In 2011, the group’s worldwide revenues and net profit were Euro 159 billion and 15. 8 billion, respectively. Headquartered in Wolfsburg, Germany, the group operated more than 60 plants around the world. It was the second largest automaker behind General Motors. It had a market share of 12. 3% in 2011. Its core markets were Germany and China. It was the market leader in Europe with a 20% market share. It aimed to become the world’s largest automaker by 2018. With a growth of 30% in the Indian automobile industry, India was to play an important role in realizing the group’s global ambitions.
VW targeted to increase the market share of its flagship brand in India from 3. 6% to 5% by 2015. Neeraj Garg, Director, VW Group Sales India said: We have to transition from launch stage to growth stage of the life cycle. To meet our ambitious growth plans, we need to evolve our marketing strategy. Perhaps, we should review it. Are our segmentation, targeting, and positioning right? Is our product, distribution, and communication strategy appropriate to catapult us to the next level? Volkswagen has had a tradition of highly creative advertising globally.
Its campaign ‘‘Force’’ for Passat was adjudged the best campaign of 2011 by Advertising Age. 2 The campaign featured a kid in Darth Vader costume (Darth Vader is the central character in the Star Wars saga) trying to use ‘‘force’’ (a metaphysical power in the fictional universe of the Star Wars galaxy) on everything from his dog to the washing machine to his sandwich all in vain. As he focuses all his energy on Passat, the car suddenly starts to the astonishment of the kid. A shot showed that the car was started by his father using a remote control.
The campaigns connect with the popular culture of Star Wars resulted in 31 million views on YouTube. ‘‘Think small’’ and ‘‘Lemon’’ campaigns had become part of advertising textbooks. Lutz Kothe, Head of Marketing & PR, VW Group Sales India said: What inspiration can VW Indian advertising draw from its global advertising? FROM GERMANY TO INDIA The German auto industry in 1930s was largely composed of luxury cars. Since many Germans could not afford luxury cars, Adolf Hitler set up a state-owned factory ‘‘Volkswagen’’ (pronounced as folk’s wagon) in Wolfsburg in 1933 for producing the ‘‘people’s car.
Ferdinand Porsche, an engineer was chosen to steer the project. The first car that was rolled out was ‘‘Beetle. ’’ With its distinctive round shape and low price, it stood out from the big cars and became a global cult. In the 1970s, Passat, Scirocco, Golf, and Polo were launched. The sedan version of Golf – 1 2 The remaining brands were imported by independent dealers. Advertising Age was the leading magazine in the domain of advertising. Seema Gupta, Assistant Professor of Marketing prepared this case for class discussion.
This case is not intended to serve as an endorsement, source of primary data, or to show effective or inefficient handling of decision or business processes. Copyright ? 2013 by the Indian Institute of Management Bangalore. No part of the publication may be reproduced or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise (including internet) – without the permission of Indian Institute of Management Bangalore. This document is authorized for use only by Paul Boutilier at University of Prince Edward Island until December 2014.
Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. Volkswagen in India Page 2 of 33 Jetta was launched in 1983 and Phaeton in 2002. Thereafter, New Beetle was launched to recreate the magic of the original Beetle. The group entered India in 2001 with Skoda. Its plant in Aurangabad assembled a few models of Audi and Volkswagen as well. Audi and Volkswagen were launched in India in 2004 and 2007, respectively. In 2010, a stateof-the-art production facility was set up at Chakan near Pune with an investment of Rs. 35 billion to manufacture Polo and Vento indigenously.
The plant also manufactured Skoda Fabia and Skoda Rapid as they were built on the Polo platform. Despite sharing common product platforms, the three brands were distinctly positioned. Skoda was positioned as less premium than VW which was positioned as more premium than even Honda and Toyota. Audi was positioned at par with BMW and Mercedes in the luxury category (see Exhibit 2 for positioning of various players). While the group integrated the back-end of technology, human resource, and finance across the three brands, the front-end of dealers was scrupulously kept separate.
Despite its careful planning, there existed an anomaly. Skoda was perceived to be a more up-market label than VW in India. This was owing to Skoda’s history in India. Skoda was launched in 2001 with the Octavia, a premium car. The only other choices in the segment at that time were Honda City, Hyundai Accent, and Maruti Baleno. Octavia immediately became a CEO’s car. Subsequent brands – Laura and Superb were even more premium and since they were diesel engines, they were more expensive than their Japanese petrol-engine counterparts.
