Wednesday, February 10, 2010

Toyota FAIL: What Toyota Should Know, and Still Doesn't Get

I have spent a fair amount of my professional life talking about the meaning of “brand.” In my experience, everybody knows what a brand is. And nobody knows.

On the one hand, a brand is what we think of a product, how we react to it, emotionally and rationally. And the evidence is that it is mostly emotional reactions that define a company’s brand, just as what makes your friend unique is not their appearance but how that person makes you feel.

The key is, if people trust a brand, they keep buying it. And people trust brands that have a unique identity, providing some reason to buy it rather than a competitor. If customers at some point decide you aren’t true to your brand identity (as they see it), they will go elsewhere. And all the evidence is that once that trust is gone, it’s almost impossible (it takes more than money and time) to regain it.

So, everybody knows what brand is, because a brand is the sum total of what people think about the product. It can be strong or weak, positive or negative, but it’s only “everyone” who defines brand. Companies build strong brands by combining product, advertising, service, etc. into a set of experiences that all reinforce a “personality.” A brand makes a promise. Strong brands keep that promise all the time, every time. A weak brand is almost always an inconsistent brand. One failure can destroy the trust built by many successes. And it’s all up to the customer.

And so when I see companies react the way Toyota is reacting to its current challenges (and Toyota’s reactions are not unique) I’m convinced virtually no one knows what brand really is.

Over decades, Toyota built a strong brand by focusing on product quality. The growth of the Toyota brand was jump started when Toyota made the commitment to entering the US market. By making workers active partners in identifying problems and improving processes, Toyota built quality cars, while cutting the cost of production enough that they had a clear competitive advantage over their competitors. And customers, especially in the tough US market, came to trust the Toyota brand.

Customers flocked to Toyota dealerships, and if they didn't great memorable service, who cared? They got an exceptional product -- reliable, durable -- at a great price.

But now there are other brands that have high quality, like Hyundai, who can push Toyota with lower prices, longer warranties, etc. The brand line up is changing, becoming more "commidified." In this environment, the thinking is that brand differentiation will hinge more and more on the service provided. And the service has to more closely align with the promise made by the brand.

To see your clear advantage in product quality already challenged, and then have the current recall campaigns unravel like they have, Toyota be a feeling shared by a lot of people these days, looking into an economic abyss.

This could be bad. Okay, this is bad, but I think there some things they can do, in fact must do, one way or another, to stop the slide.

The obvious problem, beyond product issues, is Toyota’s perceived coverup. Whether it’s because of Japanese liability laws or attempts to control costs, consumers are clear that they cannot trust Toyota’s assurances, even if they don’t blame the company for the problems. If they can't believe the problems are fixed now, why would they buy a product anytime before they have proof?

Now here’s the point: Toyota has actually been in this situation before. And they pulled off a stunning feat of recovery. In fact they raised their brand perception by an order of magnitude. Only it wasn’t the Toyota brand, exactly. And it was not exactly the Toyota structure, either.

In the mid-80s Toyota, prodded by US dealers and management, decided to compete with Mercedes and Cadillac in the luxury car segment. Most observers thought the move was nuts, but Toyota committed a big chunk of money to design and build entirely new vehicles that could compete with the best vehicles (and brands) in the world. In 1989, after years of work, they launched Lexus. While critics and customers were impressed by initial impressions, they were looking for flaws.

After a couple of months on the market, while the pipeline was full of Lexus vehicles to be delivered to dealerships, Lexus learned there were a few reports of cruise controls that impeded braking and high-mounted stoplights that overheated. Every Lexus sold had these components. To fix the problem every one would have to be recalled – a PR nightmare. Or they could just keep quiet, fix problems as they occurred, and hope it would all blow over.

Lexus management made the decision, counter-intuitive to many, that they would move aggressively to recall every single Lexus. Every customer got a letter, hand-signed by Lexus GM Dave Illingworth. Lexus offered to pick the recalled cars up and provide the customer a loaner (another Lexus). Every fixed car came back washed and with a full tank.

These decisions established Lexus as totally unique, a brand that went far past the expected promise. Instead of a disaster, Lexus had a brand success. The fact that they were forthcoming with information only built the trust with their customers, and the millions who didn’t own one but read about it in Time or the The Wall Street Journal.

So if it worked 20 years ago, why isn’t Toyota doing something similar now? At least in spirit?

Obviously, I don’t know why, though I suspect one issue is that Lexus was, in most respects, an American brand. Outside of a few execs, the parent company never fully accepted Lexus as a part of Toyota. If they were even aware (on a cultural level) of the lessons of the Recall Campaign, they never saw how it might apply to a much larger organization. Even though every brand, at every level, has learned the values represented by the Lexus approach.

Using that experience, and a general knowledge of how successful companies operate, I can suggest some effective ways to protect, if not improve, the Toyota brand. I’m going to ignore Toyota’s concerns for limiting financial and legal liability — but I don’t think they should really affect what I'm proposing anyway. And I’m aiming this at the US market (which is where Toyota’s brand problem seems to be greatest).

First, come clean with customers. I don’t mean releasing sensitive internal memos or memos (at least, not yet). I just went back to the Toyota web page on the recall, and it’s still strictly corporate, “this is what we’re doing,” with no context about the scope (large or small) of the problem or the larger conversation. If I were in charge I would have links to key articles and blogs from across the spectrum. I would make it clear Toyota has nothing to hide, or rather, that Toyota values facts and honesty more than plausible deniability. In other words, I would demonstrate trustworthiness.

Second, consumers need a way to connect to Toyota, to engage when necessary in a conversation with somebody who can answer questions. From Toyota’s point of view, following the principles of the TPS, I would think it critical to get more information about problems directly from drivers, even if it means uncovering more problems. Actually, in the spirit of TPS, especially if it uncovers problems.

Third, I would make dealers an integral part of the process. Make sure that they know exactly what customers know, and make it easy for them to funnel me information about their clients’ needs and concerns.

So far, I grade Toyota’s reaction as a FAIL. Their current TV ad seems to be an apology from the production line workers, which is exactly not where the problem is. Akio Toyoda, the family member who just took over the company, has made some brief apologies, and asked for forgiveness. For what? This may be tuned more to a Japanese audience, but he will probably need a different approach when he gets to Washington in the next couple of days.

As of February 10, based on Toyota’s actions and the chatter out there (you can follow #Toyota on Twitter), they have a real problem. And unless there is some fundamental change in the way Toyota connects to its customer base, Toyota will have a tough row to how. And they should know better than to let this happen.

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