Critical Analysis of Re-branding Strategy: Case Study of Skoda

Automobiles

Branding is perhaps the most important factor that influences the sale, perception,

loyalty, satisfaction and distinguishes the product from the rest of the competitors. It

should be in tandem with the environmental and technological changes. In this case, it

can be observed that Skoda works lost its market leadership as they were unable to

change with time. The company could have just as easily gone under had it not been for

Volkswagens intervention that subsequently saw the growth and popularity of the Czech

automobile company restored. The Re-branding procedure definitely had a vital role in

this success. Some scholars have regarded this as one of the best come-backs in the

history of automobiles. Skoda Works was initially an arms manufacturer which took over

a Czechoslovakian automobile manufacturer which was set up in 1895 by Vaclav Laurin

and Vaclav Klement. The company was named after the founders at the time. The

company’s portfolio at the time boasted or arms manufacturing, bicycle repair shops,

motorcycle manufacturer and automobiles towards the beginning of the 1900’s.

(www.campaignlive.co.uk)

Skoda was one of the oldest automobile manufacturing companies in the world and

prospered until the 2nd world war. However, post World War 2, the company was taken

over by the Germans. Communism made it difficult for the company to keep abreast

with the technological advancements of the west. By the time the company was

nationalized by the Czech Government, the company had suffered due to disrepute and

weak quality and unreliability of its products. When communism was finally overthrown

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after the velvet revolutions, companies were faced with privatization. Skoda agreed to a

joint venture with the German Volkswagen group which completed the formalities on the

16th of April, 1991. The German company seems to have saved Skoda from going out of

business through their specifically designed re-branding procedure.

Even though the critics were uncertain on Volkswagens call for a takeover of the Czech

automobile company which was viewed as a mere laughing stock, the company was

successful in strategically restoring the former glory of Skoda Works. Volkswagen re-

branded the Skoda strategically by taking initiatives in building brand image, quality,

reliability etc. Towards the end of the 1990’s, Skoda’s reputation in the market had

changed in favor of them. They were then known for reliable and sturdy, ‘value for

money brand’.

The Re-Branding process

Volkswagen had under its wings four different brands of automobiles viz. Audi, Seat,

Skoda and VW. The company strived hard to maintain each of their competencies in the

market. The company positioned these different brands in such a way that each brand

catered to the needs and requirements of different clientele. In other words their

strategy was that of ‘Niche marketing.’ VW was known for its engineering and high

quality, whereas Audi was marketed and developed as a luxury car. Seat was targeted

at the youth and had no frills attached, low costs associated and Skoda was portrayed

as an economic and competent automobile. (Kotler, P., 2003)

HR Front: Volkswagen also set about to improve the morale of the workers at the

Skoda manufacturing plant. Skoda had gained a reputation of being unreliable and

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poor quality manufacturers after the World War 2. The employees’ morale was

undoubtedly affected by this. To rectify this issue, VW built a museum for Skoda that

showcased its glorious past and its heritage as the oldest manufacturers of

automobiles. The company did not try to merge Skoda with theirs but kept its identity

secluded from theirs. The brand name was allowed to flourish under its supervision and

facilitated exchange of technological inputs. This brought about a sense of pride and

belonging for the employees. They also appointed a Czech CEO, Ludvik Kalma, to add

to the morale of the employees.

Quality Management: Skoda’s production assembly was outdated over the years. VW

introduced new production systems at the company which emphasized the need for

quality, expenses, team building and non absenteeism. They also introduced incentives

to teams that performed consistently well to boost quality. The supply chain was also

improvised over the years with the help of a grading system. Over the years many

suppliers became adept at supplying reliable and high quality products to Skoda at

competitive rates. The company also employed the Just in time production process,

encouraged job rotation and promoted flexibility. The suppliers like Siemens were

allowed to set up their own plants in the Skoda complex to facilitate quicker mobility and

reduce overhead costs. (www.carautoportal.com)

New Product Development: Post take-over, Skoda launched ‘Felicia’ in 1994. This car

was introduced in the small car segment and was available in several modified versions.

However the unique selling proposition of the Felicia was its emphasis on safety

features. This changed the perceptions of the company by a great deal in Western

Europe. Following the success of Felicia, the company launched ‘Octavia’ in 1996 which

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went on to become the most popular product for Skoda. The company incorporated

major technological advances, design and safety features in the development of

Octavia. It was well received all over Europe and the Skoda plant ended up producing

70,000 more cars than planned, taking the number to 1,60,000 cars a year.

