CASE: I Toyota
Of all the slogans kicked around Toyota, the key one is kaizen, which means “continuous improvement” in Japanese. While many other companies strive for dramatic breakthrough, Toyota overtook Ford Motor Company to become the second largest automaker in the world. Ford had been the second largest since 1931.
Toyota simply is tops in quality, production, and efficiency. From its factories pour a wide range of cars, built with unequaled precision. Toyota turns out luxury sedans with Mercedes-Benz-like quality using one-sixth the labor Mercedes does. The company originated just-in-time production and remains its leading practitioner. It has close relationships with its suppliers and rigid engineering specifications for the products it purchases
Toyota’s worldwide leadership in the automotive industry was built on its competitive advantage across the supply chain. Between 1990 and 1996, Toyota reduced part defects by 84 percent, compared to 47 percent for the Big 3. It also reduced the ratio of inventories to sales by 35 percent versus 6 percent. These reduction advantages occurred despite the fact the Big 3 relied on identical suppliers. A study by Jeff Dyer of The Wharton School of the University of Pennsylvania and Kentaro Nobeoka of Kobe University attributed Toyota’s success partly to its implementation of bilateral and multilateral, knowledge-sharing routines with suppliers that result in superior Interorganizational or network learning. Toyota uses six approaches to facilitate knowledge sharing: (1)a supplier association;(2) teams of consultants;(3)voluntary study groups;(4)problem-solving teams;(5)interfirm employee transfers; and (6)performance feedback and monitoring processes. This effort also involves intense levels of personal contact between Toyota and its suppliers.
Toyota pioneered quality circles, which involve workers in discussions of ways to improve their tasks and avoid what it calls the three Ds: the dangerous, dirty, and demanding aspects of factory work. The company has invested $770 million to improve worker housing, add dining halls, and build new recreational facilities. On the assembly line, quality is defined not as zero defects but, as another slogan puts it, “building the very best and giving the customer what she/he wants.” Because each worker serves as the customer for the process just before hers, she becomes a quality control inspector. If a piece isn’t installed properly when it reaches her, she won’t accept it.
Toyota’s engineering system allows it to take a new car design from concept to showroom in less than four years versus more than five years for U.S. companies and seven years for Mercedes. This cuts costs, allows quicker correction of mistakes and keeps Toyota better abreast of market trends. Gains from speed feed on themselves. Toyota can get its advanced engineering and design done sooner because, as one manager puts it, “We are closer to the customer and thus have shorter concept time.” New products are assigned to a chief engineer who has complete responsibility and authority for the product from design and manufacturing through marketing and has direct contacts with both dealers and consumers. New-model bosses for U.S. companies seldom have such control and almost never have direct contact with dealers or consumers.
The 1999 Harbour Report, a study of automaker competencies in assembly, stamping, and powertrain operations, stated that the top assembly facility in North America (based on assembly hours per vehicle) is Toyota’s plant in Cambridge, Ontario. In this plant, a Corolla is produced in 17.66 hours. Toyota was also rated number one in engine assembly, taking just 2.97 hours to produce an engine.
In Toyota’s manufacturing system, parts and cars don’t get build until orders come from dealers requesting them. In placing orders, dealers essentially reserve a portion of factory capacity. The system is so effective that rather than waiting several months for a new car, the customer can get a built-to-order car in a week to 10 days.
Toyota is the best carmaker in the world because it stays close to its customers. “We have learned that universal mass production is not enough,” said the head of Toyota’s Tokyo Design Center. “In the 21st century, you personalize things more to make them more reflective of individual needs.”
In 1999, Toyota committed to a $13 billion investment through 2000 to become a genuinely global corporation without boundaries. In this way, it will be able to create worldwide manufacturing facilities that produce cars according to local demand. Its goal is to achieve a 10 to 15 percent global market share by 2010.
Why the drive towards customization of vehicles? Part of this is due to fierce competition that provides consumer with a multitude of choices. The Internet enables consumers to be more demanding and less compromising. They now have access to the lowest prices available for specific models of vehicles with all of the bells and whistles they design. From the comfort of their homes, they are able to bypass dealers and still find the vehicle of their dreams.
