Does Toyota have a competitive advantage due to its more economical and environmentally friendly Hybrid Synergy Drive Engine?
Toyota has a competitive advantage due to its more economical and environmentally friendly Hybrid Synergy Drive Engine for many reasons. When looking at Porters 5 Forces you can see that Toyota has gained a good competitive advantage due to the fact that it is one of the companies to develop the Hybrid style engine. This means there has been little or no rivalry between competitors as there are none. Unfortunately this is about to change as other businesses such as Honda have caught on to Toyota’s success and are designed a Hybrid style engine of their own. Toyota has also been successful due to the growth in the market. The market for environmentally friendly engines has grown rapidly with more and more interest from customers every day.
As the market for fuel efficient, environmentally friendly cars is growing fast and competitors are designing competing engines of their own Toyota will have to work hard to make sure they keep the competitive advantage. Already there is talk form Honda to release a new engine and companies such as Ford and Citroen have struck deals with Toyota to use the Hybrid engine technology in their cars. The deal could help Toyota as it will eliminate otherwise fatal competition form the likes of Ford as they will use the Toyota engine as apposed to developing one of their own.
At present there is no threat of a substitute product. Until Honda have completed their engine Toyota is safe as market leader. Although having said this Toyota will need to make plans to differentiate the engine to ensure they keep their competitive advantage.
At current customers have little bargaining power as Toyota is the only manufacturer with a Hybrid design engine, but that could soon change when Honda releases their new design engine. As the customer power and competition is low Toyota can get away with charging a higher price for its Hybrid engine over a standard engine. This will help them keep a competitive advantage as they will have more profits therefore more disposable finance to spend on developing new products or marketing etc.
As Toyota makes all their engines themselves there is little supplier bargaining power as all they need is the raw material. Also as there are many suppliers able to provide raw materials to car manufacturer’s prices are kept to a minimum to prevent competition stealing customers.
When analyzing the Hybrid engine using a SWOT amylases you can see the many factors which affect the competitive advantage Toyota has. One strength is Toyotas amazing reputation for being a reliable firm that produces excellent quality cars. This reputation has helped them to sell the new engine to existing customers who wished to purchase a new car. Also the reputation has helped launch the engine to new customers as they believe the engine will be very reliable and efficient. Another major strength is the fact that Toyota is currently the only business in the market that has a Hybrid design engine. Therefore all sales of this engine are going to Toyota.
The main weakness to Toyota is the fact the engine is a new design and something that hasn’t been tried before. This has put a lot of people off as they are unsure whether to trust the new design and whether it will perform as well as a standard diesel or petrol engine.
There are many opportunities that Toyota can take with the new Hybrid design engine. The main one is to develop sizes and performance. If Toyota developed a high capacity high performance sports model of the Hybrid design engine then this could provide more sales from a different market of sports car enthusiast.
Threats are currently becoming apparent as Honda has announced its plans to produce a Hybrid design engine. If it is successful it could damage the competitive advantage Toyota has. Luckily for Toyota its Hybrid engine is in a stable market and has a good reputation, this will make it difficult for Honda to compete unless their engine is particularly better than Toyota’s.
The PEST analyses has proved Toyota’s success as the company has received great backing from governments as their new Hybrid engine will help to reduce pollution on the motorways and offer the public a greener mode of transport. This has provided a great boost to Toyotas already gleaming reputation as it is not often car manufacturers get backing from governments.
The economic status of Toyotas new engine is good as it has provided an improved consumer activity. Spending patterns have increased and Toyota has received improved sales due to the Hybrid design engine. Although the original cost of design and experimentation for the new engine where high the sales figures are impressive and have produced a good profit for Toyota.
The social acceptance of the new Hybrid engine was phenomenal. It was received by the public with open arms, mot only is a greener engine but it boasts amazing economy. The press also loves the car. Due to the outstanding response form the public the competitive advantage for Toyota is great as they have full backing from the public.
Toyota is at the forefront of technical engineering design. The Hybrid engine is the first of its design and has ensured Toyota a great advantage. In modern times it is essential to keep up with technology and Toyota has somehow managed to overtake it.
When looking at the Boston Matrix I would place the Hybrid engine as a ‘Star’ as it is market leader in a fast growing market. Also the engine could be considered as a ‘Cash Cow’ as it has provided Toyota a large amount of finance which it can put towards the development of something new.
In conclusion yes Toyota has a competitive advantage due to its more economical and environmentally friendly Hybrid Synergy Drive Engine. It is currently market leader and only faces a small amount of competition. Although other businesses such as Honda are developing similar engines Toyota has the advantage of a well developed market and a fantastic company reputation. They also have the benefit of profit from deals with manufacturers such as Ford, who plan to use the Hybrid engine in their own vehicles.
