Marketing Report – Volkswagen



Volkswagen (abbreviated VW) is a German automobile manufacturer that was founded on the 28th of May 1937. The company was originally founded by the Nazi Trade Union known as the German Labour Front. At the time the majority of cars being manufactured in Germany were luxurious models that were very expensive. Adolf Hitler, the Chancellor of Germany, decided to sponsor the construction of a new state-owned factory that could produce a car that had a price similar to that of a small motorcycle. The factory was built in Wolfsburg in 1938 and the prototype of the first Volkswagen car was designed by Erwin Komenda.

It was the original car to have the shape of what would be become the iconic Beetle. The intention was to get Germans to take part in a savings scheme to pay for these cars, 336,000 people saved enough to be eligible but unfortunately none of them ever received their car as their savings were stolen during World War 2 and only a handful of the cars were ever produced.

Following World War 2 the factory came under British control and was used to produce 20,000 cars to be used as light transport for the British Army and the German post office. By 1946 the factory was producing 1000 cars a month and avoided being dismantled and moved to Britain as part of war reparations because British car manufacturers deemed the cars “quite unattractive to the average buyer”. In 1948 Volkswagen came under the control of West Germany and began to sell in other countries, by 1951 sales of the Volkswagen Beetle had reached 1 million units. Volkswagen sales continued to increase globally and in 1972 their Beetle make became the most-produced single car make in history. During the early 1970s Volkswagen saw a decline in sales so to combat this they began to produce new models. The first was the Passat in 1973 followed by the Sirocco in 1974 and the Golf in the same year. In the 1980s sales decreased in the United States and Japan dramatically due to the competitive pricing of other car manufacturers. Sales in the U.S. decreased from 293,595 in 1980 to 177,709 in 1984. In the 1990s Volkswagen brought out several new generations of older models which brought them an increase in sales in North America and Great Britain.

However, once again, sales began to drop from 1998 to 2001 and in 2005 Volkswagen announced an operating loss of $1 billion in the US and Canada. Since 2005 Volkswagen has been reporting losses in the world’s largest auto market, the U.S., a new production facility was built in Tennessee, North America in 2011 to stop this trend. Currently Volkswagen is the only car manufacturer to have three of its vehicles on the list of top ten bestselling cars of all time and produced revenue worth €94.7 billion in 2011 with 5271776 units sold in that year. The company also owns other car manufacturers including Bentley, Bugatti, Lamborghini, Audi and Skoda. Volkswagen currently market themselves as a car manufacturer that targets numerous market segments by producing a vast range of models that can provide for the needs of many different customers as their title indicates they aim to produce ‘the people’s car’.

Micro and Macro Factors
Micro Factors
Volkswagen has several competitors in the automobile industry. They have a range of products that span several different sectors of the automobile market. For example their Phaeton model competes with upper class models from Mercedes Benz and BMW while their Golf competes with models from Renault, Citroen and Fiat. However since several car companies are owned by Volkswagen they can orchestrate the companies target markets to avoid clashing with each other.

They also have trouble with competitors when expanding into countries where they previously had little or no presence. In North America Volkswagen have recently built a new production facility and have been attempting to increase their market share by encouraging the purchases of diesel fuelled vehicles. The North American market has proved to be difficult to gain a share in due to reports of their own vehicles being unreliable and competitors like Ford and GM having such a monopoly on the population.

The company’s products have always been marketed as value for money ever since their first model was produced. Volkswagen’s Passat model has been reduced in price by up to $2000 to try and increase sales in markets where the recession has had an impact on potential customers spending power. The reduction in the Passat’s price has also been due to Japanese and American carmakers becoming more competitive in the market with similar models like the Toyota Corolla increasing in popularity. In the American market Volkswagen has had poor sales figures for several years and are hoping to increase sales by reducing model prices and producing more vehicles in their factories in North America and Mexico to avoid being affected by currency fluctuations.

In Europe other car makers such as Fiat have accused Volkswagen of causing a “pricing bloodbath” due to them cutting prices to undercut rivals and increase their own market share in a recession. Volkswagen have been subsidising this tactic by increasing the prices of their models in China especially luxury models like their Phaeton which has proved to be popular in the Asian market.

