy entail strategies aimed at stimulating demand for a particular brand. According to Pride, Hughes and Kapoor (2009, p.85), selective demand arises if consumers recognize the need to integrate a particular product or service in his or her consumption pattern. As a result of selective demand, an individual undertakes a comprehensive search of information regarding the product identified.
This arises from the fact that the individual understands that the product will aid in solving the particular need. In the process of searching information, an individual compares the product with other competing product on the basis of various aspects such as quality and value. The core objective of selective demand strategy is to enhance a firms competitive edge with regard to a particular product or service.
Lexus IS (Intelligent Sport) is one of the most popular Lexus car models. Initially, the car was launched in the market as an entry-level sport car model. Considering the competitive nature of the Automotive Industry, the firm has launched a number of Lexus IS generations with different characteristics from 2000 to present. The new models are an improvement of previous models. Lexus IS is fitted with safety features such as standard dual airbags both rear and front.
This minimizes both side and front impacts in the event of a crash. In addition, Lexus IS has side curtain airbags. In addition, the model is fitted with Vehicle Stability Control. The second generation which was the most prominent from 2005 to 2008 was fitted with luxurious interior features such as lightsaber, LED interior lighting and leather seats.
The model can also has a memory system which has the capacity of recalling positions of other components such as the side mirror, steer wheel and the drivers seat. It is also fitted with a backup camera, navigation system and Bluetooth. In 2009, the company improved ISs interior and exterior features so as to improve stability. In addition, the new model had hardtop convertible features.
In 2010, the firm introduced a new model, the IS 350 C-F Sport. The new model has got new features such as larger brakes, upgraded sport suspension. Later in the year, the firm upgraded the IS 350 C-F Sport to IS 220d which is currently considered to be the most efficient model. This arises from its features such as its engine retuning, additional interior and exterior features. In addition, the models all-wheel drive features were also innovated.
The purpose of this paper is to present a comprehensive marketing strategy which Lexus Corporation should adopt in marketing its IS model. The strategy covers three years, that is, 2011, 2012, and 2013. In order to identify and recommend the most appropriate market strategies on the basis of primary and or selective demand, a comprehensive market measurement is conducted. Finally, a summary and justification of the marketing strategy recommendations is outlined.
Market Measurement
UAE is one of the largest markets for luxury cars in the Gulf region. According to Maierbrugger (2010), there has been an increment in demand for luxury cars in the region. Most of the luxury car manufacturing firms which have ventured into the region have reported an increment in their level of sales in this region. UAE presents a viable destination for luxury car manufacturers to venture into. This arises from the social changes amongst the citizens with regard to lifestyle.
A large number of consumers are incorporating lifestyle in their purchasing patterns. Demand for luxury cars in UAE has increased because individuals want to stand out. Consumers are characterized by a high propensity of extravagance and opulence. The expatriates in UAE are the major luxury cars customers accounting for approximately 50% of the total luxury cars customers.
As a result of this trend, the sale of luxury cars in UAE has undergone a double digit growth (Goliath, 2010, para. 7). This means that behavioral market segmentation characterizes the market for luxury cars in the country. A study conducted by Synovate Survey revealed that 58% of all the respondents interviewed prefer consuming luxurious products (Baxter, 2010).
The 2007 financial crisis negatively affected the market for luxury sports cars in UAE. As a result, there was a shift in consumer behavior towards more affordable cars. In addition, there has been an increment in preference of small cars.
Despite these changes, the preference for luxury cars is still high. The luxury car market segment underwent a minimal decline compared to other car segments. There has been an increment in demand for luxury cars amongst the upper income earners. This arises from the fact that consumers are regaining confidence in their consumption pattern (Fuchs & Dokoupil, 2010, para. 6).
According to Goliath (para. 1), there is a direct correlation between the sales of luxury cars and per capital income. Considering the increment in demand for oil which contributes significantly to UAEs Gross Domestic Product (GDP), there has been an increment in the countrys per capita income. The countrys per capita income is $ 42,285. The increment in the countrys per capita income indicates that there is a high probability of a large number of consumers affording entry-level cars.
The increment in demand is motivated by the fact that the price for luxury cars was relatively low in 2009 compared to 2008. Considering the price sensitive nature of consumers, the low price encouraged a large number of customers to purchase the cars (Saleem, 2009).
According to Maierbrugger (2010), Lexus recorded an increment in its sales revenue with a margin of 7%. When asked their preference with regard to luxury sports car, 75% of the respondents said that they consider the cars features, size, price and speed. This indicates that there is a high probability of the firm to customize its car model to meet the customers requirements.
