Has the Marketing Mix for Volkswagen Been Successful - Case Study Example

Has the marketing mix for Volkswagen been successful? BY YOU YOUR SCHOOL INFO HERE HERE Has the marketing mix for Volkswagen been successful Introduction Volkswagen, a large multi-national automobile producer, has had a very difficult history in terms of finding connection with customers, establishing brand loyalty and brand preference, and emerging from its more traditional brand positioning from the 1970s. Volkswagen currently maintains nine different automobile models that contribute successfully to profit growth both domestically and internationally, including the Passat, Touran, Jetta, Tourareg, and Golf models. Volkswagen focuses primarily on small to mid-size passenger cars (Volkswagen Group 2010), targeted at the younger international professionals between the ages of 21 and 34. Volkswagen currently sustains sales revenues of just over eight billion Euros for its VW models, an increase of 19 percent since 2009 (Volkswagen Group, 2010). Many of these sales gains come from new market entry and through the integrated marketing communications strategies currently employed by this large automaker. Volkswagen invests considerable capital into elements of the marketing mix, using a blend of expensive television and radio advertising, virtual and mobile marketing, guerrilla marketing, and other associated print advertisements. However, with such a high volume of competition in Europe, Asia and North America, Volkswagen must devote this labour and finance to the marketing mix in order to sustain its broad differentiation strategy. “A company attempting to succeed through differentiation must study buyers needs and behaviour carefully to learn what buyers consider important, what they think has value, and what they are willing to pay for” (Thompson 2008, p.144). Volkswagen is unable to establish premium pricing in key target markets, since the majority of customers are younger, price-sensitive, and most models do not maintain luxury benefits and options. Thus, the company must focus on differentiation and positioning against competition, by creating lifestyle connections with buyers, through psychographic concepts and advertising. Since much of Volkswagen’s products can be imitated by many different domestic and international automakers, VW must rely on differentiation to ensure higher sales volumes. This report will focus primarily on promotion at Volkswagen and psychographic segmentation and targeting strategies, since the recent successes at VW in the last four to five years has been highly dependent on these activities and marketing strategies. The report describes pricing structure at Volkswagen and the rationale for this strategy, followed by acknowledgement of product and place in the marketing mix, with a continuing in-depth discussion of promotional activities domestic and international that has led to higher sales since 2008. 2.1 Pricing and Product at Volkswagen One marketing manager at Volkswagen describes the rationale for pricing at the company: “We are targeting young, self-confident city dwellers…that want a car which ticks all the technical boxes, epitomizes lifestyle and is a little unconventional in terms of looks” (Volkswagen 2010, p.91). The market share in Europe contributes most to the sales revenues and profit of VW, a market that is dominated by small-sized passenger cars produced by companies such as Kia, Hyundai, and Fiat (among many others). These cars typically carry much lower prices due to their efficiency in petrol mileage and limited features. Customers have dedicated brand following to many of these competitive models, thus in order to gain market attention from the young professional between 21 and 34, the business must devote much of its production capacity and capabilities to producing small- to mid-size cars as competitive low-end pricing. In the UK and the United States, as one example, the list price is approximately $19,000 for the Passat (the company’s largest international seller). This price structure is compared to other small-sized cars in the market ranging between $25,000 and $35,000 in the European market, thus representing an incentive for price-sensitive buyers. Pricing is directly linked to product in the marketing mix for the VW brand, as production features and options included in its value-conscious models dictate the pricing structure. Volkswagen recognizes that it cannot effectively compete with other manufacturers that position automobiles based on features, luxury enhancements, and delivery options whilst still maintaining market share with the younger buyer segments. This is not to say that the VW production system does not maintain capacity for options offerings, rather that younger buyers with less financial earnings contribute more to the company’s profit expectations. According to the company’s 2010 annual report, nearly all production involves small-sized products. The main elements associated with market interest in these cars are unique production designs not generally replicated in the competitive market environment (Volkswagen 2010). 2.2 Place in the marketing mix There is some dependency on place in the marketing mix at Volkswagen, with moderate reliance on sales associates, tangibles of dealership presence and benefits, and associated presentation forums to spotlight automobiles. In 2010, Volkswagen developed an integrated marketing strategy that included more focus on international auto shows to add a level of sophistication to the sales strategy (Soh 2011). In relation to the dealership network, especially in North America, the dealer facilities are built against stringent operational models for construction to illustrate this sophistication and modernization with Volkswagen, including significant usage of glass and unique architecture (Volkswagen 2011). Even though the business primarily sells to the 21 to 34-year-old buyer, VW believes that this target market is discriminating and sophisticated and thus demands this presentation in terms of place before selecting Volkswagen against competition. Figure 1 illustrates the dealer network imperatives to show the sophistication demanded by the company. Figure 1: Dealer Network Facilities Concepts Source: Soh, W. (2009). http://www.volkswagenag.com/content/vwcorp/info_center/de/talks_and_presentations/2010/05/Presentation_Mr__Soh_-_Brand.