Harvard Case - Strategies for Firm Positioning: The Case of Lexus (A)
"Strategies for Firm Positioning: The Case of Lexus (A)" Harvard business case study is written by Vinodini Saihjpal, Snehal Awate. It deals with the challenges in the field of Strategy. The case study is 3 page(s) long and it was first published on : Nov 30, 2020
At Fern Fort University, we recommend that Lexus adopt a multi-pronged strategy to maintain its competitive advantage in the luxury automotive market. This strategy involves leveraging its core competencies in quality, reliability, and customer service while embracing innovation in technology, sustainability, and brand experience.
2. Background
The case study focuses on Lexus, a luxury car brand owned by Toyota, and its successful entry into the US market in the late 1980s. Lexus initially targeted the luxury car market dominated by established brands like Mercedes-Benz and BMW, offering high-quality vehicles with a focus on reliability and customer satisfaction. The brand's success was driven by its strategic positioning as a 'value-for-money' alternative to European luxury brands, appealing to a segment of consumers seeking a balance between luxury and practicality.
The case study highlights the challenges Lexus faces in the evolving luxury car market, with increased competition from other Japanese brands like Infiniti and Acura, as well as the growing popularity of electric vehicles. Lexus needs to adapt its strategy to maintain its position as a leading luxury brand in a rapidly changing landscape.
3. Analysis of the Case Study
SWOT Analysis:
- Strengths: Strong brand reputation for quality and reliability, established distribution network, parent company Toyota's financial strength, customer loyalty, and a well-defined target market.
- Weaknesses: Limited brand heritage compared to European competitors, perception of being less 'exciting' or 'sporty', and potential for complacency in a dynamic market.
- Opportunities: Growing demand for luxury vehicles in emerging markets, advancements in electric vehicle technology, and increasing consumer interest in sustainability.
- Threats: Intense competition from established and emerging luxury brands, rising costs of raw materials and manufacturing, and potential economic downturns affecting consumer spending.
Porter's Five Forces Analysis:
- Threat of New Entrants: High, due to the increasing popularity of luxury vehicles and the emergence of new players in the market.
- Bargaining Power of Buyers: Moderate, as consumers have a wide range of choices in the luxury segment, but brand loyalty and premium pricing provide some protection.
- Bargaining Power of Suppliers: Moderate, as the automotive industry relies on a global supply chain with potential for price fluctuations and disruptions.
- Threat of Substitute Products: High, with the emergence of electric vehicles and alternative transportation options challenging the traditional luxury car market.
- Rivalry Among Existing Competitors: High, with established brands like Mercedes-Benz and BMW, as well as newer competitors like Tesla, vying for market share.
Value Chain Analysis:
Lexus' value chain is characterized by strong vertical integration, with Toyota controlling key aspects of the manufacturing process, including engine production and component sourcing. This allows for greater control over quality and cost management. However, Lexus needs to adapt its value chain to address the evolving needs of the luxury market, particularly in areas like technology integration and customer experience.
Business Model Innovation:
Lexus can explore business model innovation by:
- Expanding into new segments: Targeting younger, tech-savvy consumers with innovative offerings like electric vehicles and connected car technologies.
- Developing subscription services: Offering flexible ownership options like car subscriptions to cater to changing consumer preferences.
- Leveraging digital platforms: Enhancing the customer experience through online platforms for vehicle customization, maintenance scheduling, and personalized services.
Corporate Governance:
Lexus' corporate governance structure, influenced by its parent company Toyota, emphasizes long-term sustainability and shareholder value. This focus on responsible practices can be leveraged to enhance brand image and attract environmentally conscious consumers.
Strategic Planning:
Lexus needs a robust strategic planning process to adapt to the changing market landscape. This process should involve:
- Market segmentation: Identifying and targeting specific customer segments with tailored marketing strategies.
- Blue ocean strategy: Exploring new market spaces by offering unique value propositions that differentiate Lexus from competitors.
- Disruptive innovation: Identifying and developing innovative products and services that challenge the established norms of the luxury car market.
Core Competencies:
Lexus' core competencies lie in its engineering expertise, manufacturing prowess, and customer service excellence. These competencies should be leveraged to develop new products and services that meet the evolving needs of the luxury market.
Diversification:
Lexus can explore diversification strategies by:
- Expanding into new product categories: Offering luxury SUVs, crossovers, and electric vehicles to broaden its product portfolio.
- Developing new brands: Launching a separate brand focused on sustainable mobility or technology-driven luxury vehicles.
Vertical Integration:
Lexus can further strengthen its vertical integration by investing in battery production and electric vehicle technology to gain a competitive edge in the emerging electric vehicle market.
Horizontal Integration:
Lexus can explore horizontal integration through strategic alliances with technology companies to develop innovative features and services for its vehicles.
