The following post on global strategy is by Thunderbird students Alistair AJ Booth, Mrynal DArcangelo, Abby Freeman, Eric Magnuson

and Christian Zdebel A historical over-reliance on the European automobile market has put Volkswagen (VW) into a precarious 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 and sales into developing nations. Among its competitors, Volkswagen is already the clear leader in BRIC countries (Brazil, Russia, India, and China). However, the company must apply greater resources and focus to BRIC countries, particularly India. Success in India will require a regionspecific approach focused on vehicle safety, fuel efficiency, and environmentally friendly vehicles. All of these are strengths of the company. The right adaptations for the Indian market will enable Volkswagen to differentiate itself from domestic and international competitors and generate growth. As Germany Goes, So Goes Volkswagen Although the automaker has been in business since the 1930s, and is now the second largest automaker in the world, all is not well in Deutschland. Despite sales in 150 countries and an 11.3% 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 the region. In fact, one in every five automobiles sold in Europe today is a Volkswagen. The companys footprint in Germany is even bigger: VW held an impressive 37% share of its home market in the first quarter of 2009. Overall, Germany accounted for 20% of Volkswagens sales in 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 are strongly correlated to GDP, the outlook for the greater European automobile market is predicted to be similarly weak. Worse still is the prognosis for the five countries that historically have accounted 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 list had not generated growth for a number of years. With 20% unemployment, Spain (in fourth place) will likely not make up the difference. Even government stimulus programs, designed to spur consumer demand in Europe, will expire in 2010. Accordingly, Auto Insight projects that auto sales in Western Europe will fall by 8% in 2010, and remain flat in 2011. There also appears to be no refuge in the long-term; the 10-year cumulative adjusted growth rate (CAGR) for the region is only 1%. Despite the uninspiring economic future, car manufacturers have been slow to transition capacity out of Europe. In fact, Volkswagen has not cut capacity at all during the downturn. To support its high fixed-costs and spur demand the company has slashed prices, and profitability and utilization 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 to 14,924 in 2010, a 9% drop.

In addition to macroeconomic factors, the business environment in many European countries is becoming more challenging. This is a direct result of government policies aimed at preserving jobs, preserving or improving the quality of life of workers, and protecting domestic stakeholders; often to the detriment of industry. One such example is the taxpayer-subsidized shortening 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. In 2009, the company sold over 2 million units in BRIC countries alone; more than any other competitor. 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 officially overtaken the U.S. as the largest car market in the world. Brazil may surpass Germany as the #4 market in 2010. New but burgeoning middle classes in BRIC countries are becoming consumer growth 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 the Asia 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 a minuscule 1.3% market share. These results, however, should be used to discount the immense opportunity that India holds for Volkswagen (or its competitors). Car sales in India grew by nearly 30% in 2009. Auto Insight projects that the country will be the third largest automobile market in a decade. To boot, the CAGR over the same period is projected to be 8%; 4% more than global average. Per capita income in India hovers around $4,000 per year; but this figure is misleading. 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 healthy industries and benefit from pay raises that can exceed 20% per year. The government of India estimates that some 300 million people make up this emerging middle class. This segment of consumers-in-waiting makes the Indian automobile market very attractive. If VW intends to meet its stated goal of becoming the worlds largest automaker by 2018,[iii] it must be successful in India. Designing for India: Adapting Volk Indias automobile market presents unique challenges for Volkswagen. Many millions of people live in destitute poverty in India. Public transportation is a deeply entrenched alternative to cars wile roads and related infrastructure remains inadequate. To succeed in India, Volkswagen must adapt its products and strategy to the country, while maintaining its core business model and strengths. 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 set world standards in their respective classes.ii To this end, the authors believe that the company should build a product strategy for India centered around safety, fuel-efficiency, and ecofriendliness, in that order.

Safety First Certainly all of the aforementioned attributes have become table stakes for automobile manufacturers globally, but the order in which they are listed here is significant. In 2006 India surpassed 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, for example, have come to expect that cars have airbags, seat belts, anti-lock brakes, (and many more) 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 that reduce the risk of injury to pedestrians in case of a collision. Regulations mandating rear-view mirrors 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 from incumbents and take market share. Moreover, the company would likely be able to justify its price premium over local automakers. Indias domestic automobile manufacturers (like Tata and Maruti 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, well below that of VW. Accordingly, Volkswagen must create the perception of a value gap vis--vis domestic firms. Although not as good as a barrier to entry, safety is one of VWs built-in competitive advantages. A product and marketing strategy focused on safety first, marketed to professionals 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 the environmental impact of its cars. Two closely related components of this are fuel-efficiency and emissions 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 this case, appeals to the pocketbooks of Indian consumers. Volkswagen-developed diesel engines are therefore 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, is taxed at a much lower rate since it is also used to power trains and buses. Diesel fuel is also less expensive to refine and benefits from a higher combustion rate, making it more efficient than gasoline. As a result of the higher combustion rate diesel engines have more torque, and must therefore be much more robust than their gasoline-fueled counterparts; this means longer engine life and therewith more value for consumers. All of these factors create an inherent cost advantage for diesel engines and plays to Volkswagens strength as a leading manufacturer of diesel motors. With the right emissions control systems, diesel engines are also more environmentally friendly than gasoline engines. Lower fuel consumption also contributes to the green halo diesel engines enjoy. Introducing this as the primary engine technology in Volkswagens India-targeted cars is a natural conclusion. In the mid-term (in car industry terms), Volkswagen must also evaluate the viability of electric cars in India. At a conference in Munich the company announced its plans to unveil its first small family all-electric vehicle, the Golf Twin, in 2013. The goal with this

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 the country.[iv] In the long-term (again, in car industry terms), Volkswagen should reevaluate the economic feasibility of its monstrously efficient diesel-electric hybrid concept car. Conclusion To survive its shrinking traditional markets Volkswagen must continue its advances in China and Brazil. To grow significantly the company must build a strategy to succeed in India. With a focus on 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.

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...