Toyota Case Analysis Essay Example

Corporation being the world’s largest car manufacturer is a good example of a company that embraces both cost efficiency and quality assurance techniques in dealing with management issues and in production concerns.  This study explores Toyota Corporation’s approaches in dealing with the changing global condition to remain competitive. At the same time, it determines the extent to which these approach consistent to be relevant to the organizational needs of the company.

Toyota continues to evolve utilizing its kaizen principles and kanban system to appropriately provide solutions to the basic needs of production due to increasing demand for the different models of Toyota cars worldwide. Various centers aside from the main headquarter which is stationed in Japan have been established to cater production needs, sales, and trainings to make supply match the demand.Toyota as it ventured to become a multinational company had to reform its organizational structure and design.  In order to adapt to the changing and unpredictable circumstances that may affect the business, it changed from functional to cross-functional form of organization.

Therefore, it follows the concept of matrix type of organization wherein each center is mobilized and given autonomy in planning as well as in decision-making and problem-solving. As a multinational corporation servicing many parts of globe, it had to reform its organizational structure and design not to mention its production system in order to deliver various vehicles on time. These and many other aspects of Toyota’s organizational structure and production system are the subject of this study to find its connection with the recent reported cases of ‘recall’ of Toyota cars which for many experts a management problem and not simply production issues. This problem according to Dizikes is a test to the firm’s reputation.

The article seems to capitalize on the strengths of the company; however, greater problem has arisen which needs appropriate attention from the management.Outline and Discussion of the Major Issues/ProblemsSeveral disabilities have caused the management to overlook possible problem to arise. Some of these issues are:

  • the just-in-time manufacturing system may cause to affect the quality of spare parts;
  • cost reduction strategies worsen the efficiency of the product;
  • inventing a new model in roughly two years may not be enough to consume in research and therefore may lack superiority and efficiency of product;
  • Toyota’s organizational structure has a lot of complications.

As stated, “The origins of an organization’s problem lie in the organization’s success” (Case Studies 554).

The just-in-time manufacturing system or kanban system was conceptualized in the effort of Toyota Corporation to reduce inventory and to save cost. The aim of kanban system is “to reduce inventory to a minimum” (Case Study). There are mechanics in doing this: the company enhanced quality control to avoid reject products, inventory system is improved by ordering parts when stocks ran out, machine operators were expected to be” multiskilling” when there is surplus of parts (Case Study 552).The jus-in-time principle of Toyota in line with the product quality issue is inherently possible for organization having smaller market.

Beynon and Nichols emphasized that “production quality can only be improved by incurring higher production costs” (221) because in case of an organization that produces very large batches of production, increase in plant utilization, maintenance of machines and production site, and inventories of raw and finished materials require large expenses.

Toyota therefore cannot assume cost saving and quality efficiency at the same time. In doing so, technical problems relating to production of spare parts and the assembly of cars may affect the quality of the finished product. Guy even argued that many has understood JIT considering the many aspects that covered mass production in which “tracing the defect in the parts or materials” is time consuming and the low priority while the production is on-going (135).

He stated, “JIT makes it impossible to ignore defects” (135). The Taylorist separation of conception provides explanation why it happens. Because of the division of production process, workers do not understand his contribution to the whole process (Pickles 117) and therefore worker output is “only about one-third of what was possible” (Organization Theory 42).Given this, just-in-time principle will not lead towards overall customer satisfaction not unless product quality is ensured hundred percent and no complaints will be received from the car owners/users.

The case study stated that Toyota is so quick in developing new models which barely takes them two years through its “sophisticated design techniques” (553).  For Toyota, developing new model is a response to opportunity in dominating world economy. However, it is also emphasized that “over two-thirds of a new design contains existing parts” (553).  Other car manufacturers may dislike the idea of spending two years in developing new model having two-thirds of the spare parts are already existing.

In the same way, the development of Prius also paved the way for Toyota to reinvent its organization which took only two years. Woodward and Perrow research in 1960 explained the importance of technology in “determining the appropriate structure for an organization” (“Organization Theory 53).  The development of Prius Hybrid Car compelled Toyota to transform its organization from hierarchical to horizontal structure.  However, it should have been utilized well with appropriate researches made to align changes with employees’ skills and capabilities through intensive trainings and employee motivation.

It is stated that because of the “strains of going global” Toyota has already established 46 plants in 26 countries as of 2005 (Case Studies). In the case study presented by Griffin and Moorhead, Toyota has just started to reinvent their products and organization in 2004 from being “one of the world’s leading cost-cutters” (519). The reinvention of products and organization took Toyota several months only or years compared with other company in which changes usually take many years.  This condition has caused several problems in the case of Toyota.

It is very definite that a very complicated organizational structure of Toyota brings problem in the implementation of the system. First, complex organizational structure lessens order and discipline. Wren emphasized that training for order and discipline is more important in modern corporations because of the organization’s requirement for “extensive division of labor and … greater coordination of effort” (“Organization Theory” 42).   In the case of Toyota, problems in terms of coordination and control arise when it shifted from vertical to horizontal structure just to respond to the increasing demand for growth and feasible changes in the environment.

Changing to cross-functional structure often gives Toyota several problems which include “organizational performance” because organizing itself is “complicated and time consuming” (Daft 119).  Thus, the problem in terms of control and coordination can be expected to happen unless several measures have been undertaken until all employees get used to the new system. Furthermore, Daft noted that cross-functional nature of work may also limit the “in-depth knowledge and skill development” (119) of employees because of too much emphasis on teamwork.In addition, Toyota’s organization suggests that the company utilizes the balance between being functional and being bureaucratic.

According to Daft, combining functional matrix with product matrix is “hard to implement because one side of the authority structure often dominates” (111).  The ‘dual-authority structure in a matrix organization’ according to Daft is not advisable because only one approach “works better than the balanced matrix with dual lines of authority” (111) considering evidences from business cases.  Accordingly, this structure has disadvantages. First, in the case of Toyota, the coordination process that goes between the functional managers and engineers (product managers) is problematic because coordination is difficult to achieve between the two bosses.

That is illustrated through dotted lines which show that each manager is responsible with another manager in terms of reporting; in which case, the quality of produce is not met (Morgan and Liker 144).  Secondly, as Daft pointed out, each matrix (functional and/or product) has separate structure which makes combination difficult to implement (Daft 111).

