Volkswagen of America, Inc. :

A Marketing Analysis

BBUS 421, Consumer Marketing

Professor Sandeep Krishnamurthy

April 14, 1997

By:

The Five P's

Brent Terry

Dina Michelleti

Clifton Weeks

Bill Jukes

Chris Kigawa


Table of Contents

I. Introduction

II. Marketing Mix

Product and Distribution

Price

Promotion

Positioning

III. Post-hoc Analysis and Recommendations

Strengths

Weaknesses

Comments

VI. References

V. Tables, Charts & Graphs


Introduction

Volkswagen products are well known by consumers for German engineering at an affordable price. In the mid 1970's Volkswagen made a fundamental shift in their efforts from manufacturing cars that were solely economical to cars that can out-perform others in their weight class. Today, this focus is in full effect as customers demand performance along with modern options that improve the driving experience. This analysis will focus on the marketing strategies Volkswagen of America Inc. uses to gain market share and maintain the status as the number one importer of European passenger cars.

As noted, Volkswagen's marketing department has taken a different approach for selling cars in recent years to coincide with consumer demands. Volkswagen now focuses on what they can offer the driver rather than what they perceive as customer needs and wants by utilizing a "pull" promotional strategy. This approach is consistent with current "value delivery" marketing concepts. The new slogan, "Drivers wanted", creates an image of a product being the first "driver's" car on the road. Does Volkswagen go about selling cars in an aggressive way? We think so.

It's apparent why Volkswagen has made a move in the auto industry; cool ads and trendy cars that are affordable, and fun. Volkswagen's television advertisements show a variety of accommodations to the public promoting a diverse line of automobiles for a wide range of desires in a specific target market. On the other hand, Volkswagen employs individual advertising themes in order to target very narrow market segments within the overall target market.

The passenger car market in the United States is very large and diverse which suits Volkswagen's products quite well. Although competition in the mid-range passenger car market is the largest of all categories, diverse customer values create many market-niche opportunities. The marketing-mix tools, used by Volkswagen, are unique in some respects, and in-line with industry practices in other areas.


MARKETING MIX

Product and Distribution

Volkswagen makes several cars on the Golf/Jetta platform. The models include: the Golf, the sportier Golf Sport, the GTI VR6, the Jetta GL, the mid-level Jetta GLX, and the convertible Cabrio. Though each of these cars have their own perceived character, they all have virtually the same specifications and components. The Golf and Jetta offer a 2-liter 4-cylinder engine or a 2.8 liter V6 in the GTI. All models come with a 5-speed manual or automatic overdrive transmission (Gillis, www.vw.com). According to a Sales Manager at Campbell/Nelson Volkswagen, "80% of our sales come from the Jetta GL model.....This is probably consistent with a nationwide figure." The Golf model is popular in Germany, but is perceived as too small in the U. S. market.

The Passat, Volkswagen's top of the line model now comes with TDI (Turbo Direct Injection), dual airbags, traction control and ABS. The Passat is rigid, and handling is responsive. The interior resembles that of a large car, seats are roomy enough for four and well designed for long trips (Gillis, www.vw.com). This model has enjoyed limited success, but European luxury cars are gaining on Japanese and domestic auto makers in this market. "As overall U.S. auto sales increased 4.3% in the first seven months of this year, sales of European models went up 10.8%" (Nauss, LA Times, Aug 17 1996).

Augmented product offers include three major after sales benefits: the Master Guard Service, Roadside Assistance, and Limited New Vehicle Warranty. Master Guard Service provides the customer with limited coverage of any damages on either new or used cars. Roadside Assistance is an impressive service where customers can obtain help on the road when problems occur. The Limited New Vehicle Warranty is the twenty-four month product protection plan which gives the consumer a two year, 30,000 mile bumper-to-bumper warranty. Volkswagen was the first to offer the 10-year/100,000 mile power train warranty which is becoming a trend in the industry.

Price

In terms of pricing, Volkswagen has several tactics to give its products a strong competitive advantage in the target market. While the company focus is on product quality, it also tries to offer the consumer an affordable price on every new car.

