Volkswagen Group: Marketing Strategy of the Company

Introduction

The Volkswagen Group is a Germany-based automobile manufacturer that has expanded its operation to the global market since its establishment in 1937. The company has a large brand portfolio consisting of twelve brands. Some of them are cars of the premium segment, such as Audi, Bentley, Bugatti, Lamborghini and Porsche. Other Volkswagen’s brands, such as Seat, Škoda and Volkswagen Passenger Cars, are oriented toward the mass market. This paper will review the company’s Volkswagen Passenger Cars brand by exploring the customer needs that it meets and how it is differentiated from competitors. Further, the paper will discuss Volkswagen’s target market segments and positioning in the US market. Finally, environmental factors that can influence the brand will be analysed, as well as the ways in which Volkswagen can implement its marketing mix to address those factors.

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Customer Needs

The Volkswagen Group operates in the automotive industry and provides its customers with personal means of transportation. While the company’s manufactured product is an automobile, the customer needs that it meets is mobility. When people buy a car, they do not buy an iron box on four wheels; instead, they buy a possibility to get from their current place to the point of destination quickly and reliably. Thus, the basic function of the Volkswagen brand is to enable customers to travel from one place to another employing automobiles that are affordable, reliable, fast and comfortable to drive.

While the basic customer need met by automobile manufacturers remains unchanged, the recent advancements in technology, as well as increasing concern about the environment, has led to changes in customer requirements. Wittmann (2016) cites the study of the firm Arthur D. Little, which classified car buyers in the developed markets of Europe, North America, and Japan, into seven categories depending on their needs. These customer types include renovators, family cruisers, silver drivers, high-frequency commuters, global jet setters, sensation seekers and low-end mobility users (Wittmann, 2016). Greenovators have a special need for sustainability and innovation in vehicles, while sensation seekers need automobiles that emphasize their prestige and status and provide them with freedom and fun (Wittmann, 2016). Silver drivers are active retired people who are experienced in the field of automobiles and value quality (Wittmann, 2016). There are still low-end mobility consumers whose needs are limited to basic mobility because of a lack of money (Wittmann, 2016). These customers need mobility at an affordable price.

These findings are confirmed and supplemented by a survey conducted by another company aimed at exploring consumer trends in the automotive industry. Joyce (2020) reports that, out of 2700 respondents, 30% considered quality as the most significant attribute of an automobile, and 21% of them gave their votes to affordability. Furthermore, it has been identified that car buyers need friendly customer service after they have made a purchase (Joyce, 2020). Thus, clients of automobile manufacturers need mobility, which is fulfilled by an affordable and high-quality vehicle and customer service following the purchase.

The Volkswagen Passenger Cars brand successfully meets the needs of its customers. It provides consumers with high-quality automobiles at quite affordable prices. In addition, Volkswagen offers its customers various service and maintenance plans. Moreover, the company directs its efforts toward developing electric cars, such as the newly designed Volkswagen ID.3 (Volkswagen AG, 2019). This model will enable the brand to satisfy the needs of customers who attach much value to the sustainability of vehicles.

Differentiation from Competitors

Volkswagen’s differentiation strategy had changed since 2015 when it became involved in an emission scandal. That year, the EPA discovered that Volkswagen’s cars sold in the US possessed defeat devices in their diesel engines, which decreased emission levels during the testing period (Magadia et al., 2019). As a result, the company had to undergo rebranding to improve its brand image. Before the scandal, the Volkswagen brand was differentiated from competitors by offering high-quality automobiles at affordable prices to numerous middle-class customers. Volkswagen’s goal was mobility for every person across the world (Magadia et al., 2019). After the incident with emission test cheating, the company took measures to recover its reputation by emphasizing the company’s new orientation toward sustainability. Now, it differentiates itself from competitors by taking on responsibility for environmental protection and providing e-mobility for millions of customers (Volkswagen AG, 2019). While electric cars are still less prevalent than diesel automobiles, Volkswagen aims at being the first to occupy this niche and becoming the world leader in the e-mobility industry.

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Like many other brands, Volkswagen is differentiated from its competitors by its recognizable logo. Recently, the company has improved its brand logo by making it simpler and more suitable for use in the digital space (Volkswagen AG, 2019). Figure 1 shows the new Volkswagen’s logo, which has become two-dimensional, flexible and containing only essential elements (Volkswagen AG, 2019). The entrance of the brand into digital marketing is likely to facilitate its communication with customers, improve the ability to convey its brand image to the target audience and help get customer feedback.

Volkswagen’s new logo
Figure 1. Volkswagen’s new logo (Volkswagen AG, 2019)

Sustainability, the transformation of diesel vehicles into electric cars and the implementation of digital marketing are not the only constituents of the Volkswagen brand image. The company’s Chief Marketing Officer claims that the brand intends to “become more human and more lively, to adopt the customer’s perspective to a greater extent and to tell authentic stories” (Volkswagen Newsroom, 2019, para. 5). For this reason, the firm has begun making advertisements featuring ordinary middle-aged people so that its customers can identify themselves with the brand (Volkswagen AG, 2019). Figure 2 shows an example of Volkswagen’s more human advertisement (Volkswagen Newsroom, 2019). By adopting such an advertising approach, the company differentiated its brand from competitors by demonstrating that it is customer-oriented rather than product-oriented.