Thus, it only proves that Pfeffer’s theory that organizations are like political arenas in such a way that “an organization’s design represents the result of the power struggles by these diverse coalitions” (“Organization Theory 56).  It this is the case, decision-making is less effectual because complexity of decision making is due to the “role that power and politics play in organizations” (Organization Theory 52).


Based on the evidences and empirical explanation for the occurrences of the problems, there are recommendations that may resolve the problem or improve the situations.First, Taylor suggested utilizing scientific methods in cases such as determining worker’s job, selection and training of workers, and cooperation of management and labor (Organization Theory 42) to improve efficiency. Do not simply rely on JIT principles; analyze the production process and improve the system. Secondly, there is a need for Toyota hurry things up; every product that will be invented must be scientifically tested; for higher competence, develop new spare parts for the new model.

Third, reduce too much cost-saving scheme in purchasing new spare parts from suppliers; cost reduction is good in inventory but not on spare parts.  Fourth, there is the need to reevaluate the organizational structure and find ways on how coordination and communication despite decentralized organization will be improved. Also, in line with organizational issue, it is also appropriate at this time that accountability within the organization and among department and centers be strengthened and valued.ConclusionAs stated, “The origins of an organization’s problem lie in the organization’s success” (Case Studies 554).

During the rapid growth years of Toyota, smaller and unpredicted circumstances were neglected as top management became overwhelmed by its successes. JIT and Kaizen principles are good but it has to be reviewed to find out its relevance considering the changes that occur at the present.  The paper only suggests that Toyota has to spend more in research and improvement of product. It is something worth to be doing than saying. Major reviews have to be undertaken alongside recall activities being done at this time.


  1. Beynon, H. & Nichols, T. 2006. The Fordism of Ford and Modern Management: Fordism and Post-Fordism, vol. 1. UK: Edward Elgar Publishing Limited.
  2. Daft, R. L. 2010. Organization Theory and Design. USA: South-Western CENGAGE Learning.
  3. Dizikes, P. 3 Questions: Steven Spear on Toyota’s Trouble. MIT News.http://web.
  4. Griffiin, R.W. & Moorhead, G. 2010. Organizational Behavior: Managing People and Organizations. USA. South-Western CENGAGE Learning.
  5. Guy, F. 2009. The Global Environment of Business. USA: Oxford University Press.
  6. Morgan, J.M. & Liker, J. K. 2006. The Toyota Produce Development System: IntegratingPeople, Process and Technology. USA: Productivity Press.
  7. Pickles, J. 1995. Ground Truth: The Social Implications of Geographic Information System. USA: Guilford Publications, Inc. Introduction to Organization Theory (file)Case Study (file)

Toyota Motor Corporation Australia Analysis

  The Toyota Motor Company 1.

                  IntroductionAny corporations that deal with competition must encounter an era where the success of their operation depends on both internal and external factors. Under such circumstances, it is useful to carry out an analysis that takes into account not only the company’s internal factors, but also external factors such as activities of the company’s competitors and current industry situation as well.In the fast-changing business environment like automobile industry, any automakers must take suitable decision in order to ensure that their automobile products match exactly their customers’ needs.Currently, there are many business analysis tools that organizations may use depending forces that influence the companies and the complexity of markets they serve.

Automobile industry is a business that exhibits fierce competition due to the large number of providers or vehicle manufacturers in addition to the variety of customers’ preferences that spawn many kinds of vehicle type like SUV (Sport Utility Vehicle), MPV (Multi Purpose Vehicle), race cars etcetera.In addition, the need to understand automobile industry is imperative since the industry experiences fast-changing environment that demands automakers to obtain appropriate strategy to win the market. Toyota as an automaker that produces several kinds of vehicles for a variety of segments realizes the condition and perform appropriate move by developing multi brands to compete with competitors that have various products in several segments.There are several reasons why Toyota and other multi-brand developers decide to manufacture and maintain multi brands in their product lines as following:§  Customers have diverse behavior that cannot meet with a single product offering§  Customer relationship improvements in other industries§  Fierce competition in automobile industry throughout the world Concerning the discussion on automobile industry, this paper will elaborate the brief summary of Toyota, especially, discussing the underlying reasons behind the selection of Toyota as the topic of discussion.

In order to develop the formulation of reasons of Toyota’s selection, this paper will also discuss the analysis of Toyota’s performance. 2.                  Corporate Background of Toyota Motor Corporation AustraliaA good example of a multinational company that alters its strategic move significantly in order to gain powerful presence in the new emerging markets is Toyota. The company generally has a strategy of assembling car parts within the local markets but with engines and vital parts imported from Japan.

This generates more assurance in terms of quality because the Japanese manufacturer has a high manufacturing standards and more dependable technology. However, this plan is not suitable for further expansion in the emerging markets because Japanese parts are expensive (Shirouzu, 2005).Today, the company had established manufacturing plants near targeted markets which eliminated the high cost of importing from Japanese producers. These plants manufactured almost all the parts in a strategic location with low cost labor like free trade zones.

The strategy aimed to increase sales number and avoiding foreign currency conversion risks.  Some however, questioned how the strategy will support quality enhancement of the products with the tendency of reducing quality standards resulted by producing all the parts personally instead of importing it (Shirouzu, 2005).Toyota becomes the Japanese number one auto manufacturer that has extensive line of products from sedan to truck. In global marketplace, the company becomes the second largest auto manufacturer in terms of sales volume.

The brand equity of Toyota continues strengthening since the company acquires Daihatsu Motor Company and Hino. In 2004, Toyota and Daihatsu launched two similar products with different brand name and features in some markets (Toyota Avanza and Daihatsu Xenia).The Japanese automaker now has large market share in the U.S.

, Europe, Asia, Australia, and Africa. The raising number of sales is backed up by Toyota Financial Services that help the segments of Toyota in increasing their sales volume.To be specific, Toyota Australia existed in 1958 when Theiss Brothers imported the first model of LandCruiser. Meanwhile, the first manufacture facilities in Australia started operating in 1963 in Melbourne factory of Australian Motor Industries (AMI – Toyota).

