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Volkswagen Group’s Marketing Situation

Situation Analysis

Introduction

Volkswagen Indian subsidiary was founded in 2007 to assemble, manufacture, and distribute Volkswagen vehicles in the country (Datamonitor, 2011). The company offers a variety of vehicles including Volkswagen Passat, Audi, Skoda, Jetta, Touareg, Polo, Phaeton, and beetle. The company has been using a multi-brand strategy that has disadvantaged the creation of a strong brand. Volkswagen Passat is among the products offered by the company from its small car segment.

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The product is designed for average income earners who seek to have the experience of new technologies. Iyer (2009) observes how the economy of India is growing at a very high rate and most of the people are enjoying increased earnings. The buying behavior of the people is changing as well and they are yearning for more luxurious goods. The middle-aged people are particularly responding to technological changes in the motor industry (Ludwig, 2011, p.21). This paper is intended to investigate the situational analysis of Volkswagen Passat marketing in India.

Procedure

The paper employs a research methodology that uses secondary sources to acquire information about the company and the market. The principal source that will be used in the study is the World Wide Web. Here, we will visit the Volkswagen websites, government, and business websites as well as other relevant databases that can offer relevant information. The gathered information will then be analyzed and synthesized to produce a report that gives the actual situation of the company. SWOT analysis will be the main tool that will be employed to present the strengths, weaknesses, opportunities, and threats that the firm can pay attention to in order to develop effective strategies.

Findings

SWOT analysis

Volkswagen has a number of powerful strengths that can be used to build its business in India, but the major weakness is the weak brand image. There is an opportunity in the increasing demand for cars as a result of the growing economy (Nizamuddin, 2008, p.345). The major strengths, weaknesses, opportunities, and threats are summarized in table 2.

Table 2.

Strengths
  • Strong brand portfolio
  • Robust production capabilities
  • Strong focus on R&D
Weaknesses
  • Sluggish performance in India
  • Weak brand image in India
  • Poor cash flows
Opportunities
  • Accelerating demand for small cars in India
  • Increasing demand for hybrid vehicles
  • Continued economic growth
Threats
  • Increasing competition
  • Increasing pressure for low-cost vehicles
  • Environmental protection regulations
Strengths

Volkswagen can build on three essential strengths:

  1. Strong brand portfolio. The Volkswagen Company has a wide range of cars that are recognized and respected across the world. The Volkswagen Passat in particular comprises a variety of models designed according to the varying needs of the customer.
  2. Robust production capabilities. Being the third largest manufacturer of automobiles in the world, the company suggests its powerful production capabilities. This is important in ensuring a balance of the demand and supply of the product.
  3. Strong focus on R&D. The active involvement in research can ensure that the company differentiates its product through innovation. This strength is also important for improved quality as the Unique Selling Propositions.
Weaknesses

The late entry of Volkswagen into the Indian market has led to some weaknesses being observed in the company.

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  1. Sluggish performance. The Volkswagen Indian Group is slow in performance within the market as compared to other competitors. Their focus has been on the major cities which deny them the opportunity to exploit the upcoming rural consumers.
  2. Weak brand image. As a result of the late entry, the brand image of Volkswagen is very weak among Indian consumers. This weakness can be very effective as the brand image is vital in a competitive environment.
  3. Poor cash flows. During the growth stage in the product lifecycle, Volkswagen invested in a massive awareness campaign. This funding has caused an imbalance between the expenses and returns achieved from sales.
Opportunities

Volkswagen can take the advantage of several market opportunities:

  1. Accelerating demand for small cars. The Indian economic boom has resulted in increased earning and thus the change of consumer behavior. Most of the low-income earners who could not have afforded to buy a car have enough to do it now. Indeed, the earnings are expected to increase continually in the next several years.
  2. Increasing demand for hybrid vehicles. Volkswagen can exploit this opportunity by combining production capabilities with research and development. The demand for cars is increasing, yet very few manufacturers are responding to it.
  3. Continued economic growth. The Indian economy is expected to continue growing in the future and hence increased earnings and job opportunities (Ramesh, 2010, p.22). These will enable other consumers to enter the market and expand the opportunities.
Threats

