Can Audi’s TDI Clean Diesel Tech push forward the company’s sales in American car industry

BusinessandManagementSL IBSessionMay2014InternalAssessment CandidateNo.0021210032

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Can Audi’s TDI Clean Diesel Tech Push Forward the Company’s Sales in

The U.S. Automobile Industry?

I confirm that this is my own work and is the final version. I have acknowledged each use of the words or ideas of another person, whether written or oral.

Signed:


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Contents

Introduction..........................................................................................................................3

FindingsandAnalysis.........................................................................................................4

MarketingMix-Product .......................................................................................................................5

MarketingMix-Promotion .................................................................................................................6

MarketingMix-Distribution ..............................................................................................................7

MarketingMix-Price...............................................................................................................................8

Conclusion..............................................................................................................................9

ReferenceList....................................................................................................................10

Appendices.........................................................................................................................13

Appendix1.................................................................................................................................................13Appendix2.................................................................................................................................................14Appendix3.................................................................................................................................................16Appendix4.................................................................................................................................................18Appendix5.................................................................................................................................................20Appendix6.................................................................................................................................................23Appendix7.................................................................................................................................................25Appendix8.................................................................................................................................................27Appendix9.................................................................................................................................................31Appendix10..............................................................................................................................................33Appendix11..............................................................................................................................................35Appendix12..............................................................................................................................................37Appendix13..............................................................................................................................................39


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Can Audi’s TDI Clean Diesel Tech Push Forward

the Company’s Sales in The U.S. Automobile Industry?

Introduction

Audi is a premium car brand under Audi AG company, which is a subsidiary company

of Volkswagen AG.

In 2009, Audi combined clean diesel technology with TDI (Turbocharge Direct

Injection) engine to produced the world cleanest diesel car. Currently TDI clean diesel

technology is applied to most of its mainstream product lines.

After several months, Audi introduce TDI clean diesel technology to the U.S. market

by positioning it as a social cause rather than a mere engine variant. [Mike, 2012] It hit

the US market with an ardent vision that they will pave road for the US towards energy

independence, meanwhile Audi bears the mission to revolutionize the stereotypical

idea that people have for diesel --- Dirty.

However, the first year after Audi TDI clean diesel car enter the US market, only 5200

(A3 and Q7) has been sold in the US . [Voelcker, 2011]

This commentary aims to analyze these findings and eventually assess whether the

Audi TDI clean diesel technology will survive in the US market thus boost Audi’s sales

in The U.S. automobile industry.

Findings and Analysis


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SWOT analysis of the current situation of Audi TDI clean diesel models.

Strengths Weaknesses ² High brand image, world-class premium car

brand. ² Advantages over gasoline models.

Source from: Audi of America:

http://www.audiusa.com/innovation/efficiency/tdi

² More expensive than gasoline counterparts ² Maintenance costs for engine are higher than

gasoline engine.

Opportunities Threats ² Diesel is readily available at fueling stations, in

fact, you can find a diesel pump at more than 52% of all stations nationwide [Fuel for Thought, 2013]

² The US’s urging need for energy independence.

² The growing awareness about environmental protection among the US citizens.

² The US government has not been yet to implement any incentives on diesel cars. [HERNDON, 2013]

² Revealed by Volkswagen’s survey, a third of gasoline and hybrid

drivers “believe that clean diesel vehicles are noisy and smell bad.” [Motavalli, 2013]

² Product life cycle shortened by further improvement of other alternative energy powered vehicles.

² The automotive industry is of a high level of intensive competition.

² The price of ultra-low sulfur diesel is higher than the unleaded gasoline for approximately half of the time.


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The SWOT analysis above demonstrates that Audi TDI clean diesel models are of

many merits and differentiated well from other automobiles. Along with the growing

awareness of environmental friendly technology, this is an opportune moment which in

favors of the sales growth of the TDI clean diesel cars. However, the external threats

posed by public bias, economic trend and government policies on diesel cars are the

intractable hindrances of TDI clean diesel models.

Marketing Mix

-Product

Audi is a highly market-oriented company, it responds quickly to the shifting of

customer needs and wants so that Audi sticks closely with the rising consciousness of

environmental protection. By rendering the existing TDI car models the clean diesel

technology, Audi materialized product development meanwhile granted its car models

with a new competitive advantage which differentiated them from that of other

manufacture’s diesel models.

The picture below presents the main advantages of the TDI clean diesel model over its

gasoline counterpart.

Source from: Audi of America http://www.audiusa.com/innovation/efficiency/tdi

Audi puts the quality at the heart of its production process. The firm’s Premium quality


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is a guiding principle in every department at Audi and every employee is firmly

committed to it. [Ingolstadt, 2013]

Through seeping a quality culture into every aspect of the company, Audi met the

fulfilment of TQM (Total Quality Management) which driven the manufacturer to

obtain “zero defect” and lead to a maximum customer satisfaction.