The two popular models that produced in the facility are Corolla and Corona, which soon followed by introduction of Toyota Camry since 1987 (Toyota Motor Corporation Australia Limited, 2008 – history).In addition, the commercial vehicle business grew to be Theiss Toyota in 1971 and within eight years of operation they reached their commercial leadership in 1979. In addition, AMI Toyota began investing in an engine and stamping plant to strengthen its position as a high local content vehicle manufacturer (Toyota Motor Corporation Australia Limited, 2008 – history).Table 1            TimelineSource: Toyota Motor Corporation Australia Limited, 2008 – history In 1988, the local operations were merged to form Toyota Motor Corporation Australia.

The objective of the new combined operations is to restructure and strengthen the group to be competitive in international market. The popular result of the combined operations was the introduction of Toyota in 1994-95 that marked Altona plant in Melbourne (Australia) to be a new world-ranking the manufacturing facility (Toyota Motor Corporation Australia Limited, 2008 – history). Table 1 show the development of Toyota Motor Australia within the past decade where it shows the launch of TRD Aurion last year.  3.

                  Why Choose Toyota?3.1              Internal Analysis of Toyota Motor Corporation AustraliaThe first analysis that takes into account the internal and external environment is SWOT analysis. Below is the internal analysis of Toyota Motor Corporation Australia that justify why Toyota is noteworthy to be topics of discussion 3.1.

1        Key PerformanceCurrently, when multi brands of vehicle exist in the Australian market, Toyota remains their dominance in Australian car industry with incredible sales record. According to the Motor Report Auto News (2007), Australian manufactured models reached an incredible 75 percent increase in sales compared to the same period last year. Figure 1          AurionSource: Motor Report Auto News (2007) Moreover, VFACTS figures highlight those Toyota dealers can sell more than 17,400 Camry sedans till the end of August (below 13,000 vehicles within the same period in 2006). One of popular model is the six-cylinder Aurion that reached the 15,000 sales (Figure 1).

 Table 2            Key Performance of Toyota Motor Corporation Australia (01 Jan – 31 Dec 2007)Financial DataSales Revenue$9.284 billionTotal Assets$2.478 billionProductionVehicles148,931Engines112,415Domestic SalesToyota236,647Lexus8,199ExportsVehicles97,688Export countries23Revenue (incl parts)$1.7 billionDealer networkToyota dealerships211Lexus dealerships18Dealer employees11,300 (approx)Source: Toyota Motor Corporation Australia Limited.

2008 – Facts In terms of financial performance, as of March 31 2005, the company has 24 trillion yen of total asset. Revenue from the consolidated business of the year is 18 trillion yen and net income for the year in 1.7 trillion yen. Sales in Japan dominated the revenue, followed by sales in United States and Europe.

Despite having larger amount of assets compare to Honda, the company has significantly smaller inventory turnover, which indicated that growth is not as fast as Honda. However, the company has a significantly lower level of gearing (Annual Report, 2005). 3.1.

2        Strategy and Competitive AdvantagesOne of the most notable competitive advantages of the company is the Toyota Production System that boost performance substantially since the mid 80’s. American companies have been actively trying to take benefits from their study of the Toyota Production System. Toyota stated that TPS has a ground of a value-based production system. This means that innovations within the production systems are directed to deliver more value to customers rather than making harassing demands to suppliers in order to cut costs.

It involves collaboration with suppliers to deliver highest possible value to customers (Teresko, 2006).Other notable quality is its marketing strategy and the function of Toyota Financial Services. The company has a considerable share in foreign markets because of its product design and pricing strategy. The company provided developing nations with local automobiles that displays Toyota’s leading brand, but with relatively cheaper prices.

Furthermore, Toyota Financial Services helps the company to sell more cars to mid-size customers. 3.1.3        StrengthsStrengths are components of internal analysis.

The components describe any resources and capabilities that support a company to achieve its competitive advantage such as patents, excellent reputation, low-cost structure and many more.In Toyota, the strengths of the company are their capability to have appropriate a vehicle launch process. This is important since the time to market becomes one element of a company’s success. Among North American manufacturers, Toyota is in the second place behind Honda in terms of launching a new vehicle.

According to Toyota, the achievement is done so since the company has adopted an appropriate P-D-C-A Management Cycle in order to manage the process of continuous improvement. The process also enables the company and its suppliers to foster improved quality four times prior to the start of production (Smith).Another strong factor that Toyota attains is that the company already has dealership analysis in which critical dealership financial and other performance information is available in one place and more accessible to users around the company. Moreover, the data provided by the analysis tools are more accurate and calculations are more reliable.

In this manner, standard reports that used to take several hours or days to complete now can be produced with a few mouse button clicks. With dramatically improved access to data and ease-of-use, reporting and analysis that took hours or days now takes minutes, resulting in significant time and headcount savings.Knowing the potential benefits of the application, Toyota now encourages that every associate in Toyota’s headquarters and in the regional offices to use the dealership performance information to reduce the time and effort required finding and formatting data. Under such circumstances, Toyota headquarters now has more time available to focus on analysis and managing the business.

In addition to benefits of the new application in Toyota’s dealership, the application has also stimulated reporting and analysis not done before, resulting in a deeper understanding of the business. 3.1.4        WeaknessesThe second internal factors are Weaknesses.

This is simply in contrast to the strength in which the absence of specific strength might be considered as the weaknesses of the company. It includes a lack of patent protection, high-cost structure and many more.However, any internal factor could be the strength or the weakness for a company. Consider lots of human resources.

When a company could not employ and appoint them in the appropriate manner, they could the weakness for the company since it causes high-cost structure and ineffective business environment and vice versa.In Toyota, the possible weaknesses are their lack of respect to internationalization and limited brand portfolio (“Brand Management”). The two factors are important in today’s automotive industry since automobile brands tend to have worldwide influences. Similarly, the limited brand portfolio makes Toyota to have limited tools to compete with diversified products from its competitors.

Currently, Toyota has four brands: Toyota, Lexus, Hino, and Scion. While its competitors like Volkswagen has eight brands: Volkswagen, Audi, Seat, Škoda, Bugatti, Bentley, Lamborghini, and Commercial vehicles in which each brand has a specific target market. 3.1.