Senior management at Toyota believes that kaizen is no longer enough. The senior vice president at the Toyota USA division, Douglas West, states that his division is committed to both creating and executing a new information system to drive the fastest, most efficient order-to-delivery system in the North American market. Toyota management has come to realize Kaizen alone can no longer predict business success. The sweeping changes taking place in the business environment can no longer rely on the kaizen philosophy of small, sustained improvements. In fact, one expert in the industry believes that “pursuing incremental improvements while rivals reinvent the industry is like fiddling while Rome burns.” Competitive vitality can no longer be defined by continuous improvement alone.
1. In what ways is Toyota’s new-product development system designed to serve customers?
2. In what ways is Toyota’s manufacturing system designed to serve customers?
3. How does Toyota personalize its cars and trucks to meet individual consumer needs?
CASE: II Exposure, Attention, and Comprehension on the Internet
The Internet universe literally grows more cluttered by the minute. According to Network Solutions, Inc., which registers the vast majority of Web addresses around the world, about 10,000 new addresses are registered each day. That means by the time you finish reading this case, about 60 new domain names will have been gobbled up. With all the clutter on the Web, how have some firms been able to stand out and attract millions of customers?
First, there are some basics to which online firms must attend. These cost little more than some time and a little creativity. The first is creating a good site name. The name should be memorable (yahoo.com), easy to spell (ebay.com), and/or descriptive (wine.com—a wine retailer). And, yes, ideally it will have a .com extension. This is the most popular extension for e-commerce, and browsers, as a default, will automatically add a .com onto any address that is typed without extension.
The second priority is to make sure the site comes up near the top of the list on any Web searches. If you use Lycos.com to perform a search for “used books,” you get a list of more than 2.6 million websites. Studies have shown that most people will look only at the top 30 sites on the list, at most. If you are a used-book retailer and you show up as website #1,865,404 on the search list, there is a very good chance you will not attract a lot of business. A 1999 Jupiter Research study reveals that “searching on the Internet” is the most important activity, and Internet users find the information they are looking for by using search engines and Web directories. A good Web designer can write code that matches up well with search engine algorithms and results in a site that ranks high on search lists.
Virtually all popular websites have those basics down pat. So the third step is to reach out proactively to potential customers and bring them to your site. Many companies have turned to traditional advertising to gain exposure. Television advertising can be an effective option—albeit an expensive one. In late January 1999, hotjobs.com spent $2 million—half of its 1998 revenues—on one 30-second ad during the Super Bowl. According to CEO Richard Johnson, so many people tried to visit the site that the company’s servers jammed. Johnson says the number of site hits was six times greater than in the month before. A quirky ad campaign may or may not help. Pets.com, now de-func, built its image around a wise-guy sock puppet. CNET, a hardware and software retailer, ran a series of television ads featuring cheesy music, low-budget sets, and unattractive actors. One such ad featured two men—one in a T-shirt that said ”you,” another in a T-shirt labeled “the right computer” – coming together and joining hands thanks to the efforts of another guy in a CNET T-shirt. The production quality was rudimentary enough that any sophomore film student could have produced it. The spots were so bad that they stood out from the slick, expensive commercials to which viewers were accustomed. Critics ripped the campaign to shreds, but CNET called it a success.
Other Internet firms have used sports sponsorships to increase visibility. CarsDirect.com, a highly rated site that allows consumers to purchase automobiles online, once purchased the naming rights to NASCAR auto race (the CarsDirect.com400). Lycos also has tried to make the most of NASCAR’s increasing popularity. It spent hundreds of thousands of dollars to have its name and logo plastered all over the car of popular driver Johnny Benson. Meanwhile, online computer retailer Insight and furniture seller galleryfurniture.com each targeted football fans by purchasing the naming rights to college bowl games.
Of course, if you can reach consumers while they are in front of their computers rather than their television sets, you may stand an even better chance of getting them to your site. However, typical banner ads are inefficient, averaging click-through rates of only about 0.5 per cent (only one of every 200 people exposed to the ad actually clicked on the ad). Too often, banner ads are just wallpaper; consumers may see them but they usually are not sufficiently stimulated to click-through. However, Michele Slack of the online advertising group Jupiter Communications believes banner ads can be useful if used correctly. “The novelty factor is wearing off,” she says. But “when an ad is targeted well and the creative is good, click-through rates are much higher.”
