VOLKSWAGEN IN INDIA

In just 4 years since Volkswagen (VW) set up its India operations, it had captured a 3.6% market share - something the Detroit giants had not been able to do after more than a decade in the country. VW was the flagship brand of the Volkswagen group, which also owned Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, and Skoda. In India, the group was present with Skoda, Audi, and VW.1

Maik Stephan, Managing Director, Volkswagen Group Sales India said: While three brands give us the collective power, we have to be careful to market them uniquely so that we are not chasing the same customer.

In 2011, the group's worldwide revenues and net profit were Euro 159 billion and 15.8 billion, respectively. Headquartered in Wolfsburg, Germany, the group operated more than 60 plants around the world. It was the second largest automaker behind General Motors. It had a market share of 12.3% in 2011. Its core markets were Germany and China. It was the market leader in Europe with a 20% market share. It aimed to become the world's largest automaker by 2018. With a growth of 30% in the Indian automobile industry, India was to play an important role in realizing the group's global ambitions.

VW targeted to increase the market share of its flagship brand in India from 3.6% to 5% by 2015. Neeraj Garg, Director, VW Group Sales India said:

We have to transition from launch stage to growth stage of the life cycle. To meet our ambitious growth plans, we need to evolve our marketing strategy. Perhaps, we should review it. Are our segmentation, targeting, and positioning right? Is our product, distribution, and communication strategy appropriate to catapult us to the next level?

Volkswagen has had a tradition of highly creative advertising globally. Its campaign ''Force'' for Passat was adjudged the best campaign of 2011 by Advertising Age.2 The campaign featured a kid in Darth Vader costume (Darth Vader is the central character in the Star Wars saga) trying to use ''force'' (a metaphysical power in the fictional universe of the Star Wars galaxy) on everything from his dog to the washing machine to his sandwich all in vain. As he focuses all his energy on Passat, the car suddenly starts to the astonishment of the kid. A shot showed that the car was started by his father using a remote control. The campaigns connect with the popular culture of Star Wars resulted in 31 million views on YouTube. ''Think small'' and ''Lemon'' campaigns had become part of advertising textbooks. Lutz Kothe, Head of Marketing & PR, VW Group Sales India said:

What inspiration can VW Indian advertising draw from its global advertising?

The German auto industry in 1930s was largely composed of luxury cars. Since many Germans could not afford luxury cars, Adolf Hitler set up a state-owned factory ''Volkswagen'' (pronounced as folk's wagon) in Wolfsburg in 1933 for producing the ''people's car.'' Ferdinand Porsche, an engineer was chosen to steer the project. The first car that was rolled out was ''Beetle.'' With its distinctive round shape and low price, it stood out from the big cars and became a global cult. In the 1970s, Passat, Scirocco, Golf, and Polo were launched. The sedan version of Golf Jetta was launched in 1983 and Phaeton in 2002. Thereafter, New Beetle was launched to recreate the magic of the original Beetle.

The group entered India in 2001 with Skoda. Its plant in Aurangabad assembled a few models of Audi and Volkswagen as well. Audi and Volkswagen were launched in India in 2004 and 2007, respectively. In 2010, a state- of-the-art production facility was set up at Chakan near Pune with an investment of Rs. 35 billion to manufacture Polo and Vento indigenously. The plant also manufactured Skoda Fabia and Skoda Rapid as they were built on the Polo platform. Despite sharing common product platforms, the three brands were distinctly positioned. Skoda was positioned as less premium than VW which was positioned as more premium than even Honda and Toyota. Audi was positioned at par with BMW and Mercedes in the luxury category. While the group integrated the back-end of technology, human resource, and finance across the three brands, the front-end of dealers was scrupulously kept separate.

Despite its careful planning, there existed an anomaly. Skoda was perceived to be a more up-market label than VW in India. This was owing to Skoda's history in India. Skoda was launched in 2001 with the Octavia, a premium car. The only other choices in the segment at that time were Honda City, Hyundai Accent, and Maruti Baleno. Octavia immediately became a CEO's car. Subsequent brands - Laura and Superb were even more premium and since they were diesel engines, they were more expensive than their Japanese petrol-engine counterparts. John Chacko, Group President and MD, VW Group Sales India said: Our priority is to get the core brand - Volkswagen sorted out and then the other brands will fall into place. For instance, after Polo was launched, the price of Skoda Fabia was revised downwards.

VW believed in engineering excellence. It pioneered ''turbocharged diesel injection'' (TDI) which provided fuel economy and BlueMotion Technologies which enabled energy efficiency.3 It had obsessive focus on quality. For instance, the bumpers had seven layers of paint (most carmakers had four); it welded all the points on the dashboard simultaneously to leave no room for misalignment (this required more machines; other carmakers welded the points sequentially). VW combined engineering excellence with local market insights to crack open the emerging markets.

Each year, the product planning team in VW engaged with 200 consumers in a freewheeling chat. Product Head - Product Planning & Training, VW Group Sales India said:

When you sit in the consumer's drawing room, you get a flavor of his life. You can see whether he prefers a Samsung or a Sony or an LG. You can gauge his tastes and lifestyle.

