Volkswagen is a German automotive company founded on January 4, 1937 by the German Labor Front. Its headquarters is based in Wolfsburg, Germany and is currently the largest automaker worldwide after Toyota. The origin of Volkswagen goes back in the late 1930s where Adolf Hitler who was the Nazi leader gave German families the dream of owning their first car. In relations, with credit to a British army major known as Ivan Hirst, the company was able to gain more popularity as cars were sold off after World War II as part of the reparations. The Nazi trade union organization, also identified as the Deutsche Arbeitsfront, set up the company in 1937 which was viewed at that time as the ‘people’s car’. Hitler vindicated that the car should cost no more than a motorbike, and is able to carry three children and two adults.
Volkswagen began manufacturing of the traditional Volkswagen “Beetle” by the end of World War II. The compact sized vehicle became notably popular between 1945 and 1955, where manufacturing output eventually reached up to one million units. The car was considered as a preferred household car between the 1960s and 70s due to significant advantages in terms of compact size, resulting in easily accessible parking opportunities, and especially, low maintenance costs and fossil fuel consumption. In regard to Germany’s economy suffering tremendously due to Post World War II events and their impact on a majority of factories and respective manufacturing output. Furthermore, production costs were considerably high due to large import and transportation costs of general goods as well as inaccessibility to raw materials. Volkswagen AG was capable of successfully overcoming these detrimental issues and its beetle contributed to the accomplishment of the first major milestone for the firm, reaching a current sell record of 15 million vehicles, thus even outperforming their largest rival: US company Ford and its Model T.
The Beetle’s success story was soon followed up by the presentation of the Volkswagen Golf to the automotive market. The Golf would eventually remain the company’s best selling product for over ten years between 1973-1983. Throughout production of the Beetle and Golf, Volkswagen’s production and supply chain management was able to establish very large ratios of marginal revenue to marginal cost, resulting in significant profit margins. In conjunction with its management, shareholders decided to reinvest earned revenues and Free Cash Flows (FCF’s) into an ambitious international expansion program by purchasing majority market shares from SEAT and SKODA. Upon successful establishment of the acquisition process and restructuring the aforementioned companies, Volkswagen AG decided to diversify its business activities and aggressively expand into the luxury vehicle market by acquiring Lamborghini, Rolls Royce and Bugatti.
Its international presence along with a renowned reputation of being a quality manufacturer with its products being notably known for reliability, security, and durability has enabled the company to operate a total of 121 within 20 European countries and 11 countries in North and South America, Asia, and Africa (Volkswagen Group, 2016). In 2016, the firm’s global production output has surpassed a total of 42,000 units daily, which are assembled by a total of over 610,000 employees and sold across 153 nations (Volkswagen Group, 2016).
Volkswagen’s majority shareholders have decided to significantly alter the enterprise’s marketing strategy since the revelation of having manipulated CO2 emission tests by government official institutions in 2015 and early 2016. The negative publicity Volkswagen gained after disclosure of the illegal activities over major news outlets across the world caused detrimental declines accounting to 23.8% in share values (Bloomberg, 2015). Intelligently, Volkswagen has hence decided to focus advertisement campaigns and product placement onto emphasizing on emotional relationships between owner and vehicle, rather than on technologically driven aspects in order to eliminate consumers reminiscing on the scandal. Most recent commercials resultantly are centered around elaborating on Volkswagen’s “lifelong companion role” (Vizard, 2016) to its customers by emphasizing loyalty, motorsport, and innovation. Head of Volkswagen’s international marketing branch describes “We want to make our customers’ lives better with our innovative vehicles, new technologies and our services. Volkswagen is a part of people’s lives. And we want to stay a part of their lives” (Vizard, 2015).
By implementing the aforementioned connections between driver and vehicle, Volkswagen is hence successfully attempting to re-enhance its deteriorated reputation and regain its lost market shares. In January of 2016, the Society of Motor Manufactures and Traders (SMMT) evaluated a new 11-year high by an increase of 2.9% sales compared to the previous year however, Volkswagen’s total market share within the automotive industry declined from 8.49% to 7.1%. Volkswagen now refocuses its marketing campaigns by meeting changed consumer behavior, based on the microeconomic concepts of restructuring processes in order to directly overcoming its past managerial activities.
Volkswagen’s initial success was fundamentally established by obtaining ownership over large market portions within the compact vehicle segment, primarily targeting middle-class and upper-middle class customer bases. Its diversification program however, which arguably launched in May 2003 by introducing the firm’s first business limousine indicates the company’s intention of entering the luxurious and prestigious vehicle segment. Thus, Volkswagen AG directly embodies competition towards locally more established brands such as Mercedes-Benz, BMW, Ford, and Lexus. While maintaining the position of being a key player within the middle-class segment, Volkswagen increasingly positions itself towards the upper-middle and upper class. Although there is no clear gesture for actual aggressive expansion campaigns in order to ratify market shares from aforementioned manufacturers, it does indicate Volkswagen’s interest for business diversification among other market segments. The brand hence arguably positions itself at the edge of an expansion campaign, not limited to geographic or additional international expansion, but towards entering supplementary economic divisions by targeting variegated customer groups.