An alternative way to reach people who are already online is through partnerships. One of the most visible examples of such an alliance is the one between Yahoo! And Amazon.com. Let’s say you’re working on a project on the Great Depression and you want to see what kind of information is available online. If you go to Yahoo! And type in “Great Depression,” you will not only be presented with a list of websites, but you will also see a link that will allow you to click to see a list of books on the Great Depression that are available through Amazon. Another example of a successful partnership was forged in 1998 between Rollingstone.com and the website building and hosting service Tripod. Every one of the 3,000 artist pages on Rollingstone.com contained a link to Tripod. The goal was to encourage fans to use Tripod’s tools to build webpages dedicated their favorite singers or bands. According to the research company Media Metrix, during the course of the alliance Tripod jumped from the Web’s fourteenth most popular website to number eight. Alliances with nonvirtual companies are another options. In 2003, the Internet classified firm CareerBuilder kicked off a cross-promotional campaign with major Internet firms, including AOL and MSN.
A less subtle but nonetheless effective way to build traffic is to more or less pay people visit your site. One study showed more than half of Internet consumers would be more likely to purchase from a site if they could participate in some sort of loyalty program. Hundreds of online merchants in more than 20 categories have signed up with a network program called ClickRewards. Customers making purchases at ClickRewards member sites receive frequent-flier miles or other types of benefits. Mypoints.com offers a similar incentive program in which customers are rewarded with air travel, gift certificates and discounts for shopping at member merchants. The search engine iwon.com was even more direct. It rewards one lucky visitor each weekday with a $10,000 prize. According to Forrester Research, companies in 2002 spent about $6 billion annually on online incentives and promotions.
Finally, some firms rely on e-mail to thoroughly mine their existing customer databases. The auction site Onsale (later merged with Egghead.com) proved just how successful e-mail can be. It sent out targeted e-mails to its customers based on their past bidding activities and previously stated interests. Click-through rates on these targeted e-mails averaged a remarkable 30 percent. E-mail marketing also holds promise for business-to-business firms. The Peppers and Rogers Group is a marketing firm that gives presentations around the United States. At the end of the presentations, people are invited to go to the company’s website and sign up for their e-mail newsletter, Inside 1 to 1. The newsletter invites readers to visit the Peppers and Rogers website to learn more about various articles, promote their products and services, and participate in forums. Inside 1 to 1 now boasts a subscriber base of 45,000, but the company estimates that about 200,000 people actually see it because subscribers forward it to their friends and colleagues. About 14,000 people visit the Peppers and Rogers site each week, with traffic often peaking immediately after the newsletter is sent.
As you can see, there is no one effective method for generating interest in a website. The same methods that have worked for some firms have failed for others. One certainty is that as the Internet grows and more people do business online, Internet firms will have to find ever more creative ways to expose customers to their sites and keep their attention once there.
1. Consider the e-mail campaigns discussed in the case. Why do you think these campaigns were successful? Discuss the attention processes that were at work. Do you see any potential drawbacks to this type of marketing?
2. During the 2000 Super Bowl, ABC invited viewers to visit its Enhanced TV website. Fans could play trivia, see replays, participate in polls and chat rooms, and view player statistics. The site received an estimated 1 million hits. Why? Frame your answer in terms of exposure, attention, and comprehension.
3. Think about your own Web surfing patterns. Write down the reasons you visit sites. Which of the marketing strategies discussed in the case do you find most (and least) influential?
CASE: III Peapod Online Grocery—2003
The online grocery turned out to be a lot tougher than analysts thought a few years ago. Many of the early online grocers, including Webvan, ShopLink, StreamLine, Kosmom, Homeruns, and PDQuick, went bankrupt and out of business. At one time, Webvan had 46 percent of the online grocery business, but it still wasn’t profitable enough to survive. The new business model for online grocers is to be part of an existing brick-and-mortar chain. Large grocery chains, like Safeway and Albertson’s, are experiencing sales growth in their online business but have yet to turn a profit. Jupiter Research estimates that online grocery sales will be over $5 billion by 2007, about 1 percent of all grocery sales, while it expects more than 5 percent of all retail sales to be online by then. A few years ago, optimistic analysts estimated online grocery sales would be 10 to 20 times that by 2005, but it didn’t work out that way.
