The Toyota Business Model In A Nutshell

Toyota is a Japanese automobile manufacturer founded in 1937 by Kiichiro Toyoda. Toyoda started the company with funding from the sale of his father’s automatic loom technology.
Toyota makes almost 90% of its revenue through the sale of passenger and commercial vehicles. The company also makes money through its Toyota Financial Services arm, funding automotive loans and credit cards while also leasing vehicles.
Toyota earns a small percentage of its total revenue through investments in other car manufacturers and industries such as biotechnology, aerospace, and robotics.

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Toyota origin story

Toyota is a Japanese automobile manufacturer founded in 1937 by Kiichiro Toyoda.

The Toyota story begins almost twenty years before the company was incorporated. In 1918, Kiichiro’s father Sakichi invented the world’s first automatic loom. The loom, which reduced manufacturing defects and increased yields, was later sold to British company Platt Brothers for £100,000.

Sakichi then gave the proceeds to his son to develop automotive technology at Toyota, with the first passenger car dubbed the Model AA created in 1936. During the late 1940s, Toyota was able to benefit from Japan’s alliance with the United States. This would give rise to The Toyota Way management philosophy and Toyota Production System lean manufacturing process, with the latter also inspired by Sakichi’s original loom technology.

Toyota was also quick to profit from the emerging Japanese middle class in the 1960s with the release of the Corolla mid-size passenger sedan. The company experienced a period of rapid growth during this time, exporting large numbers of vehicles to foreign markets where they quickly gained a reputation for reliability, affordability, and fuel efficiency.

In 1986, Toyota partnered with General Motors to develop a new manufacturing facility in California. Luxury subsidiary Lexus was launched in 1989, with the company’s first hybrid vehicle, the Toyota Prius, launched in 1997.

Today, Toyota produces vehicles under five different brands: Toyota, Daihatsu, Hino, Lexus, and Ranz. The company also has significant stakes in Mazda, Subaru, Suzuki, Isuzu, and Yamaha, among others.

Though figures vary from year to year, the Camry, RAV4, and Corolla are often among the top five best-selling car models in the world. More broadly speaking, Toyota sold 9.386 million passenger vehicles during 2020.

Value Proposition:

Quality and Reliability: Toyota is renowned for the quality and reliability of its vehicles. Customers trust Toyota for producing cars that are built to last, have minimal issues, and hold their value well.
Innovation: Toyota continually invests in innovation, offering advanced technology, safety features, and eco-friendly options, including hybrid and electric vehicles like the Prius and Mirai.
Variety and Range: Toyota provides a wide range of vehicles, from compact cars like the Corolla to trucks like the Tacoma and SUVs like the RAV4. This variety allows them to cater to diverse customer needs.
Global Presence: Toyota’s global presence ensures that customers worldwide have access to its vehicles and services, providing a sense of reliability and accessibility.

Customer Segments:

General Consumers: Toyota serves a broad consumer base, from individuals seeking affordable and reliable transportation (e.g., Corolla buyers) to families in need of spacious and safe vehicles (e.g., Sienna minivan) and adventure enthusiasts (e.g., 4Runner and Land Cruiser buyers).
Commercial and Fleet Customers: Toyota offers commercial vehicles, including trucks and vans, targeting businesses and fleet operators.
Environmentally Conscious: Customers who prioritize eco-friendliness are attracted to Toyota’s hybrid and electric models, like the Prius and Mirai.
Luxury Segment: Through its Lexus brand, Toyota caters to luxury-oriented consumers who seek premium vehicles with advanced features and comfort.

Distribution Strategy:

Global Network: Toyota has a vast global distribution network, including dealerships, authorized service centers, and showrooms, ensuring accessibility to customers worldwide.
Local Manufacturing: Toyota often adopts a strategy of manufacturing vehicles locally in key markets to reduce costs and meet regional demand effectively.
Online Presence: Toyota maintains an online presence, allowing customers to explore models, schedule test drives, and even purchase vehicles through their website.
Collaboration: Toyota collaborates with dealerships and franchise partners to ensure a consistent brand experience across different markets.