Toyota can ensure they keep their competitive advantage by developing different size and performance engines. They could then use them to compete in motor sports such as WRC and Le Mans. Toyota should defiantly consider some new marketing techniques to explain to the public how the Hybrid engine works and what benefits it has. This will hopefully produce more sales as those who are against the engine because they don’t understand it will be encouraged by their new knowledge.
For this investigation I will focus on the car manufacturing company Toyota. I have chosen Toyota and the development of their new engine because I have a general interest in motoring and the development of more economical environmentally friendly engine technology. I will be investigating what competitive advantage Toyota has over its competitors with its new Hybrid engine. I shall look at technical information provided by Toyota as well as internet based articles. I will also use questionnaires/surveys to provide field research. In my analyses I will consider ways in which Toyota can keep its competitive advantage through the development of new products and by using business skills such as marketing.
My investigation links to modules in the Nuffield Economics and Business syllabus. The main module is a section on competitive advantage within the market. I will also look at the module on business ethics, as the new engine is more environmentally friendly. I will also look at the module on technological revolution; I will use this module to look at the development in engine design and the new Hybrid engine technology. I will link all these areas to Toyota and relate them to my main thesis.
Toyota has been very successful in the car industry for many years. They have had many successes, including the MR2 and P1800, which have enabled them to build a reputation as a reliable firm who built reliable cars.
Both the media and the public love Toyota’s reputation and are continuously trying new ways to damage it. ‘Top Gear’ was the closest to date, when they tried to destroy a Toyota Hilux Truck. Even after driving it downstairs into a tree and then leaving it in the sea to be washed away by the tide, the truck still refused to give in, the engine started and it ‘drove like new’ – Jeremy Clarkson. This has increased the publics perception of quality and reliability and helped Toyota produce market leading models.
Toyotas newest project, the Hybrid Synergy Drive engine has enabled them to keep a tight grasp of their place as market leaders. The Hybrid Synergy Drive engine combines the use of a small petrol engine with batteries and a powerful electric motor.
Toyota has already won many awards due to its new engine and there are more to come.
Throughout the investigation I will use a mixture of Field and Desk research. Desk research is pre-written material which is often found in books or on the internet, also you can pay a company such as Mintel to complete the research for you. I will mainly use the internet when completing my Desk research as well as the following text books; Business Studies Second Edition, Causeway Press Ltd and Nuffield Economics and Business Students Book, Longman.. I will use the Toyota www.toyota.co.uk website as well as websites such as www.carpages.co.uk. Carpages is a magazine style website with articles and reviews for motoring enthusiasts. I will use the websites to look at articles on the development and problems of Toyota’s Hybrid Synergy Drive Engine.
Field research is when you complete the research yourself. This is completed by using questionnaires and surveys. For my Field research I intend to complete a questionnaire consisting of both open and closed questions. The questionnaire will be distributed to 20 people, I intend to use a varied audience for the questionnaire particularly car owners and those who have strong ethical and environmental issues.
A competitive advantage is a distinctive feature that makes a business successful. It may be due to innovation, reputation or the relationship between the business and customers and suppliers. It is hard for other businesses to imitate otherwise the advantage will not last long. A lot careful planning and research is involved as the business will need to identify the people who will buy the product or service. A competitive advantage can give many benefits to a business such as higher profits and sales figures.
Michael Porter created his competitive advantage tool, the five forces model; this is used to show how competitive a business is and whether or not they have a competitive advantage.
The first force is ‘rivalry among competitors.’ Competitive rivalry is the main force that affects a businesses ability to affect and influence a market. This force as many factors involved, the number of competitors is very important as the more competitors the less likely it is that a business will be able to make any influence. The businesses ability to differentiate their products is also essential as a promotional campaign by a business to differentiate will increase its influence. the growth rate of markets will also make a difference as the faster the market grows the less intense the competition will be and therefore it will be easier for a business to influence a market. Barriers to entry can make competition intense in markets where businesses are deterred from leaving the market. Exit barriers can include the cost of high redundancy payments or losses as a result of having to sell assets at reduced prices.
The threat of new entrants can be a problem to a businesses looking to gain a competitive advantage because if the market is easy to enter the competition is likely to be very high. This restricts the ability of a business to influence the market. If there is little threat of new entrants it will be easier for a business to dominate and influence the market. Barriers to entry will ensure a low threat of new entrants. The barriers can be anything but often are due to finance such as having to invest in expensive machinery.
Threat from substitute products can be solved if a business is able to differentiate its products. A business which struggles to differentiate its product is likely to face fierce competition. A business needs to spend a lot of money on product differentiation.
The stronger the bargaining power of customers the more competition their will be between businesses, so their influence will be weaker. There are many factors which can affect the strength of customers bargaining: the number of customers, whether they act together or not, ability to switch products or brands, regularity of purchases, importance e.g. large supermarket chain.