One of the few online grocers to survive in 2003 is Peapod, the first online grocer, started by brothers Andrew and Thomas Parkinson in 1990. However, even Peapod was failing until 2001 when Dutch grocery giant Royal Ahold purchased controlling interest in the company for $73 million. Peapod operates in five markets, mainly by closely affiliating itself with Ahold-owned grocery chains. Peapod by Giant is in the Washington, DC, area, while Peapod by Stop and Shop runs in Boston, New York, and Connecticut. The exception is Chicago, where Peapod operates without an affiliation with a local grocery chain. Peapod executives claim the company is growing by 25 percent annually and has 130,000 customers, and all of its markets except Connecticut are profitable. Average order size is up to $143 from $106 three years earlier.
The online grocery business seemed like a sure winner in the 1990s. Dual-income families strapped for time could simply go online to do their grocery shopping. They has about the same choices of products that they would have had if they went to a brick-and-mortar grocery, about 20,000 SKUs (stockkeeping units). They could browse the “aisles” on their home computers and place orders via computer, fax or telephone. The orders were filled at affiliated stores and delivered to their homes in a 90-minute window, saving them time and effort and simplifying their daily lives. For all this convenience, consumers were willing to pay a monthly fee and a fee per order for packaging, shipping, and delivery. Since most of the products purchased were well-known branded items, consumer faced little risk in buying their traditional foodstuffs. Even perishables like produce and meat could be counted on to be high quality, and if consumers were concerned, they could make a quick trip to a brick-and-mortar grocery for these selections. However, while all of this sounded good, most consumers didn’t change their grocery shopping habits to take advantage of the online alternative.
Currently analysts do not expect the online grocery industry to take off in the near future, if ever. Miles Cook of Bain & Company estimates that only 8 to 10 percent of U.S. consumers will find ordering groceries online appealing, but only about 1 percent will ever do so. He concludes: “This is going to remain a niche offering in a few markets. It’s not going to be a national mainstream offering.” Jupiter Media Metrix analyst Ken Cassar concludes that “The moral of the story is that the ability to build a better mousetrap must be measured against consumers’ willingness to buy it.”
1. What behaviors are involved in online grocery shopping? How does online shopping compare with traditional shopping in terms of behavioral effort?
2. What types of consumers are likely to value online grocery shopping from Peapod?
3. Overall, what do you think about the idea of online grocery shopping? How does it compare with simply eating in restaurants and avoiding grocery shopping and cooking altogether?
CASE: IV Sony
In just over half-century, Sony Corporation has from a 10-person engineering research group operating out of a bombed-out department store to one of the largest, most complex, and best-known companies in the world. Sony co-founders Masaru Ibuka and Akio Morita met while serving on Japan’s Wartime Research Committee during World War II. After the war, in 1946, the pair got back together and formed Tokyo Telecommunications Engineering Corporation to repair radios and build shortwave radio adapters. The first breakthrough product came in 1950, when the company produced Japan’s first tape recorder, which proved very popular in music schools and in courtrooms as a replacement for stenographers.
In 1953, Morita came to the United States and signed an agreement to gain access to Western Electric’s patent for the transistor. Although Western Electric (Bell Laboratory’s parent company) suggested Morita and Ibuka use the transistor to make hearing aids, they decided instead to use it in radios. In 1955, Tokyo Telecommunications Engineering Corporation marketed the TR-55, Japan’s first transistor radio, and the rest, as they say, is history. Soon thereafter, Morita rechristened the company as Sony, a name he felt conveyed youthful energy and could be easily recognized outside Japan.
Today Sony is almost everywhere. Its businesses include electronics, computer equipment, music, movies, games, and even life insurance. It employs 190,000 people worldwide and does business on six continents. In 1999, Sony racked up sales of $63 billion; 31 percent of those came from Japan, 30 percent from the United States, and 22 percent from Europe. (To visit some of Sony’s country-specific websites, go to www.sony.com and click on “Global Sites.”)