-bin.acq/qual BinaryStorageItem.Single.File/4.%20Mr.%20Soh%20Brand.pdf As illustrated by Figure 1, there are considerable capital expenditures for investment to establish a dealer network that extols sophistication, modernisation, and aesthetics fitting of the youth professional target buyer. Place gives the business more legitimacy as a modern brand that fits the similar characteristics of consumers in the current VW target market. Not all competitors have high investment dealer networks that provide a quality experience, thus giving the business a competitive edge over other small automakers that do not devote this type of capital investment into place marketing. 2.3 Promotion in the marketing mix This is where the Volkswagen brand manages to not only successfully differentiate, but also gain psychographic-based lifestyle connections with customers. Macrae (2011) identifies that young adults in the Volkswagen target market maintain a phenomenon known as quarter life crises, in which they are “not happy with a mediocre, conventional and ploddy lifestyle” (Macrae, p.2). To find more value as young adults, they are seeking self-exploration, freedom and methods to improve the rather humdrum lifestyle common in this age bracket. Volkswagen seems to understand these needs as the majority of the business’ promotional materials are geared around the themes of excitement, style and fashion, and lifestyle relevancy in its integrated communications strategies. In terms of sophistication, VW partnered with a web development company in 2009, providing 3D virtual test driving of Volkswagen cars. This system allows for a 3D view of the car interior, showing how new options will alter the dynamics of the car upon delivery (Tribal DDB 2008). It is a highly sophisticated, interactive program that is directly in-line with how consumers in this target market perform their purchasing searches in the decision-making process. Volkswagen witnessed a rise from 500,000 to 1.4 million on its website after launching the interactive web system (Tribal DDB 2008). Volkswagen understands the trends of this youth market in using the Internet to satisfy their lifestyle needs from product searching to the use of social media and thus creates a better CRM programme to build connection with customers as a relevant brand. Phillips (2011, p.49) offers that youths in this target market category respond effectively to companies that provide interactive technology over the Internet “in a generation where how clever you were in coding your (user) avatar is most important”. Additionally, VW understands the social psychology of this market segment, creating promotional concepts that best fit convenience and lifestyle for the younger professional markets. In India, as one example, the business invested considerable resources into supply Indian newspapers with a light-sensitive computer chip that provided a talking newspaper with Volkswagen advertisements (Linked In 2011). In this market, the talking paper became a media sensation and brand awareness was increased from eight percent to 37 percent due to the short-term promotion (Linked In 2011). This, again, helped to differentiate the brand from competition as a modernised and relevant brand that evolves with changing lifestyles and cultural times. In Kuala Lampur, the business devoted labour and capital investment in a guerrilla marketing strategy that also gained more new market attention from the youth buyers. The company partnered with Malaysian authorities to close off a major street to promote new models, with international pop artists spotlighting the event (Volkswagen 2011). Using relevant celebrity endorsers and providing an interactive and in-your-face guerrilla effort improved sales in this region shortly after launching the promotional strategy. Successful psychographic advertising is also evident in some of the television-based promotions run by Volkswagen in recent years. One particular advertisement uses relevant social actors in the age group of the professionals who was depicted being unable to sleep effectively unless he was laying in the Volkswagen model (B & T Weekly 2011). The advertisement launched in Australia in a market with strong market dedication to Volkswagen. Throughout the ad, the actor’s wife finally locks up the keys to the Volkswagen to prevent the actor from sleeping in the vehicle, only to find that the actor is later found sleeping on the roof (B & T Weekly 2011). This is a lifestyle-related concept that continues to promote quality while also staying true to competitive pricing, thereby creating a continuous lifestyle connection with buyers. The business also publicises its commitment to consistent and lifestyle-relevant promotions to gain brand loyalty and improve sales throughout the world. Recently, Volkswagen increased its sponsorship activities with lifestyle-based programming to improve visibility and create more psychographic connections. In North America, Volkswagen partnered with Public Broadcasting Television with a series called “The Blues”, an expensive seven-part series about the history of blues genre music that is relevant