Posted By: Sumontro Roy, strategy@perksconsulting.com

In a recent Wall Street Journal article, Toyota’s incoming President Akio Toyoda said about the company founded by his grandfather: It has gotten too fancy for its own good.

Driven by the goal of “…becoming the world’s largest auto maker…” and “high operating-profit objectives”, Toyota presumed that American consumers would be willing to pay a premium pricing for a Toyota – a change from the long-held strategy of pricing cars at a value. Toyota’s recent new features have also occasionally been out of character with the company’s utilitarian roots e.g. a recent solar powered ventilation system designed to keep the interior cool when parked. Such gizmos have pushed the Pricing above its value price-point.

North American dealers recently told Mr. Toyoda that, “premium pricing was the wrong way to go. Toyota had built an image of sturdy affordability, but now they were wrecking it”.

As a result, consider some recent evidence:
• Toyota is expecting its first annual net loss in 59 years
• May shutter factories in Japan and North America
• Might be faced with its first layoffs since 1950

Mr. Toyoda blames more than just the recession: he is sending a message that his “predecessors worsened the problem by straying from Toyota’s core ideas of thrift and efficiency”.

Michael Porter identifies 2 essential sources of Competitive Advantage:

• Differentiation: you offer a product/service with unique attributes that are valued by your customers; you charge a premium for the uniqueness of your offering
• Cost Advantage: you are the leading low-cost producer in your market segment at a given level of quality

Importantly, focusing on either of the above is the mantra to sustainable success – otherwise you are likely stuck in the middle and offer nothing unique to any market segment.

Which brings us to the important question: why do businesses and brands stray from the focus areas of their businesses and operations? That which generates their Core Competency, their Unique Selling Proposition , their Competitive Advantage and their Barriers for Entry?

It seems an easy answer that, if you achieve success doing something, you must continue doing exactly that – and, in doing so, get better at what gives you your sustainable Competitive Advantage, thereby making it a perpetual model.

There are any number of reasons why brands and companies are pressured and tempted to do so, a leading one being to extend their brand equities to larger (and often more diverse) market segments to drive company growth and shareholder profit. Toyota appears to have become muddled with becoming “the worlds largest auto-maker” and “drive record operating-profits.” Nothing wrong with those objectives – however, in trying to achieve that, Toyota tried to shift its brand upwards and, as a result, out of its targeted segment.

But, straying from the original game plan means diluting the formula (your Value Proposition, Customer Segments, Pricing, Communication) that made you successful in the first place. Of course, keeping your ear to the market and staying flexible (especially in today’s global competitive scenario) is equally important – but not at the cost of losing sight, and focus, on the original attributes of your success.

In Toyota’s case, it is already the largest car manufacturer in the world, with deep levels of penetration in global markets. Around now, they do start to look at the Business Objective of increasing Profit-per-Unit sold – and that can often be contradictory to a company’s Brand Objectives. However, those pros and cons and that optimal path forward are part of another discussion. For this article, let’s stay focused on Focus ☺

To illustrate (click on diagram to enlarge):

So, for all you Small-Business-Owners, Inventors and Businesses-Looking-To-Grow: what pointed questions should you ask yourselves to make sure that you’re focusing on the relevant issues? Try these as a start:

• What do I do well? Is that central to my offering?
• Do I do it better than my competitors and the currently available options?
• Can I be copied? Bettered? If yes, what of my existence? If no, what can I do to keep it that way?
• Does my Business Model make sense? Why do I use it? Is it efficient? Sustainable?
• What are the curves ahead? Changes in Market/Customer Needs? New Inventions as options and substitutes? How can I stay relevant?

Have fun answering,
Cheers!

References:
1. Wall Street Journal: A Scion Drives Toyota Back to Basics.
2. Michael Porter, Competitive Advantage: Creating and Sustaining Superior Performance.