Image Development: Skoda started aggressive marketing in order make their

presence felt. Especially in UK, where Skoda was least regarded, the company came

out with attractive promotions, promised extra after sales services and customer

support, they also portrayed the Czech heritage. Some advertisements even made fun

of their own past and grabbed attention. They also endorsed popular Czech celebrities

which helped in changing the customer perceptions. All of this seems to have worked

for the company as the company received various accolades over the years. They were

also placed very high on JD Power & Associates, customer satisfaction surveys during

the late 1990’s. (www.skoda.com.au)

All these factors have clearly helped the Czech company establish a firm control over

the automobile industry (until 2006), although it did so in the economy, small car, and

mass marketing sectors. However, it is necessary to understand the reasons behind the

Re-branding procedures which eventually got the company through tough times during

the recession and finally able to shed its low-cost image and attract brand conscious

consumers. (www.bbc.com)

Based on the critical analysis on the Re-branding of Skoda, the motives for the same

can be observed, as mentioned below.

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As per Michael Porter’s 5 Forces Theory and applying the model with UK as the

market it can be observed that:

Threat of new entrants were very high

Power of suppliers and buyers were low

Threat of substitutes were low

However, threat of rivalry between competitors was very high.

Fighting the odds, VW transformed Skoda into a company that withstood enormous

pressure from its competition. The company saw the sales units of automobiles rise

from 1, 72,000 units in 1991 to 762,000 units in 2010. (www.tcworld.info)

Since, 2007 the company’s’ efforts were evident when Skoda launched Fabia as a

youthful vehicle and Skoda Yeti as an elegant deluxe vehicle. Especially in the UK

market, perceptions started changing due to the use of advertisements which

emotionalized the brand further and put an end to the jokes that they endured for so

long. As of January, 2011, the company managed to outdo its past performance by

selling a record 68,400 vehicles in January. (www.economictimes.com)

Conclusion: Volkswagens multi branding strategy seems to have worked in favor of

them. The company could cater to different market needs. The diverse portfolio of VW

also proves to be a high barrier to entry for other competitors and also protects Skoda’s

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interests at the same time. They also capitalized on the economies of scale which made

it easier for them to lower prices further to ward off competition.

The bottom line of this all is that Skoda made it to the road to recovery with the help of

Volkswagen. The re-branding strategy employed by VW for Skoda not only helped them

shed the low cost brand image but also helped restore the goodwill of the brand.

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References

Campaign. (2001) Best comeback in the history of automobiles. UK [Online]

Available at: http://www.campaignlive.co.uk/news/18550/TOP-PERFORMERS-2000-

Campaign-Year---Skoda-Once-butt-thousand-jokes-Skoda-achieved-unthinkable-turned-itself-

desirable-product-brave-witty-campaign-Fallon/?DCMP=ILC-SEARCH [Accessed on 10-02-

2011]

Kotler, P., (2003) Marketing Insights from A to Z: 80 concepts every manager

needs to know- Niche marketing strategy. USA. John Wiley & Sons.

Porter, M.E. (1979), How Competitive Forces Shape Strategy, Harvard business

Review, March/April 1979.

The Economic Times. (2011) Skoda auto says January sales up 26.4%. [Online]

Available at :http://economictimes.indiatimes.com/news/international-business/skoda-auto-

says-january-sales-up-264/articleshow/7468028.cms [Accessed on 10-02-2011]

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Logo Design Company (2009) Skoda gets a makeover. [Blog- Online] Available

at: http://www.logodesignworks.co.uk/blog/skoda-gets-a-makeover [Accessed on 10-02-

2011]

Bila, L., (2008) Skoda: Facts and Figures. [Online] Available at:

http://www.tcworld.info/index.php?id=76 [Accessed on 11-02-2011]

Skoda Auto as (2004) Annual Sales report. [Online- pdf] Prague. Available at:

http://www.volkswagenag.com/vwag/vwcorp/info_center/en/talks_and_presentations/

2004/06/Skoda_Octavia_Presentation_.-bin.acq/qual-BinaryStorageItem.Single.File/

20040621_skodaoctavia.pdf [Accessed on 11-02-2011]

Anon. (n.d.) Skoda [Online] www.carautoportal.com Available at:

http://www.carautoportal.com/skoda/ [Accessed on 11-02-2011]

BBC (2000) Skoda has last laugh. [Online] Available at:

http://news.bbc.co.uk/1/hi/uk/654973.stm [Accessed on 11- 02-2011]

News, Skoda (2009) Skoda scores another top five finish in JD Power survey.

Available at: http://www.skoda.com.au/skodaaustralia/news-16.aspx [Accessed on 11-

02-2011]

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