Perhaps Sony’s most famous product is the Walkman. Created in 1979, the Walkman capitalized on what some perceived as the start of a global trend towards individualism. From a technological standpoint, the Walkman, was fairly unspectacular, even by 1979 standards, but Sony’s marketing efforts successfully focused on the freedom and independence the Walkman provided. One ad depicted three pairs of shoes sitting next to a Walkman with the tag line “Why man learned to walk.” By 2000 more than 250 million Walkmans had been sold worldwide, but Sony was concerned. Studies had shown that Generation Y (ages 14 to 24) viewed the Walkman as stodgy and outdated. So Sony launched a $30 million advertising and marketing campaign to reposition the product in the United States. The star of the new ads was Plato, a cool, Walkman-wearing space creature. The choice of a nonhuman character was no accident according to Ron Boire, head of Sony’s U.S. personal-mobile group. He wanted a character that would appeal to the broadest possible range of ethnic groups—thus, the space creature. Boire explains, “An alien is no one, so an alien is everyone.”
Sony’s current vision, however, extends far beyond the Walkman: to become a leader in broadband technologies. Sony looks forward to a day when all of its products—televisions, DVDs, telephones, game machines, computers, and so on—can communicate with one another and connect with the Web on a persona network. A Sony executive provides an example of such technology in action: “Say you are watching TV in the den, and your kids are playing their music way too loud upstairs,” he says. “You could use your TV remote to call up an onscreen control panel that would let you turn down your kids’ stereo, all without having to get up from your recliner.”
Sony sees its new PlayStation2 filling a major role in the Internet of the future. In March 2000, Sony introduced the PlayStation2 in Japan and sold 1 million units within a week. Newsweek featured the PlayStation2 on its cover that spring, even though it wasn’t offered in the United States until later in the year. Most consumers probably bought PlayStation2 to play video games, but its potential goes far beyond that. It is actually powerful enough to be adapted to guide a ballistic missile. Sony envisions consumers turning to the PlayStation2 for not only games but also movies, music, online shopping, and any other kind of digital entertainment currently imaginable. Ken Kutaragi, president of Sony Computer Entertainment, predicts the PlayStation2 will someday become as valuable as the PC is today: “A lot of people always assumed the PC would be the machine to control your home network. But the PC is a narrowband device that… has been retrofitted to play videogames and interactive 3-D graphics. The PlayStation2 is designed from the ground up to be a broadband device.”
The PlayStation2 also reflects a changing attitude within Sony regarding partnerships with other companies. Toshiba helped Sony design the Emotion Engine, which powers the PlayStation2. In previous years, these kinds of alliances were the exception rather than the rule with the Sony. Sony was perceived as arrogant because it rarely cooperated with other companies, preferring to develop and popularize new technologies on its own. Recently, however, that has changed. Sony has worked with U.S. based Palm to develop a new hand-held organizer with multimedia capabilities, cooperated with Intel to create a set of standards for home networks, and launched a joint venture with Cablevision to build a broadband network in the New York metropolitan area. Nevertheless, some critics believe Sony remains too insular, looking on from the sidelines while other companies join forces to create entertainment powerhouses. Sony has no alliances with U.S. cable or television networks, raising some doubts about its ability to fully develop its home Internet services. Sony has talked with other music companies about possible joint venture, but nothing has come to fruition.
Unlike many U.S.-based multinationals, Tokyo-based Sony traditionally has marketed itself on a regional rather than a global basis. For example, Sony has almost 50 different country-specific websites from which consumers can order products. However, there are signs that strategy may be changing, at least to some degree. Sony launched www.Sonystyle.com, a website that is the company’s primary online outlet for selling movies, music, and electronic products. Sony also plans to provide product service and support on the site, and eventually software upgrades as well. The current main website (www.sony.com) is mainly a source for corporate and investor information. Also, in 1997 Sony embarked on a worldwide ad campaign to make itself and its products more relevant in the eyes of younger consumers. Ironically, much of Sony’s future growth may come from its own backyard. The primary buyers of electronic and digital products are ages 15 to 40. It is estimated that by 2010, two-thirds of the people in the world in that age bracket will live in Asia. Tokyo is already a powerful influence on Asian culture. Asia’s most popular youth magazines are published in Tokyo, and most of the music Asian young people listen to comes form Tokyo. So part of Sony’s challenge is to continue to grow on a global scale while paying close attention to the burgeoning market at home.