5        Business Level Strategy of ToyotaIn general, Toyota like other Japanese automakers has several distinctive characteristics: fostering global efficiency, worldwide orientation, centralized core activities, minimum local adaptation with improved local responsiveness, and a more transnational strategic orientation. Moreover, the company also separates the distribution channel of its high-end cars, Lexus, from other brands to ensure the effectiveness. 3.2              External Analysis: The Stronger Toyota Brand in AustraliaIn addition internal analysis, the assessment of Toyota can be done via external analysis.

In this case, we employ PEST Analysis to highlight the five forces influencing the stronger Toyota brand in Australia in particular. 3.2.1        Industry CompetitionConcerning the industry competition, we find that automobile industry has a big deal competition since there are many automakers target the same customers’ segment.

In 1998, for instance become a hard situation since the foreign operation sales declines while the costs of materials were rising.Under such circumstances, the company develops new strategy by encouraging the development of product excellence, revitalize marketing and sales tactics, and encourage the cost reduction efforts. Figure 2 shows the worldwide sales of Toyota, highlighting Toyota market share to reach 42.9% Geng (2005).

 Figure  2          Global Auto RankingSource: Seeking Alpha, 2007 3.2.2        Political FactorsIn automobile industry, political factors play important parts since manufacturing facilities are built in foreign countries that have abundant resources and low-wage labors. However, these favorable factors may lead to disaster if an automaker builds high-cost facilities in a country that has high risk operation.

Similarly Toyota performs similar action when the company provides several manufacturing facilities in Thailand and Indonesia, to name a few, to serve market in Asia region. 3.2.3        Economic FactorsIn terms of financial management, Toyota is prone market risk as the result of foreign exchange rates, interest rates, and commodity prices.

However, they manage to able to minimize the risk. A system that control risk management is maintained in order to monitor foreign exchange movements, interest rate, etc. According to Toyota, the profitability per vehicle of Toyota is growing into 1,488 per vehicle (Geng, 2005). 3.

2.4        Socio-cultural FactorsAt Toyota, the company’s philosophy is to find methods to adopt sustainable development for society by designing, manufacturing, and selling products and services. This situation is obvious since Toyota always promote the practice of environmental responsibility in all departments of the company. The development of mass-produced gas/electric hybrid car and the future’s fuel cell vehicles become example of Toyota decision to become green company (Toyota Motor Sales, 2007).

   3.2.5        Technological FactorsTechnology becomes an important factor in automotive industry although it is not the only one since it determines the success of their business. At GM, technology does not lies on the product itself but also the use of technology in the design and manufacturing process.

The adoption of PACE (Partners for the Advancement of CAD/CAM/CAE Education) as shown in the Figure 3 is GM’s practice to ensure engineering students receive the specialized training that new product technologies require by collaborating with industrial leaders such as EDS and Sun Microsystems to prepare engineering students for new technologies (EDS, 2004).  Figure 3           Students at Purdue University School of Technology works on $116.1 million PACE softwareSource: Purdue News, 2002 In addition, the use oh high technology also helps automaker like Toyota to minimize the production time that lead to plant utilization and reduced costs. Figure 4 shows the production of Toyota in comparison of General Motors (GM).

Figure  4          Production CapacitiesSource: (Geng, 2005). 3.3              DiversificationThe diversification Toyota lies on their decision to develop Hybrid cars. For Toyota, Hybrid cars become the next revenue well since the introduction of Toyota Prius sounds like a reasonable bet fir the future of Toyota in the Australian marketplace (MSNBC, 2007).

 Figure 5          Product Lines of ToyotaSource: Toyota Motor Sales, 2007 Reference: CIO Insight. ‘Toyota’s Business Intelligence: Oh! What a Feeling’, [Online] Retrieved August 9, 2008 Available at:,1397,1663696,00.

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htmlSeeking Alpha. 2006, ‘Toyota’s Dominance Shows in Share of Global Auto Market-Cap Pie’, [Online] Retrieved August 9, 2008 Available at:, Norihiko.

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au/1728/toyota-aurion-and-camry-sales-up-75-percent/Toyota Motor Corporation Australia Limited. 2008, ‘History’, [Online] Retrieved August 9, 2008 Available at:

au/about/history—. (2008). Key facts. Retrieved August 9, 2008 from http://www., John. 2006, ‘Learning from Toyota-Again’, [Online] Retrieved August 9, 2008 Available at: http://www. 2006, ‘Annual Report, 2005’, [Online] Retrieved August 9, 2008 Available at: http://www. Motor Sales. 2007, ‘About Toyota’, [Online] Retrieved August 9, 2008 Available at:    

Executive Summary Of Toys R Us

This paper attempts to provide a comprehensive insight into Toys R Us. It analyzes its marketing strategies with a respect to its past performance, current scenario and an outlook of the future.

It assesses the company’s standing amongst its competitors using SWOT, PEST and competitive forces frameworks. It discusses the detailed market analysis of the organization and suggests measures to improve strategy. It also points out past mistakes committed by the company and how it can rectify those problems. It attempts to scrutinize the macro and micro environments of the company.

Detailed observations with respect to competitors are included in the paper and an analysis of changing customer dynamics has been discussed. An attempt has been made to display the interrelationships of all the factors effecting marketing strategy and planning. The customer segments, target market of the firm and future customer trends or environmental opportunities have been tapped into. A holistic approach towards applying marketing concepts has been used to discuss all the components of the paper.

VisionVision is the impossible dream of an organization (Kotler & Keller, 2008). The corporate vision lays the foundations for its mission, objectives and future strategy. Toys R Us defines its vision statement as follows“Put joy in kids’ hearts and a smile on parents’ faces” (, 2003).

It can be established from this vision statement that Toys R Us aspires to win over every child and parent in its operating markets. Toys R Us set its standards high by setting such an impossible dream as its vision statement as it is hard to satisfy every single customer in the market place.Mission StatementA Mission Statement sets the overall direction or broad strategic objectives of an organization and is shared with employees, stake holders and customers. It sets the roadmap for an organization and guides its purpose.

The mission statement of Toys R Us is as follows“We believe our business is built one customer at a time, and we are committed to making each and every customer happy. Our goal is to be the “Worldwide Authority on Kids, Families and Fun” (, 2003).Kotler & Keller identify succinctness, meaningfulness and memorableness as three attributes in a good mission statement (2008).