Despite the fact that the demand for luxury cars is distributed across the various sub-segments in the market, luxury cars in Gulf countries account for only 1-2% of the global sales. According to a report by HIS Global Insight, it is projected that car sales in UAE would increase from the expected 210,000 units in 2010 to 240,000 in 2011. In marketing Lexus IS, the firm targets males who are in their 30s and whose lifestyle is considered to be above average to enable them afford a Lexus.
From a market research conducted by MapXL Limited, in 2007, Dubais total population was 1,422,000. Of these, the males were 1,073,000 while the females were 349,000. In addition, it is estimated that expatriates and foreigners account for 71% of the total Dubais population. This means that there are approximately 1,009,620 expatriates (that is 71% of 1, 422, 000= 1,009, 620). Considering that 50% of luxury car customers are expatriates, it is estimated that luxury car users are 504,810.
Therefore, approximately 504, 810 expatriates are currently not luxury cars customers. In addition, the average age is estimated to be 27 years ( MapXL Limited, 2009). Considering the fact that UAE is a growing economy, there is a high probability of the countrys population to increasing. This presents a market opportunity for Lexus to increase its IS sales by marketing to these potential customers. This indicates that the market presents a viable market opportunity for Lexus to market Lexus IS.
Strategic Considerations for Determining Strategic Route
Market Measurement
From the market measurement conducted, it is evident that the market presents both primary and selective market demand. For example, there are a large number of potential customers who have not integrated luxury cars in their consumption patterns. Only a half of the expatriates, 504, 810, have currently considered purchasing luxury cars. The other half which forms primary demand has not thus increasing the market potential for primary demand.
Competition Analysis and Likelihood of Competitive Reaction
Considering the fact that UAE is an emerging economy, the country automotive industry is ranked as one of the most competitive in the Gulf Region with regard to luxury cars. The largest players in the industry which include Mercedes-Benz, BMW, Infiniti and Lexus account for 60% of the countrys luxury car sales. Due to the lucrative nature of the industry, other firms are implementing strategies aimed at challenging the firms dominance.
In addition, new entrants into the industry will result into reduction in the industrys level of profitability. This arises from the fact that the degree of rivalry amongst firms will be increased. From the environmental scan conducted, it is evident that the competitive degree of the industry will increase over the next three years.
The competitors reaction to develop their competitiveness will instigate the degree of rivalry in the industry. This presents a competitive threat to other established firms such as Lexus. Despite the increment in the industrys competitiveness, the firm has managed to develop its competitiveness.
One of the ways through which this is achieved is by increasing its sales incentives. Decision to implement this strategy arose from realization of the consumers price sensitive nature. As a result, the firm has increased its sales incentive from $1,476 in 2009 to $3, 124 in 2010 for every vehicle.
On the other hand, the competing firms BMW and Mercedes undertook a reduction in their sales incentives. For example, BMW reduced its sales incentives with a margin of 43% to settle at $ 3, 162 per vehicle while Mercedes reduced its sales incentive by 1% to $ 4, 195.
The findings of the environmental scan conducted has indicated that firms in the automobile industry in UAE are increasingly undertaking product innovation and new product development in an effort to attain a superior market position and increasing their sales. The large number of players who are venturing into the UAE luxury car industry means that there is a high probability of the number of substitute products increasing which presents a threat in the next three years.
In order for Lexus Corporation to position its brand effectively in the market in the next three years, it must develop strategies aimed at increasing its market share. One of the ways through which this can be achieved is through integration of primary demand strategies. For example, the firm should adhere to its continuous product development strategy.
As a result, Lexus will be able to improve some of the features and performance of its IS model. The resultant effect is that the models brand equity will be improved. This will culminate into the firm attracting potential customers in addition to retaining brand loyalty.
Resource and Capabilities
The firms success since its inception has resulted from incorporation of research and development. Considering the fact that pursuing primary demand is costly, the firms resource and capabilities will enable it to undertake the strategy effectively. According to UAE Today (2010), the Lexus models which were exhibited during this years Motor Show revealed Lexus to be a market leader with regard to technological innovation.
The firms innovative capability has enabled it to develop car models which fit various luxury segments. According to UAE Today (2010), the firm has been able to develop elegant car models which are increasingly appealing the customers. As a result, the firm has been able to break existing customer loyalty with regard to competing brands.
The firm has an experienced research and development team which has enabled the firm to effectively undertake improvement in its Lexus IS model. The firms efficiency in conducting research and development is also enhanced by the firms financial strength. Its effectiveness in research and development has played a significant role in enhancing its competitive edge.
The firms IS sedan brand which the firm has developed over the years is currently considered as the most firms significant resources. As a result of the firms commitment towards research and development, Lexus has been able to develop a pioneering advantage. This arises from the fact that firm has been able to introduce new segments with regard to luxury cars. According to UAE Today (2010), the growth in firms sales in UAE is as a result of new generations.
