Product Development definition: “The creation of products with new or different characteristics that offer new or additional benefits to the customer. Product development may involve modification of an existing product or its presentation, or formulation of an entirely new product that satisfies a newly defined customer want or market niche.”1
This strategy often used for increase market share in exist market or for expansion of the new market. I focused on implementation of this strategy by Japanese carmakers, because I think it is very interesting example of Product Development strategy in action. Also, my attention to Japanese case driven by the fact that Japanese carmakers aggressively entered US luxury car market in late 90th and still successfully compete there. I believe that their success was driven by increased using of high technology in automobile industry in Japan and understanding of consumer needs and consumer behavior. The secret is in understanding of two basic customers’ demands. First is “I want to have best of the best”, and another is “I want to have it as cheap as possible." Japanese understood it and offered something which satisfied both of these criteria. From the one hand they create luxury brands, which have all luxury features. From the other hand, they set prices little lower than competitors. Final shot was in service costs, which was much cheaper in compare to European cars.
Japanese approach of Product Development
Often marketers face question: how to penetrate new market segment in existing market? The best answer was made in late 90th by Japanese carmakers. Create new lineup without any links to original brand. The thing is that in late 90th Japanese cars such as Toyota or Honda associated with cheap sedans or pickups, but ambitious top leaders of these companies decided to penetrate luxury niche where main players were BMW and Mercedes. That’s why Honda and Toyota marketing strategies were to promote their new luxury brands like new companies. In 1986 Honda starts selling Acura as a luxury car which had own Diller and Service centers. Obviously, that Acura luxury sedans wasn’t associated with cheap Honda’s cars. In 1989 Toyota did the same with their Lexus. Both were incredibly successful in US market.
Why this strategy was successful?
Firstly, Japanese carmakers create good reputation in US. In the 1970s, due to problems such as the 1973 Oil Embargo, environmental regulations, and quality control issues with American cars (Ford Pinto), a good number of American car owners began searching for alternatives to their gas guzzling, poorly made American cars. In response to these changes, Toyota and other Japanese carmakers aggressively marketed their cars to Americans as being fuel-efficient, environmentally friendly, and having better build quality than American cars. Secondly, price of Japanese cars was lower than when price of their European rivals. Finally, they created totally different new brands for new segment.
These three competitive advantages helped Japanese in implementation Product Development strategy. After implementation of new strategy Japanese carmakers captured significant market share of US luxury market segment. For example Acura TSX was very competitive choice against popular BMW 3-series or Lexus IS series to compete with Mercedes-Benz C class.
To sum up Japanese variant of Product Development strategy I want to highlight some key points. First of all they decided to penetrate very tough segment with strong rivals which specialized on luxury cars. For Japanese this niche was totally new. Secondly before entering new segment they paved the way for new brands by creation customers’ loyalty to Japanese cars. Thirdly, they had all necessary resources to create competitive advantages on high-tech base, which allowed them to fight rivals by quality and price.