Toys R Us’ mission displays these three characteristics in it. It also shows the corporation’s aim to position itself in the minds of its customers. It shows the corporation’s commitment towards valuing its customer-base and its efforts to become an authority on fun filled experiences for children and parents through its product offerings. Market AnalysisThe market analysis of Toys R Us reveals that there is a potential to sell toys and related children products in the United States.

Even though US Census carried out in 2005 stated that children through ages five to thirteen decreased (US Census Bureau, 2005). However, there still remain many households with children that form prospective customers for Toys R Us. The growth rate of overall population is expected to increase and so is an increase in the growth of prospects of Toys R Us.  “US personal consumption expenditures for toys, dolls, and games are forecast to grow at an annual compounded rate of 4 percent between 2008 and 2013” (toy & hobby stores industry forecast; hoover.

com, 2008).  However, profitability in the toy industry is dwindling because of intense competition posed to Toys R Us by its competitors such as Wal-Mart. The competition is growing on price sensitivity and Toys R Us cannot charge higher margins as it would impact its sales in the highly competitive industry.  Overall profitability of a firm such as Toys R Us depends largely on how well it attracts store traffic and merchandises effectively.

The market profitability can be analyzed through Porter’s competitive forces model. These are five forces, namely, rivalry among existing firms, threat of new entrants, threat of substitute products, bargaining power of suppliers, and bargaining power of buyers. Rivalry amongst competing firms is intense and Toys R Us is facing cut throat competition from Wal-Mart, Target and GameStop. Its competitors are competing on pricing in this industry that is characterized for its price sensitivity.

Wal-Mart because of its efficient business processes and influence on suppliers is the established price leader and this has allowed it to become the market leader in the industry as well. Threat of new entrants is low because the industry already has intense competition and developing low cost business for a new startup considering lack of experience and undeveloped value chain would be an uphill task. Threat of substitute products is low because toys and video games do not really have substitutes that can satisfy needs or wants of children. Bargaining power of suppliers is low because Toys R Us is a huge retailer and has power in its value chain as a toy retailer.

Similarly its competitors such as Wal-Mart and Target too have influence over suppliers. Therefore, bargaining power of suppliers in the overall industry is low. Bargaining power of buyers is high because Toys R Us competes in a price sensitive industry any competing firm that provides low priced products and leverages on lower margins can snatch Toys R Us’ market share away from it. Wal-Mart has an established cost advantage over its competitors in the industry and Toys R Us has been trying to compete with it but has acknowledged that it cannot compete with its biggest competitor on cost basis.

Toys R Us is using a click and mortar business model to distribute its products. Toys R Us was late to develop its online retailing system through Initially, it allied with Amazon.

com to host its website but that alliance was a dismal failure because Toys R Us complained that Amazon was subletting its services to other cheaper unbranded toy stores that were competing with it on the internet retail market. It was after a considerable time that Toys R Us actually developed its independent platform for a virtual store front allowing customers to shop online through If it would have developed this newer channel initially it would have added to its competitive advantage.

Toys R Us has finally struck a deal in developing its online distribution channel as it has purchased and related websites. (News Release; Toys R Us, 2009). The current chief executive officer Jerry Storch is positive about this acquisition and says the following:eToys.

com is a highly respected brand with a rich heritage of innovation and growth, and we look forward to championing the next phase of its evolution. We believe the acquisition of, together with and ePregnancy.

com will advance our leadership in the toy and baby products sectors and position the company for strong market share growth. We are committed to providing loyal customers of these sites with an enhanced online experience, while continuing to offer a differentiated merchandise assortment and the service excellence they have come to expect. (News Release; Toys R Us, 2009).The changing dynamics of market trends are analyzed using the PEST analysis.

The political environment of Toys R Us is sound with ongoing political stability. However, any changes in government’s taxation policies will impact the organization’s profitability indirectly. The economic environment is changing considerably as the United States economy is undergoing recession. Sales of a toy retailing store such as Toys R Us is directly related to consumer spending and the discretionary income of population.

Under the current circumstances the consumption in the economy is expected to be low. This is also going to impact the already price sensitive customers in the industry to become more price oriented. Opportunity lies in addressing this emerging need of lower priced toys that can appeal to the changing needs of customers. The social environment of Toys R Us is undergoing change, wherein the customer age groups remain of segments below five years and the five to twelve year kids segment is decreasing.

Their customers are not being replaced by similar number of children. In Addition, there is an increase in pressure on children’s leisure time with mothers encouraging educational activities over leisure.  Similarly, the technological environment is also not expected to undergo any major change that would impact Toys R Us. Due to the changing market environment Toys R Us needs to update its core competencies it was previously focusing on marketing a shopping experience to its young customers and their parents alike.

However, now it needs to tap into the price conscious attitude of the customers and provide value for their money. It should develop a core competency offering a good product assortment, quality of service and that too at a highly competitive lower price. It should develop alliances or partnerships with its suppliers to accomplish these objectives and carving this core competency that can ensure its survival in the market. Furthermore, it should eye the emerging international growth markets particularly in Asia with high disposable income and a greater population segment of children.

Competitors of Toys R Us in the marketHoovers determines Wal-Mart, Target Corporation and GameStop as three competitors Toys R Us should be wary of. Wal-Mart the retailing giant that swept the retail industry and changed all preceding industry dynamics needs no introduction. It is the world’s top retailer with over seven thousand eight hundred stores of which eight-ninety are discount stores, and two thousand and ninety-seven combination stores. It has about six hundred warehouses and has international presence.

Approximately fifty percent of its stores are located in the United States and it is yet undergoing expansion on the international level to markets such as Asia, England and South America. Wal-Mart is the top retailer in Mexico and Canada. It is also operational in Asia and owns a 95% stake in Japanese retailer. (Company overview; Hoovers, 2009).

Toys R Us’ second fierce competitor is the retail chain that ranks number two after Wal-Mart that is Target Corporation. It stocks items that are low priced and offer high perceived value. It operates around one thousand six hundred and eighty SuperTarget and Target stores across the United States. It also has an online presence through Target.

It engages in niche strategy, whereby, it has established itself as a retail store offering product mix that is trendy, stylish and fashion oriented. Whereas its competing firms such as Kmart and Wal-Mart do not have such offerings. Target owns Associated Merchandising Corporation, which is an apparel supplier. It issues Target Card and Target Visa as well.

(Company overview; Hoovers, 2009).The third important emerging competitor for Toys R Us is GameStop, which is an established leader in gaming industry. The line extension of Toys R Us i.e.

