Toyota to Shift Marketing Budget into Research & Development

Lexus Ride Event

Toyota, and Lexus by extension, plans to cut costs associated with sales and marketing, using the resources to further research into autonomous vehicles and other advanced tech — from Reuters:

“We may be posting record profits, but we don’t think we are keeping up with their pace of investments,” one of the sources, a senior Toyota official, told Reuters.

To do that, [CFO Koji] Kobayashi wants to tap into money once earmarked for automotive marketing and general expenses, which for the year that ended in March totaled 2.72 trillion yen ($24.66 billion).

This move was initiated by Toyota canceling contracts with the China unit of advertising agency, Dentsu Inc.:

Toyota was frustrated with the cost of at least two events Dentsu organized in China: a ride-and-drive for Toyota’s premium Lexus brand in March and the Beijing auto show display stand for Toyota in April.

A review by the automaker showed “out-of-control extravagance in how it executed those events – not over-billing,” another one of the sources said. Beijing Dentsu declined to comment.

So this is the reason they had a less-than-humble Lexus stand tucked in a corner during the Beijing Motor Show? Lincoln, a failing brand, had a VIP lounge larger than the Lexus stand while Lexus had no VIP lounge at all. I can't quite agree with the extravagant spending on Toyota stand. It's just as large as Nissan and Honda, and not nearly as large as VW and Ford. Alfa Romeo doesn't even sell four figures a month here but had a larger stand than Toyota. Saving money is great. But embarrassing your customers in the process is not great.

The Shenzhen event was to promote their RWD products (RC, IS, GS) in an attempt to establish the brand's sporty image in China (in previous years they focused on hybrids, to very good effect). Look, they are even actively trying to sell the GS!

Overall I wouldn't overly blame Dentsu for their efforts in China. They did some successful campaigns for Lexus hybrids and crossovers.

How about trimming their bloated sales network in Japan, reducing the number of dealerships to just one? They are a Cold War era relic that has nothing to do with the modern world and is actively hurting Toyota's JDM efforts. IMO that is the single biggest problem with TMC's sales and marketing division for two decades.

On the other hand, it's good to see they are spending every last drop of money they saved in autonomous driving and electrification. Their engineering and production teams did a wonderful job with cost reduction enabled by TNGA.
Yeah, I think they can be smarter about spending marketing money. For instance, go big at the major motor shows, but maybe don't fly a few hundred people to Ibiza to drive the LC.
I do not know if that is good or bad. Looking at rivals, especially the one with the propeller, they are now into marketing 4.0 (network oriented marketing) and have shown to have less presence on world motorshows and rather do exactly that: pre-test drive of camoed prototypes, and private test drive + champagne at local premium tourist locations.

In Toyota's case, they are yet at marketing 1.0 (product oriented), IMO the most honest type of marketing, and even then their marketing is not that effective, especially in terms of how their products have changed over time (for better).
As a consumer I'd honestly like to see less emphasis on the marketing and more on the research. Especially with this exciting new tech like hybrid and electric coming out, I'm assuming they would want to be ahead of the game rather than playing catch up with competitors.
How about trimming their bloated sales network in Japan, reducing the number of dealerships to just one? They are a Cold War era relic that has nothing to do with the modern world and is actively hurting Toyota's JDM efforts. IMO that is the single biggest problem with TMC's sales and marketing division for two decades.
This. VERY much.

In truth, all Japanese carmakers except for Subaru and Suzuki have had multiple redundant dealer networks in the past in their home market (Honda's Verno, Clio and Primo, plus Mazda's Autozam, Eunos and Anfini are but a few random examples). By 2006-2007, however, all of them had moved to a single domestic dealer network except for Toyota, which at present has four separate dealer networks in Japan (Toyota, Toyopet, Corolla and Netz) plus Lexus. To add to the redundancy and confusion, some models (such as Prius and Aqua/Prius c) are sold in identical form at all 4 networks, while others are restyled and rebadged in as many as 3 or 4 different variants. Does Toyota really need separate Noah (for Corolla dealers), Voxy (for Netz) and Esquire (for Toyopet) versions of the same mid-sized MPV? Or Toyota Tank (for Toyopet and Netz), Toyota Roomy (for Toyota and Corolla dealers), Daihatsu Thor and Subaru Justy versions of the same mini-minivan? I think not. This type of badge engineering run amok is reminiscent of pre-bankruptcy General Motors, or BMC/British Leyland in the latter half of the 20th century.

To be fair, Toyota does seem to be taking some steps to remedy this situation, such as the 15th-generation Crown that does away with separate Royal, Athlete and longer Majesta variants in favor of a single line; and the elimination of a number of redundant New MC platform variants such as Toyota Sai, JDM Avensis and Lexus HS. This topic actually came to a head in early October 2017, with a trio of articles from international business outlets (excerpts and links below):

From Reuters:

Toyota Motor Corp is aiming to halve the number of car models it sells at home by 2025, a person briefed on the matter said...

Toyota offers about 60 car models in Japan, where consumers clamor for variety. But it aims to gradually cut that to about 30 by 2025 to make better use of resources...

But even halved, the new domestic model portfolio would still beat the 25 models available in North America, Toyota’s biggest market...
David Fickling's deep-dive analysis commentary piece for Bloomberg Opinion is an excellent must-read:

Toyota's Empire Must Shrink
The automaker should focus on the core 20 percent of models that account for 80 percent of its sales.

