How Toyota and Rolex, Two Great Brands, Inspired Two More – Part 1

When you think of how some of the world’s greatest brands came to be, Lexus and Tudor come to mind. Both brands were launched by companies that already had well established brands in different segments – Toyota in the case of Lexus and Rolex in the case of Tudor. Toyota, a brand for the masses elevated its company with the Lexus brand, a benchmark in luxury, performance and reliability since its inception.  Rolex, the worlds most accurate and elegant watch brand, devised a way to share its achievement with a much bigger portion of mankind through the Tudor brand.  Two brands, two methods, two incredible accomplishments.

I remember when Toyota launched the Lexus brand.  It was back in 1989.  I was in my first year of business school at the University of North Carolina.  At the time, Japanese automobile manufacturers where capturing huge chunks of market share in the US from their American competitors.  To put the share loss in perspective, the big three automobile manufacturers – GM, Ford and Chrysler – were responsible in the early 1970s for 90% of all vehicles sold in the USA.  By 1989 their collective share dropped to 73%.  Today that number has dwindled to about 40%, making all three companies a mere shadow of their former selves.  While there are a variety of reasons for the demise of the American automobile manufacturers at the hands of their Japanese competitors, the primary reason was quality.  The disparity in quality between Japanese and American vehicles grew to such an extreme, a bitter rivalry ensued.  As Japan grew stronger and stronger in other industries as well, many Americans feared the Japanese would soon own the United States.  The tension between American and Japanese automobile manufacturers got so high that Hollywood made a movie in 1986 called Gung Ho in an effort to portray this cultural divide in a light-hearted and disarming fashion.  For those interested, the movie features Michael Keaton as the protagonist who struggles to bridge the gap between his Japanese and American colleagues.  While Gung Ho never won any major awards, it should keep you entertained while educating you on this distinct and important period in history.

It seemed the more American consumers drove Japanese made vehicles, the more disappointed they became with American engineering.  With each shortcoming, American automobile brand equity suffered.  The loss in equity adversely impacted consumers’ brand loyalty.  The only people who insisted on driving American made automobiles at the time were WWII diehards, which I am imagine many stubbornly regretted.  You see, this wasn’t about patriotism, it was about value.  At the same time, Middle America was becoming enamored with the features and benefits of the Japanese automobile manufacturers.  Toyotas, Nissans and Hondas were better designed, more reliable and cost substantially less.  Furthermore, they got much better gas mileage than their American counterparts.  With the oil embargos of the 1970s and early 1980s, gas mileage became an important attribute for American consumers.  Because the Japanese understood this, American consumers rewarded the Japanese automobile brands with increased brand preference.  While Nissan and Honda saw significant gains during this period, Toyota connected the most with American consumers and achieved the greatest success.

Toyota’s market share in the US grew from 2% in 1970 to 6% by 1983 (source: Ward’s Automotive Group).  Eiji Toyoda, Toyota’s chairman at the time understood that his company’s competitive advantage would enable Toyota to continue to make inroads with American mass market consumers.  However, Toyoda also understood that these attributes would not enable his company to break into the desirable and lucrative luxury automobile market.  At the time, the luxury market was dominated by Germany’s BMW and Mercedes brands and by GM’s Cadillac and Ford’s Lincoln divisions.  The German brands offered the affluent top-notch engineering and performance; the American models provided the wealthy with comfort and status.  Sensing a window of opportunity Toyoda knew he had to make a push now if he hoped to enter the luxury automobile market.  To compete, Toyota needed an automobile that could outperform its foreign rivals on their own turf.  And, since the Toyota brand stood for reliability and economy, it could never serve the role needed for this new unnamed luxury automobile.  With a clear understanding of the time and resources needed to enter the luxury automobile market (almost 7 years and over $1 billion), Toyoda could have chosen to purchase an existing luxury automobile manufacturer such as Jaguar (the way the Tata Group did in 2008).  Or, he could have chosen to license one of the world’s luxury brands from another category such as Gulf Stream aircraft or Mont Blanc pens and extended either brand into the automobile market.  Instead, Toyoda in 1983 decided to build the brand in house and initiated the F1 Project.  To accomplish this goal, Toyoda spared no expense.  The F1 was built from the ground up utilizing no existing Toyota platforms or parts.  To ensure its lofty standards were achieved, tests were conducted throughout Europe, the US, Australia and Saudi Arabia.  To compliment the F1, Toyota created the Lexus marquee in 1986 and designated the first vehicle the Lexus LS 400. In January 1989, the Lexus LS 400 debuted at the North American International Automobile show in Detroit.  With a litany of new features including memory seats and automatic tilt-and-telescoping steering, the Lexus LS 400 was met with significant praise.  With a price tag thousands less that the competition, the first generation Lexus LS 400 sold 165,000 units over its life – more than BMW and Mercedes.  The Lexus LS 400 consistently earned the JD Powers award for best in quality and quickly built a reputation for reliability.  Shortly thereafter, Consumer Reports rated Lexus one of the best automobiles in the world.  Now in its fourth generation the Lexus brand stands for excellence, performance and quality.  I would say, not only did Eiji Toyoda achieve his goal of entering the luxury automobile market, he virtually captured it.

In Part 2, I will take you through the origination of the Tudor brand by Rolex, one of the world’s most prestigious brands.

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