Volkswagen has stated that they plan to become the world’s largest automaker by 2018. To achieve this Volkswagen still have to drastically increase their sales in North America. So far they have opened a new technical centre in California costing $27 million and opened a production plant in Tennessee worth $1 billion. Volkswagen says these are part of expansion plans that will cost around $4 billion and are aimed at increasing their market share on the continent where American and Japanese automakers have a strong presence with market dominance.

Also in China Volkswagen are planning to build three new production plants to keep up with the increasing demand for their models in the country. China is Volkswagen’s biggest customer and there plans for further expansion in the country will involve expenditure of 14 billion euros over the next few years. This is part of Volkswagen’s strategy to increase sales in China which were at 2.3 million units in 2011 and are forecast to reach 3 million units annually by 2014.

Macro Factor
Political instances that affect Volkswagen are numerous. Several organisations, for example Greenpeace, have noticeable political influence and oppose the company due to its products negative impact upon the environment. These organisations can have a negative impact upon the company spreading bad publicity and lobbying against them in countries where they operate or plan to expand into. Volkswagen must also follow laws within the countries it operates.

For example, recently the European Courts of Justice ruled that a law preventing anyone from holding more than 20% of the company’s shares was illegal and prevented the free flow of capital. Volkswagen also has to comply with other automakers where it has a share in the market. In Europe Fiat’s chief executive has accused Volkswagen of creating a hostile environment for the auto market by slashing product prices when other car companies are struggling during a recession. This has caused car makers to call on the European Commission to form legislation that would regulate car production in Europe.

Volkswagen has to pay large taxes in the countries it operates, however they do try to avoid such expenditures. In a recent takeover of the automaker Porsche Volkswagen purchased 50.1% of the company but also gave the company 1 share of Volkswagen. This meant that the transaction was seen as restructuring instead of a takeover which allowed Volkswagen to avoid taxes worth an estimated 1.5 billion euros to the German tax authorities.

The company also has to consider market differences across regions. This includes the growing market for luxury cars in China which Volkswagen seeks to gain a share in with their Phaeton model while in Europe the company is struggling to hold its market share during economic recessions in several countries. Volkswagen cuts the costs of transporting goods to dealerships by building factories in the countries they sell their goods or neighbouring countries. They have factories in 11 different countries to allow ease of transportation to distributors.

Volkswagen owns several other car companies including Audi, Lamborghini, Seat, Skoda, Bentley Bugatti and Porsche. This allows them to pool the designers and engineers from all of these companies to create new and innovative designs for their vehicles. The ownership of several companies allows Volkswagen to use engineering across product ranges such as the new MQB platform designed for front wheel drive vehicles which is fitted in the Volkswagen Golf, Skoda Octavia, Audi A3 and SEAT Leon model. Another of their latest technological initiatives is aiming to create hybrid-electric versions of their current model range. Volkswagen also play on the reputation of German engineering for its reliability to promote itself as a reliable and safety conscious company when creating products. Volkswagen are also attempting to gain access to BlueTec which is a new system developed by Daimler to decrease fuel consumption in small diesel vehicles engines. Volkswagen want to implement this technology in their small diesel fuelled cars for the US market especially where the diesel fuelled car market is still quite small.

PEST Analysis
* Lobbying within the EU against the consumption of petrol has forced Volkswagen to try and reduce the fuel consumption of their models or develop models that use alternative fuels such as electricity, ethanol or cleaner diesel. * Greenpeace, a large environmental activist group, have led a campaign criticising Volkswagens opposition to proposed new legislation limiting CO2 emissions and energy efficiency by releasing videos parodying Volkswagens own advertisements. * Volkswagen was the first company to implement the ISO14000 legislation when it was still in its drafting stage. The legislation set out by the European Union is a set of standards relating to environmental management by reducing companies operations. * Motor Codes, a ‘government-backed, self-regulatory body for the motor industry’, makes sure companies like Volkswagen maintain their car garages and salesrooms to a high standard throughout the UK.

* In the European car market Volkswagen has been accused by Fiat executives of causing a ‘bloodbath’ by cutting the prices of their vehicles to gain market share during the economic recession while reducing the sales of other car manufacturers. * Volkswagen has factories in 11 countries around the world to reduce the cost of shipping products and to take advantage of differing economical strengths which allows for cheaper
production for Volkswagen. * Volkswagen avoided a €900 million tax bill by adjusting the acquisition of Porsche which they called a ‘restructuring’ rather than a ‘takeover’ because they included the sale of one common stock from Volkswagen with the purchase. * Volkswagen is increasing their market share in China by responding to an increased demand for luxury car models due to Chinas growth in economic strength.

