Volkswagen Can Improve Its Business

Volkswagen can improve its business by focusing on two key areas of the marketing mix -- price and promotion. The company has a relatively small business in the United States, but part of that is due to its promotional strategy. Volkswagen is the world's #11 advertiser, spending $2.3 billion in 2008. Yet its market share lags many of its competitors in the United States, at just 2%. This indicates that the company is not sending the right message to consumers through its promotion strategy.

The company is attempting to address the issue of cost by producing in North America, reducing both production cost and shipping cost (Gopwani & Phelan, 2010). The promotional strategy for Volkswagen at present is low-key, and emphasizes practicality. This message may have mass market appeal in the company's European home base, but it does not fit with America's unique driving culture. Most communities in the United State are built around the car (Silver, 2009). Moreover, driving in America retains a romance -- Americans love their cars.

Or at the very least, they want to love them. What Americans don't want are practical cars. Cars are not devices for the performance of function; they are not microwaves. Cars, rather, are an extension of one's self and one's personality. Practical is not a virtue that sells cars in America. The first recommendation, therefore, is for Volkswagen to overhaul its promotional message. The company spends a massive amount on advertising and has made investments in production facilities in Mexico in order to grow its market share in North America.

In order to move those units, the promotional message must appeal to Americans. There are a number of different options for the message, including appeals to fun, to style, to the pleasure of driving a Volkswagen. The company can de-emphasize the long-form Volkswagen name in favor of something snappier, like VW. Another tactic that is recommended with respect to promotion is to focus the advertising on the high end products of the brand. Volkswagen advertisements seem to be focused on the lower-end product of which the company sells most.

However, those products are the least likely to entice consumers to come to a Volkswagen lot. The company seems to take the approach that to sell Jettas it needs to advertise Jettas. The firm's competitors, however, often skew their advertising to the higher end products. This generates excitement in the brand in general, and that excitement will put all products in the family on the radar screen. Jetta buyers may buy the Jetta, but if given the choice they would probably prefer to buy something better.

It is that better car from the ads that you are using to sell the high-volume low-end vehicles. Volkswagen has a two-door coupe that it showcased at the 2010 Detroit auto show (Gopwani & Phelan, 2010). Cars like that, and even the Beetle, offer an attractive proposition to consumers that the company should focus on. Advertising then needs to focus on the cars customers really want, not the cars they will ultimately buy. A critical step towards this recommendation is to evaluate the options for new advertising agencies.

If the current agency cannot create ads that generate buzz and resonate with consumers, it may be time to find an agency that will do that. Volkswagen has the financial wherewithal to hire any ad agency it wants, so there is no excuse for using somebody that cannot deliver results. For a fresh marketing message, turnover of the advertising agency is likely to be a critical step, so the process of evaluating potential new agencies should begin immediately. Lastly, Volkswagen needs to increase its promotion spending in the U.S.

The company may be a massive advertiser worldwide, but in the U.S. It seems to advertise roughly in line with its market share. If Volkswagen wishes to increase its market share, it needs to spend more money. The brand has a relatively high level of awareness -- everybody has heard of Volkswagen -- but beyond that basic awareness there is very little sense of what a Volkswagen car would be like or even of the full lineup of cars available.

The company needs to increase its marketing in order to put its brand to the forefront of the consumer's mind. Consumers do not think of Volkswagen first when thinking of cars; the increased marketing expenditure will help to change that. Too often, consumers purchase another car before even giving consideration to the Volkswagen alternative. In addition, the promotion mix should be evaluated. There is a wide range of media that can be used to deliver the desired messages to the consumers.

Volkswagen has spent money without getting results, so it should also evaluate the media channels by which it markets its cars. It would be premature to make decisions with regards to channels without an evaluation, so the first step in this recommendation is to gather the data with respect to target market reach, purchasing intent and advertising expenditure in order to make a sound decision with regards to the media mix for future advertising campaigns. Price has been an issue for Volkswagen in recent years.

The company has not to this point produced in North America. This places it at a cost disadvantage to most other automakers in the North American market. Volkswagen has higher labor costs, higher shipping costs and faces currency exposure risk. In recent years, North American profits have been reduced as a result of shifting exchange rates between the dollar and the euro. With a plant in Mexico, Volkswagen will be more price competitive.

The plant also represents an opportunity to gain an operating hedge, such that much of the currency rate risk is eliminated or at least reduced. Most importantly, the new plant gives Volkswagen the opportunity to use price as a competitive weapon. At present, the company prices in the mid-range. It focuses its marketing on models with added bells and whistles, as the margins are higher. This may give the impression that the base model is inferior, or is something to be discouraged.

The company needs to find a pricing strategy that allows them to make money on all models, base or fully-loaded. More important, the price should be at a point where the company can attract new buyers. If the standard of the vehicle is below that of Honda or Toyota, then the price should reflect that. American automakers have lost market share for decades because of the disconnect between price and quality. Volkswagen now has the flexibility in its cost structure to avoid that same fate.

For example, the Jetta is priced $2,280 more than the Civic. Depending on how much the Mexican plant impacts the cost structure, Volkswagen should set a goal of pricing alongside the Civic, if it can do so profitably. It would mentally deficient to suggest price points without knowing production costs, so until the Mexican plant is up to full speed, pricing strategy should be set in loose terms. Volkswagen should set benchmarks for its prices. The company should price alongside or slightly below the leaders in each segment.

Volkswagen should take the necessary steps to ensure that its production and marketing costs allow it to do this profitably. The main benefit of pricing in line with benchmarks is that it mimics.