Outsourcing:
Lexus can leverage outsourcing for non-core activities like marketing and customer service to optimize costs and focus on core competencies.
Globalization Strategies:
Lexus can expand its global presence by:
- Targeting emerging markets: Focusing on growing markets like China and India with tailored product offerings and marketing strategies.
- Developing local partnerships: Collaborating with local distributors and suppliers to enhance market penetration and build brand awareness.
Product Differentiation:
Lexus can enhance its product differentiation by:
- Focusing on design and aesthetics: Developing distinctive and stylish vehicles that appeal to luxury car buyers.
- Offering advanced technologies: Integrating cutting-edge features like autonomous driving systems, connected car technologies, and advanced safety features.
- Emphasizing sustainability: Developing hybrid and electric vehicles with low emissions and fuel efficiency.
Cost Leadership:
While Lexus has historically focused on quality and reliability, it can also explore cost leadership strategies by:
- Optimizing manufacturing processes: Implementing lean manufacturing principles and automation to reduce production costs.
- Negotiating favorable supply chain agreements: Securing competitive pricing from suppliers and optimizing logistics.
Market Penetration:
Lexus can increase market penetration by:
- Expanding its dealer network: Reaching new customers by establishing dealerships in underserved markets.
- Offering competitive financing options: Making luxury vehicles more accessible to a wider range of consumers.
Market Development:
Lexus can explore market development by:
- Targeting new customer segments: Attracting younger and more tech-savvy consumers with innovative product offerings and marketing campaigns.
- Expanding into new geographic markets: Targeting emerging markets with significant growth potential.
Product Development:
Lexus can drive product development by:
- Investing in research and development: Developing new technologies and innovative features for its vehicles.
- Collaborating with universities and research institutions: Fostering partnerships to accelerate innovation in areas like electric vehicles and autonomous driving.
Resource-Based View:
Lexus' resource-based view should focus on its core competencies in quality, reliability, and customer service, while also developing new capabilities in technology and sustainability.
Dynamic Capabilities:
Lexus needs to develop dynamic capabilities to adapt to the rapidly changing automotive market. These capabilities include:
- Learning agility: Continuously adapting to new technologies and market trends.
- Strategic agility: Quickly adjusting its strategy to respond to competitive threats and market opportunities.
- Organizational agility: Reorganizing and restructuring to optimize efficiency and responsiveness.
Scenario Planning:
Lexus should engage in scenario planning to anticipate potential future scenarios, such as:
- Continued growth of the luxury car market: This scenario requires Lexus to maintain its competitive advantage by investing in innovation and expanding its product portfolio.
- Economic downturn: This scenario requires Lexus to focus on cost optimization, price competitiveness, and customer retention.
- Disruption by electric vehicles: This scenario requires Lexus to accelerate its development of electric vehicles and related technologies.
Stakeholder Analysis:
Lexus needs to consider the interests of its key stakeholders, including:
- Customers: Providing high-quality products and excellent customer service.
- Employees: Offering competitive salaries, benefits, and opportunities for professional development.
- Suppliers: Maintaining fair and ethical relationships with suppliers.
- Investors: Delivering strong financial performance and shareholder value.
- Community: Engaging in corporate social responsibility initiatives and contributing to the well-being of the community.
Strategic Positioning:
Lexus' strategic positioning should focus on:
- Premium quality and reliability: Maintaining its reputation as a brand that delivers exceptional quality and reliability.
- Advanced technology and innovation: Offering cutting-edge features and technologies to appeal to tech-savvy consumers.
- Sustainable mobility: Developing hybrid and electric vehicles to meet the growing demand for environmentally friendly vehicles.
- Enhanced customer experience: Providing personalized services and digital platforms to enhance the customer experience.
Business Ecosystem:
Lexus needs to cultivate a robust business ecosystem by:
- Partnering with technology companies: Collaborating with tech companies to develop innovative features and services for its vehicles.
- Engaging with start-ups: Fostering partnerships with start-ups to explore new technologies and business models.
- Building relationships with government agencies: Collaborating with government agencies to promote sustainable mobility and advance automotive technology.
Game Theory in Strategy:
Lexus can leverage game theory to understand the competitive dynamics of the luxury car market and develop strategies to outmaneuver its competitors.
Strategic Leadership:
Lexus needs strong strategic leadership to guide the company through the challenges and opportunities of the evolving automotive market. This leadership should:
- Embrace innovation: Encourage a culture of innovation and experimentation.
- Foster collaboration: Promote cross-functional collaboration to accelerate product development and market adaptation.
- Communicate effectively: Clearly communicate the company's vision and strategy to all stakeholders.
Change Management:
Lexus needs to implement effective change management processes to adapt to the rapidly changing automotive market. This involves:
- Communicating the need for change: Clearly explaining the rationale for change to all stakeholders.
- Involving employees in the change process: Seeking input from employees and empowering them to contribute to the change process.