John Chacko, Group President and MD, VW Group Sales India said: Our priority is to get the core brand – Volkswagen sorted out and then the other brands will fall into place. For instance, after Polo was launched, the price of Skoda Fabia was revised downwards. iii VW believed in engineering excellence. It pioneered ‘‘turbocharged diesel injection’’ (TDI) which provided fuel economy and BlueMotion Technologies which enabled energy efficiency. 3 It had obsessive focus on quality.
For instance, the bumpers had seven layers of paint (most carmakers had four); it welded all the points on the dashboard simultaneously to leave no room for misalignment (this required more machines; other carmakers welded the points sequentially). VW combined engineering excellence with local market insights to crack open the emerging markets. CONSUMER INSIGHTS Each year, the product planning team in VW engaged with 200 consumers in a freewheeling chat. Product Head Product Planning & Training, VW Group Sales India said: When you sit in the consumer’s drawing room, you get a flavor of his life.
You can see whether he prefers a Samsung or a Sony or an LG. You can gauge his tastes and lifestyle. Buying Motives VW research showed that a consumer bought a car for three motives. First was to signal to peers and parents that he had made it in life and was not a failure. Second was for utility – protection from rains, extreme weather, and weekend family outings. Third was for personal space, as people in metros lived in small houses with joint families – car was his little dungeon and hideout. VW incorporated these consumer insights in its marketing strategy.
To tap into the first motive, it positioned itself as an aspirational brand. To build aspiration, it followed a top-down strategy – it entered the Indian market with higherend models such as Passat and Jetta and then introduced lower-end models such as Polo and Vento. Product Head said: Honda entered the Indian market with Honda City, whereas Hyundai with Santro. Both have a wide portfolio, but Hyundai is seen as an accessible brand, whereas Honda as an aspirational brand. It is because first impression is what remains with the consumer.
Blue was the corporate color and motion stood for mobility. This document is authorized for use only by Paul Boutilier at University of Prince Edward Island until December 2014. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. Volkswagen in India Page 3 of 33 VW tapped into the second motive of utility by having functionality at the core of technology. For instance, its BlueMotion Technologies had several utilitarian features such as ‘‘park assist’’ wherein the car could park itself.
VW addressed the third motive of space by designing spacious cars. It provided light interiors and striped fabrics which gave the impression of open spaces. Product Head said: Indians are claustrophobic. They need lot of open spaces. For Indians, house is anyways a compromise as it is inherited or is constrained by budget. The consumer hence does not want to compromise on his car. Consumer Attitude The product planning team researched consumer attitude toward cars. The Product Head said: Consumer treated the car as his muse.
There is a lot of boredom that sets into the life of a sober man. He marries the girl suggested by parents, lives in the same city, and works for the same family business. He brings change through two things – car and mobile. Those are his mistresses. He changes car every 3-4 years. The latest car would be his muse, his loved one. The product planning team at VW utilizes this insight to offer ‘‘wow’’ features which would make the car his most coveted muse. Consumer also likens the car to arranged marriage. He chooses car just as he chooses his wife based on looks.
Later he falls in love with his car just as he fell in love with his wife – for the way it treats him – space, comfort, controls, driving experience, and cooling. The product planners leverage this insight to put experience enhancing features in the cars. For instance, the New Passat had ‘‘auto start-stop’’ in which the engine automatically turned off when one took the foot off the clutch after halting in a traffic jam or a red light. When one depressed the clutch again, the engine started automatically. PRODUCT PLANNING
VW leveraged these consumer insights to design cars suitable for Indian consumers. For instance, cars had flat space on the dashboard for placing Ganesh idols, had liberal sprinkling of chrome (Indians loved chrome) and a lever behind the co-driver’s seat so that the passenger could push the seat oneself (Indian cars were chauffeur-driven so the co-driver’s seat was often vacant). VW decided which features to incorporate in the car based on four filters. First, was the customer willing to pay for it and how much? Second, what would it cost the company?
Third, how easily could it be implemented from an engineering point of view? Fourth, could it be translated into a nice communication story? Product planners identified consumers’ willingness to pay for innovative features through gut feel and by asking a few friends. For standard features, VW used quantitative market research. They were careful not to over-engineer the cars with specifications that consumers were not willing to pay for. Product Head said: For European markets, VW cars had strong roofs that could bear the weight of 18 inches of snow. But, in India you don’t need it.
Since the lead time for new product development was 3-4 years, product planners anticipated trends by considering socio-economic factors. The Product Head said: The cost of chauffeur would become very high in future, but the commutes would get longer, the traffic would worsen and the jobs become more demanding. The consumer would thus be ready to pay more for automatic transmission. So, automatic transmission would become the norm in metros and hence VW has started planning for producing more of them. Music CDs would disappear and so VW is considering knocking off CD players and keeping only USB port.