to the more sophisticated young consumer markets in this country (SGPTV 2010). This series was highly promoted and even included a kick-off event at Radio City Music Hall in New York City and included promotional merchandise including commemorative hand-bags designed around youth fashions and display vehicles to improve relationships between sales professionals and buyers. This long-term promotion of sponsorship with “The Blues” mini-series generated a great deal of web-based buzz about new models and positive attitude about the relevancy of Volkswagen as a lifestyle-oriented brand. According to the largest grossing salesperson at VW, “There are so many people out there who love the lifestyle VW represents” (Fuhrmans 2010, p.1). This dealer with considerable experience about real-life attitudes and needs of buyers justifies the relevancy of Volkswagen branding and promotion, comparing competition to “someone trying to sell you a piece of chicken and claiming it a steak” (Fuhrmans, p.2). Volkswagen does not attempt to differentiate without staying true to its youth-minded attitude and level of sophistication with the target group, thus providing much more brand loyalty than other manufacturers in this key target buyer group in North America. Brand loyalty is largely built through promotions because of the impact of communications and images used in promotion as it relates to the psycho-social needs of buyers in its younger target market. Greenwald, et al. (2009) identifies that brand loyalty is established more effectively when consumer self-expansion is highlighted in promotions. It was previously identified by Macrae (2011) about the need for such expansion from younger target buyers related to their quarter life crises. The emotional connections that VW manages to establish are strong, thus creating a phenomenon known as brand attachment where the customer begins participating in brand communities and even will defend the brand against negative criticism on the Internet or from peers (Greenwald, et al. 2009; Aron, et al 1992). Promotion is clearly the largest investment for Volkswagen, much more than other elements of the marketing mix. However, promotion actually serves as the foundation by which the company has established its brand over the last few years, trying to break away from the cost-conscious positioning with Volkswagen during the 1970s when value buyers were looking toward the company to meet their price-sensitive needs, such as with the introduction of the Volkswagen Beetle. Research did not identify any criticisms of the existing promotional campaign for Volkswagen by either the industry, through examination of consumer blogs, or other reputable secondary sources spotlighting Volkswagen activities related to the marketing mix. Thus, no failures in promotion could be interpreted. 3. Conclusion Volkswagen continues to use actors and endorsers and messages in promotion that are highly relevant to lifestyle and attitudes, thus improving brand equity and long-term market loyalty. Trust in the brand is built around the market communications offered by Volkswagen that revolves strongly around satisfying consumer demands and promoting “affordable innovations” (Volkswagen 2010, p.191). This company would seem to be a benchmark of the theoretical concept of effective customer relationship management, through its dedication to establishing operational components, the marketing mix, sales dealerships, and communications precisely linked to customer social and psychological value systems and emotional competencies in this age group. Examination of research on Volkswagen did not indicate any negative sentiment from the brand in existing key target markets. Thus, there is no indication that branding has been unsuccessful in Europe, Asia, North America and Australia by remaining true to the values and principles associated with psychographic characteristics of its known and desired target market. By not attempting to build expansive mass market strategies, the company can perform well in sales through differentiation rather than selecting broader and less targeted business strategies such as low-cost provider strategies or best-cost strategies that could erode brand reputation. Why is this? By focusing on price, it would likely, in the long-term, erode the relevancy that customers find with lifestyle by seeing sophistication even with lower prices. Emphasizing price continuously would create a too value-conscious brand for Volkswagen and Thompson (2008, p.147) identifies that buyers will “rarely pay willingly for value they do not perceive”. With Volkswagen, the company has many different risks of buyer power in this market due to high volumes of low-cost efficiency vehicles offering similar or even lower prices. Volkswagen manages to promote value without necessarily talking price, instead promoting value as an experience by using relevant targeted communications in a format or platform that customers can relate with. Based on the research evidence uncovered about Volkswagen and its marketing mix strategies, there is only one recommendation to improve its competitive advantage and gain more market loyalty. The business waits until a new model is launched before highlighting automobiles in sophisticated and relevant setting (i.e. guerrilla marketing or auto show events) and thus reduces visibility during periods where model releases are far-upcoming. The 2010 annual report indicates that there is a new dedicated focus on selling used Volkswagens under the same marketing strategy and targeted communications strategy. It would seem that the business could better position the company against competition, especially in Europe and North America, where manufacturers continuously promote autos on television