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The following post on global strategy is by Thunderbird studentsAlistair AJ Booth, Mrynal

DArcangelo, Abby Freeman, Eric Magnuson andChristian Zdebel

A historical over-reliance on the European automobile market has put Volkswagen (VW) into aprecarious position. The combination of depressed regional demand and overcapacity cloud the

companys outlook in its native region. To this end VW has extended both manufacturing andsales into developing nations. Among its competitors, Volkswagen is already the clear leader inBRIC countries (Brazil, Russia, India, and China). However, the company must apply greaterresources and focus to BRIC countries, particularly India. Success in India will require a region-specific approach focused on vehicle safety, fuel efficiency, and environmentally friendlyvehicles. All of these are strengths of the company. The right adaptations for the Indian marketwill enable Volkswagen to differentiate itself from domestic and international competitors andgenerate growth.

As Germany Goes, So Goes Volkswagen

Although the automaker has been in business since the 1930s, and is now the second largestautomaker in the world, all is not well in Deutschland. Despite sales in 150 countries and an11.3% global market share in 2009[i]its fortunes are still very much tied to Europe. Nearly 70%of the companys revenue and over one-half of its operating profit are still generated from theregion. In fact, one in every five automobiles sold in Europe today is a Volkswagen. Thecompanys footprint in Germany is even bigger: VW held an impressive 37% share of its homemarket in the first quarter of 2009. Overall, Germany accounted for 20% of Volkswagens salesin 2009[ii].

The companys dependence on the European market is problematic because demand

expectations for the continent are declining. The IMF (International Monetary Fund) projects

regional growth of just 1.3% and 1.7% for 2011 and 2012, respectively. Since car sales arestrongly correlated to GDP, the outlook for the greater European automobile market is predictedto be similarly weak. Worse still is the prognosis for the five countries that historically haveaccounted for 75-80% of European automobile sales: Germany, Italy, France, Spain and the UK(in that order). Even before the onset of the global financial crisis, the first 3 countries on this listhad not generated growth for a number of years. With 20% unemployment, Spain (in fourthplace) will likely not make up the difference. Even government stimulus programs, designed tospur consumer demand in Europe, will expire in 2010. Accordingly, Auto Insight projects thatauto sales in Western Europe will fall by 8% in 2010, and remain flat in 2011. There also appearsto be no refuge in the long-term; the 10-year cumulative adjusted growth rate (CAGR) for theregion is only 1%.

Despite the uninspiring economic future, car manufacturers have been slow to transition capacityout of Europe. In fact, Volkswagen has not cut capacity at all during the downturn. To support itshigh fixed-costs and spur demand the company has slashed prices, and profitability andutilization have suffered. Deutsche Bank estimates Volkswagens operating margin in Europe at

a paltry 1.1% and 1.8% for 2009 and 2010, respectively. The companys average unit price,

largely driven by Western European buyers, is anticipated to decline from 16,364 in 2008 to14,924 in 2010, a 9% drop.

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In addition to macroeconomic factors, the business environment in many European countries isbecoming more challenging. This is a direct result of government policies aimed at preservingjobs, preserving or improving the quality of life of workers, and protecting domesticstakeholders; often to the detriment of industry. One such example is the taxpayer-subsidizedshortening of workweeks in France and Germany. In this case workers spend less time on the

factory floor while drawing the same salaries and benefits.

Looking Eastward

Volkswagens success in emerging markets is noteworthy and perhaps its best-kept secret. In2009, the company sold over 2 million units in BRIC countries alone; more than any othercompetitor. In the first half of 2010 VW sold over 950,000 vehicles in China, earning it a 20%market share in that country. This does not come as a surprise to analysts: China has officiallyovertaken the U.S. as the largest car market in the world. Brazil may surpass Germany as the #4market in 2010. New but burgeoning middle classes in BRIC countries are becoming consumergrowth engines. This flies in the face of critics who condemn these countries as loss-leader

havens or ultra-value markets. In 2009 Volkswagen generated operating margins of 5% in theAsia Pacific region and 10% in South America; multiples of the 1-2% it earned at home.

Volkswagens beachhead in China is strong, but the company has only made small inroads in

India (pun intended). The company sold only 19,000 units in India in 2009, constituting aminuscule 1.3% market share. These results, however, should be used to discount the immenseopportunity that India holds for Volkswagen (or its competitors). Car sales in India grew bynearly 30% in 2009. Auto Insight projects that the country will be the third largest automobilemarket in a decade. To boot, the CAGR over the same period is projected to be 8%; 4% morethan global average. Per capita income in India hovers around $4,000 per year; but this figure ismisleading. India has a large and growing middle class, members of which command salaries

between five and ten times the national average. Moreover, these individuals work in healthyindustries and benefit from pay raises that can exceed 20% per year. The government of Indiaestimates that some 300 million people make up this emerging middle class. This segment ofconsumers-in-waiting makes the Indian automobile market very attractive. If VW intends tomeet its stated goal of becoming the worlds largest automaker by 2018,[iii]it must be successfulin India.

Designing for India: Adapting Volk

Indias automobile market presents unique challenges for Volkswagen. Many millions of peoplelive in destitute poverty in India. Public transportation is a deeply entrenched alternative to carswile roads and related infrastructure remains inadequate. To succeed in India, Volkswagen mustadapt its products and strategy to the country, while maintaining its core business model andstrengths. According to VW, It is the goal of the [the company] to offer attractive, safe and

environmentally sound vehicles which are competitive on an increasingly tough market and setworld standards in their respective classes.ii To this end, the authors believe that the companyshould build a product strategy for India centered around safety, fuel-efficiency, and eco-friendliness, in that order.