* Volkswagen portrays themselves as a German company known for producing reliable engineering. * Volkswagen translates as ‘the people’s car’ indicating that they produce cars for everyone not just a specific market segment. * The company uses advertises heavily in newspapers, on television, on the radio and a t industry shows. * Adolf Hitler set out Volkswagens production aims, to build a cheap and reliable car that anyone could afford.

* Volkswagen own the car company Audi and uses their engines in many of their cars. * The company emphasises its German roots to capture the reputation for reliable German design in their cars. * Volkswagen has introduced a new engine model called Blue Motion which has increased fuel efficiency. * Ten of Volkswagens models have been awarded a 5 star Euro NCAP safety rating showing that their safety design meet with the top industry standards. * Volkswagen are currently designing new electric versions of several of their current models.

Explanation of Market Research and Examples
Market research is absolutely essential to Volkswagen for a number of reasons. Through successful marketing techniques Volkswagen can control the image their brand portrays with advertisements that are carefully crafted in response to what their research shows the public desires in a car. Market research can tell Volkswagen the type of people that buy specific models from them and from that they can focus newer models around those groups or change the current model to try and attract a new group of potential customers from the population. Also market research is very important when expanding into new territories to predict whether or not their products will be a success and who their competitors are in that new market. An example of this would be Volkswagen expanding into the US automobile market where Japanese and American car makers control the market. To compete with these manufacturers Volkswagen can use market research to figure out what type of advertising to use, what car models will be popular, where to place salesrooms and suitable pricing of their products.

Without market research Volkswagen will enter a market with no prior knowledge of the potential customers, possibly over or under priced products, customers with no knowledge of their brand and an inability to properly place their showrooms in areas with high visibility. So clearly market research is very important to Volkswagen as it allows them to maintain their brand and customer base. An example of Quantitative research that Volkswagen could use would be to look at their sales figures. By looking at this internal source of secondary research they would be able to anticipate what quantities of cars are going to be required at a dealership. Looking at sales figures can allow Volkswagen to get an idea of the spending power of the average visitor to a dealership and therefore adapt each salesroom to the type of customer they expect to meet.

The research can also help Volkswagen detect market trends such as periods of high and low spending monthly so they know whether or not a dealership is producing the level of sales and performance that it should be. If Volkswagen looks at their sales figures on a larger scale, for example, across a country that they operate in, they can review the popularity of their models and use the information obtained to focus on the production of popular models in that country to avoid a surplus of unwanted vehicles. An example of qualitative research for Volkswagen would be customer interviews. This form of primary research would be an easy approach to market research for Volkswagen as they can carry out the interviews in their showrooms when a customer is purchasing or considering purchasing a product from them. Customer interviews would give Volkswagen an in-depth view of the type of customers their brand attracts. The interviews could also extract statistics that allow Volkswagen to find out what type of person is attracted to their products such as their demographics, geographical location, social status and psychographic group. From this information target markets can be identified and focussed upon.

The interviews can also obtain contact information that can be used to carry out further methods of market research such as postal and telephone surveys. Though postal and telephone surveys could be carried out without this information on the public it couldn’t be focussed upon people who have a personal experience with Volkswagens products and services.

Market Segmentation and Targeting
Market segmentation is the process of splitting potential customers into distinct groups where they can be targeted with a specific marketing mix by the company. Customers can be split into groups depending on factors such as their age, income, gender, lifestyle, where they live or their personal values. By using market segmentation Volkswagen can design and produce models of cars that are specifically aimed at certain groups of people. For example Volkswagens Sharan model is a large vehicle with extra seating, lots of space, good fuel consumption and can have child seats built into the model if requested by the buyer. This model was obviously designed to target the family market segment clearly showing that Volkswagen use market segmentation and targeting. Volkswagen are very obvious when targeting certain market segments, even though their overall target market is vast when it is broken down into groups for each car model it becomes more specific.