The firms management team has appreciated the fact that consumers are dynamic with regard to tastes and preferences. In an effort to create and retain customer loyalty, the firm undertakes continuous product innovation.
This is evident in the fact that the firm has developed a number of Lexus IS generations since its inception through improvement and incorporation of new features. The resultant effect is that the firm has been able to develop consumer brand equity. Over the years, the consumers are increasingly being appealed by the Lexus IS brand. The firms pioneering advantage has enabled it to attain its high level of customer satisfaction objective (UAE Today, 2010).
Lexus has witnessed a tremendous growth in UAE over the past 3 years. Despite the effects of the global economic recession on consumers purchasing power, the firm has experienced growth in its market share. As a result of increased popularity, Lexus gained entry into the top automobile brand index in UAE.
The above analysis gives a strong justification that the firm should pursue primary demand marketing strategy. Considering the fact that the two strategies are not mutually exclusive, pursuing primary demand will also influence the firms selective demand.
Marketing Strategies to Increase Primary Demand
In order to develop a high competitive advantage, it is paramount for the firms management team to consider stimulating the primary demand presented in the market. In order to achieve this, there are a number of primary demand strategies which the firm can consider. The strategies considered should mainly focus at the non-users.
Increasing the Consumers Willingness to Buy
In order to stimulate demand amongst potential non-users, the firm should ensure that there is a comprehensive market awareness regarding the benefits achieved by consuming the product. In this case, the firm should ensure that consumers understand the appealing characteristics of its Lexus IS model.
Some of the benefits which the firm should focus relate to the price of Lexus IS and its features such as size, safety features, its environmental friendly characteristic and oil consumption. Considering the fact that consumers are price sensitive, there is a high probability of the firm stimulating demand by focusing on the price of Lexus IS in comparison with competing car models.
Customizing Its Products
To ensure that the car model effectively address the market needs, the firm should conduct a comprehensive consumer market research. This will aid in the identification of the customers product requirements. As a result, the firm will be able to customize the entire process of new product innovation.
For example, customers are increasingly incorporating the concept of environmental sustainability. This is evident in the customers shift towards eco-friendly cars. This shift in consumerism will affect the demand within the automobile industry in the next three years.
Increasing Consumers Ability to Purchase
In addition, primary demand for automobiles in the next three years in UAE will be affected by the effects of the 2007 financial crisis. This arises from the fact that customers have become more conservative in their consumption patterns. There has been a shift towards consumption of necessities as opposed to luxuries.
In order to appeal to the market considering the economic changes, Lexus should ensure that it develops a positive consumer perception by integrating fairness in its pricing strategy. One of the ways through which it can achieve this is by setting the price point for Lexus IS at a relatively lower level.
Incorporating Electronic Commerce to Ensure Product Availability
The firm should also ensure that there is a sufficient accessibility regarding the vehicle. This can be achieved through incorporation of electronic commerce technology. As a result, a wide range of potential customers can be able to access the product.
Demonstrating New Benefits from Existing Products
In order for the firm to ensure that the potential customers understand the benefits associated with consuming the product, the firm should demonstrate these benefits. For example, the firm should create information regarding its new models. The key considerations in the new models should relate to the added features.
Existing Users
Encouraging Replacement
In order to stimulate demand amongst the existing users, the firms management team should encourage its existing customers to replace their cars from time to time. This will aid in stimulating primary demand considering the fact that Lexus IS model are usually re-launched leading to emergence of a new generation.
Strategies to Acquire the Competitors Customers
The firm should also consider increasing its market share by acquiring its competitors customers. Some of the strategies it should consider relate to differentiated positioning and head to head positioning. With regard to differentiated positioning, the firm should ensure that its Lexus IS model is unique. This can be achieved by capitalizing on features which are not offered by its competitors.
On the other hand, head-to-head positioning entails ensuring that a firms products are almost similar to competing products. In an effort to cope with the intense competition in the industry, the firm should ensure that Lexus IS competiveness is based on technology. Considering the dynamic nature of the technological environment, the firms management team should ensure that it continuously fine-tunes the Lexus IS functionalities. The resultant effect is an increment in the products competitiveness.
Upon stimulating the primary demand, the firm should ensure that the demand is retained and expanded. This can be achieved by ensuring that there is a high level of customer satisfaction through development of superior customer experience. In addition, the firm should incorporate relationship marketing. This can be achieved through incorporation of customer relationship management. This will culminate into development of customer loyalty.