Games R Us faces stiff competition by the established leader that is GameStop. GameStop sits atop the video game retailing industry. GameStop is holds approximately six thousand two hundred stores in over fifteen countries. Its market coverage makes it the largest retailer of new and used games.

Its other product offerings include hardware, entertainment software, and accessories. Most of its stores are located in the United States, Canada, Australia, and Europe. Its major source of revenue is the new and used video games product line. On average a GameStop store carries one thousand new titles and  three thousand five hundred used ones.

GameStop also has an online presence through and Apart from operating in e-commerce GameStop also publishes a video game magazine (Game Informer).

Its magazine Game Informer has more than three and half million subscribers. It underwent growth through acquisition by buying out a competitor Electronics Boutique in 2005. This doubled the size of GameStop and its capabilities to meet market demands and trends effectively.Targeted market and whyToys R Us has targeted children for its products, which are undoubtedly toys.

However, it is actually targeting the parents of children falling in the age groups of under five years old, and five to twelve years old. These children cannot purchase for themselves it is their parents who fulfill their wants. In addition, Toys R Us targets mothers of babies and children through campaigns revolving around child safety and protection that tap the emotional appeal of mothers. Positioning itself in this way it benefits from the image it creates.

Toys R Us is aware of the price sensitivity (because of price wars with giant retailers) of its customers. Its toys are fairly priced and more over it seeks to attract more store traffic through visually stimulating store layout, décor and a toy land experience for the children and their parents alike. Toys R Us has selected this target market as it directly matches with its product offerings and product line extensions.GrowthThe company has been trying to leverage its capabilities to effectively counter the challenges in its environment.

The history of the company reveals that it has been acquiring businesses to add to its portfolio or has been venturing into newer segments where it saw potential to increase profitability. Its venture of opening up Kids R Us stores, then growth into international markets tapping Japan, Singapore, Canada and United Kingdom. It also ventured into Babies R Us chain of stores. Signed a deal with Amazon to manage its virtual storefront i.

e. Acquired Imaginarium and has recently acquired etoys.

com and related websites in February 2009. This shows that the company has been conscious of changing market trends. However, it has not been very effective in cashing in on opportunities or combating the threats the external environment proposed to it. For instance, its Kids R Us stores closed down after dismal financial results.

It faced considerable losses in Japan and failed to achieve market or mind share there. Its deal with Amazon collapsed in wake of disgruntled stakeholders and lost revenue against online competition virtual toy stores. Nonetheless, its Babies R Us venture has been very successful since its inception and Imaginarium has added to its revenue lines too. It remains to be seen how its acquisition of etoys.

com affects its business. On the surface level it seems to be a good way of adding an already developed online store to its portfolio and combine it with for better competitive advantage. Although it is too early to comment if this would bring prosperity or dismay to the organization.

Toys R Us should focus on the high growth market of games and consoles. It should devise plans to establish a competitive advantage in this product line.Market SegmentationToys R Us has divided the market of its prospects into different segments. It had identified a kids segment and opened up Kids R Us stores in the United States.

However, it failed to fulfill the needs of this segment. Another segment it identified was the babies segment to offer baby apparel to and it opened Babies R Us. Babies R Us has been a success because it rightly identified the need of the segment and provided the right set of products to fulfill those needs. Toys R Us has further segmented on the basis of its product line that is its game and console offering.

It has established Games R Us to cater to the needs of those customers. Games R Us is trying to catch a hold of its target market and it is too early to comment on its success or failure as yet. Furthermore, as revealed by the Toys R Us chief executive officer that they purchased this indicates that they might just have identified another segment to market to.

This segment could be the expecting mothers and it might try to offer products related to this segment.Competitors AnalysisA SWOT analysis framework is used to gauge the competitive environment of the industry. SWOT stands for Strengths, Weaknesses, Opportunities and Threats respectively. An organization needs to set the right mix of resource to capability matching to combat environmental changes.

Therefore, strengths of Toys R Us lay the potential for opportunities and its weaknesses would pave the way for threats. The strengths of Toys R Us include its established brand name, a well established distribution network with advanced logistical system, market coverage with over 1500 stores, a diversified product range and a superior product assortment. Its weaknesses include an unfocused marketing strategy that keeps shifting its message from cost to experience and the other way around. Its over-dependence on the last quarter of the year (Christmas and holiday season) also qualifies as a weakness.

The sales in the last quarter make or break its financial year round performance. Opportunities in the market environment exist if the firm can cash its internationally renowned brand name to lucrative markets that promise good returns. Develop special product lines offering toy range that is not available elsewhere and base this range through customer analysis and market trends. Cash in on the changes in customer preferences towards games and consoles.

This is a high growth market towards which Toys R Us should focus. Toys R Us biggest threat to its toys line comes from its retailing competitors Wal-Mart and Target. Whereas GameStop gives its gaming line a stiff competition because it specializes in offering games and consoles. Its traditional product line of toys is a low growth market and has reached saturation levels.

The child population is decreasing as discussed earlier in the report.Wal-Mart is the market leader in the toy industry because of its efficient business processes, and bargaining power over its suppliers it is able to offer toys with the lowest price tags. Its cost leadership is the main factor behind its success in this industry. On the other hand, Target the number two retail merchandizing chain takes advantage of its image as a trendy stockiest carrying the most wanted and must have toys of the season that will not be carried by its competitors.

Whereas, GameStop that sells both used and new games is an established leader in the video gaming industry and threatens Toys R Us’ initiative to develop its Games R Us in the high growth market of gaming. UBS Christmas 2008 Survey carried out in December, 2008 byAccording to America’s Research Group revealed that over the course of the weekend in which the survey was conducted. Sixty six percent people shopped at Wal-Mart and this figure was more than the sum of percentage figures of Sears (19.6 percent), Target (17.

9 percent) and Toys R Us (12.1 percent). Furthermore, most of the shopping was dispersed in the product lines that are being offered by Toys R Us. These were Toys (33.

8 percent), Children’s Clothes (23.7 percent), Electronics (23.7 percent), Video Games (18.9 percent) and Gift Cards (12.

4 percent). (Wal-Mart dominates Christmas Shopping, 2008). This shows the stiff competition faced by Toys R Us because all of the big retailers offer toys and similar products. They all try to cash in the Christmas season that is also crucial to the earnings of Toys R Us.