Marketing Strategy:

Quality and Reliability Messaging: Toyota’s marketing often emphasizes the quality, reliability, and longevity of its vehicles, reassuring customers of their investment.
Safety Focus: Safety features and achievements, such as high crash test ratings and advanced driver-assistance systems, are highlighted in marketing campaigns.
Innovation Promotion: Toyota showcases its commitment to innovation, whether through hybrid technology, fuel efficiency, or advancements in autonomous driving.
Community and Environmental Initiatives: Toyota promotes its commitment to sustainability and community engagement, fostering a positive brand image.
Localized Marketing: Toyota adapts its marketing strategies to suit local cultures and preferences, ensuring relevance in various markets.
Digital Engagement: The company utilizes digital marketing channels, social media platforms, and online advertising to reach a tech-savvy audience.
Sponsorships: Toyota engages in sponsorships and partnerships, including sports events, to enhance brand visibility and association.

Toyota revenue generation

Toyota generates the bulk of its revenue through the sale of automotive vehicles, with a smaller percentage coming from its financial services division.

Let’s take a look at these streams in more detail.

Vehicle sales

Approximately 88% of Toyota’s revenue comes from automotive sales.

Automotive sales encompass passenger vehicles, minivans, and commercial vehicles such as trucks, buses, and forklifts. Vehicle sales are segmented into distinct business units based on brand and geographic region. Luxury brand Lexus is considered one of the most profitable.

Toyota also manufactures and sells automotive parts, components, and accessories to other car manufacturers.

Financial services division

Toyota Financial Services is a subsidiary that finances automotive loans, credit cards, and other services such as vehicle leasing.

Revenue from this subsidiary was 7.9% for the 2021 financial year.

Other services

The remainder of Toyota’s revenue, approximately 4%, comes from other services.

This includes investments the company has made in the housing, telecommunications, biotechnology, aerospace, and robotics industries. It also includes the aforementioned stakes Toyota has taken in competing automotive companies.

Key Highlights

Company Origins: Toyota, founded in 1937 by Kiichiro Toyoda, originated from the invention of the world’s first automatic loom by Kiichiro’s father, Sakichi Toyoda.
Revenue Sources:
- Vehicle Sales: The bulk of Toyota’s revenue (approximately 88%) is derived from the sale of passenger and commercial vehicles, including automotive parts.
- Financial Services: Toyota Financial Services, a subsidiary, generates revenue by financing automotive loans, credit cards, and vehicle leasing (approximately 7.9%).
- Other Services: The company also earns a portion of its revenue (approximately 4%) through investments in various industries and stakes in other automotive manufacturers.
Historical Milestones:
- Toyota’s journey began with the creation of its first passenger car, the Model AA, in 1936.
- Toyota benefited from Japan’s alliance with the United States in the late 1940s, leading to the development of The Toyota Way management philosophy and Toyota Production System lean manufacturing process.
- In the 1960s, Toyota capitalized on the emerging Japanese middle class with the release of the Corolla, experiencing rapid growth and international success.
- Partnerships with General Motors, the launch of the luxury brand Lexus, and the introduction of the Toyota Prius hybrid marked key milestones in the company’s history.
Value Proposition:
- Quality and Reliability: Toyota is known for producing durable, reliable vehicles that hold their value well.
- Innovation: The company invests in technology, safety features, and eco-friendly options, including hybrids and electric vehicles.
- Variety and Range: Toyota offers a diverse range of vehicles to cater to a wide array of customer needs.
- Global Presence: Toyota’s global network ensures accessibility and reliability for customers worldwide.
Customer Segments:
- General Consumers: Toyota serves individuals, families, and adventure enthusiasts with a variety of models.
- Commercial and Fleet Customers: The company offers commercial vehicles targeting businesses and fleets.
- Environmentally Conscious: Toyota’s hybrid and electric models appeal to eco-friendly consumers.
- Luxury Segment: Through Lexus, Toyota caters to luxury-oriented consumers.
Distribution Strategy:
- Global Network: Toyota has an extensive global distribution network, including dealerships and service centers.
- Local Manufacturing: The company often manufactures vehicles locally to meet regional demand effectively.
- Online Presence: Toyota maintains an online presence for vehicle exploration, test drives, and online purchasing.
- Collaboration: Toyota collaborates with dealerships and franchise partners for consistent brand experiences.
Marketing Strategy:
- Quality and Reliability Messaging: Marketing emphasizes the quality and reliability of Toyota vehicles.
- Safety Focus: Safety features and achievements are highlighted, including high crash test ratings and advanced driver-assistance systems.
- Innovation Promotion: Commitment to innovation, fuel efficiency, and hybrid technology is showcased.
- Community and Environmental Initiatives: Toyota promotes sustainability and community engagement.
- Localized Marketing: Strategies are adapted to suit local cultures and preferences.
- Digital Engagement: Utilizes digital marketing channels and online advertising.
- Sponsorships: Engages in sponsorships and partnerships to enhance brand visibility.

