How Lexus broke the mould

In the 80s, Toyota had a problem. It wanted to break into the luxury car market. But it had a status as a maker of mass cars. Toyota Corona, Corolla, Camry, Vios and Crown were all mass cars. They could not just launch a Toyota some-thing-else as a sub-brand, and expect it to break into the luxury car niche.

What they needed was a standalone brand, whose attributes were independent of those of Toyota. They embarked on a top-secret project named F1. They took on the world’s best luxury car makers at their own game. They observed the Mercedes closely and designed the Lexus. The proportions, angles and curves of the Lexus closely followed the Mercedes. A string of awards proved that Lexus was high on quality, on par with Mercedes. We say imitation is the sincerest form of flattery, but Mercedes was not flattered when Lexus captured a sizeable share of the market!

Toyota and its long-term advertising agency Saatchi & Saatchi went into overdrive (spot the pun) to market Lexus. Lexus had its own persona and its own corporate mission statement. It had its own slogan, “The Relentless Pursuit of Perfection”, which was later changed to “The Passionate Pursuit of Perfection”. An image consulting firm was hired to develop a list of 219 prospective names. Five top candidates were chosen, including Alexis. Alexis became Lexus.

lexus balance
A marketing pitch demonstrating the smooth driving experience offered by Lexus

Lexus has grown to be the top-selling luxury car in the United States, and the fourth largest luxury car brand in the world. It competes with other luxury brands like Jaguar, Audi, BMW, Mercedes and Porsche. It is not considered as being under the Toyota umbrella the same way as Toyota Crown or Toyota Camry. Toyota is the parent company which takes the back seat (another pun) and lets their standalone cash cow do the trick.

Lexus reminds me of regional economies which perform better than the countries they belong to. Kenichi Ohmae wrote a memorable book called “The End of the Nation State: The Rise of Regional Economies”. He spoke of regional economies within countries, which operate with significant autonomy from the national economy. To quote him, “nation states have already lost their role as meaningful units of participation in the global economy of today’s borderless world…..It makes even less sense today to speak of Italy or Russia or China as a single economic unit.”

Examples he cited include Penang in Malaysia, Catalonia in Spain, and Baden-Wurttemberg in Germany. I would add two further examples to strengthen his case: The Rhone-Alpes region of France and the Lombardy region of Italy. These two along with Catalonia and Baden-Wurttemberg constitute The Four Motors of Europe, four highly industrialized regions in Europe with high potential for economic growth.

Such regional economies are standalone brands like Lexus. They have brand attributes independent of the country they belong to, just like Lexus took a detour from Toyota brand attributes. Countries with consistently high growth rates across the entire nation are like Mercedes or BMW. But countries with uneven growth rates are like Toyota, and fast-growing regional economies within these countries are like Lexus. These regional economies can grow at rates higher that the national average, and compete with fast-growing countries. Toyota may not be able to compete with Mercedes or BMW, but Lexus can.

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3 thoughts on “How Lexus broke the mould

  1. Vasanth,

    Good article ! And I believe other Japanese car manufacturers took the ‘Lexus’ route to improve their image and compete with established brands . . . Honda with its Acura brand,Nissan with its Infinit brand.

  2. Contrary to popular belief, the LEXUS name was not based on the name Alexis or the character from Dynasty as some may suggest. LEXUS was actually a short form for their main strategy when the brand was conceptualized for their main objective – invasion into the American market. As a consequence, the brand was finalized as ‘Luxury EXports to US (United States)’. It’s in the brand book for Toyota/Lexus internal and their agencies as FYI, but obviously, the acronym was never used in the market or explained, not like it was really necessary anyways.

    Their REAL problem was really in America at the time, they weren’t selling enough Toyotas and the game was really with European cars like Mercedes Benz and their own American Muscle cars. This wasn’t unique to Toyota, Japanese cars were not as popular. In Japan, they were always the forerunners. In fact, in Japan, it wasn’t until 2005 did they launch the Lexus brand in Japan itself, knew this plan because it was announced internally before i left Saatchi & Saatchi Singapore where i was a suit on the Regional Lexus business. They subsequently launched the Lexus brand in other countries where they were still branded Toyota and ceased Toyota Harriers and the like models.

    Prior to that, in Japan, they were still going under the brand Toyota, but had the same models, using different materials since the mass appeal did not really demand for luxury materials to sell the same car. Hence cars like the Toyota Harrier, better known to the rest of the world as the Lexus RS330. The Lexus version was actually their luxury version of the Toyota Harrier, made with slightly different materials, different finishing and different bells and whistles.

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