Most European cars are very expensive because of their high quality and reputation. However, Volkswagen produces some of the least expensive cars in Europe, but have quality standards as high as other European cars. Compared to other car companies in the world, the price of a Volkswagen is very attractive. In fact, the price range of a new Volkswagen is about between $15,000 to $20,000.

Volkswagen claims to have a higher level of quality with respect to price, compared to it's competition. For example, the price of the VW Golf is $13,470, and the Honda Hatchback Civic is $11,800. The difference is that the VW Golf has more horsepower, a better quality on the body material, and specially designed for outdoor activities. On the other hand, other Volkswagen's are cheaper than other rival cars. For example, the VW Jetta is $14,570, and a Honda Accord is $15,100. The Passat, which is the luxury car among Volkswagen models, is very affordable for a luxury sedan with a sticker price of $19,430. This car fills a demand for luxury cars, and competes directly with Audi, Honda, Acura, BMW and Mercedes Benz.

There is a sense of psychological pricing in Volkswagen's strategy. Some consumers are willing to pay for Volkswagens' quality and reputation. When customer find that they truly get what they paid for it reduces "buyers remorse", and improves customers satisfaction. The introduction of the VW Golf K2 and use of product-bundle pricing strategies are strategies used by Volkswagen. The new Golf has some special features to attract customers with an active lifestyle and appreciation for winter sports. Customers save money by not having to pay the high price of buying this equipment separately.

Promotion

Volkswagen has shown they attempt to out-do competitors in advertising with an aggressive, promotional image campaign. Creating a sense of customer value by accommodating customer needs. This is, in large part, achieved by image-based advertising. Consumers perceive the "VW" emblem as a symbol of character and reliability. Volkswagen has been able to develop a strong customer loyalty which creates a bond between the driver and the brand.

Volkswagen uses many different innovative marketing strategies in gaining market share through a creative promotional scheme. They target their products to a very narrow market, a market that in the past has not been exploited by many other car companies. The Jetta Trek and the Golf K2 are using a marketing scheme called co-branding. "The key to co-branding success, is a good marriage where compatibility leads to benefits for both brands" (Ad Week, Sep 9, 1996). Volkswagens' recent promotion offers the Golf K2 ski/snowboard package which maintains partnership with a brand that is complementary to each product.

When developing a commercial, Volkswagen takes into consideration an aggressive style of advertising. Volkswagen is in search of the generation X-er's as consumers of their product. "Ripped, up, Cranky, rude, noisy ads are a way of eluding the usual rules and getting outside the mainstream" (Adweek, Oct. 7 1996). Many advertisements use a certain magic in obtaining the attention of the desired consumer.

"There are an estimated 40 million 21 to 38 year olds who, growing up in the 1960's and 70's, watched the original Speed Racer cartoon series. These people were huge fans of Speed Racer as kids and still hold an affinity to the character as adults," said Ron Lawner, Arnold Communications' chief creative officer. "Speed Racer will clearly show that Volkswagen is hip, different, and proud of it "(Fouladpour, www.vw.com).

Positioning

Positioning is the most important aspect of the marketing mix for Volkswagen. Positioning incorporates and blends the four P's together in order to form a marketing program "fit" which helps to establish clear marketing goals. Market segmentation is the first step. Volkswagen seems to have a relatively small market share in the overall domestic passenger car market at 1.5%. (See market share chart) However, they have been able to establish a niche in a very competitive market. As shown in the attached customer profile (Table 1), a typical Volkswagen car owner is a young male (ages 25-34 predominantly) with a college education who earns a moderate income and lives in the suburban areas of the Western and Southern U.S. As noted earlier, the advertising campaigns are aimed at young, outgoing and ambitious persons who enjoy a sporty yet practical mode of transportation. In this respect, it seems Volkswagen has been accurate in targeting prospective market segments with their ad-campaigns.