In fact Toys R Us makes the most sales in the last quarter or Christmas season. This competitive landscape further emphasizes the need to create a dependable revenue line that is profitable all year round or the need to encourage year round purchases amongst Toys R Us’ customers.Marketing VenuesToys R Us uses an integrated marketing communications approach towards marketing its image, toys and sister concerns. It not only advertises its products and company image but also reinforces it with its retail store atmosphere, public relation activities and more.

For instance, it advertises a fun filled toy at a fun filled location that is a Toys R Us store. Though it does not stop there when a customer comes to buy the toy to the retail store, the store layout, décor and fun filled environment reinforces the original message communicated. Furthermore, the company adds to its image and communicated value by engaging in community friendly seminars for autism, fund raising for underprivileged children and more. It carries out these activities in-store, out-store or even online at its website as required to suit its purpose of marketing communications.

Furthermore, it disseminates the same values to its employees and trains them in accordance to their marketed set of beliefs.  ProfitsThe current net sales of Toys R Us as given in its News Release for year ending January, 2009 stood at US dollars thirteen thousand seven hundred and twenty four. These were approximately 0.5 percent lower than the sales of 2008 (thirteen thousand seven hundred and ninety four).

Cost of sales and operating costs remained fairly consistent over the two year period. The overall net earnings improved by approximately forty-two and a half percent. (News Release;, 2009).

However, Net sales figure is the main representative of the firm’s marketing and management efforts to generate revenue from core business activities.  As compared to Toys R Us, Wal-Mart’s net sales were $405,607 million for financial year 2009 declined from $378,799 million. Wal-Mart’s revenue posted a gain of 7 percent. Target’s net sales stood at $64,948 million as compared to $63,367 million from previous year.

Target posted a year on year increase in net sales of a meager 2.5 percent. GameStop’s net sales were $8,805 million for financial year 2009 up from $ 7094 million in financial year 2008.  GameStop’s net sales figures register an increase of impressive 24 percent over the periods 2008 to 2009.

It can be seen that from the results that under the competitive environment of the industry and the economic factors specializing in a particular segment or product line appears to be a must have capability as it has delivered results for GameStop.SWOT Analysis of Marketing StrategyStrengthsToys R Us has been able to establish a smart brand recall through its marketing communications. It has acquired mind share of prospects and customers alike. The words toy brings a connected image of a Toys R Us store to most people’s minds.

Toys R Us has also established itself as an ethical organization involved in adhering to standards of corporate social responsibility. Through holding campaigns to ensure child safety, supporting autism and other causes for children too. The appointment of Gerald L. Storch as the new chief executive officer is also a strength of the marketing strategy.

Since he was formerly Vice Chairman of Target Corporation and knows the business proceedings of the competitor and can help Toys R Us develop capabilities to combat the onslaught from discount retailers.WeaknessesToys R Us has not been able to position itself as a price leader or a value provider in the industry due to its mixed set of marketing promotions. It should focus on one aspect on business either go after the experience retailing or target low cost differentiation strategy in its marketing communications. Its growth strategy is not a very feasible option under the prevailing environmental factors it should focus on a particular high growth niche and develop a competitive advantage in it.

. It responds to the changes in marketing environment though most of its initiatives as a response to the marketing environment have been dismal. Its marketing has had a selling attitude, which should be changed towards what brings it long term profitability.OpportunitiesToys R Us has developed brand equity and it can use this brand equity to launch a new product line where it can cash its brand strength.

For instance, it can focus on a mothers segment and launch a Mother’s R Us store or to test market the idea first introduce products to cater to the needs of a pregnant mother to be and market through its recently acquired ThreatsThe threats branch out of the weaknesses in marketing strategy of Toys R Us. Since it has not been able to differentiate itself as a low cost provider or a value provider it has not been able to win over either of the two.

Over the years, Toys R Us has given mixed communications with regards to its rationale of providing value in terms of cost and also in terms of creating a memorable experience. This leads to a customer dissonance, who might be motivated to buy a competitor’s product offering because it communicates a single value such as price or experience that the customer values most.StrategiesGavetti and Rivkin believe that “the heart of a company’s strategy what it chooses to do and not to do. The quality of the thinking that goes into such choices is a key driver of the quality and success of a company’s strategy”.

(Gavetti & Rivkin, 2005).Competitive StrategyIf we discuss Toys R Us in relation to its competitors we can spot Wal-Mart as the market leader with forty percent and above of market share in toy industry. Target Corporation can be identified as a market challenger that closely mimics Wal-Mart’s pricing strategy to attract customers and adds to it the perceived benefit of trendiness that Target projects about itself. Toys R Us appears to be the market follower that is trying to cling on to its current market share and content in withholding customer attrition.

GameStop can be spotted as a market nicher that serves a sub-segment of the industry i.e. gaming. Furthermore, Toys R Us also appears to be following the imitator role of a market follower, wherein, it follows the lead of Wal-Mart such as lower pricing but maintains its differentiation of packaging, promotions, products and distribution channels.

Toys R Us is lacking a core competency, one that truly differentiates it among its peers. Provided that under the recessionary trends, or other skill deficiencies faced by the organization it should focus on pricing strategy for survival. If it does not do so the discount retailers would kick it out of the market.Marketing StrategyToys R Us is pursuing a growth strategy where in it is identifying newer market segments or eyeing resources that it can acquire to add to its capability to deal with the dynamic marketing environment.

It is also a move to strike the balance of resource and capability for future endeavors of the company. Its acquisition of three new websites makes this stance very clear. It also shows that Toys R Us is sensitive towards the needs of the customer and acknowledges customer’s wants to shop online and the opportunity e-commerce presents to them. They seem to have learned from their past mistake of not entering the e-tailing segment and then reluctantly entering it when it was too late to form a competence out of the internet distribution channel.

Toys R Us is marketing its image of corporate social responsibility through organizing in-house seminars and campaign to combat autism or raise funds.  As well as describing its initiative to give back to the community through its website. It has an entire webpage dedicated to communicate its corporate philanthropy to its customers. It has a self managed ‘Toys R Us Children Fund’, and alliances with ‘Save the Children’, ‘Safe Kids Worldwide’, ‘Autism Speaks’, ‘Marine toys for tots foundation’, ‘Kids in distressed situations’, ‘Children Affected by Aids foundation’, ‘Support for differently abled kids’ and The Toys R Us Children’s Fund-Starlight Site Playroom Program.