Bargaining power of suppliers is also important as powerful suppliers can increase the costs of a business and decrease the extent to which it can control its operations therefore reducing the ability to influence the market. The power of suppliers depends of the number able to supply to a specific product etc. to the business.
A SWOT analysis also enables a business to consider if they will be successful in a market. SWOT stands for: strengths, weaknesses, opportunities and threats.
Strengths are the things that the businesses do which: they are effective at, well known for, make money, causes other business to learn from them, causes customers to come back for repeat business, lead to confidence in the market and generate business and reputation.
Weaknesses include the things that the business does badly, or generates a bad business reputation. It also includes all factors that cause losses, hardships, grievances, disputes and complaints against the business.
Opportunities are the directions the business could take in the future because of its strengths or due to the elimination of its weaknesses.
Threats to a business arise from activities of competitors and from failing to take opportunities to build on successes. Threats also come from complacency, falling profits, perhaps due to rising costs.
PEST analysis examines the external environment and global factors that affect a business. It can provide a quick representation of the external pressures facing a business.
Political is concerned with how developments in politics have affected business strategy. This can include development on legislations and law to protect both the consumer and the business.
Economic involves the analyses of a variety of factors and their affect on business. This can include: consumer activity (spending patterns etc.), economic variables (inflation etc.), fixed and variable costs of the business.
Social, can competitive advantages can be gained by social changes taking place outside the business. Pressure groups can be bad news for a business and make trading hard.
Technological, businesses operate in a world of rapid technological growth. It is essential businesses keep an eye of technical change and growth otherwise practices and production can become obsolete and out of date.
The Boston Matrix is used to deter how successful a firm’s product portfolio is. The diagram below is an example of the Boston Matrix.
Market High STAR CASH COW
Low PROBLEM CHILD DOG
The Boston Matrix places products into four categories;
Star: products with a large share of a high growth market.
Problem Child: products that might have future potential are they are in growth markets but their sales are disappointing.
Cash Cow: products which arte able to generate funds which can be used elsewhere in the business. They are a mature product with a stable market share.
Dog: products that may be in decline.
Products can move from one section to another and often if a product is left in a section to long it will be changed or dropped form the portfolio e.g. a product that has been a ‘dog’ for over six months despite changes and new marketing will be dropped form the portfolio to prevent loss of finance, company reputation etc.
Analyses of data from questionnaires:
The field research I completed provided me with some interesting results. The results are detailed below in graph format with a brief explanation and evaluation for each. I tried to ask a wide variety of people as I wanted to represent the country fairly and by asking people from different social, political and professional backgrounds I believe I have achieved this.
The questionnaires where given to a random selection of people from different ages and professions. I hoped by doing this my result would be more representative of the UK as a whole, having said this I realised that there may be differentiations in the results from different graphical areas.
The ages are quite varied but unfortunately almost half of the people who answered the questionnaire fitted into the later age bracket. If this was the other way round I am positive the results would be different. By asking older people it represents the UK because ‘the majority of car sales in the UK are to professional people over 35’ – www.carpages.co.uk
The majority of people I asked did own a car but the opinions of those who don’t own cars are still very important as they may be looking to buy within the next year or so.
Surprisingly most people said environmental issues ere most important. This may be because modern society has made a demand for more environmentally friendly product especially cars. Alternatively it could just be the individual’s view. The nest popular were looks and speed/sports. These options were chosen by the younger people.
The majority of people said they wouldn’t consider environmental issues such as fuel emission because many went under the view that ‘All these extra environmentally friendly things they put on your car make it more expensive to buy and they just aren’t as fun.’ – Mr Wright, 33, Accountant. This view could be damaging for a company like Toyota who specialise in environmentally friendly cars.
Many people disagreed with paying more for an environmentally friendly car.
Every one who answered the questionnaire said they would pay more for a more economical car. ‘If it’s going to save me money in the long run surely it’s a good investment.’ – Mrs Young, 47, Secretary.
With fuel prices rising dramatically due to extra taxing etc. all the participants agreed a more economical car would save them money in the long run, even if it cost more to start with.
A lot of the people answering the questionnaire were put of by the unreliability of electric cars and the hassle of having to plug it in or recharge the batteries. Those who said they would be interested in buying an electric car said do for environmental reasons.
People were against the duel fuel concept because they could see a reliability issue. Also many of them didn’t understand the concept and this really put them off.
Conclusion to my questionnaire
Many people are put of by being environmentally friendly with cars. This is mainly because they perceive it to be expensive or un-reliable. Toyota now has a problem with a large majority being against there new concept engine. This is mainly because of a perceived expense, beliefs of it being unreliable and not understanding how it works. To solve this problems Toyota needs to complete some simple marketing that will show the advantages of the engine and how expensive it really is. Also they need to explain to the public how the Hybrid Synergy Drive engine works and how it is serviced etc. by doing this Toyota could dramatically improve both public awareness if the benefits of the engine and improve sales figures and profits.