After the revelations of manipulating publicly announced CO2 emissions in order to maintain below maximum discharges according to European standards, Volkswagen was essentially forced to change its demographic target market. A large portion of their most recent products and marketing campaigns now are aimed at younger drivers as well as covering large portions of consumer expectations in China. Volkswagen’s Chairman Dr. Herbert Diess announced: “Volkswagen will become younger, more emotional, and more exciting, (and) the vehicles we are presenting here in Geneva are pointing the way“ (Dong, 2016). Although Volkswagen sub-branches such as Lamborghini diversify the group’s business activities, its core market primarily revolves around covering the needs of value-orientated customers within the middle class as well as the compact vehicle segment. In order to attract younger customers, Volkswagen has since focused a lot on technological developments including, but not limited to high-end sound systems, smartphone compatibility, increased horsepower, improved suspension systems, as well as sportier aesthetics. For the Chinese market, Volkswagen invested a lot of money into the development of its sedan “Phideon” in order to compete with Mercedes-Benz’ S-class and BMW’s 7-Series. Last but not least, Volkswagen announced its newest addition to its product portfolio, a convertible SUV prototype by the name of T-Cross Breeze.
- Diversified Product Portfolio
- Long-established reputation
- Regular customer basis
- Renowned for quality, reliability, and durability
- Motor-sport brand
- Global presence
- Market share loss due to cheating CO2 emissions
- Recent loss in reputation
- Weak in US market
- Not environmentally friendly
- New product placement
- Developing presence in Chinese market
- Acquisition potential
- More strict emission standards, especially in Europe
- Rises in crude oil prices
- Rises in metal prices
Volkswagen’s competitive advantage lies within its production and manufacturing process. While many globally dominating automakers such as Mercedes-Benz and BMW purchase assembly parts such as electronics, doors, and other items from outsourced production companies, Volkswagen produces a large portion themselves (McElroy, 2012). Although this increases the groups’ profit per employee ratio, which in business and economics is widely considered economically unsustainable, it helps to significantly reduce production costs while maintaining high profit margins. Therefore, Volkswagen is also able to offer its products at a lower cost than most comparable automotive players are capable of. This enables Volkswagen to rapidly and aggressively expand, whilst targeting a multitude of customers within a variety of geographic and strategic locations. By correctly and efficiently using the company’s competitive advantage, Volkswagen was capable of generating a 220billion dollar turnover and a 14billion dollar operating profit.
Furthermore, Volkswagen has always been very careful in separating its business brands in order to establish individual entities that target different consumer groups. Its management structure hence operates respectively for its brands: VW, Audi, Seat, Skoda, Bentley, Lamborghini, Ducati, Porsche, Bugatti, MAN, Scania, which allows for better micromanagement, improved financial analyses, separated design development, as well as providing enhanced product and technological development from an engineering aspect. Each individual brands hence is capable of better targeting customers’ wants and expectations, whilst elaborating on a personal relationship between driver and vehicle.
The automotive industry is extremely technologically and environmentally driven. Due to recent trends including the burning of fossil fuels and impacts on global warming, car manufacturers were forced (by changing consumer behavior as well as political policy-making) to significantly alter previous designs in engine manufacturing. This includes changes in exhaust systems, decrease in average amounts for cylinder (from six to four). Furthermore, due to recent developments in smartphone utility, the industry has conducted many changes in order to better align usage of daily technologies into their vehicles. Additional aspect in modern vehicle production includes autonomous drive systems, basic ideas such as automatic parking and potential crash identification software being the very basis up to recent developments in artificial intelligence (AI) in order to establish entirely self-driving vehicles. Finally, exploding gas prices over the past 25-years have caused manufacturers to invest and focus heavily on decreasing consumption in order to enable improved vehicle mileage.
In the light of the above, Volkswagen has managed to stay a very dominant player in the automotive market. The company has kept up-to-date with recent consumer behaviors such as the aforementioned aspects of technologically driven products, in which regard Volkswagen has maintained its role of embodying an innovative leader. In addition, a big selling point for Volkswagen’s vehicles has always been comparably very low fuel consumption (i.e. Volkswagen Golf 5.9L per 100km). This has enabled the opportunity for international expansion due to fuel prices playing an increasingly bigger role in customer purchases. Recent trends in the automotive industries suggested the potential for emerging markets, especially in South-East Asia, India, Africa, and South America. Volkswagen has actively pursued establishing dominance in the Chinese market, which currently makes up the largest part of the group’s profit with annual vehicle sales of 2.81 Million units (2012). In conclusion, Volkswagen has been capable of maintaining its competitive position in the automotive market at an above-average level. Many competitors have been especially struggling with technological trends and fuel consumption, two fields in which Volkswagen excels in, thus setting them apart from large numbers of their fiercest rivals.
