Lexus s Entry into the U.S. Auto Market, Part 1

In the mid-1980s, Toyota focused $500 million and its engineering might on an emerging market segment of upwardly mobile, price-sensitive luxury car buyers in the United States and quickly established itself as a premier marquee among luxury automobiles.

Baby boomers , a disproportionately large segment of the population in the United States who were previous owners of Japanese cars , were entering their forties and growing more affluent. Ready to graduate from a practical vehicle to a luxury automobile, many baby boomers were not willing to pay the substantial premiums that European automakers, such as BMW, Jaguar, and Mercedes, commanded. This class of customer also wanted a level of quality, reliability, image, and performance that the U.S. luxury brands, such as Cadillac and Lincoln, were not able to offer.

To meet . . . the heightened needs of customers moving up in life, Toyota chairman Eiji Toyoda decided in 1983 that he wanted ˜to develop the best car in the world and committed resources accordingly . ^[5] A team of top engineers , assembled under Ichiro Suzuki, received the chairman s full financial backing and began designing a fuel-efficient, 150-mph, four-door sedan with the smoothest and quietest possible ride.

To guide the efforts of his engineering team in Japan, Suzuki sent twenty specialists to the United States to conduct market research and hired a U.S.-based cultural anthropologist. The specialists conducted focus groups, interacted with dealers, and gathered insights into the traits and preferences of prospective buyers. The cultural anthropologist identified specific buyer traits, such as age, willingness to pay, brand loyalty, and desired image to convey . Moreover, once it was determined that many consumers who could afford any luxury car would buy a Lexus to demonstrate that they were savvy, rather than an equivalent but more expensive Mercedes to show that they were wealthy, the anthropologist was able to identify the most effective means to reach these prospective buyers: a strong review in the magazine Consumer Reports . The anthropologist then determined the metrics most decisive in achieving Consumer Reports highest ratings: wood trim, stereo, seat heaters, and cup holders; surprisingly, engine performance was not one of them. ^[6]

Suzuki s investment in market information, while significant, paled in comparison to the investment he made in development, manufacturing, and quality control. His team made eight design proposals to senior management before approval, and prototypes covered twice as many test miles than normal before full-scale production commenced. Assembly occurred in a state-of-the-art facility with the world s most advanced automation, and inspectors performed five additional quality-control checks to minimize the incidence of even the smallest defects.

Six years , 2.5 million test miles, and $500 million after Chairman Toyoda s decision, Lexus s flagship model for its new luxury car line, the LS 400, rolled off the assembly line with a sleek design, world-class performance, impeccable quality ”all at a $35,000 base price. In its first year the LS 400 scored extremely well on customer satisfaction surveys and quickly gained share in the luxury car market. Ever since, Lexus has enjoyed considerable success as a premier luxury automobile. It has been consistently ranked number one in terms of quality and driver satisfaction ^[7] and was the top-selling U.S. luxury brand for three years prior to this writing. ^[8]

Leadership Lessons

Chairman Toyoda identified a market opportunity and decisively committed to it an enormous budget, the world s most advanced automation, and a team of his most talented professionals. And his lieutenant, Suzuki, wisely used information to guide this focused effort. But, as we will see in Chapter 10, focus was not the only principle of maneuver warfare that Lexus employed in its successful launch of the LS 400; combined arms also played a major role.

^[5] Taylor, Alex, Here Come Japan s New Luxury Cars, Fortune , August 14, 1989, 62.

^[6] Barnett, Steve, U.S.-based cultural anthropologist, personal conversation, 2002.

^[7] Historical performance in J. D. Power and Associates surveys, 1999 “2003.

^[8] Green, Jeff, Toyota Expects Luxury Sales Surge as Boomer s Pay Peaks, Bloomberg , April 15, 2003.