According to the data we were able to obtain from Simmons Market Research Inc., albeit somewhat outdated, it would seem Volkswagen has assessed customer value traits for the passenger car market quite well. Our comparison research, based on customer purchasing decisions (Table 2) from Simmons data and our own informal survey, found that gas mileage and manufacturer reputation are two dominant factors in the purchase decision out of the four factors surveyed. With Volkswagen's target age group being between 25-44yrs (Table 1) practical product attributes remain a heavily weighted factor. However, style and image factors are a growing trend in automobile purchase decisions by consumers. It seems that Volkswagen has effectively measured customer values and employed some kind of "value delivery" program within their marketing mix.


Post-hoc Analysis and Recommendations

Strengths

Volkswagen seems to have moved through the value delivery process steps effectively based on the available information we have been able to analyze. First, they identified customer value traits based on customer wants and needs. Second, they chose customer segment values within the broad target market and used the firms abilities to create customer value. Third, Volkswagen provided these value traits through an effective marketing mix. The fourth and the most successful value delivery step achieved by Volkswagen is their communication of value through promotional advertisements--mainly television commercials. Finally, customer satisfaction of Volkswagen products seems to be at a very high level. We found that most Volkswagen customers are very loyal, leading to a high customer retention rate.

Weaknesses

Volkswagen's overall marketing strategy seems pretty sound in terms of value delivery. However, one obstacle they are still having a problem overcoming is the old "econo-box" image of a merely practical mode of transportation. The relatively new image make-over will take some time for some segments of the target market to become convinced. Advertising slogans used by Volkswagen have also been perceived as ambiguous. "Drivers wanted", sounds like a desperate attempt to sell cars. Of course, who can forget the "fahrvergnugen" slogan. "What the hell does that word mean?" is a common response by many who were confused by the meaning. The slogans are abstract, but the ad-campaign images are effective.

Comments

Obviously, the advertising slogans are one aspect of promotion which we feel Volkswagen can improve upon. A new updated version of the "Driver's Wanted" slogan is "Test Driver's Wanted." While this may have changed the perceived theme behind the ad, it is still not a convincing slogan. We tried to think of a slogan for Volkswagen on our own, but found it difficult to come up with something effective. Brent Terry, a Volkswagen enthusiast and marketing student, commented on how VW uses three basic colors (red, white and black) plus one or two bright colors on special models. We feel Volkswagen should consider offering a larger color variety for their cars, especially their "cash cow" Jetta GL model.

In closing, we feel that we would have chosen Volkswagen for a marketing analysis if we had to do it over again. Information was fairly easy to obtain, but due to the time constraints we were unable to gain any specific details directly from Volkswagen's home office and marketing department. If we had been able to receive information from Volkswagen's professional marketing department, we feel we could have provided a more accurate analysis of the "marketing mix" strategies. An interview with a 17-year veteran, sales manager did give us some valuable information. We were able to obtain information from the campus library that was helpful, but a bit out-dated in reference to the Simmons data.


References

Fouladpour, T. (1996, July 16). Speed racer becomes first animated action hero to endorse a car--drives Volkswagen GTI to victory in new TV spot. http://www.vw.com

Gelsi, S. (1996, September 2). Autos seek the right vehicle. Brandweek, Vol 37, Iss 34, pp. 24.

Gillis, J. (1997). Volkswagen models ranked as best bets. http://www.vw.com

Lippert, B. (1996, October7). Super 97' brands - attitude unbecoming. Ad Week [Eastern Ed.], pp. 36-40.

Market Share Reporter (1997 edition) pp. 270 and 356.

Nauss, D. W. (1996, August 17). Pedal to the metal: Europeans come back from behind luxury car market. Los Angeles Times, p. D1.

Simmons Market Research Bureau, Inc. (1993 edition) Automobile Volume.

Terry, B. (1997, April 12). [Interview with Sales manager at Campbell/Nelson Volkswagen (Theo)].

Warner, J. (1996, September 9). Target marketing pains, brands for cross promotions and tie-ins. Ad Week [New England Ed.], p. 5.