Product Price Promotion Place
Volkswagen’s particular strength is embodied by its wide product portfolio. Due to the fact that the company targets a wide range of customer potential, the brand is capable of covering significant market share proportions, whilst establishing room for further expansion. Today, the company offers Polo, Up, Golf, Jetta, Beetle, Passat CC, Pasat, Sirocco, Tiguan, Touran,Eos Sharan, Phaeton and Touareg as their products, thus providing a large variety of merchandise.Volkswagen has build a renowned reputation for itself in terms of offering high-quality cars with an existing brand name to support sales and word-of-mouth knowledge as a supporting factor. Furthermore, the company offers very good customer support, especially in terms of quick responsiveness to enquiries, which ensures the continuous existence of a regular customer basis. Last but not least, Volkswagen has been notably successful in its distribution capabilities. Extra-curricular services include the opportunity for vehicle door-to-door delivery, a large amount of national dealerships in order to ensure service capabilities for customers,
As previously discussed, Volkswagen obtains ownership over a very large and diversified product portfolio. Hence, prices range from affordably low to very high, depending on the individual model, size, vehicle features, and optional accouterments. Its biggest market segment is however determined by vehicles aiming on targeting middle-class customers at affordable but nevertheless, qualitative superior to competition. On average however, notably compared to rival companies from Asia such as Toyota, Honda, and Nissan, Volkswagen’s products are slightly more expensive at about 10-15% in order to maintain offering the qualitative standards the brand revolves around. This is however also in consideration of generally lower production costs in Japan and South Korea that European manufacturers simply cannot compete with. Volkswagen Sedan’s sector hence will (depending on geographic location) generally demonstrate larger sales figures than compact car segments, which are predominantly dominated by aforementioned Asian manufacturers. Therefore, universally, Volkswagen’s pricing is fundamentally higher than competing manufacturers in order to promote and maintain its qualitative core values: reliability, durability, and efficiency.
Volkswagen marketing campaigns differ significantly depending on geographic locations. For instance, in Western Europe, the company makes notably big use of television and radio advertisements, as it is a more effective way of raising product awareness than hard-copy endorsements. In wide portions within the Asian market however, newspaper and other forms of print media are more widely used as in local cultures, a larger customer segment can be reached through these methods. Volkswagen is also very active on social media, obtaining various pages on Facebook and Instagram in order to attract younger generations and elating them for their products. Furthermore, Volkswagen has established large marketing campaigns at sports events such as the Football Championships in Germany and additional corporate events.
Additional promotions include various financing opportunities for vehicle purchases in order to establish a more broadened customer basis through monthly installments to make their cars more affordable to the public. This includes leasing (mainly for corporate clients in the US and UK) or payment plans at low-yield interest rates for individuals (more common in Western Europe and Asia).
Volkswagen has been very efficient at establish key strategically manufacturing locations in order to promote time efficient processing abilities and thus, quick channeling and delivery pacing to customers and dealerships. Volkswagen has also started using secondary, private retailers in order to distribute products. This has become notably popular in India, a market Volkswagen considers one of the most prosperous and promising geographic locations for its products. A new distribution strategy has focused on targeting urban areas with the aim to avoid a travelling window larger than 45-minutes for customers to reach the nearest Volkswagen outlet. A very effective Customer Relationship management (CRM) system “keeps a solid track of its customers, their service needs and also cross sells other products of Volkswagen like annual maintenance contract“ (Bhasin, 2016).
In conclusion, Volkswagen’s business activities suggest a very promising outlook for the upcoming years. It is starting to sucessfully overcome the 2015 allegations of purposely manipulating vehicle emissions and making up for resultant drops in share values and customers. Product placement and customer targetting represents a very new target market for the company however; a very well established and existing reputation will help to overcome initial distribution issues. In order to reach these goals, it is pivotal that Volkswagen continues investing heavily into technological research, especially in terms of smartphone sync opportunities and further improving gas mileage to combat increases in crude oil prices. These two aspects should be the main focus to elaborate on for the company’s future goals along with maintaining its previously established core values of reliability, durability, and security. A combined proportion of these will be very effective in terms of answering efficiently to the wants of younger customers, whilst preserving regular and existing customers expectations. Successful achievement of the above will guarantee a continuous economic thrive for the company and secure an outstanding position in an international market context.
Blog, J. (2013). Volkswagens History | A Brief History of Volkswagen. [online] John Clark Blog. Available at: http://blog.john-clark.co.uk/volkswagen-history/.
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