Immediately following World War II and for some years thereafter, the label “Made in Japan” connoted cheap, shoddy, imitation products. Today, for many people, that same label stands for excellence and innovation. Certainly Sony can take much of the credit that transformation. Now the question is whether Sony’s products and marketing efforts can keep pace (or set the pace) in the upcoming age of digital convergence.
1. Identify and discuss some of the cultural meanings for Sony possessed by consumers in your country. Discuss how these cultural meaning were developed and how they influence consumers’ behaviors (and affect and cognition). What is the role of marketing strategies in creating and maintaining (or modifying) these cultural meanings?
2. It is often stated that the world is becoming smaller because today people communicate relatively easily across time and distance. Discuss whether that has been beneficial for Sony. What are some marketing challenges it presents?
3. What do you think about Sony’s tradition of region-specific or nation-specific marketing? Would Sony be better served by working to create a more uniform global image?
CASE: V Pleasant Company
Samantha Parkington fights for women’s suffrage. Addy Walker escapes from slavery. Kirsten Larson builds a life in the frontier. Characters from feminist novel? No, these plucky heroines are part of The American Girls Collection, a line of historical dolls that are the darlings of 7- to 12 year-olds. Christmas orders piled up so fast at Pleasant Co.—the privately held doll-maker—that company vice presidents had to pack boxes in the warehouse.
Former president, Pleasant Rowland, who began the company with royalties she received from writing primary school reading books knew her vision had to be broad. Simply launching a me-too doll would have meant failure.
Before Rowland got her idea she went shopping for dolls for her two nieces. All she found were Barbies that wore spiked heels, drove pink Corvettes, and looked as if they belonged in strip joints. Though industry sources told her she couldn’t sell a mass market doll for over $40—some Barbies cost less than $10—Rowland gambled that boomer parents would pay more for one that was fun and educational.
Each of Pleasant Co.’s five dolls represents an era of American history. Addy is from the Civil War, and Samantha is described as a “bright Victorian beauty.” Parents can also buy historically accurate replicas of clothes, furniture, and memorabilia, such as the June 6, 1944, Chicago Daily Tribune headlined “Allies Invade France, made for Molly McIntire, the 1940s doll. The 18-inch dolls cost $84; add in all the accessories, including $80 dresses for the doll’s owner, and the price exceeds $1000. Every doll also stars in its own series of novels, with titles like Kirsten Learns a Lesson Samantha Saves the Day. The heroines go on adventures and cope with moral dilemmas; for example, Felicity Merriman, a colonial girl, has to decide whether to continue her tea parties while her father fights King
George Ill’s tea tax. Says Rowland: “We try to give girls chocolate cake with vitamins.”
Pleasant Co. decided early on not to compete doll to doll on toy store shelves. Defying industry wisdom, Rowland began selling only through her own catalog. She counted on her dolls’ being so different that word of mouth would take care of sales. She also coddled her customers. Pleasant Co. opened a “hospital” for broken dolls, so when brother sticks a pair of scissors through Molly’s head, Mom can return her to Pleasant Co. for repairs. For $35 the company does the surgery then mails Molly—now wearing a hospital gown and carrying a certificate of health form the house doctor—home to recuperate.
Will Pleasant Co.’s dolls have legs? Rowland says movies, CD-ROMs, and theme parks aren’t out of the question. But she’ll expand only as long as she can keep the business special. She refuses to license her products on T-shirts and lunch boxes, fearing that too much exposure would cheapen the doll’s image. Says Rowland: “It never hurts to play hard to get.”
In 1998, Mattel, Inc., purchased Pleasant Co., which continues to operate as an independent subsidiary. During the same year, American Girl Place, the company’s first retail and entertainment site, opened in downtown Chicago, and a second store opened in New York in 2003. The stores are a little girl’s delight. Visitors can purchase dolls, books, and clothing; view a musical revue; and have tea, lunch, or dinner at the Café at American Girl Place. The Chicago store sold $35 million worth of products in 2003.
1. Why do consumers pay $84 for a Pleasant Company doll when they can buy other dolls much more cheaply at retail stores?
2. Considering money, time, cognitive activity, and behavioral effort costs, are Pleasant Company dolls more or less costly than dolls that can be purchased at retail stores?
3. What recommendations do you have for Pleasant Company to increase sales and profits?