Sunday, May 2, 2010

Case Study – Toyota Motor Corporation: Launching Prius

This was a classic game theory within the car industry. As it had a long development time of the technology, the first mover had a huge advantage in being the first on the market. It would set up the first company on the market with an imagine of being an environmentally friendly car company, which could have explicit benefits to the company into the future.

There was a lot of imperfect information within the case for Toyota to make its decision. Toyota did not know whether any of their competitor companies were going to develop the hybrid technology as well. They knew that other companies started developing the technology to meet CARB’s zero emission vehicle (ZEV) policies. However, when CARB’s said that hybrid would not qualify to meet their polices, it was suspected that most companies dropped out of researching and developing the technology.

Looking at their competition the most likely competitor who might be producing the hybrid technology is Honda, as it was the first car company in the world to meet the strict environment standards set under Muskie Law in the US. Honda was appealing to a younger market than most other cars and therefore as being environmentally friendly is more appealing to the younger generations, Honda might want to produce the hybrid to cement its market position.

Also the Japanese car markets have been traditionally more efficient in labour hours per vehicle than their American counterparts. And they also used few resources. This means that Toyota and Honda have consistently been able to make cars for lower costs, giving them a cost advantage. This may be a large advantage in developing hybrid technologies. Other companies such as GM may consider the costs too high in developing the technology and therefore may not find it financially sustainable.

There may be some benefit for one or more companies to release hybrid cars at similar times however the benefits are not as great as the benefit for a company if it is the only first company to release of hybrid cars. Okuda (president of Toyota Motor Corporation) realized the advantage of acting first and therefore constantly thought about launching vehicle as early as possible. Also he knew that if Toyota launches a hybrid car and another company launches a better more efficient hybrid car, Toyota’s first mover’s benefits would be limited, therefore he said that the company should use the very best technology it can use so that there is more chance it can take advantages of first mover benefits.

For Toyota there seemed to be a significant amount of advantages if it develops and releases the first hybrid car. It would capture the youth market, in which has never really captured before and also it would look like Toyota would become a significant worldwide. Europeans would warm to a environmentally friendly car. Also there is a good chance that CARB’s ZEV policy will not be meet for some time, so they probably will endorse a hybrid car policy, and therefore Toyota would be able to gain a dominant market share in California, which could lead to possible gain a larger market share throughout America.

I would imagine Toyota’s dominant strategy should be to proceed with the hybrid technology and release as early as possible. The chance of having a first movers advantage to too great for Toyota to not try to be the first car company to release a hybrid. Even if Toyota is not the first mover on the market, having the technology to be the next mover quickly after the first would also I would imagine have great benefits. Especially with Toyota using the best hybrid technology, there is a likely chance that another company hasn’t used the best technology and Toyota can extinguish some of their first mover advantages.

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