Imagine you went shopping for a Toyota Motor Corp. minivan in Japan with 3 million yen ($27,000) in your back pocket. Which of these models would you pick: The Voxy, the Noah, or the Esquire?

It's a trick question. They're all the same car, with minor variations to tailor them to Toyota's four -- count 'em -- domestic dealership networks...

Making multiple variants of the same car -- not to mention having a long tail of more than two dozen models that collectively account for less than 10 percent of sales -- is a horrendously inefficient way to go about manufacturing. With Toyota's return on capital falling to less than two-thirds of its cost of capital in the March (2017) quarter, something needs to change...

The unquestioned efficiency of Toyota's core manufacturing and marketing systems has for years covered for an attic filled with bric-a-brac, (such as) that byzantine system of competing domestic dealer networks...

(T)he decision to prune the lineup is welcome. Toyota could afford to be much more ambitious, though, because it suffers from a severe variation of the 80-20 rule.

As the chart below illustrates, just 17 of Toyota's cars account for more than 90 percent of its sales in Japan:
I'll interject some commentary here. I couldn't figure out how to make the chart appear as an image on this thread (you can see it by clicking on the story link above). It's worth noting, though, that those 17 best-selling vehicles are sold in Japan under 22 different Toyota nameplates. Add in Daihatsu-badged versions, and the total balloons to 25. Here are more noteworthy excerpts from Bloomberg:

Toyota's position isn't an easy one. Many areas where it's been locally strongest, such as minivans and mid-sized sedans, are shrinking. Others where it does well on a global basis, such as SUVs and large sedans, are almost marginal in Japan. The Camry and RAV4 moved more than 740,000 units in the U.S. last year but accounted for less than 6,000 sales back home, though other models targeted at local customers did a little better.

That's no reason for the company to vacillate, though. Quite the opposite: The challenging conditions are good reason to be bold. Distilling that sprawling dealership network into one or two channels, or at least ending the practice of pumping bespoke variants out to four groups, would be a good start. To really bite the bullet, Toyota could insist any vehicles that can't maintain a sales rate in excess of, say, 100 cars a day justify their reason for existence. That would leave the company to focus on the core 20 percent of models that account for 80 percent of its volumes...
And here's Nikkei's take:

...The automaker has already notified key sales companies of the plan (to halve its Japanese model lineup). It looks to discontinue less-popular offerings and instead concentrate resources on developing popular models such as the Prius and Aqua hybrids...

Starting in 2018, Toyota will launch a new unit in charge of regional sales. Each of Japan’s 47 prefectures will have a person responsible for local sales. Strategies will be tailored to each locality, whether in urban markets or rural areas.

Four chains
Until now, Toyota has targeted different demographics with four dealership chains — “Toyota” dealers focused on high-end models, “Toyopet” showrooms selling mid-range vehicles, “Corolla” dealers at the budget end and “Netz” dealers for young drivers.

Each dealership chain is allocated different models, which they sell to their target market. The compartmentalization allows dealerships to focus on each age group without cannibalizing each other’s sales. As customers progress through their life stages, they are passed on to the next stage...

But the cars in demand today — electric vehicles and plug-in hybrids — are popular regardless of the customer’s age. As competition intensifies in the development of these new energy vehicles, maintaining separate lineups for each chain is becoming more difficult, given the limits on financial resources and personnel.

Such models as the Prius and Aqua hybrids — the automaker’s top sellers according to April-September sales data from an industry group — are currently sold at more than one dealer chain. By offering more models across multiple chains, Toyota now seeks to appeal to a broader range of consumers...
And it seems that Toyota is further setting the wheels of change and possible consolidation in motion. A Toyota Global Newsroom press release from 2 April 2018 titled Toyota to merge Tokyo sales companies to form new company in April 2019 saw very little if any commentary, but appears to be yet another step towards the overdue simplification of Toyota's Japanese model lineup and dealer network. Here are some excerpts:

Toyota Motor Corporation (Toyota) announces plans to merge its Tokyo sales companies on April 1, 2019. The companies to be merged are TOYOTA Tokyo Sales Holdings Inc. (TSH), a wholly-owned subsidiary of Toyota, and the four TSH subsidiaries, Tokyo Toyota Motor Co., Ltd., Tokyo Toyopet Motor Sales Co., Ltd., Toyota Tokyo Corolla Co., Ltd., and Netz Toyota Tokyo Co., Ltd. Management intends to examine the details of this merger over the next year...

...To this end, Toyota is shifting its focus from sales channels to sales regions and is looking to revise its structure and work style to reinforce cooperation with customers, local government, and other companies in each sales region, and ultimately aims to provide new mobility services...

...For the time being the four sales channels of the Toyota business will be maintained as an in-house company within the Toyota business unit.
Ian Schmidt
Yeah, I think they can be smarter about spending marketing money. For instance, go big at the major motor shows, but maybe don't fly a few hundred people to Ibiza to drive the LC.
Hey, I enjoyed that trip! :mad::D
@Joaquin Ruhi Their record profits last quarter mainly come from the reduced expenses in Japan, but keep in mind that it costs them market share - their sales dropped and their profits went up. In any case, Japan is their profit base so they have to be careful. I think simplification was shown in new Crown, which launched with less variants than before.

Also, something to always point out is that Toyota usually has largest R&D... thing is that it is probably spent between many different technologies and parts of the company.
I'm all for the budget shift to R&D if this means better tech and performance to at least match the competition.