However, regarded to The Boston Consulting Group Matrix, Audi TDI clean diesel car

is a Problem Children which enjoys a high market growth but comparatively low

market share, substantial amount of capital should be invested to sustain an appropriate

marketing strategy. Heretofore, Audi TDI clean diesel cars are of a high probability to

become a rising star.

Marketing Mix

-Promotion

Promotion, it involves the continuous communication with customers. Regarding to the

PLC (Product Life Cycle), Audi TDI clean diesel cars are at launching stage. With

several car models hit the market successively, Audi poured a substantial amount of

money into the informative promotion which stressing the benefits that the clean diesel

engine offered and spreading Audi’s aim that liberating the American mind from the

negative impression that diesel previously brought to them.

The Audi American has devoted to the promotion and the encouragement of CSR

(Corporate social responsibility) immediately after launching the first TDI Clean

Diesel Car model in the US market. Audi launches Facebook Cause campaign and

$25,000 donation to benefit The Nature Conservancy’s Tensas River Basin project to

reduce carbon emissions. [HERNDON, 2009] This action that Audi assumed the social

responsibility largely enhanced the public awareness for Audi TDI clean diesel

technology. The sponsorship also assisted Audi in the spreading of environmental

friendly benefits that clean diesel technology offered. Furthermore, the above-the-line

campaign on Facebook increases the opportunity for public exposure on the internet.


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Being manufactured under the Audi brand whose profit account for about 40 percent of

Volkswagen Groups operating earning.[Reuters, 2013] TDI clean diesel models enjoy

pricing advantage since customers are inclined to pay a higher price for a well-known

brand. Therefore, a successful brand like Audi have an influencing power on customer

because the purchasing decisions of customers are partially depending on the

popularity of the brand.

Marketing Mix

-Distribution

Audi applied dealership as its method of distribution in the US market since local

dealers are more familiar with the US market and the customer’s preferences. In the

US, Audi possesses 270 dealers offer a full line of German-engineered luxury vehicles.

[HERNDON, 2009]

Right after the initial launch of Q7 TDI clean diesel car in the US, Audi redefined it

architecture by investing $1 billion in dealership enhancements. - 30 newly-designed

Audi dealerships to be open by end of 2010. [HERNDON, 2009]

A wider net of distribution could make Audi’s car readily available through physical

outlets meanwhile the TDI clean diesel technology will become accessible to more

potential clients. The one level distribution channel Audi applied also enables the firm

to have sufficient control over its supply chains, showrooms and to secure a premium

brand image.

Overall, the new terminal dealerships save 30-40 percent in expenses compared to

previous dealerships. [HERNDON, 2009] The indirect cost cut down from the

distributional channel could lower the average costs and the BEQ (Break Even Point).


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Audi AG broke ground on a $1.3 billion assembly plant outside the Mexico City,

marking a push into North American production. Keogh,CEO of Audi of America said

it would be quicker than shipping them from Ingolstadt, Germany[Nelson, 2013]

The decision to locate a new plant in Mexico, a developing country, proved to be more

cost-saving than locating it in the US, therefore the low land and labor cost could assist

Audi in the process of achieving economies of scale. More importantly, Mexico is in

close proximity to the US, shortened the time taken by auto transportation means

minimizing the delays of orders which is crucial for Audi who depends on just-in-time

production system.

Marketing Mix

-Price

Audi TDI clean diesel models are obliviously of a premium price, the research and

development costs are exorbitant since Audi spent the last 20 years to make it cleaner,

stronger and faster[Truth In Diesel].

The manufacturer’s suggested price for Audi Q7 at the launching period was $50,900,

currently the official price is $52,900. This indicates that Audi follows mark-up pricing

strategy which means the pricing decision is constituted by the cost of production and

markup. This approach assured Audi to stabilized a fixed level of profit margin,

however, it ignored customer needs and the level of competition.

The reason for the premium price is that TDI clean diesel car buyer are not likely to be

first time car owners so Audi is target at more knowledgeable and affluent customers

who create price inelastic demand thus charging a higher price would be possible.

Moreover, cars are considered to be consumer durables which people are inactively

towards a high frequent of purchase. Therefore, Audi could maintain a relatively high

profit margin, the average profit margin of 2013 third-quarter is 9.4 percent. [Reuters,

2013]


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CONCLUSION

This analysis has demonstrated that Audi’s TDI clean diesel technology will increase

the sales in American automobile industry if Audi sticks to the current marketing

strategies and ensure that the company will not facing cash flow problems since the

campaigns, ATL promotion, dealership enhancement, maintaining high-class image all

required to be funded by substantial amount of money.

The TDI clean diesel car models are undoubtedly of high-end quality also of premium

price, however, the external situation is at odd with the TDI clean diesel models

according to the SWOT analysis, plus the negative image left by diesel is still remained

in the public’s mind. This reveals that the promotion plays the role of significant

importance, providing the public with insights into TDI clean diesel technology - the

low carbon, environmental friendly vision - became a barriers toward high sales level.