One more distinction of Volkswagen that the company conveys to its customers is the use of smart devices and modern technologies in cars of this brand. Volkswagen aims at making millions of people’s lives more comfortable and more satisfying (Volkswagen AG, 2019). In this regard, the company experiences strong competition from Tesla, an auto brand that is a present-day leader in the field of electric cars and the use of modern technologies (Musonera and Cagle, 2019). However, the difference between the brands is that Tesla positions its products as luxury items and targets them at wealthier market segments, while Volkswagen makes technology affordable for middle-income segments. Its new model, Volkswagen ID.3, is designed to provide the general public with a sustainable means of transportation that has been unattainable before (Ewing, 2019). Thus, Volkswagen’s current differentiation strategy lies in orientation toward customers, digitalization and providing access to modern technologies for ordinary people.

Volkswagen emphasizes its strong focus on people
Figure 2. Volkswagen emphasizes its strong focus on people (Volkswagen Newsroom, 2019)

Target Market Segments and Positioning

The Volkswagen brand operates in many markets around the world. This section will review the brand’s North American market, which includes such countries as the US, Canada and Mexico. More specifically, Volkswagen’s target segments and positioning in the US market will be explored. Volkswagen is one of four major companies in the North American car market, along with General Motors, Toyota, and Ford (Trefis Team, 2020). Although Volkswagen’s market size is the smallest among these four brands, it demonstrated the highest growth from 2015 to 2019 (Trefis Team, 2020). It may imply that, despite Volkswagen’s involvement in the emission scandal of 2015, the demand for its products did not decline.

As for the geographical segmentation, in the US market, Volkswagen targets its products at people living in the US. The major segmentation criterion seems to be consumers’ income since the brand’s range of products is distinguished by its affordable prices. Within the middle-income segment, Volkswagen singles out several segments according to customers’ age, lifecycle stage and lifestyle. The brand has specific models designed for particular target market segments. For example, VW Passat is positioned as a car suitable for both business and personal purposes and targets middle-income business people (Couch, 2017). Station wagons, such as Golf Alltrack and Golf Sportwagen, are designed for middle-aged people with families (Couch, 2017). All models of the Volkswagen Passenger Car brand are positioned as suitable cars for daily driving.

Volkswagen’s attention to targeting and positioning is clearly seen in its efforts to design its new VW Jetta tailored to the US market. The brand decided to make this compact sedan car the key offering in the US market because it has shown itself as the best-selling model in this region (Vellequette, 2017). Americans generally prefer sedans, while Europeans tend to choose hatchbacks. Furthermore, Volkswagen has managed to equip this model with luxury-level equipment while preserving its affordable price, which makes Jetta a competitive offering in the US market (Vellequette, 2017). Volkswagen targets this model at young Americans and positions it as a reliable compact vehicle with advanced technologies, “the only German-engineered sedan in the segment” (Woebcken and Erb, 2017, p. 8). Taking into consideration the strict fuel economy regulations of the US, Volkswagen also offers its American customers electric vehicles.

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Influential Environmental Factors

The marketing environment changes at rapid rates these days, especially in the automotive industry. It is possible to distinguish political, social and technological factors influencing the car market. In the political field, policymakers become more and more concerned about environmental protection and the prevention of further global warming. As a result, policies and regulations are being developed to limit carbon dioxide emissions and restrict air and water pollution. Recently, a new legal initiative has emerged, which has a direct relationship with the automotive industry. Many European countries, including France, the UK, the Netherlands, Sweden and others, are planning to phase out vehicles powered by fossil fuels (Kovács, 2019). The ban on conventional cars is likely to enter into force in 2030-2040, depending on the country (Kovács, 2019). This change in policies challenges car manufacturers to switch to producing electric vehicles and develop new technologies that would make such automobiles reliable and affordable for many customers.

Social factors influencing the marketing environment include changing attitudes of customers toward regulations of the automotive industry and essential attributes of modern vehicles. Just like policymakers, customers are concerned about the sustainability of the cars that they purchase. A recent survey involving 1,520 participants from the US showed that people were ready to support policies designed to restrict new sales of fossil fuel cars (Rinscheid, Pianta and Weber, 2019). Furthermore, respondents preferred restrictions to be implemented sooner rather than later, with the 2030 year being named the latest deadline (Rinscheid, Pianta and Weber, 2019). It is explained by a common opinion that if new regulations are introduced later than 2030, they will have fewer positive effects on the environment (Rinscheid, Pianta and Weber, 2019). Therefore, car manufacturers have to prepare themselves for the oncoming regulatory changes and adjust their range of products to new customer demands.