- Providing training and support: Providing employees with the necessary training and support to adapt to new technologies and processes.
Organizational Culture:
Lexus' organizational culture should be characterized by:
- Customer focus: Prioritizing customer satisfaction and delivering exceptional customer service.
- Innovation: Encouraging creativity and experimentation to develop new products and services.
- Collaboration: Fostering a collaborative work environment to accelerate innovation and decision-making.
Strategic Implementation:
Lexus needs to develop a robust strategic implementation plan to translate its strategy into action. This plan should include:
- Clear goals and objectives: Defining specific, measurable, achievable, relevant, and time-bound goals.
- Actionable steps: Identifying specific actions to be taken to achieve the goals.
- Resource allocation: Allocating resources effectively to support the implementation process.
- Performance monitoring: Tracking progress and making adjustments as needed.
Benchmarking:
Lexus should engage in benchmarking to compare its performance against industry leaders and identify areas for improvement.
Strategic Control:
Lexus needs to establish strategic control mechanisms to ensure that its strategy is being implemented effectively and that it is achieving its desired outcomes.
PESTEL Analysis:
- Political: Government regulations on emissions, fuel efficiency, and safety standards.
- Economic: Global economic conditions, consumer spending patterns, and interest rates.
- Social: Consumer preferences, lifestyle trends, and environmental awareness.
- Technological: Advancements in electric vehicle technology, autonomous driving systems, and connected car technologies.
- Environmental: Sustainability concerns, regulations on emissions, and consumer demand for eco-friendly vehicles.
- Legal: Laws and regulations related to vehicle safety, emissions, and consumer protection.
Industry Lifecycle:
The luxury car industry is in a mature stage of its industry lifecycle, with intense competition and increasing pressure to innovate.
Strategic Groups:
Lexus competes within the strategic group of premium luxury car brands, characterized by high-quality vehicles, advanced technologies, and premium pricing.
Value Proposition:
Lexus' value proposition is based on its reputation for quality, reliability, and customer service, combined with its commitment to innovation and sustainability.
Business Portfolio Analysis:
Lexus' business portfolio should be diversified to include a range of vehicles, including sedans, SUVs, crossovers, and electric vehicles.
BCG Matrix:
Lexus can use the BCG Matrix to analyze its product portfolio and identify opportunities for growth and investment.
Ansoff Matrix:
Lexus can use the Ansoff Matrix to develop growth strategies, such as:
- Market penetration: Increasing market share in existing markets.
- Market development: Expanding into new markets.
- Product development: Introducing new products in existing markets.
- Diversification: Entering new markets with new products.
Strategic Intent:
Lexus' strategic intent should be to maintain its position as a leading luxury brand by:
- Delivering exceptional quality and reliability.
- Embracing innovation and technology.
- Promoting sustainability and environmental responsibility.
- Providing an exceptional customer experience.
Sustainable Competitive Advantage:
Lexus can achieve sustainable competitive advantage by:
- Continuously innovating: Developing new products and services that meet the evolving needs of luxury car buyers.
- Building strong brand equity: Maintaining a strong brand reputation for quality, reliability, and customer service.
- Developing a loyal customer base: Providing exceptional customer service and fostering long-term relationships with customers.
Strategic Flexibility:
Lexus needs to maintain strategic flexibility to adapt to changing market conditions. This involves:
- Developing contingency plans: Preparing for potential disruptions and challenges.
- Monitoring market trends: Continuously tracking industry trends and consumer preferences.
- Adapting its strategy as needed: Making adjustments to its strategy to respond to changing market conditions.
Corporate Social Responsibility:
Lexus should embrace corporate social responsibility by:
- Reducing its environmental impact: Developing sustainable vehicles and reducing its carbon footprint.
- Supporting local communities: Investing in community initiatives and promoting social responsibility.
- Promoting ethical business practices: Adhering to high ethical standards in all its operations.
Digital Transformation Strategy:
Lexus needs to embrace digital transformation by:
- Leveraging digital platforms: Enhancing the customer experience through online platforms for vehicle customization, maintenance scheduling, and personalized services.
- Developing connected car technologies: Integrating advanced technologies like autonomous driving systems and connected car features.
- Utilizing data analytics: Analyzing data to understand customer preferences and improve product development and marketing strategies.
Strategic Foresight:
Lexus should engage in strategic foresight to anticipate future trends and prepare for the challenges and opportunities of the evolving automotive market.
4. Recommendations
1. Embrace Electric Vehicles: Lexus should aggressively invest in the development and production of electric vehicles. This includes:
- Developing a comprehensive electric vehicle strategy: Defining a clear roadmap for the development, production, and marketing of electric vehicles.
- Investing in battery technology: Partnering with battery manufacturers or developing its own battery technology to ensure a competitive advantage in electric vehicle range and performance.
