In 1998, Tetsuya Tada, a chief engineer at Toyota, did the unthinkable. When presenting his new-car design proposal to Toyota's executive-committee members, Tada skipped the numbers.
Instead of offering reams of data that showed how profitable his car would be, Tada simply played a seven-minute music video.
Its contents: thumping techno, gritty urban scenes, and images of a boxy, low-slung vehicle that resembled a baby Astro van. Its message: If Toyota hoped to win the 'millennials' -- the 8-to-23-year-olds worldwide who will dominate global car sales by 2020 -- it had to revamp both its product and its thinking.
After the music faded, Toyota chairman Hiroshi Okuda was the only one to speak. "I can't offer any relevant input," Tada remembers Okuda saying. "This is a vehicle design and concept that is clearly not for anyone in this room."
Whether he knew it or not, Okuda was making a startling admission: What Toyota needed wasn't just a new design for a car; it also needed a deeper, more radical approach to innovation. During the next five years, Tada's video and the cars it inspired would drive Toyota down a new path, one with important business and cultural lessons.
In the end, Toyota's dogged pursuit of what would click with millennials led it not only to build cars that looked nothing like its sedate sedans, but also to launch Scion, its first new brand in the United States since the debut of its luxury mark, Lexus, more than a decade ago.
In the beginning: Genesis
Nowhere is the test of Toyota's ability to resonate with millennials more important than in the United States. Toyota has been aiming to increase its global market share from 10% in 2002 to 15% in the next decade -- and eventually surpass General Motors as the world's biggest automaker.
To gain new customers, the company has to go beyond its relationship with baby boomers, the generation that has helped nudge its market share to 11.3% this year. So Toyota is looking to the boomers' kids: the 60 million - strong consumer base known as generation Y, or millennials in the United States.
Toyota's first effort to connect with generation Y was a flop. Launching a marketing-strategy team called Genesis, Toyota committed millions of dollars to advertising. But the imagery and the cars that Toyota decided to sell to the under-30 set never matched up.
Toyota executives assumed that its well-made, value-priced vehicles would win the new shoppers over. But the cars themselves -- the Celica, the Echo, and the MR2 Spyder -- never captured the market's imagination.
"With Genesis, we had a chance to see if marketing was enough. It obviously wasn't," says Brian Bolain, Scion's national sales promotion manager and a member of the now-defunct Genesis team. "The Toyota brand is respected by millennials. But that respect wasn't translating into purchases."
Learning from failure
In February 2000,Toyota disbanded the Genesis team. Several former members, including Bolain, started digging through their mistakes. Failure taught some valuable lessons: The Toyota brand name wasn't enough of a draw for young consumers, the cars needed a lot more emotional appeal, and advertising would never be as important as radically designed cars focused on lifestyle.
Bolain and his team realized that Toyota needed a major shift in strategy: a new brand complete with new cars. But the company was on a cost-cutting crusade, and securing the backing needed to support such a plan seemed unlikely.
Then, on a trip to Japan to plead his case, Bolain met Tada. Even though Tada's presentation had left Okuda speechless, Tada was given the go-ahead to pursue his proposal, a car dubbed the bB. Still, since cost cutting was the order of the day, Tada was told to cut his budget by up to 50%.
To Bolain, the bB seemed like the perfect car to launch under the new brand in the United States. The car's square, unusual shape was weird enough to attract attention. Its interior could be configured to fit gen-Y accoutrements, from surfboards to music-mixing equipment. The bB could be built cheaply, even under Tada's tight budget, and it didn't have to be a huge seller to meet Toyota's tough profit requirements. Finally, the bB could be priced low enough -- under $14,000 -- that gen-Y consumers could affordit.
Those factors made the project more acceptable -- but still not an easy sale to Toyota's disciplined leaders: Persuading the company's executives to agree to the launch took a year of business trips to Japan. "This wasn't about doing business the way we had always done it," Bolain says. "But it is the way that we need to do business in the future."
By mid-2001, Bolain and his team finally won approval -- as long as they could keep expectations and costs low. Still, the real challenge would come with actually creating and executing the Scion brand and its cars.
In just 18 months, the Scion team had to create its brand from scratch -- and avoid repeating the mistakes of the Genesis team. The focus this time would be on the cars, not the ads that consumers would see on television. To appeal to the U.S. market, the Scion team souped up the bB -- and then went further, renaming the vehicle the xB.
A tiny hatchback version, called the xA, was added to the lineup, even though it was only a computer image at the time. Both cars came standard with high-tech stereo equipment that makes playing MP3s and tuning into satellite radio possible. The Scion team also wrangled a promise that they would get all-new vehicles every four years -- not just cars with subtle changes as annual upgrades.
By focusing on the cars and increasing their emotional appeal and flexibility, the Scion team overcame two problems that the Genesis team couldn't solve. But another big issue remained: Where would the cars be sold? Finding a way to differentiate Scion from Toyota was crucial. And adding new Scion dealerships -- the approach that Toyota had taken with Lexus -- wasn't in the budget. The carefully crafted solution?
Create special sales centers within many of Toyota's existing dealerships, giving gen-Y consumers a culturally appropriate place to hang out, look up information on the Net, and browse without ever having to speak to a salesperson.
For a company that's aiming to topple GM, Scion's low sales expectations -- just 100,000 units by 2005 -- seem antithetical to fast growth. Add to that an intentionally slow rollout: So far, Scion cars are available only in California, giving the team a chance to make any necessary adjustments before rolling out more cars nationwide, an initiative scheduled for early 2004.
For Toyota, and for the moment, Scion's biggest role has been to help the company learn how to change -- so that it will never again have to struggle to respond to big shifts in consumer demographics.
"One of the most important roles for Scion has been institutionalizing the idea of change at Toyota," says Jim Farley, Scion's vice president. "That kind of change can't stop with Scion. It has to help us evolve cars like Corolla and Camry as well, so that they can appeal to future consumers."
Sidebar: Beyond tattoos: new rules for Generation Y
For Scion, Toyota's newly launched brand in the United States, getting its products right was the first step in connecting with generation Y. But the next step also had to be done well: creating the brand image. While searching for the right ad agency for the job, the Scion team knew that it had to find a pitch that offered more than just tattooed models.
The winner: Attik, a marketing group based in decidedly unhip north England. Rather than pitching piercings, Attik suggested new rules for winning a new generation. Here are three from Will Travis, president of Attik USA.
1. Keep the respect: "You need to care about their opinions. The young adults of generation Y are a lot more respectful than the generation that came before them. You can't make them feel small or treat them as if they don't know anything. And the worst thing you can do is act like something you're not. That's why Scion can't be treated like an illegitimate child. It has to be a part of the Toyota family."
2. Keep an array of options: "Don't choose actors or models who you think represent generation Y. Gen-Y consumers want to see an array of personalities. Variety is completely acceptable with them."
3. Keep it quiet: "It's true that gen-Y consumers like to discover brands on their own. That doesn't mean that they don't want to be marketed to. But it does have to be on their terms and in places where they hang out."