TEAM TOYOTA POST: PLACING THE PRIUS

The Toyota Prius is a hybrid car that was launched in the US in 2000. It was technologically significant because it contained many new technologies that had not completely matured. In addition, it was launched into a market where the segment had not yet been proven and the distribution network was difficult to plan.

"This Prius is an industry sputnik," says Jim Sanfillippo, executive vice president of Automotive Marketing Consultants Inc., Warren, Mich. - Wall Street Journal, June 26, 2003.

TECHNOLOGIC HURDLES TO DISTRIBUTION
The Prius falls into a class of cars designed to lead to independence from gasoline(http://www.sopheon.com/inknowvations_200412.asp). Less than five years ago, the major automotive manufacturers put forth their vision of the next generation of gasoline-free or low gasoline utilizing vehicles would be. In one extreme was GM's proposal for a hydrogen based car. This car would use hydrogen fuel cells and would be available in 2010. A huge advantage to this type of car would be that its complete indepence from gasoline. Unfortunately, the technology was so immature that it was predicted to take a decade to develop and would require a new distribution network for hydrogen fuel. In the other extreme was Toyota's proposal for a hybrid based system that would use gasoline, but with higher efficiency by coupling to an electric motor. Although this in not as innovative as the hydrogen cars, the Prius was able to quickly come to the market and did not need to rely on the development of a distribution network for fuel that hydrogen cars will require. Thus far, the Prius has already penetrated the market and is in fact selling well.

SUPPLY CHAIN DISTRIBUTION TO DEALERSHIPS
In addition, although Toyota has had a long presence in the U.S. with a great deal of marketing success, the novelty of the Prius made consumer response somewhat unpredictable (http://hbswk.hbs.edu/tools/print_item.jhtml?id=4435&t=entrepreneurship).
Because of the novelty of the hybrid model, Toyota decided not to follow past strategies in distribution of this new car to thedealer networks. Instead, Toyota decided to develop a centralized inventory. Dealers would take orders from consumers and then have the Prius delivered to the dealership.

This centralized distribution network resulted in higher transportaion costs, but allowed for customization and increased efficiency of the distribution. Although 20/20 hindsight would correctly predict higher sales in a techie environment such as Northern California - this was not guaranteed with the initial product launch. Indeed, pre-launch, total number of toyotas sold were 7% Northern California and 20% Southeast US. The Prius in 2002 sold 25% Northern CA and only 6% Southeast US. Thus, if Toyota had only followed historic trends they would have had a glut in the Southeast and an inability to meet demand in Northern CA.

This may become another classic example of adapting supply chain to fit new needs (see previous blog: http://jasonypark.blogspot.com/2005/06/topic-presentation-supply-chain.html).