Toyota is the leader of the hybrid technology with its Prius. The Prius was the world’s first mass-produced hybrid car (Case, paragraph 2, ‘The Prius…higher speeds.’). Toyota used the Prius as the centre-piece of their campaign to give themselves a more environmental image compared to their rivals. The reason why the Prius was such a success and other hybrid models were having troubles to get buyers, is that the buyers of the Prius want to make a statement about themselves. They want to show people that they are more environmentally aware then other people.Toyota recently had some troubles with their cars in 2010 (Case, paragraph 7, ‘In 2010…brake problems.’).
They had to re-call 437,000 hybrid cars because of some brake problems. All over the world people want to have this new hybrid car but the world’s second-largest car market is China (Case, paragraph 8, ‘China, meanwhile…surges ahead.’) The second-largest auto industry used to be in Japan but China overtook it three years ago and China is going to surpass the United States as well. But although they had to deal with some setbacks, Toyota is planning to develop the hybrid technology even further. They spent over $1 billion on research and development and they have plans to produce six new hybrid cars by the end of 2012 (Case, paragraph 10, ‘By the end…by 2020.’).
But Toyota is not the only company producing hybrid vehicles any more. The degree of rivalry is getting bigger and that’s why the question now is whether Toyota should continue with the development of their hybrid technology, or should they invest in new technology that enables them to produce fully electric cars?To analyse whether Toyota should stick to hybrid technology or invest in a new technology, I decided to use the Five Forces Model. This model contents the following forces: 1. The degree of rivalry 2. Threat of new entrants (and entry barriers) 3. Supplier power 4. Buyer power 5. Threat of substitutes (Book ‘An introduction into marketing and strategy’, page 80 exhibit
4.6 The Five Forced of Industry Structure). First of all, the degree of rivalry on hybrids and full-electric cars for Toyota is very high. There are many competitors like Nissan, General Motors and Ford (Case, paragraph 9, ‘Both Nissan…this year.’). Nissan and General Motors just promoted their new electric-powered vehicles on the market, and Ford is planning to start selling an all-electric version of the Ford Focus later this year.
Nissan introduced the first all-electric vehicle called the Nissan Leaf, and General Motors thinks they’re going to have a breakthrough with the Chevrolet Volt, a hybrid car running on rechargeable batteries. (Case, paragraph 10, ‘Nissan, one of…gasoline engine kicks in.’). But even though the degree of rivalry is high, Toyota sticks to their hybrid technology and they keep developing. But it might be a good idea for Toyota to start investing in a new technology that would enable them to produce fully electric cars.Secondly, the threat of new entrants is also high. When industries like Toyota boast relatively high on sales in hybrids, they attract the attention of firms operating elsewhere who are looking for new arenas to compete in.
Because Toyota was such a success, many companies like Nissan and Ford became interested in this type of industry. Also, the barrier of entry is relatively low. The hybrid technology is not a secret and can be used by any company. That’s why it is easy for other companies to compete in this industry. Therefore, it is of big importance that Toyota starts investing in a new technology for that the stay the leader in this industry.Finally, the threat of substitutes is relatively high as well. As mentioned in the second paragraph, Toyota had some setbacks to deal with. In 2010 they had to re-call 437,000 hybrid cars, which started some concerns over the Prius’ safety and it threatened to undermine Toyota’s reputation in Toyota’s home market Japan (Case, paragraph 7, ‘Concerns over…unintended acceleration.’).
Because of this, it is easy for other companies to satisfy the same demand. If Toyota starts selling fully electric cars, the threat of substitutes won’t be as high as it is now because it is more difficult for other companies to satisfy this demand.If you look at the analysis from the Five Forces Model, you can conclude that it would be best for Toyota to invest in new technology. The threat of new entrants won’t be as high because the technology is new and not every company can take over this technology straight away.
My advice, therefore, would be to start investing in new technology so they are able to produce fully electric cars. If they do this, the company will become the leader in this industry because no other company has used this technology already and they will keep the leadership in green car technology.