The Relentless Pursuit of Perfection: The Lexus Brand Strategy
Hi Everyone! I’m Sudip Verma and I just joined the Research & Analytics team at OpenView Labs. Prior to OpenView, I spent over five years in Strategy Consulting serving the Insurance, Automotive, Financial Services, Retail, and IT industries.
To kick off my blogging efforts, today’s post will highlight the 1989 launch of the Lexus brand in the US, outlining the key aspects of the Lexus brand strategy that made it successful in the face of fierce competition.
The Opportunity: Gain a foothold in the largest luxury car market in the world.
The Problem: Establishing Lexus as a prestige luxury brand in the US, despite being a division of Toyota. The brand faced fierce competition from the likes of Mercedes-Benz, BMW, Jaguar, Lincoln, and Cadillac.
Establishing the Brand and Product:
Understanding the Market: Before launching the Lexus brand, Toyota interviewed dealerships and consumers to understand their desires, needs, and habits while they drove. A key result was that Toyota found they could not launch a luxury nameplate under the “Toyota” brand. The US market (as VW found out with the Phaeton) would not consider the Lexus LS400 a “true” luxury car if it sat next to a Toyota Corolla on a lot. As a result, a new network of dealerships was selected based on a very stringent criteria.
Emphasis on a Superior Product: From 1983 to 1989 Toyota spent an unprecedented sum (nearly a billion dollars!) developing their flagship LS400. They built over 450 prototypes, representing the work of 24 engineering teams.
The goal was to leverage their core competencies in building quality automobiles to beat the market leader S Class Mercedes. To do so, they needed the product to be credible. The strategy they pursued wasn’t parity, but superiority.
Toyota emulated (some would say shamelessly copied) the best features of their competition and took them one step further. They tested their cars on the Autobahn for 15 months to understand the driving dynamics of the Germans, and made the car quiet enough to have a normal conversation while driving 150 MPH.
The result was a car that pushed the bar and set a new standard. Leveraging Toyota’s expertise in engineering and quality, the company produced a car that took the fight to the competition and re-established the standards for what a class-leading luxury car should be.
Establishing a Winning Value Proposition: This was best embodied by the Lexus motto: “The Relentless Pursuit Of Perfection.” Lexus launched a series of ads championing the car’s Japanese quality, attention to detail, and technology (including the now-famous spot featuring the Champagne glasses stacked on a LS 400, as well as the ball bearing test, etc.). And all of this for tens of thousands less than the S Class Mercedes.
Superior After-Sales Service Experience: In the automotive world, the service experience is often a key driver of satisfaction. Lexus sought to offer an industry best service experience, complete with loaner cars, free car washes, and free car pick up/drop off.
Seeking out the Support of Thoughts Leaders and Influencers: Lexus sought to gain the endorsement of Car and Driver and Consumer Reports. Also, they understood the importance of JD Power and Associates in the industry. JD Power is considered the industry benchmark for quality and satisfaction on the automotive industry. As a long term strategy, they sought to be the at the top of both quality and satisfaction metrics.
Standing by the Product: Despite the resources devoted to the LS 400 launch, in 1990, Lexus had to recall all of their cars for a potential cruise control fault and issues with a brake light housing. Given how young the company was, this could have been a devastating blow.
Dealers contacted LS400 owners personally, picked up the cars from homes, made the fixes, and quickly returned the vehicles freshly washed with full tanks of gas.
Their owners remained brand loyal and Lexus continued to score at the top of JD Power’s Quality and Sales Satisfaction Index. By 1991, Lexus became the Number 1 luxury import in the US with over 70,000 cars sold.
Lexus has continued to grow in the US and abroad with great success. The core emphasis on product quality, design, and customer service continues to serve them well. And the Lexus brand strategy continues to serve as a terrific example for companies looking to disrupt a crowded, competitive marketplace.