It has adapted to the go green culture gaining strength in the United States as it introduced ecologically friendly toys in March 2008 last year. Toys R Us is using online marketing effectively and harnessing it to work to its benefits.  It organizes many events and activities to involve parents and children for social causes. This is in essence a form of event marketing being followed by Toys R Us.

Furthermore, it is engaging in relationship marketing by forming a relationship with the parent of the children through its seminars and functions of engaging them into the Toys R Us community. Toys R Us is also engaged in experience marketing as the former CEO John Eyler wanted the customers to have fun while shopping at Toys R Us and he is the one who instigated the concept of not just selling toys but an experience to the children and their parents. This concept is still a part of Toys R Us and the Toys R Us store at Time Square New York is a prime example of this concept.It was astute of the board of directors of Toys R Us to hire Gerald L.

Storch the former vice chairman of Target as the new chief executive. His appointment as the CEO shows the marketing strategy of the board itself that they are committed to take down their competition through superior skill set and game plans. Furthermore, Toys R Us has become sensitive towards the needs of its customers and is now offering toys under the brand name of Toys R Us that are cheaply priced with minimum profit margins as will be discussed under pricing strategy.The company should focus towards differentiating itself from the other discount retailers by communicating additional benefits with no extra costs or some edge that the discount retailers ca not compete with.

For instance, exclusive product line that is available at Toys R Us stores only and offering more selective toys that are in agreement with contemporary children wants.  Its marketing strategy should help strengthen its ‘R Us’ brands equity and communicate good quality. An isolated approach to marketing strategy formulation will not help. Toys R Us will have to come up with an impressive integrated marketing communications mix that is based on the holistic marketing concept.

Kotler ; Keller define the holistic marketing concept as “a concept based on the development, design, and implementation of marketing programs, processes and activities that recognizes their breadth and interdependencies”(2008).Pricing StrategyToys R Us has been using a penetration pricing strategy in its business. “Penetration pricing strategy is a relatively low market entry price with the objective of building volume, and market position” (Cravens ; Piercy, 2003). Toys R Us started off as a category-killer where in it applied a disintermediation of intermediary layers by removing wholesalers and agents from the supply chain.

It got into direct contact with suppliers and functioned as a retailer catering directly to the end customer. However, as the industry evolved over the years it is now facing a similar problem against the retail tsunami that Wal-Mart is and its peer Target Corporation. Whereby, Toys R Us viability to remain in the market is highly related to its pricing techniques. Craven and Piercy state that “when price is an important factor for a large segment of buyers, a low active price strategy is very effective” (2003).

This is exactly the pricing model that Toys R Us has been following. Toys R Us has long been a follower of low-active pricing strategy under the market penetration pricing model. Its choice of pricing has been largely dictated by the high price sensitivity of the customers in its industry. Since the bargaining power of customers in the toy industry is high Toys R Us could not have succeeded if it charged higher profit margins.

This strategy is by design vulnerable to competition as it encourages competitors to offer comparable prices. Cravens and Piercy further explain that this strategy is not suitable for fierce competition and only works when a company has cost advantages and strong positioning within the industry (2003). This strategy was working for Toys R Us until Wal-Mart came around the corner as well as other discount retailers. It would have been better for the company if it had followed a medium price and backed it up by Superior Promotion, Superior Distribution, Superior Quality and Superior Service.

This way it could have justified a bit higher profit margin.Furthermore, in an industry characterized by low prices it is imperative for a firm to form loyal customers that would prefer it over the competitors. Toys R Us should encourage customer loyalty programs to keep its customers and encourage store visits, and recurrent purchases through reward points and other promotions. This is exactly what it has done, Toys R Us is now offering customer loyalty program marketing to customers that it makes the shopping experience more rewarding.

It initiated this program in October last year prior to the holiday season of year 2008. It offered incentives of greater value and savings for frequent purchasers and named the loyalty program Rewards R Us. Offering services to members such as Exclusive Member Shopping Nights and Exclusive Savings and E-mail Discount Offers.The current economic recession in the United States has diminished the discretionary income of the masses.

Toys R Us has responded to this by recently introducing $1, $2 and $3 shops in stores nationwide. The news release dated April 2nd, 2009 highlights this initiative on part of the company to “offer more ways for kids and families to have affordable fun”. This initiative has generated positive feedback and praise from pricing gurus. Professional pricing society blog-post reviews it as:Toys R Us is implementing a new (and I think very intelligent) pricing strategy that will both increase the company’s competitiveness against “dollar stores” and other low cost merchandisers, but that will also tap into a new (and loyal) market – kids.

Through this pricing strategy Toys R Us will be able to compete with low priced toys at dollar stores because the customers had switched to lower priced outlets. Moreover it will help Toys R Us to gain the loyalty of kids that are the true segment they want to attract and retain. Furthermore Toys R Us is going to keep changing its merchandize offering at its stores with a set of hundred items made available at one time. Therefore, keeping the excitement factor for kids and making encouraging collectibles through this offering.

ConclusionToys R Us has enjoyed success as a pioneer in toys segment in the United States. However, it had lost its competitive advantage because of cut throat competition from discount retailers. To regain its competitive advantage it needs to develop its core competency and for that it needs to allocate the right set of resources to identify the resources at hand and the resources that it needs to develop. Determining the gap will help Toys R Us to identify, build and sustain its developed capability.

Moreover the contemporary business environment is characterized by change. Toys R Us needs to be market oriented as well as customer oriented to adapt to changes or better be proactive about the changing world of work. It needs to differentiate itself amongst its competitors and communicate the value it offers to its customers. Otherwise it will be an uphill task for Toys R Us to compete in the market and survive in the market.

It needs to find sub-segments in the market or niches and cater to those product niches rather than competing head on with Wal-Mart or Target Corporation. It needs to diversify into international markets and scan the environment for upcoming marketing opportunities that it can serve and plan strategies in a proactive rather than a reactive manner. ReferencesCensus Bureau. Estimates Number of Children and Adults in the States and Puerto Rico AdultsIn the States and Puerto Rico  Retrieved April 20th, 2009., D.

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