Volkswagen Company faces three major threats

  1. Stiff competition. The opportunities arising in India have made automobile manufacturers increase their activities in the country (Ramesh, 2010, p.24). This is leading to the continued increase of motor vehicle supply including renowned brands.
  2. Pressures for low-cost products. Indian consumers have become more cost-sensitive ever than before. This has led to the industry responding with cheap brands that reduce profitability significantly. While Volkswagen has been focusing on quality, other competitors like Honda and Toyota have successfully implemented cost strategies in the market.
  3. Environmental protection policy. The issue of global warming has led to major changes in environmental regulations. Vehicles being one of the key contributors to this warming are particularly vulnerable to regulation changes.

Conclusion

Despite the intense competition, Volkswagen can win a substantial market share and strengthen its brand image among the targeted market segments. The low-fuel consumption engine system is an important point of differentiation in the competition. Offering a variety of Passat models is also a strong competitive edge to win a wide customer base (Hitt, Ireland & Hoskisson, 2008). In addition, the Volkswagen brand is recognized across the world and can use this position to compete. The company will be required to emulate the strengths and take advantage of the weaknesses of the closest competitors.

Objectives and Strategy Development

Introduction

Volkswagen Company with experience in the automobile market entered the already matured small-car market in India. Small cars are increasingly becoming popular in the Indian market with increasing economic growth. Forecasts suggest that the sales of small cars and trucks will grow by more than 40% for the next five years (McClellan & Shah, 2007, p.38). Market competition is therefore stiff despite the increasing demand for small cars. The automobile industry is also strengthening and low prices are pushing profitability. Consumers are increasingly becoming more sensitive to prices and quality of the product than ever before.

However, the Indian motor vehicle market represents a large part of the economy with sales of over1.5 million unit vehicles (BMI, 2010, p.54). In order to gain a significant market share in the changing environment, Volkswagen must differentiate its products while targeting specific segments of consumers. This section of the paper is aimed at identifying the most effective strategies Volkswagen can implement in order to market Passat and position better in the Indian market.

Procedure

The internet will be used to provide secondary sources that will give information about the company and the market. Here, we will visit the Volkswagen websites, government, and business websites as well as other databases that can offer relevant information. The gathered information will then be analyzed and synthesized to produce a report that gives the best strategies for the company. PEST and Porter’s five forces analysis will be used as the analytical tools that will assist in identifying these marketing strategies that Volkswagen can implement and position better in the Indian market.

Findings

PEST analysis

PEST analysis is important in understanding the external factors that can leverage any marketing strategy. Political factors affecting the Volkswagen strategy include government policies, tax policies, trade restrictions and tariffs, law, and regulation (Tiwari, Herstatt & Ranawat, 2011). Economic factors include the surging economic growth, exchange rates, interest rates, and inflation rate. The social factors include the population growth rate, age distribution, changes in buying patterns, and behavior. Technological factors include R&D activity, technology incentives, automation, and the rate of technological change.

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Porter’s five-force analysis

Bangs (2002, p.67) considers Porter’s five-force analysis as an important tool in determining the competitive position of a business. In many markets, the large capital and expertise required to set up a manufacturing facility is a big barrier to entry and prevent many new companies from setting up. However, the forecasted growth of the Indian economy, infrastructure development, and ever-increasing financial options to citizens indicate that the market is attractive. Therefore, the threat of new entrants is expected to be quite high.

The higher the buyers’ power, the more they will influence price reductions (Henry, 2008). Buyers across the Indian market have a wide range of choices. More than twenty foreign manufacturers sell in the market including ultra-high-tech such as Lamborghini and Rolls-Royce. In fact, there are also a collection of cheap choices such as the renowned Tata Nano. The bargaining power of buyers is therefore strong.

The threat of substitutes determines the switching costs (Daft, 2011, p.215). The Indian market is also famous for two-wheeler and three-wheeler vehicles. These are precise substitutes and obvious threats to other automobile manufacturers.

