Runaway Success

Apparently, consumers liked the improvements. In its inaugural year, the Prius saw moderate sales of just over 15,000 units—not bad considering that Toyota put minimal promotional effort behind the new vehicle. But sales for the carbon fuel miser have increased exponentially ever since. In 2007, Toyota sold 181,000 Priuses in the United States alone, a 70 percent increase over 2006 sales. That makes the Prius Toyota's third-best-selling passenger car following the Camry and Corolla. Perhaps more significantly, in May of 2008, Toyota announced that it had sold a total of 1,028,000 Prius cars worldwide since the vehicle first went on sale in Japan in 1997.

The rapid increase in demand for the Prius created a rare automotive phenomenon. During a period when most automotive companies had to offer substantial incentives to move vehicles, many Toyota dealers had no problem getting price premiums of up to $5,000 over sticker price for the Prius. Waiting lists for the Prius stretched up to six months. At one point, spots on dealers' waiting lists were being auctioned on eBay for $500. By 2006, the Prius had become the "hottest" car in the United States, based on industry .metrics of time spent on dealer lots, sales incentives, and average sale price relative to sticker price. In fact, according to Kelley Blue Book, demand for new Priuses became so strong that, even after one year and more than 32,000 kilometers, a Prius could fetch thousands more than its original sticker price.

There are many reasons for the success of the Prius. For starters, Toyota's targeting strategy has been spot-on from the beginning. It focused first on early adopters, techies who were attracted by the car's advanced technology. Such buyers not only bought the car but found ways to modify it by hacking into the Prius's computer system. Soon, owners were sharing their hacking secrets through chat rooms such as Priusenvy.com, boasting such modifications as using the dashboard display screen to play video games, show files from a laptop, watch TV, and look at images taken by a rear-view camera. One savvy owner found a way to plug the Prius into a wall socket and boost fuel efficiency dramatically.

In addition to Toyota's effective targeting tactics, various external incentives helped to spur Prius sales. For example, some states issued permits for hybrids to drive in HOV (High Occupancy Vehicle) lanes, even if they only had one occupant. Some cities provide free parking. But the biggest incentives were monetary. Some governments and provinces give tax breaks amounting to thousands of dollars. On top of all that, some eco-friendly companies such as Timberland, Google, and Hyperion Solutions also joined in the incentive game, giving employees as much as $5,000 toward the purchase of hybrids.

But after some time, the early adopter market had been skimmed and the government incentives were slowly phased out. Just as these changes were taking place, Toyota was already well into a $40 million campaign targeting a different set of consumers, the environmentally conscious and those desiring greater fuel efficiency. With the accuracy of a fortune teller, Toyota hit the nail right on the head. Gas prices skyrocketed. By the spring of 2008, Prius hysteria had reached an all-time high. Just as demand for full-sized SUVs began to tank, waiting lists and dealer markups over sticker for the Prius once again became the norm.

"I'm selling every one I can get my hands on," said Kenny Burns, a general sales manager at a California Toyota dealer. With a 30-day waiting list for a new Prius, "The day the car comes in is the day the car goes out."

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