and radio even between periods of new model releases. There is a high risk of brand defection in this market due to high competition and where competitive edge is largely based on positioning and differentiation. There are many other value-priced autos in these markets that have sophisticated and expensive marketing. By offering these same, consistent youth-based communications during non-release periods, Volkswagen can continue to provide excellence in customer relationship management and ensure that the brand is relevant in daily lifestyle. The duration of promotions, sponsorships and other promotions would seem to be the only real area needing improvement, especially since these consumers have been identified as being dissatisfied with the routine aspects of their lifestyles as proposed by Macrae (2011). Keeping the brand fresh will provide more visibility and opportunities to maintain long-term connections with customers that demand self-exploration and new experiences in their target age groups. Rather than relying on periodic campaigns large scale, more distributed philosophy would be better suited to market personality and needs characteristics. Much of the research about the company dealt with establishing brand loyalty and maintaining market interest in the many different models offered by the company. In terms of meeting with customer needs and attitudes, clearly VW excels which is reflected in its several years of sales revenue increases and the ability to keep production levels high for smaller vehicles when, in countries like the United States, it is hard to predict sales volumes due to high competition in small car competition like Toyota and Honda. The company’s annual reports illustrate that production levels are very high for these products year on year, thus illustrating that the business is able to maintain loyalty. Through sponsorship activities, such as “The Blues”, the business builds brand equity that can be applied to supplementary merchandise. In terms of pricing, product and place, the business also seems to excel by staying true to the consumer attitude and emotions with this target market audience of youth buyers. Nothing in the translation would seem to provide any perceptions to customers that Volkswagen is trying to cheapen the brand and thus it can retain a blend of sophistication and also value pricing positioning without having to emphasize pricing issues to customers. Product is developed with the youth buyer in mind with sophisticated looks without having to establish a very high pricing model. This would be significantly defeating for the success of this brand’s marketing mix that is better served not through operational changes, but in establishing a more aesthetic dealer network and better promotional output. 4. References Aron, A., Aron, E.N. and Smollan, D. (1992), Inclusion of other in the self-scale and the structure of interpersonal closeness, Journal of Personality and Social Psychology, 63(4), pp.596-612. B & T Weekly. (2011), Volkswagen causes sleep walking, Reed Business Information, July 12. Fuhrmans, V. (2010), Volkswagen aims at fast lane in U.S. [online] Available at: http://online.wsj.com/article/SB10001424052748703743504575493504267114766.html (accessed 27 August, 2012). Greenwald, A.G., Banaji, M.R., Rudman, L.A., Farnham, S.D., Nosek, B.A. and Mellott, D.S. (2002), A unified theory of implicit attitudes, stereotypes, self-esteem and self-concept, Psychological Review, 109(1), pp.3-25. Linked In. (2011), Volkswagen India Case Study, Linked In Marketing Solutions. [online] Available at: http://marketing.linkedin.com/sites/default/files/pdfs/LinkedIn_VWIndia_CaseStudy2011.pdf (accessed 27 August, 2012). Macrae, F. (2011), Most 25 to 35 year olds suffering from a quarter life crisis. [online] Available at: http://www.dailymail.co.uk/sciencetech/article-1383684/Most-25-35-year-olds-suffering-quarter-life-crisis.html (accessed 25 August, 2012). Phillips, C. (2008), Brand Loyalty: The Ultimate Book of Choice and Value. HoAm Presst Publishing. SGPTV. (2010), Volkswagen and the Blues: The most successful integrated marketing sponsorship in PBS history, Sponsorship Group for Public Television. [online] Available at: http://www.sgptv.org/casestudies/blues_case_template_10.pdf (accessed 28 August, 2012). Soh, W. (2011), Volkswagen Brand in China, p.25. [online] Available at: http://www.volkswagenag.com/content/vwcorp/info_center/de/talks_and_presentations/2010/05/Presentation_Mr__Soh_-_Brand.-bin.acq/qual-BinaryStorageItem.Single.File/4.%20Mr.%20Soh%20Brand.pdf (accessed 26 August, 2012). Thompson, A. (2008), The Five Generic Competitive Strategies: Which one to employ?. [online] Available at: http://www.scribd.com/doc/92580197/Five-Generic-Business-Level-Strategies-Thompson-Et-Al-Chap5 (accessed 26 August, 2012). Tribal DDB. (2008), Volkswagen.co.uk: A new age of marketing cars online, p.2. [online] Available at: http://www.ddb.com/pdf/press/current/02-15-08_TribalVW_newAge.pdf (accessed 27 August 2012). Volkswagen Group. (2011), Are you Volkswagen enough?. [online] Available at: http://my.volkswagen.com/etc/medialib/vwcms/virtualmaster/my/newsevents/news/content.Par.0144.File.pdf/are_you_volkswagen.pdf (accessed 26 August, 2012). Volkswagen. (2011), Experience Driversity Annual Report 2011. [online] Available at: http://www.volkswagenag.com Volkswagen. (2010), Experience Driversity Annual Report 2010, p.191. [online] Available at: http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2011/03/Volkswagen_AG_Geschaeftsbericht_2010.-bin.acq/qual-BinaryStorageItem.Single.File/GB_2010_e.pdf (accessed 26 August 2012). Appendix A: Sample of Promotion for PBS at Volkswagen Source: SGPTV. (2010). http://www.sgptv.org/casestudies/blues_case_template_10.pdf Read More