The higher the supplier power, the more they will influence high prices for raw materials (Warner, 2010). The suppliers have considerable bargaining power as they are not fixed to single manufacture. The presence of many manufacturers means that the suppliers can market their products to any of those manufacturers.

The rivalry among competitors is quite high as a result of the market dynamics and the growing economy. The automobile industry has not matured enough and many companies are struggling to topple the market leaders.

Strategic objectives and Issues

We have set aggressive, measurable, and achievable objectives for the following strategic year.

Marketing objectives

We are aiming for 5 percent of the market share through increased brand awareness and customer loyalty.

Financial objectives

Our aim is to have 15 percent profitability by increasing the sales from 25,000 units to 35,000 units of Passat vehicles.

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Issues

Among the major issues, we face in the marketing of Passat vehicles is the lack of a strong brand name in India. The multi-brand strategy used by the company during the growth stage had many disadvantages. The strategy can only be profitable when the company achieves a dominant market share. Volkswagen Passat and Skoda hailed from the same family and shared same hardware competing one another in the market (see table 3). As a result, the two products obtained a very small market share and none was profitable. Under such a strategy, the company cannot develop a dominant brand identity across its products. It cannot attain the economies of scale and is therefore required to invest heavily on promoting Volkswagen Passat singly.

Volkswagen Passat and Skoda.
Table 3. Volkswagen Passat and Skoda.

Marketing Strategy

The marketing strategy refers to the process that allows businesses to concentrate their limited resources on the best opportunities to attain a sustainable competitive advantage and increase sales or profitability (Ferrell & Hartline, 2010). Volkswagen marketing strategy is founded on the positioning of product differentiation. The primary consumer targets are the middle-to-upper income families and professionals who need a cheap, comfortable and efficient means of transportation. The secondary consumer target is the sportsmen and sportswomen who need a high speed but stable vehicle. Demographically, the segment is described by the age between 25 to 45 years.

The only business target we have is the entrepreneur or small business owners. These are people who need to travel frequently through cost effective means. Their taste for vehicles is cars that can carry small business luggage like pick-up trucks. These consumers also use the vehicle for other purposes other than for business. The car is also the family car and can be used by any family member. Fuel consumption is of paramount importance to this market segment.

Positioning

Through product differentiation, the Volkswagen Passat will be positioned as the most convenient, cost effective, value-added and technological vehicle for professional and personal use. Our marketing strategy will emphasize on fuel economy, integration of entertainment gears, comfortable driving, stability and high speed, differentiating the Volkswagen Passat.

Product strategy

The Volkswagen Passat models will include all the appealing features and differentiated according to the needs of the various target markets. The products will be offered with a two-year warranty. All the models will be produced with an emphasis on the Volkswagen quality mark. An essential part in our product strategy is to strengthen the Volkswagen brand image. The brand and logo (see the image below) will be displayed in all passat models and reinforced in the marketing campaign.

Volkswagen logo
Volkswagen logo

Pricing strategy

The Volkswagen Passat will be offered between 9,000 and 11,000 pounds estimated price per unit vehicle depending on the model. This is a lowered price from the earlier price of 12,000 pounds since the product introduction in 2009. As we expand the product line, we expect to lower the price per unit vehicle. The pricing strategy is aimed at attracting the emerging consumers as a result of the economic growth and taking a share from the key competitors. The combination of the pricing strategy and the mark of quality will have an impact in wining customer loyalty and repeated purchase.

Distribution strategy

The place strategy is to open our distribution subsidiaries to market and offer the product directly to consumers. The showrooms must be spread throughout the country and especially in particular areas where the target consumers and businesses are concentrated. The new channel of distribution will be supported through continued mini-campaigns across the region served by the specific subsidiary. During the first months, we will continue using the Volkswagen agents as the implementation process picks up. Subramanian (2009, p.15) observes how the Indian population is becoming more and more sensitive to information technology and we expect to open an online store to exploit the opportunity created by online shoppers. We will offer special trade terms for customer who purchases for a second and third time.