Marketing Mix
Product
To enhance the competitiveness of Lexus IS, the firms management should ensure that it attains the three levels of a product. This arises from the fact that consumers consider the three levels in their purchasing patterns. A car has all the three levels which include the core product, actual product and the augmented product. The firms management team should ensure that the consumers achieve the desired benefit such as the speed upon purchasing the car.
On the other hand, the actual product should be delivered by ensuring that the product is affordable and easy to maintain. With regard to augmented product, it should be ensured that there is an added value associated with the car. For example, Lexus IS should have a warranty and other after-sales services.
The warranty issued on Lexus IS should extend for a considerable duration of time such as five years. On the other hand, free maintenance should also extend for a substantial period such as three years. In order to meet the diverse customer demands, the concept of product line extension should be incorporated.
Pricing Strategy
Considering the fact that the firm intends to sell Lexus IS at both entry and mid-level, it should ensured that its pricing strategy stimulates the market demand. This can be achieved by incorporating penetration pricing strategy which entails setting the price of Lexus at a relatively low level.
In addition, the firm should enhance its pricing strategy by integrating discounts. Considering the price consciousness nature of the consumers, the firms penetration strategy will enable consumers to develop a positive attitude towards the new generations of Lexus IS introduced in the market. This means that penetration pricing strategy will contribute towards the firm attracting new customers.
Promotion Strategy
Creating market awareness is one of the ways through which the firm can increase Lexus IS sales. In its marketing communication strategy, the firm should ensure that it dispels any market misconceptions regarding Lexus IS. The communication should focus on various aspects of Lexus IS such as its speed, features and safety.
To create effective market awareness, the firm should incorporate the concept of Integrated Marketing Communication (IMC). Various communications mix such as advertising, public relation and internet promotion should be considered. By conducting public relation, the firm will be able to entrench the concept of product reliability amongst the consumers through provision of in-depth information regarding Lexus IS compared to advertising.
Distribution Strategy
Lexus Corporation should ensure that its IS model is easily accessible in the entire market in UAE. In order to achieve this, the firms management team should integrate both direct and indirect channels of distribution. Direct distribution should be attained through establishment of outlets within the entire UAE. In its initial phase, the firm should invite established dealers within UAE.
Selection of the dealers should be based on a comprehensive criterion. The selected dealers should be able to cover the entire UAE market. The management team should ensure that there is a well established relationship between parties within the distribution channel.
Summary and Justification
The paper outlines the marketing strategy for Lexus Corporation for the next three years. The proposed marketing strategy employs primary demand strategies. The main focus is on potential customers. However, considering the fact that primary demand and selective demand are not mutually exclusive, the strategy also considers the existing users. The firms effort to stimulate primary demand is centered on a number of concepts.
These include increasing the consumers willingness to buy, customizing its products, increasing consumers ability to purchase, and encouraging replacement, incorporating electronic commerce to ensure product availability and demonstrating new benefits from existing products. In addition, the firm has also integrated strategies aimed at acquiring the competitors customers. These strategies relate to differentiated positioning and head-to-head differentiation.
Upon stimulating primary demand, the firms management team should ensure that the demand is retained and expanded. Some of the strategies through which this can be achieved include enhancing customer satisfaction and integrating relationship marketing. In addition, the firm should undertake continuous development on its Lexus IS model.
By integrating these strategies in marketing Lexus IS in UAE, there is a high probability of the firm improving its performance. For example, the firm will increase its customer base and hence its financial stability. In addition, the firms competitive advantage and market position will also be improved.
The paper also entails a number of recommendations in relation to marketing mix variables. To ensure a high level of customer satisfaction, the firms management team will ensure that the customers achieve the desired benefits. The pricing strategy adopted will enhance affordability of Lexus IS.
In addition, the strategy will contribute towards creation of a positive attitude regarding the product amongst the customers. Through its communication mix, it will be possible for the firm to create sufficient market awareness. On the other hand, the firms distribution strategy will ensure ease of accessibility of Lexus IS I the entire market.
Reference List
Baxter, E. (2010). UAE consumer confidence falls for first time since Mar. Web.
Fuchs, M. & Dokoupil, M. (2010). Gas guzzlers , luxury car back on UAE roads. London: Reuters Limited. Web.
Goliath. (2010). MEA regional case study: luxury car market. Web.
Maierbrugger, A. (2010). Luxury car market strengthens in Middle East. Web.
MapXL Limited. (2009). Dubai population. Web.
Pride, W., Hughes, R. & Kapoor, J. (2009). Business. New York: Cengage Learning.
Saleeem, N. (2009). UAE auto industry growth hits 5% in 2010. Web.
UAE Today. (2010). Lexus reveals stunning showcase of technological innovation at the 10th Dubai international motor show including the regions first full hybrid vehicle. Web.
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