The slogans they use for certain models are aimed at specific customers, ‘the family hero’ for the Sharan model. Also price range is factor to be considered. Their luxury saloon Phaeton model can cost around £52,000 whereas the supermini Polo model can cost relatively little, around £9000. The large price gap shows that these models are aimed at different people with, most likely, very different levels of income. Therefore Volkswagen are targeting two very different market segments by offering models suitable to different customers income and to suit different customers’ requirements of their car. Currently Volkswagen has 20 different car models in production so they can target many market segments at once. The company’s name means ‘the people’s car’ and obviously they wish to maintain this image by offering models that can suit anyone. Rather than targeting one specific customer base with specific needs and requirements they try to target many.

Volkswagen has produced a vast range of motor vehicles since its founding in 1937 many of which have maintained their popularity by renewing the design over the years. A few of their main models that give a good representation of their overall range are the Beetle, Polo, Golf, Sharan and Phaeton. Polo

The Volkswagen Polo design is a supermini and comes in a range of sizes including a hatchback, saloon estate or coupe. The car has been produced since 1975 and sold worldwide with five different generations of the car being produced in that time. The current Polo design was first produced in 2009 and won European Car of The Year in 2010. The current price range for the Polo model is £9,920-£19,330. The car comes in a range of styles with 3 to 5 doors and a 1.3 to 1.6 litre engine. It has also been awarded a five star Euro NCAP crash impact rating for safety.

The Golf, also known as the Rabbit, is a small family car with front wheel drive and has been produced since 1974 and has gone through six different generations of models. The current price range for the Golf model is £16,425-£33,710. The Golf is Volkswagen’s bestselling model with 29 million having been built by 2012. There have been many variations of the Golf including 3 and 5 door versions. The current generation is called the Mk6 and has been produced since 2008. The car comes in several different variations with engines ranging from 1.2 to 2.5 litres in diesel or petrol. It has won several awards including South African Car of the Year 2010 and Great Britain’s Best Small Family Car according to What Car? Magazine in 2011 and 2012. Like the Polo the Golf has a five star crash safety rating from NCAP.

The Phaeton model is a full size luxury saloon car produced by Volkswagen as their premium class vehicle. The current price range for the Phaeton model is £52,180-£54,740. The car has four doors, and four wheel drive with the engine size varying between 3.2 and 6 litres. The car was originally conceived as a way of competing with Mercedes Benz and BMW when they began producing smaller cars that competed with the Volkswagens Polo and Golf designs. The car is completely assembled manually and Volkswagen acquired more than 100 patents for parts used for the vehicle during its design and production. The car is intended to be marketed as a comfort oriented limousine so it doesn’t conflict with the Audi A8 which is more sport oriented and also produced by Volkswagen. There have been problems with production; the factory estimated 20,000 cars could be produced annually. However after four years only 25,000 had been built.

The Sharan is a 7 seat Minivan produced by Volkswagen in Portugal. The current price range for the Sharan model is £24,205-£33,375 and it is currently in its second generation of design. The cars name Sharan means ‘carrier of kings’ in Persian. The current design in production since 2010 has engine sizes varying from 1.4 to 2 litres in petrol or diesel. In total almost 670,000 units of the model have been sold over 15 years of production. The current model is 30kg lighter than its predecessors and has manual or automatic gearboxes. The car is not sold in the United States due to an agreement Volkswagen have with Ford to allow them market exclusivity.

The Beetle is Volkswagens most iconic automobile. The 2 door car was first produced in 1938 and was manufactured up until 2003 making it the longest running and most manufactured car in the world. It was first produced as a small economy car with rear wheel drive and engine sizes ranging from 1.1 to 1.6 litres. The car was produced in 15 different countries around the world due to its popularity. The final batch of Beetles were produced in 2003. Only 3000 were made, with a 1.6 litre engine, whitewall tyres, tinted glass, chrome bumpers, hubcaps and exterior mirrors. The car could reach a speed of 81mph and carry up to five passengers. The Beetle is also very popular in motorsport especially in drag and off-road racing. There are several racing events specifically for Beetle racing cars including the Beetle Challenge race in the UK.

Translated into English Volkswagen means ‘The people’s car’. This is an example of Volkswagens attempt to market their products as affordable and reliable for everyone. Their target market is quite large as they produce several car models aimed at different areas mainly in the age range of 25-44 years. For example, the Volkswagen Sharan is an MPV aimed at large families due to its size and even its slogan ‘the family hero’. However Volkswagen also produces the Golf which is targeted at younger people with the slogan ‘the legendary hatchback’. Their prices also reflect this with substantial variations between models aimed at people with different levels of finance.