Element	Description
Value Proposition	Toyota offers a compelling value proposition to its customers, including: – Quality and Reliability: Known for producing durable and reliable vehicles. – Innovation: Pioneering automotive technologies and sustainability solutions. – Variety: Providing a wide range of vehicles, from compact cars to trucks and hybrids. – Safety: Prioritizing safety features and technologies in its vehicles. – Global Presence: Offering products and services in numerous countries worldwide. – Sustainability: Commitment to environmental responsibility and eco-friendly vehicles. – Customer Service: Delivering excellent after-sales service and support.
Core Products/Services	Toyota’s core products and services include: – Automobiles: Manufacturing and selling a variety of cars, trucks, and SUVs under various brands, including Toyota, Lexus, and others. – Hybrid and Electric Vehicles: Leading in hybrid technology with models like the Toyota Prius and investing in electric vehicles. – Auto Parts: Manufacturing and supplying automotive components to global markets. – Financial Services: Offering financing, leasing, and insurance services for vehicle purchases. – Mobility Services: Exploring mobility solutions, such as car-sharing and ride-hailing services. – Lexus Luxury Brand: Operating the luxury brand Lexus known for high-quality vehicles. – Research and Development: Investing in automotive innovation and research.
Customer Segments	Toyota serves a diverse range of customer segments, including: – Individual Consumers: Individuals and families seeking reliable and affordable transportation. – Fleet Customers: Commercial and business clients purchasing vehicles for their operations. – Government Agencies: Providing vehicles for government and public sector use. – Global Markets: Expanding into emerging markets and regions with growing demand. – Environmental Advocates: Customers looking for eco-friendly and sustainable transportation options. – Luxury Segment: Through the Lexus brand, targeting luxury and high-end vehicle buyers. – Tech Enthusiasts: Early adopters interested in innovative automotive technology.
Revenue Streams	Toyota generates revenue through various revenue streams: – Vehicle Sales: Earnings from selling cars and trucks to consumers and businesses. – After-Sales Services: Revenue from maintenance, repairs, and spare parts. – Financial Services: Income from financing, leasing, and insurance services. – Licensing and Royalties: Earnings from licensing its technology to other automakers. – Global Sales: Revenue from sales in different regions and countries. – Mobility Services: Potential revenue from car-sharing and mobility solutions. – Hybrid and Electric Vehicles: Sales of eco-friendly vehicles and technologies.
Distribution Strategy	Toyota employs a strategic distribution strategy to reach its customers: – Dealer Network: Collaborating with an extensive network of authorized dealerships worldwide. – Online Sales: Expanding online platforms for vehicle selection and purchasing. – Global Presence: Operating manufacturing facilities and sales offices in various regions. – Marketing and Advertising: Running global marketing campaigns to promote its brands. – Research and Development Centers: Establishing R&D facilities to drive innovation. – Environmental Initiatives: Promoting sustainability and eco-friendly vehicles. – Customer Support: Offering customer service and support through its network. – Partnerships: Collaborating with other companies on technology and mobility solutions.