Brands Behaving Badly, Summer 2010 Silver Medalist, Toyota

Talk about snatching defeat from the jaws of victory. If there was one company primed to dominate the U.S. auto market after the implosion of The Big 3, it was Toyota. It's not often that your top 3 competitors fall on their own swords simultaneously. Yet Toyota spent decades waiting for a moment like that to arrive and then fell right down with them.

Since they entered the U.S. market in 1957, Toyota maintained an intense focus on developing a respected, successful, and indispensable brand. They first gradually overcame deeply entrenched bias towards American manufacturers in the US market. Then, while everyone else zigged—creating gas-guzzling dinosaurs with no shelf life and expensive performance-engineered vehicles that alienated average consumers—Toyota zagged by creating safe, affordable, high-quality cars that emphasized fuel efficiency.

With the wind behind their sails, Toyota successfully expanded their brand architecture to include multiple successful product lines and a dominant sub-brand in Lexus. They built a strong brand culture to sustain their business, where employees at every level were empowered to live and act the brand—famously symbolized by line workers being encouraged to pull a chain that would halt production if they saw anything defective. As oil prices gradually climbed above $4 a gallon, America's infatuation with SUV's came crashing to a halt. Left in their place was a demand for the kind of sensible, fuel efficiency cars and innovative hybrids Toyota was well known for.

In effect, Toyota had spent decades building the market they owned in anticipation of its inevitable rise.

Then, beginning in August 2009, Toyota's sterling reputation began to quickly erode following news of accidents and fatalities due to defective braking systems. The company successfully kept their problems below the radar until one well-publicized incident was caught in a horrifying 911 call. Gradually, the company was forced to recall more than 8.5 million vehicles worldwide.

Far more damaging than the recalls themselves have been the reports that Toyota had stated in internal emails of saving over 100 million dollars by cutting corners in vehicle recalls, and in some cases, knew about problems more than 2 years before acknowledging them. The company, who's slogan was "Moving Forward" was knowingly producing vehicles that were at risk of "Never Stopping" and killing passengers.

At the peak of the crisis, Toyota was reduced to releasing an embarrassing, and completely hollow Super Bowl ad reinforcing how safety has always their number one priority. Like so many companies, Toyota believed the best response to a brand problem is a mea culpa PR campaign.

So what happened to the brand that embodied innovation and quality control? Somewhere along the way, they threw their values overboard and put profits ahead of safety. They failed to learn the lesson of history and emulated the behavior of the very brands they were built to topple. Faulty braking systems became Toyota's exploding Pinto. Their focus on short term gains and quarterly profits sent them barreling down the road to brand destruction.

In the meantime, they've given U.S. automakers exactly the kind of opening they needed to win back the U.S. market, and the results have been a lot more than lost brand equity and reputation.

Beyond the sheer cost of their global recall, in February of 2010, the company reported a 16% drop in year-over-year sales in the U.S. market, while monthly U.S. sales fell below 100,000 for the first time in a decade. Toyota ceded hard earned market share, falling to their lower level since January 2006, and in the resulting months was forced to resort to unprecedented discounts, including 0% financing for five years and 2 years of free maintenance.

How's that for Moving Forward?