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Safety First

Certainly all of the aforementioned attributes have become table stakes for automobilemanufacturers globally, but the order in which they are listed here is significant. In 2006 Indiasurpassed China as the country with the most fatal car accidents in the world. In most of the

developed world, safety is no longer an option: it is a standard feature. German drivers, forexample, have come to expect that cars have airbags, seat belts, anti-lock brakes, (and manymore) and that vehicles meet some sort of government-mandated impact safety standard.Volkswagen provides all of these, as well as design considerations on the exterior of its cars thatreduce the risk of injury to pedestrians in case of a collision. Regulations mandating rear-viewmirrors in India have only been in effect for five years.

By focusing on safety as a selling point, Volkswagen will be able to differentiate itself fromincumbents and take market share. Moreover, the company would likely be able to justify itsprice premium over local automakers. Indias domestic automobile manufacturers (like Tata andMaruti Suzuki) have been able to leave out key safety features in the interest of keeping prices

low. Today, these incumbents offer most new cars at sub $10,000 starting price points, wellbelow that of VW. Accordingly, Volkswagen must create the perception of a value gap vis--visdomestic firms. Although not as good as a barrier to entry, safety is one of VWs built-incompetitive advantages. A product and marketing strategy focused on safety first, marketed toprofessionals and young families of the middle class will serve Volkswagen well in India.

Lean and Green

Alongside safety, the focus of leading, global automobile manufacturers is on minimizing theenvironmental impact of its cars. Two closely related components of this are fuel-efficiency andemissions control. Again, the order of these components is important in India. While the latter

appeals to the Hindu traditions of harmony with nature, the former, and more significant in thiscase, appeals to the pocketbooks of Indian consumers. Volkswagen-developed diesel engines aretherefore the best option to power the companys Indian market models.

Much like in Europe, unleaded gasoline is heavily taxed in India. Diesel, on the other hand, istaxed at a much lower rate since it is also used to power trains and buses. Diesel fuel is also lessexpensive to refine and benefits from a higher combustion rate, making it more efficient thangasoline. As a result of the higher combustion rate diesel engines have more torque, and musttherefore be much more robust than their gasoline-fueled counterparts; this means longer enginelife and therewith more value for consumers. All of these factors create an inherent costadvantage for diesel engines and plays to Volkswagens strength as a leading manufacturer ofdiesel motors.

With the right emissions control systems, diesel engines are also more environmentally friendlythan gasoline engines. Lower fuel consumption also contributes to the green halo diesel enginesenjoy. Introducing this as the primary engine technology in Volkswagens India-targeted cars is anatural conclusion. In the mid-term (in car industry terms), Volkswagen must also evaluate theviability of electric cars in India. At a conference in Munich the company announced its plans tounveil its first small family all-electric vehicle, the Golf Twin, in 2013. The goal with this

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car is to introduce an affordable, electric, and green vehicle option. The authors believe such a

vehicle may ultimately be attractive to Indian consumers given the severe air pollution in thecountry.[iv]In the long-term (again, in car industry terms), Volkswagen should reevaluate theeconomic feasibility of its monstrously efficient diesel-electric hybrid concept car.

Conclusion

To survive its shrinking traditional markets Volkswagen must continue its advances in China andBrazil. To grow significantly the company must build a strategy to succeed in India. With a focuson positioning as the safety leader that also offers lower operating costs and eco-friendly driving,Volkswagen has a good chance of doing just that

New

Volkswagen India- Marketing Strategy In India

CASE FACTS

Entered Indian market in 2001 with launch of Skoda.

Audi and Volkswagen brands launched in 2007.

Two group companies Volkswagen India & VGSIPL.

Volkswagen India Volkswagen branded cars.

VGSIPL Audi and Skoda.

Marketing strategy in India Product, Place, Price, Promotion.

ISSUES

Caters mainly to luxury segment.

Higher price range except Skoda Fabia.

Lack of brand awareness among Indian consumers.

Lack of aggressive marketing in earlier phases.

Lesser sales than BMW, Mercedez, etc (SIAM).

Lack of consumer knowledge what Volkswagen stands for.

Perceived value v/s Perceived price value line.

4 Ps OF MARKETING

Product

15 different models under 3 brands.

Plant at Chakan, near Pune.

More assembly plans in India competitive advantage.

Awards last year.

Price

Targeted mainly for the luxury segment in the Indian market.

Plan to capture bigger market through the VW Polo.

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number of dealerships and outlets across major cities.

Promotion

Launched Integrated Marketing campaign in November, 2009.

Collaboration with DDB Mudra.

Evoke consumer awareness of VW as a brand.

Innovative promotional campaigns OOH, print ads,TVCs.

Print media Communicating benefits.

Television Commercials Brand building.

PLANS

Building brand image through innovative promotional campaigns.

Earlier example think small for Beetle in 50s.Core focus on luxury segments.

Low cost VW Polo for targeting masses.

Achieve significant awareness of VW as a brand before launch of Polo.

Showcase German engineering coupled with Made in India promise.

AD CAMPAIGNS

Highlights the technical qualities it ensures.

tested by our engineers. So you dont need to.

Highlights Volkswagen as a composite brand.

Cars for different stages of life and career.

SHOULD

Continue with its innovative brand awareness exercise clutter-free.

An...