Technological factors are not less influential than political and social ones because they determine what companies will gain a strong competitive advantage in the market due to their new technological developments. In response to environmental concerns, many car manufacturers invest in technologies allowing them to lower their carbon dioxide emissions, including the development of electric vehicles (Candelo, 2019). Apart from increasing sustainability, new technologies emerge designed to make driving easier and safer. A connected car that interacts with the environment and self-driving cars that move without human interference are examples of such technologies (Wittmann, 2016). Furthermore, innovative trends in the automotive industry include mobility-as-a-service, which is already provided by such companies as Uber, BlaBlaCar, or Zipcar (Candelo, 2019). This trend may lead to a decrease in car purchases because people are likely to choose to rent a car rather than buy it.

By applying its marketing mix, Volkswagen can cope with these oncoming changes in the automotive industry. The first essential component of the marketing mix is the product. To address challenges that the automotive industry is faced with, Volkswagen has to develop a new product, namely an electric vehicle. The brand has already started working on this issue, and its Volkswagen ID.3 is the first product that can help the brand meet new industry requirements. Volkswagen may develop more electric car models to satisfy the various needs of its target market or improve the issued model to make it more reliable and cost-effective. Moreover, Volkswagen has to consider its after-sales service for the newly-developed electric cars, such as changing the batteries.

The second component of the marketing mix to be considered is the price. Although the price has a considerable influence on the number of automobiles that a car manufacturer can sell, its significance is lower than that of the product and promotion (Antonella, 2017). Wittmann (2016) found out that only low-income consumers and some high-frequency commuters were high-sensitive to price, while other customers were less price-sensitive. Based on this, Volkswagen can charge a competitive price for its electric cars, which would make these vehicles affordable for the brand’s target market while allowing for producing high-quality, reliable cars. It would not be recommended to charge low prices because it could lead to a decrease in quality, which would damage the brand.

Promotion is another significant component of the marketing mix, and Volkswagen has to make much effort to differentiate its new products from those of competitors. While Tesla, which is now the leader in the electric car market, targets its products at wealthy customers, Volkswagen has a chance to strengthen its position as an electric car brand for the middle-income segment. To promote its new electric vehicles, Volkswagen should launch advertising campaigns using different channels, including digital media, emphasizing the sustainability, reliability, and affordability of its products.

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The last element of the marketing mix is the place, including access to the target market and distribution channels. The study by Antonella (2017) showed that place had an almost insignificant influence on the number of cars sold. It may mean that Volkswagen is unlikely to benefit from investing in new showrooms. Furthermore, the brand already has manufacturing plants in its key locations, which allows it to deliver cars to distributors on time. It may be suggested that these plants be equipped appropriately to be able to produce electric cars.

Conclusion

Volkswagen Passenger Cars is a world-famous automobile brand that is constantly evolving and willing to accept new challenges in the industry. Positioned as a car for ordinary people, Volkswagen sees its future in making e-mobility affordable for millions of customers. By investing in technology development, the brand will be able to cope with oncoming changes in the automotive industry, including new policy regulations, social attitudes, and technological advancements of competitors.

Reference List

Antonella, S. F. (2017) ‘The effects of marketing mix (4P) on companies’ profitability: a case study of automotive industry in France’, Journal of Research in Marketing, 8(1), pp. 636-640.

Candelo, E. (2019) Marketing innovations in the automotive industry. Cham: Springer.

Couch, K. et al. (2017) Volkswagen brand audit. Web.

Ewing, J. (2019) Volkswagen hopes fresh logo signals an emission-free future. Web.

Joyce, G. (2020) 2020: consumer trends for the auto industry. Web.

Kovács, Z. (2019) The end of the fossil fuel car is on the EU agenda. Web.

Magadia, R. et al. (2019) A real-time case analysis. Web.

Musonera, E. and Cagle, C. (2019) ‘Electric car brand positioning in the automotive industry: recommendations for sustainable and innovative marketing strategies’, Journal of Strategic Innovation and Sustainability, 14(1), pp. 120-133.

Rinscheid, A., Pianta, S. and Weber, E. U. (2019) ‘Fast track or SloMo? Public support and temporal preferences for phasing out fossil fuel cars in the United States’, Climate Policy, 20(1), pp. 30-45.

Trefis Team (2020) How has the North American automobile market fared over the last few years? Web.

Vellequette, L. P. (2017) VW hopes this look will keep the Jetta its U.S. best-seller. Web.

Volkswagen AG (2019) That’s what “New Volkswagen” is all about. Web.

Volkswagen Newsroom (2019) Volkswagen unveils new brand design and logo. Web.

Wittmann, J. (2016) ‘Electrification and digitalization as disruptive trends: new perspectives for the automotive industry?’, in Khare, A., Stewart, B. and Schatz, R. (eds.) Phantom ex machina. Cham: Springer, pp. 137-159.

Woebcken, H. J. and Erb, M. (2017) Volkswagen Group of America – business and product update including preview of the all-new Jetta. Web.

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