Demographic Framework for Toyota’s Market Segmentation

Toyota Motor Corporation is a Japan-based multinational automobile and automobile spare parts manufacturer with its headquarters in Toyota city. The corporation was established by Toyoda Sakichi in 1933 as a subsidiary of Toyoda Automatic Loom Works Ltd (Toyota Motor Corporation, 2018). It is among the world’s top three automobile manufactures with over seventy production facilities across the globe, which produce over ten million vehicles per year. The company is well known for adopting technology in its production thus increasing its productivity and efficiency of its automobiles.

Toyota Motor Corporation has partnered with several companies since its inception. These companies form its divisions with the largest divisions being; the Toyota Brand, Hino brand, Lexus brand, Ranz brand, Daihatsu brand (Toyota Motor Corporation, 2018). Toyota brand is the largest division and most popular among many motor vehicle owners in the world, therefore, this market segmentation analysis focuses on the Toyota brand in the United States of America.   

Toyota provides a variety of vehicles to United States of America residents, the vehicles are differentiated to meet the needs of particular market segments. The major framework that Toyota can use to segment its market is the demographic framework under which it would focus on the level of income/ income status of the residents, in which there are three market segments which are:

Lower Middle class: This refers to the category of people who earn an average annual income that ranges between $30000- $100000. It mainly consists of blue-collar jobs which requires a vocational or low-level college training, they include both employed and self-employed people such as; electricians, factory workers, and police officers, among others (Zhou, & Wodtke, 2018). Due to their income levels, Toyota has provided them with cheap vehicles in terms of purchasing cost, fuel consumption, and maintenance cost among others. Such vehicles include but not limited to: Vitz, Fielder, Premio, Allion, Auris, and Corolla. In this segment, Buying is influenced by factors such as; the price of the vehicle, durability, nature of work, and family size (Swar, 2018). This constitutes 30% of the total market population that Toyota targets in the United States since they can only afford to have one vehicle per household.

Upper Middle Class: This refer to the cluster of people earning an annual income that ranges from $100000-$150000. It mainly consists of professionals such as; lawyers, doctors, managers, and lecturers among others (Goodin & Le Grand, 2018) who leave a comfortable life and desire vehicles which are neither too low in terms of social perspective nor too high in terms of affordability. Toyota provides them with Sport Utility Vehicles (SUVs) such as Rav4, Fortuner, Hilux, Harrier, and Surf among others. They are several factors that influence their purchase needs which include and not limited to; product efficiency, product features, job status, and price (Amron, 2018). In most cases, this group can have two vehicles and above per household, therefore, it constitutes about 45% of the total market.

Market Segments and Vehicles Provided by Toyota

Upper Class: This group consist of the affluent members of the society who have an average income of over $160000. They are mainly corporate executives/senior managers, prosperous business people, people with inherited wealth, and top-government officials among others (Cowan, 2018). Toyota provides them with luxury vehicles such as the Prado and the Land Curser V8 which are characterized with high buying price, high fuel consumption rate, and high maintenance cost. The buying need for these people is mainly influenced by social class and status quo (Swar, 2018), they, therefore, desire more customized vehicles that will meet their luxury needs and give them the desired status.

Relative market segmentation refers to how suitable a market is to an organization in terms of size, growth, and profitability of the segment (Liu, Liao, Huang, & Liao, 2018). The three market segments that Toyota brand can have in the United States of America vary in attractiveness due to the differentiated features of each market segment. The attractiveness can be analyzed and ranked as follows:

Lower Middle-class market segment: This can be ranked as an attractive market segment due to various factors such as; it has a large size in the United States thus it can generate good revenue, it is the first stage that majority of US residents go through in their life especially those with no inherited wealth thus it has a high potential of being a sustainable market, the vehicles that are sold to this particular market segment requires no customization and therefore the company can manage to mass produce similar vehicles thus minimizing production cost and maximizing profitability (Kursar & Gopinath, 2016), and the segment has low competition since Toyota vehicles are relatively cheaper than other competitor brands such as Volkswagen, Honda, and Nissan, among others.

Upper Middle-class market segment: it is an attractive market segments for Toyota Company since it bears the following features: it is less sensitive to price, therefore, immunizing the Company from customer loss as a result of price increase due to external factors such as taxation and variations in the growth of the economy (Hashmi & Biesebroeck, 2016). Secondly, the segment requires less investment in marketing since majority of US residents already have a goodwill towards Toyota SUVs due to their high durability and off-road resilience. Thirdly, the segment comprises of individuals who are likely to refer their affiliates and or conduct a repurchase courtesy of their income levels.

Market Attractiveness Ranking

Upper-class market segment: This segment can be ranked as an average segment due to facts such as; the segment demands luxuries vehicles which require very high levels of customization which may be costly since mass production of vehicles with similar features may not be viable in the market. Secondly, the segment is very competitive since they are competitors such as BMW, Mercedes Benz, Rolls Royce, and Bentley, among others, which focus on providing luxuries vehicles. These competitors have a competitive edge over Toyota since they have a wider market share and have a well-established social status as luxury brands, therefore, majority of affluent people would prefer them to Toyota (Mao, 2018). Thirdly despite the high competition in this segment, Toyota brand vehicles still have a market attractiveness because they are highly differentiated in the sense that they are SUV vehicles.

A primary target market refers to a section of the market that a business believes will generate the highest value in terms of sales and profitability (Thomas, 2016). An analysis of the above three market segments of Toyota brand provides the Upper Middle-Class segment as the primary market segment for the company. This is justified by multiple factors which include;

Growth: In marketing growth which is the rate at which the market has a possibility of expansion, guarantees sustainability of the market and increase in sales volume, thus consequently increasing the business profitability (Lutsey, Slowik, & Jin, 2016). The United States of America provides a suitable working environment that enables individuals to prosper in their careers thus increasing the chances of a re-purchase by existing customers. Secondly, customers in the Lower Middle-Class have high chances of progressing to this segment thus guaranteeing growth of the market.

Size: Size of a market segment constitutes the percentage dominance of the segment in the entire market (Behrens, Pokrovsky, & Zhelobodko, 2018). The Upper Middle-Class people constitute the highest number of motor vehicles buyers in the United States of America. This is due to the high growth of the country’s economy thus giving a thriving opportunity for the people in this class. The United States also provides high standards of education which are mostly sort after by many people, therefore, the country has a high number of both domestic and foreign professionals.   

Competition: This incorporates the number of competitors in the market, their level of competition, and the organization’s position in the market (Mao, 2018). In the Upper Middle-Class segment, Toyota brand has little competition it is actually a market leader. This is because Toyota brand vehicles in this segment are cheap to buy and maintain when compared to other competitors such as Ford, they are multiple differentiated vehicle types in this cluster which gives the customers the luxury of choice based on their needs and interest, thus surpassing the competitors. Due to this competitive edge, the company will make more sales and consequently result to higher profits in this segment than in any other.

Market effectiveness: it refers to how suitable a market is to a business in relation to how easy it is to sell in the market (Porral & Stanton, 2017). In this market segment, Toyota brand will enjoy the benefit of reduced marketing cost due to the popularity of the brand and the vehicles under this market group among many people in the United States. Secondly, vehicles in this category can easily be sold through local motor vehicle dealers since they will give the dealer less complexity and high-profit margins as opposed to vehicles in the other segments.

References

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