Toyota: Handling Recalls and Customer Satisfaction When Toyota launched its Lexus brand in 1989, it faced a steep uphill battle. The luxury car segment was dominated by Mercedes-Benz, which combined high performance with style and cutting-edge engineering. Other strong players in the luxury car segment included BMW and Cadillac. Lexus needed a perfect launch of its new line of luxury vehicles to stand a chance against the strong competitors in the market. Yet its LS400 line required a recall a little more than a year after launch. Lexus’s initial quality problems could have spelled an early doom for the new brand, whose slogan is “The Relentless Pursuit of Perfection.” To address this serious threat, the brand’s managers decided to go the extra mile. Rather than broadly announcing the recall in the media as is customary, it called each owner individually and advised bringing the car in for the recommended repair. When owners picked up their cars after the repair, they found their Lexus had been detailed and the gas tank filled. If owners lived far from a Lexus dealership, the company flew mechanics to the customer’s location. In less than three weeks, Lexus was able to resolve the recall problems on all its 8,000 LS400 vehicles sold in the United States. The media dubbed Lexus’s effort “a perfect recall.” By exceeding customer expectations, Lexus managers turned a serious threat into an opportunity and established the brand’s reputation for superior customer service. Lexus’s response was especially well received because customers who buy a brand-new and unknown luxury brand tend to be opinion leaders. They influence other consumers by sharing their product evaluation through word of mouth (or today, by viral messaging online). Only two years after its launch, Lexus was ranked first on vehicle quality and customer satisfaction by J.D. Power & Associates, a leading information-services firm. In the same year (1991), Lexus became the top-selling luxury brand in the United States. It has been one of the top-selling brands ever since. However, after being a leader in quality for almost 20 years, Toyota faced the largest recall in automotive history in early 2010 when it called back more than eight million vehicles due to an alleged faulty accelerator pedal and alleged problems with the onboard electronics system. Now the largest car manufacturer in the world, in order to defend its reputation as a quality leader, Toyota again needed to exhibit superior customer responsiveness. But satisfying more than eight million customers was much more challenging than pleasing the 8,000 original Lexus customers. Toyota, however, persevered and worked closely with dealers and customers on the recalls. Toyota surveys showed a decline in customer satisfaction in 2010; however, surveys taken in the spring of 2013 showed Toyota was back up again in third place, behind only Mercedes-Benz and Lexus.

2) As shown in the preceding Toyota case and the Whole Foods (Strategy Highlight 6.1) in the textbook, both firms have gone through difficult times in recent years. What common attribute do both firms seize as a way to move forward?

A) A renewed dedication to improve their learning curve

B) A move toward a more focused scope of competition

C) A willingness to decrease value if needed to improve costs

D) A change from differentiation to a cost-focused strategy

E) A refocusing on their core value creation tools.