- Developing a robust charging infrastructure: Collaborating with charging network providers to ensure convenient and accessible charging options for electric vehicle owners.
2. Enhance Technology Integration: Lexus should leverage technology to enhance the customer experience and create a competitive advantage. This includes:
- Integrating advanced safety features: Incorporating advanced driver-assistance systems (ADAS) and autonomous driving technologies to enhance safety and driver convenience.
- Developing connected car features: Integrating features like remote vehicle control, real-time traffic updates, and personalized entertainment options.
- Utilizing data analytics: Analyzing data to understand customer preferences and improve product development, marketing, and customer service.
3. Foster Sustainability: Lexus should position itself as a leader in sustainable mobility. This includes:
- Developing hybrid and electric vehicles: Expanding its portfolio of hybrid and electric vehicles to meet the growing demand for environmentally friendly vehicles.
- Reducing its carbon footprint: Implementing sustainable manufacturing practices and reducing emissions throughout its operations.
- Promoting eco-friendly initiatives: Engaging in partnerships and initiatives to promote sustainable transportation and environmental awareness.
4. Enhance Customer Experience: Lexus should focus on providing an exceptional customer experience. This includes:
- Developing personalized services: Offering tailored services based on individual customer preferences and needs.
- Leveraging digital platforms: Enhancing the customer experience through online platforms for vehicle customization, maintenance scheduling, and personalized services.
- Providing exceptional customer service: Training employees to deliver exceptional customer service and resolving customer issues promptly and efficiently.
5. Expand Global Presence: Lexus should expand its global presence by targeting emerging markets with significant growth potential. This includes:
- Tailoring product offerings to local markets: Developing vehicles and features that meet the specific needs and preferences of consumers in different markets.
- Building strong local partnerships: Collaborating with local distributors and suppliers to enhance market penetration and build brand awareness.
- Investing in marketing and advertising: Implementing targeted marketing campaigns to reach new customers in emerging markets.
5. Basis of Recommendations
These recommendations are based on a thorough analysis of the case study, considering Lexus' core competencies, external market trends, and competitive landscape. The recommendations are consistent with Lexus' mission to deliver high-quality, innovative, and sustainable luxury vehicles while providing an exceptional customer experience.
The recommendations are also supported by quantitative measures, such as the growing demand for electric vehicles, the increasing adoption of connected car technologies, and the rising consumer interest in sustainability.
6. Conclusion
Lexus needs to adapt its strategy to maintain its position as a leading luxury brand in a rapidly changing landscape. By embracing innovation in technology, sustainability, and customer experience, Lexus can continue to appeal to a discerning customer base and secure its future in the competitive luxury car market.
7. Discussion
Other alternatives not selected include:
- Focusing solely on traditional gasoline-powered vehicles: This would be a risky strategy, as the market for traditional gasoline-powered vehicles is shrinking due to the growing popularity of electric vehicles.
- Merging with another automotive company: This could provide access to new technologies and resources, but it could also lead to cultural clashes and a loss of brand identity.
- Exiting the luxury car market: This would be a drastic measure, but it might be necessary if Lexus is unable to adapt to the changing market landscape.
The recommendations are based on the following key assumptions:
- Continued growth of the electric vehicle market: This assumption is supported by government regulations, consumer demand, and technological advancements.
- Increasing adoption of connected car technologies: This assumption is supported by the rapid development of connected car technologies and the growing consumer demand for these features.
- Rising consumer interest in sustainability: This assumption is supported by increasing environmental awareness and the growing demand for eco-friendly vehicles.
8. Next Steps
Timeline:
- Year 1: Develop a comprehensive electric vehicle strategy, invest in battery technology, and begin production of electric vehicle models.
- Year 2: Expand the electric vehicle portfolio, enhance connected car features, and implement sustainable manufacturing practices.
- Year 3: Launch a global marketing campaign to promote Lexus' electric vehicle offerings, expand into new markets, and further enhance the customer experience.
Key Milestones:
- Launch of the first Lexus electric vehicle model.
- Integration of advanced safety features and connected car technologies.
- Implementation of sustainable manufacturing practices.
- Expansion into new markets.
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Case Description
The three caselets in the series "Strategies for Firm Positioning" draw the reader's attention to the concept of firm positioning using Porter's Productivity Frontier. For any firm to stay ahead of the competition and build a product or service portfolio, it needs a clear strategic positioning that distinguishes it from its peers. Strategy literature recommends two generic positioning strategies, namely, cost leadership and differentiation, to achieve competitive advantage. These two strategies are very different from one another. Each strategy requires the firm to make choices about quality, operational excellence, innovation, customer centricity, and so on, which are often orthogonal to the choices made under the other strategy. This case series highlights the contrasts between the two generic strategies. Further, the case series shows what happens when a firm selects a hybrid of the two generic strategies.
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