Volkswagen’s official slogan Das Auto which literally means ‘the car’ is another attempt to emulate a sense that their products can cater for anyone requiring an automobile. They also believe in three core values which are innovation, enduring value and responsibility which they want to be associated with their brand through the knowledge that Volkswagen products are created with German engineering skills which is renowned for these exact points.

Volkswagen has several different methods of delivering and promoting its brands products and services to potential customers. The company uses several areas of communication to deliver its presence including television, radio, news, the internet and through mail. They produce several advertisements used on the television and radio usually to promote one of their car models at a time and often attempt to create new slogans or catchphrases to fix their products within the minds of the viewers. Volkswagen is also currently partnered with Universal Studios, the film producer, to promote their products in films.

Another method of promotion which has been used is a program called ‘Blues’ which was a series of music concerts run by Volkswagen to promote their ‘essence’ with more than 2 million people attending them. Through the internet Volkswagen have their own website, podcasts and apps to advertise products, dealership locations, product ranges and prices. Volkswagen’s car dealerships are very direct and personal with salespersons trained to deliver accurate information about products to potential customers. Volkswagen relies on promoting itself as having reasonably priced products to encourage potential buyers but has also had bundle offers in the past such as a free iPod offered with certain models.

The company also seeks to promote itself as having a good environmental record which it has done by setting itself environmental goals such as climate protection and resource conservation. Volkswagen has announced the production of all of their most popular models with diesel-electric engines to reinforce its positive environmental image.

Volkswagen also promotes their models through motorsport racing. The Beetle model is popular with drag racers and the Golf is often used in off-road rallying. Volkswagen won the Dakar rally in 2009, 2010 and 2011 with their Touraeg model. Countries with Volkswagen races include China, South Africa, Great Britain, Peru and Argentina.

Volkswagen has a wide range of products and therefore a large variation in price. The cheapest Polo model can cost £9,920 while the most expensive Phaeton can cost £54,470. Volkswagen was originally founded to produce cars that could be sold at affordable prices to workers. Volkswagen produces some of the cheapest cars in Europe and presents themselves as having some of the most affordable cars with better quality than their competitors.

However in recent years they have also expanded their product range to produce luxury cars such as the Phaeton and the Touareg. Volkswagen has also been known to work with governments to work out reasonable pricing for cars. In Mexico the Volkswagen Beetle was sold for $5300 in 1990 pegged with the national minimum wage to help workers buy cars. In recent years Volkswagen’s product pricing in Europe has come under criticism from other car makers in the region. They have been accused of substantially cutting the prices of their cars to increase their market share in Europe during recessions while increasing prices of models in China to subsidise the move.

Volkswagen has slashed the prices of their vehicles in recent years to maintain and attempt to increase their market share especially in Europe and North America. An example of this is the Volkswagen Jetta’s price which was cut from $18,435 to $16,000 in October 2011. In recent years Volkswagen had adopted a premium pricing strategy with the belief that customers would pay extra for a product from a company with a reputation for reliability. However recently this has been abandoned to increase competitiveness with other car manufacturers in Asia, North America and Europe, especially France. With decreased sales in North America they have lowered prices to try and first establish a foothold in the market before raising prices again with penetration pricing. Volkswagen are now adopting a psychological pricing strategy hoping that customer will purchase their products based on the public perception of their brand.

Volkswagen’s world headquarters are located in Wolfsburg, Germany where the company’s original factory is also based which still produces cars today. However, Volkswagen is now an international corporation with factories in Mexico, Slovakia, India, China, Russia, South Africa, Brazil and Spain. Volkswagen mainly sells its products through its own car showrooms which there are more than 250 of in the UK alone. Their main area of retail is in their own showrooms where they can store, advertise and sell their models to the public.

In Europe Volkswagen dealerships are supplied by central distribution points which there are one of in every country that Volkswagen has dealerships. The cars are sent by train to these central distribution points where they are loaded onto trucks. The trucks are then sent to dealers with an average of 6 cars per truck. There is an average of 1 million VW cars requested by dealers in Europe annually. Volkswagen also delivers cars straight from the factory to the buyer if requested. This form of direct purchasing makes up 50% of purchases made. Since Volkswagen has their own salesrooms they have complete control over how their products are viewed by customers giving them the opportunity to make it a pleasant experience.