Luckily, Audi is a trustworthy brand which has a positive brand image and reputation

that could draw customer’s attention and establish believes. Also, the consolidated

dealership in the US market and the new plants in Mexico largely ameliorated the

efficiency of the distribution channel. Apparently, Audi poured a considerable amount

of resources into the TDI clean diesel product line. Overall, The TDI clean diesel

technology will not only opened up a new market for Audi, but also bring the brand

Audi to a higher morally conscious level.


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Reference List

1. Audi of America, 2013, Fuel for thought, Available at:

http://viewer.zmags.com/publication/3f9f9369#/3f9f9369/1 [Accessed 17

December 2013]

2. HERNDON, 2009.Audi TDI to reduce carbon emissions with The Nature

Conservancy. Audi of America News Channel[online]. 24th June. Available at:

http://audiusnews.net/pressrelease/1413//audi-tdi-reduce-carbon-emissions-nature

-conservancy [Accessed 18 December 2013]

3. HERNDON, 2009. Progress in design: Audi Redefines Dealership Architecture.

Audi of America News Channel[online].30th April. Available at:

http://audiusnews.net/pressrelease/1339//progress-design-audi-redefines-dealershi

p-architecture[Accessed 19 December 2013]

4. HERNDON, 2009. Progress in design: Audi Redefines Dealership Architecture.

Audi of America News Channel[online].30th April. Available at:

http://audiusnews.net/pressrelease/1339//progress-design-audi-redefines-dealershi

p-architecture[Accessed 19 December 2013]

5. HERDON, 2013. Over half of American drivers think government has unfairly

placed bets on electrics over clean diesel vehicles, new Audi survey shows[online].

Audi of America News Channel. Available at:

http://audiusnews.net/newsrelease.do;jsessionid=A9182730381E4E652CAAD194

E26D5312?&id=3621&allImage=1&teaser=over-half-american-drivers-think-gov


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ernment-has-unfairly&mid= [Accessed 16 December]

6. Ingolstadt, 2013. Quality assurance[online]. Audi MediaService.

https://www.audi-mediaservices.com/publish/ms/content/en/public/hintergrundber

ichte/2013/03/12/basic_information_audi_ag/Quality_assurance.html [Accessed

17 December 2013]

7. Mike, 2012. Breaking: Scott Keogh named Audi of America President[online].

Quattroworld. Available at:

http://www.quattroworld.com/audi-newsroom/breaking-scott-keogh-named-audi-

of-america-president/ [Accessed 15 December 2013]

8. Motavalli, J., 2013. Clean diesel: What you need to know?[online]. MNN.

Available at :

http://www.mnn.com/green-tech/transportation/blogs/clean-diesel-what-you-need

-to-know [Accessed 16 December 2013]

9. Nelson, G,. 2013. With Mexican plant, Audi aims to end U.S. shortage.

Automotive News[online]. 4th May. Available at:

http://www.autonews.com/article/20130504/OEM01/130509927/ [Accessed 20

December 2013]

10. Reuters, 2013. UPDATE 1-Audi sticks to profit margin goal despite costs of

growth [online]. 4th October. Available at:

http://www.reuters.com/article/2013/11/04/audi-results-idUSL5N0IP13V2013110

4 [Accessed 18 December 2013]


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11. Reuters, 2013. UPDATE 1-Audi sticks to profit margin goal despite costs of

growth [online]. 4th October. Available

at:http://www.reuters.com/article/2013/11/04/audi-results-idUSL5N0IP13V20131

104 [Accesed 20 December 2013]

12. Truth In Diesel, 2009. USA: Audi of America. Available at:

http://www.funshion.com/vplay/v-2022733 [Accessed 14 December 2013]

13. Voelcker, J., 2011. Audi Powers Onward With Clean-Diesel Lineup For U.S.

Buyers[online]. Green Car Reports. Available at:

http://www.greencarreports.com/news/1056518_audi-powers-onward-with-clean-

diesel-lineup-for-u-s-buyers [Accesssed 15 December 2013]


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Appendices

Appendix 1: Fuel for Thought


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Appendix 2: Audi TDI to reduce carbon emissions with The Nature

Conservancy.


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Appendix 3: Progress in design: Audi Redegines Dealership

Architecture. Audi of America News Channel.


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Appendix 4: Progress in design: Audi Redegines Dealership Architecture. Audi of

America News Channel.


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Appendix 5: Over half of American drivers think government has unfairly placed

bets on electrics over clean diesel vehicles, new Audi survey shows.


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Appendix 6: Quality assurance.


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Appendix 7: Breaking: Scott Keogh named Audi of America

President.


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Appendix 8: Clean diesel: What you need to know?


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Appendix 9: With Mexican plant, Audi aims to end U.S. shortage.


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Appendix 10: UPDATE 1-Audi sticks to profit margin goal despite

costs of growth


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Appendix 11: Truth In Diesel


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Appendix 12: UPDATE 1-Audi sticks to profit margin goal despite

costs of growth.


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Appendix 13: Audi Powers Onward With Clean-Diesel Lineup For

U.S. Buyers.


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Can Audi’s TDI Clean Diesel Tech push forward the company’s sales in American car industry

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