Promotion strategy

For the Volkswagen Passat promotion, we will implement two different strategies. We will appoint DDB Mudra Group and use the print media aggressively to advertise the new Passat models. We will also build brand awareness by focusing on the greatest and latest advertising campaigns meant specifically to Volkswagen Passat and implement a communication adaptation strategy (Kaynak, 2002).

We will create a turnaround communication campaign by utilizing electronic media, print and OOH installations prior to the launching of the new Passat models. Through the integrated marketing strategy, we expect to create much anticipation about the Passat and increase brand awareness in the market.

Marketing Research

Through extensive market research, we are identifying the needs, specific features and expectations that our market segments value. The primary research is through surveys, market tests and focus groups that will be carried out in all potential market areas (Churchill & Lacobucci, 2009, p.63). We will also determine and analyze the customers’ perception toward other competing brands. The secondary market research will involve brand awareness research and customer satisfaction studies. Feedback from our primary research will help us develop the Volkswagen Passat models. Through brand awareness research, we will be able to determine the efficiency and effectiveness of our marketing campaign.

Conclusion

The market environment analysis suggests a good opportunity for Volkswagen to increase its market share in the Indian market. This will be achieved if the company focuses its strengths and capabilities on the area where growth is anticipated. The marketing strategy should be aimed at creating a new and big pool of customers according to segmentation. A Volkswagen Passat with appealing features that address the specific needs of the consumers will be the best. Prices that match those of competitors, but make necessary profits to the firm will be a good pricing strategy. Wider coverage through comprehensive distribution network can add to a bigger customer base. Increased advertising and promotion campaigns will ensure that the potential customers are aware of the brand.

References

Bangs, D H 2002, The market planning guide: creating a plan to successfully market your business, product, or service. Kaplan Publishing, New York.

BMI 2010, ‘Automotives’, India Retail Report, vol. 1 no.1, pp. 49-56.

Churchill, G A & Lacobucci, D 2009, Marketing Research: Methodological Foundations. Cengage Learning, Florence.

Daft, R L 2011, Management. Cengage Learning, Mason.

Datamonitor 2011, ‘Company spotlight: Volkswagen AG’, MarketWatch: Automotive, vol. 10 no. 2, pp.15-23.

Ferrell, O C & Hartline, M 2010, Marketing Strategy. Cengage Learning, Florence.

Henry, A 2008, Understanding Strategic Management. Oxford University Press, London.

Hitt, M A, Ireland, R D & Hoskisson, R E 2008, Strategic management: competitiveness and globalization : concepts & cases. Cengage Learning, Mason.

Iyer, R R 2009, ‘India goes for growth’, ICIS Chemical Business, vol. 275 no. 25, pp.32-33.

Kaynak, E 2002, Strategic global marketing: issues and trends. Routledge, London.

Ludwig, C 2011, ‘India is in a race against growth’, Automotive Logistics, vol. 14 no.1, pp.18-21.

McClellan, B & Shah, S 2007, ‘India’s Small-car market comes of age’, Ward’s Auto World, vol. 43 no. 11, pp.38-38.

Nizamuddin, A M 2008, ‘Declining risk, market liberalization and state-multinational bargaining: Japanese automobile investment in India, Indonesia and Malaysia’, Pacific Affairs, vol. 81 no. 3, pp.339-35.

Ramesh, D 2010, ‘Opportunities lure investors to India’, Chemical Week, vol. 172 no. 3, pp.21-25.

Subramanian, A 2009, ‘A nation of digital natives’, Business Today, vol. 18 no.18, p.15.

Tiwari, R, Herstatt, C & Ranawat, M 2011, ‘Policy studies 58: benevolent benefactor or insensitive regulator? Tracing the role of government policies in the development of India’s automobile industry’, Policy Studies (15471349), no. 58, pp.1-63.

Warner, A 2010, Strategic Analysis and Choice: A Structured Approach. Momentum Press, New York.

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StudyCorgi. (2021, February 10). Volkswagen Group's Marketing Situation. Retrieved from https://studycorgi.com/volkswagen-groups-marketing-situation/

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