There are several different options for transaction of service with Volkswagen. The most popular is purchasing from one of Volkswagens dealerships where their products are available for test drives and sale.

When purchasing a Volkswagen automobile a customer can be taken out with a sales representative for a test drive before purchasing allowing them to experience the product. Following this a customer can choose to purchase the car at the dealership and drive it away the same day.

Volkswagens products can also be purchased and delivered to the customer’s home via the internet. Of course this doesn’t allow customers to test drive the vehicle but it means Volkswagen can access a larger customer base.

Services provided at dealerships by Volkswagen include MOTs in their on-site garages and also the servicing of vehicles. This allows Volkswagen to maintain revenue from previous customers as they will have to return after purchasing a vehicle for regular check-ups or repairs to their vehicle.

Physical Environment
Volkswagen has more than 250 car outlets in the UK alone. These also have garages for cars to receive servicing. Volkswagen operates worldwide with production factories on 6 out of 7 of the world’s continents. The company has a large physical presence with thousands of showrooms around the world and the large presence of its vehicles being used on roads. Being one of the world’s largest automobile companies it has many products that are seen every day by motorists and pedestrians giving it an extensive presence not only in its outlets but also on the road. They also maintain a physical presence through advertising in the media and with their participation in motorsport.

Though the average automobile customer will not purchase a new product regularly Volkswagen does rely on customers becoming regular users. The Volkswagen brand is marketed as reliable and affordably priced to build a customer base that will rely on them and trust them. This means when a customer wants to buy a new car they will feel that they can trust a product from Volkswagen so they are more likely to become a regular customer.

Also Volkswagen dealerships are very personal when they deal with
customers. A customer will deal with one sales representative when they go to a showroom and they are trained to present a friendly and easy to communicate manner to the potential buyer. Customers are made to feel welcome and given the sales representatives full attention since every purchase is very important due to the high retail prices of the products. Sales representatives have to maintain a positive relationship with al customers to keep up Volkswagen’s positive image worldwide.

Marketing Mix
Volkswagen’s marketing mix has been adapted throughout its existence to respond to the change in the automobile markets wants and needs. Originally Volkswagen’s products were to be reliable and affordable for everyone.

Since their beginning they have expanded their product range producing not only affordable cars but also luxury models to cater for wealthier customers. In China, for example, they have increased the production of their luxury Phaeton model to match the increase in personal wealth over recent years in the country. This is an example of Volkswagen responding to the changing market by introducing a product to an area where it will perform well due to an increase in demand and disposable income. To cater for a lower budget they also produce the Polo aimed at younger people with less income. They also produce the Sharan and Golf for anyone with a family or young professionals with slightly more financial income. Volkswagen can therefore attract customer s from a wide array of backgrounds and not have to rely on a single stereotypical customer base.

Another example of Volkswagen adapting their marketing mix is their expansion into the North American car market. As car sales reduce in Europe due to the economic recession of several countries and Volkswagen seek to become the largest car manufacturer in the world they need to expand into other markets to maintain steady growth worldwide. By expanding into North America they can target new customers and subsidise losses in other territories with successful sales elsewhere.

Also Volkswagen uses promotion well to let the public know about its
products spending £73.5 million in 2010 alone, double the industry average. Advertising is used in newspapers, on the internet, on billboards, on the television and on the radio to raise public awareness. Also all of their products bear the Volkswagen badge so road users and pedestrians will see Volkswagen products every day without any cost to Volkswagen. Volkswagen outsources its advertising to agencies in the country they want to advertise in. This allows Volkswagen to have unique advertising in each country they operate in and specialists that have more knowledge of what will be well received in each territory.

Volkswagen places their products in their own salesrooms which means that they can control the environment that they are seen in. This is big advantage as it means that when a potential customer views their products Volkswagen has total control of the setting to make sure the experience is a positive one. It also means that the customer can be shown the products by a Volkswagen employee that knows about the product and can answer any questions the customer has. Therefore Volkswagen have complete control of the image their products convey when a customer is viewing them.

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