VW research showed that a consumer bought a car for three motives. First was to signal to peers and parents that he had made it in life and was not a failure. Second was for utility - protection from rains, extreme weather, and weekend family outings. Third was for personal space, as people in metros lived in small houses with joint families - car was his little dungeon and hideout.

VW incorporated these consumer insights in its marketing strategy. To tap into the first motive, it positioned itself as an aspirational brand. To build aspiration, it followed a top-down strategy - it entered the Indian market with higher- end models such as Passat and Jetta and then introduced lower-end models such as Polo and Vento. Product Head said:

Honda entered the Indian market with Honda City, whereas Hyundai with Santro. Both have a wide portfolio, but Hyundai is seen as an accessible brand, whereas Honda as an aspirational brand. It is because first impression is what remains with the consumer.

VW tapped into the second motive of utility by having functionality at the core of technology. For instance, its BlueMotion Technologies had several utilitarian features such as ''park assist'' wherein the car could park itself. VW addressed the third motive of space by designing spacious cars. It provided light interiors and striped fabrics which gave the impression of open spaces. Product Head said:

Indians are claustrophobic. They need lot of open spaces. For Indians, house is anyways a compromise as it is inherited or is constrained by budget. The consumer hence does not want to compromise on his car.

The product planning team researched consumer attitude toward cars. The Product Head said:

Consumer treated the car as his muse. There is a lot of boredom that sets into the life of a sober man. He marries the girl suggested by parents, lives in the same city, and works for the same family business. He brings change through two things - car and mobile. Those are his mistresses. He changes car every 3-4 years. The latest car would be his muse, his loved one. The product planning team at VW utilizes this insight to offer ''wow'' features which would make the car his most coveted muse.

Consumer also likens the car to arranged marriage. He chooses car just as he chooses his wife - based on looks. Later he falls in love with his car just as he fell in love with his wife - for the way it treats him - space, comfort, controls, driving experience, and cooling. The product planners leverage this insight to put experience enhancing features in the cars. For instance, the New Passat had ''auto start-stop'' in which the engine automatically turned off when one took the foot off the clutch after halting in a traffic jam or a red light. When one depressed the clutch again, the engine started automatically.

VW leveraged these consumer insights to design cars suitable for Indian consumers. For instance, cars had flat space on the dashboard for placing Ganesh idols, had liberal sprinkling of chrome (Indians loved chrome) and a lever behind the co-driver's seat so that the passenger could push the seat oneself (Indian cars were chauffeur-driven so the co-driver's seat was often vacant).

VW decided which features to incorporate in the car based on four filters. First, was the customer willing to pay for it and how much? Second, what would it cost the company? Third, how easily could it be implemented from an engineering point of view? Fourth, could it be translated into a nice communication story?

Product planners identified consumers' willingness to pay for innovative features through gut feel and by asking a few friends. For standard features, VW used quantitative market research. They were careful not to over-engineer the cars with specifications that consumers were not willing to pay for. Product Head said:

For European markets, VW cars had strong roofs that could bear the weight of 18 inches of snow. But, in India you don't need it.

Since the lead time for new product development was 3-4 years, product planners anticipated trends by considering socio-economic factors. The Product Head said:

The cost of chauffeur would become very high in future, but the commutes would get longer, the traffic would worsen and the jobs become more demanding. The consumer would thus be ready to pay more for automatic transmission. So, automatic transmission would become the norm in metros and hence VW has started planning for producing more of them. Music CDs would disappear and so VW is considering knocking off CD players and keeping only USB port.

Product planning at VW followed the overarching philosophy of democratization of innovation which meant making innovations available to the masses. It brought innovative features in the high-end cars and gradually introduced them in lower-end cars. For instance, VW was committed to bringing BlueMotion Technologies in the lower models after introducing it with New Passat.

Another principle that guided product planning in VW was to position the products at a premium over Toyota and Honda. VW thus priced its cars higher. However, to ensure that VW remained in the consideration set of consumers, it priced the lowest variant of the car lower by stripping the features intelligently. Product Head said: I do not remove stuff that the consumer will miss. Even in lower variant, he will get power windows, central locking, nice interiors, and powerful engine. But, he will not get audio system or air bags. He can move the audio system from his old car. But, VW makes sure to give a visibly better quality car - the plastics, the paint work, the upholstery are all good quality. VW never has black bumpers or only center wheel caps; it would have full wheel caps.

The Indian car market was divided into A, B, B+, Lower C, Upper C, Lower D, Upper D, E, multipurpose vehicle (MPV), and sports utility vehicle (SUV) segments (Exhibit 4). In 2011, VW had products in all segments except A and B, the lower-end segments. While A and B segments together constituted 44% of the total market, B+, and C segments were growing the fastest.

VW hired market research agency to segment consumers. The agency arrived at nine segments based on social status (income) and value orientation (traditional-modern). VW decided to focus on five segments - new middle class, new business builders, the young progressives, modern urban elite, and metropolitan smart; which together constituted 46% of the total market. The typical target consumer was modern, educated, high-tech, and individualistic.

VW entered the Indian market with the launch of Passat in Upper D segment in 2007 and Jetta in Lower D segment in 2008. The ads proclaimed universal trust; strong heritage, and German engineering. However, by 2009, VW had only 2,570 customers and the brand awareness was a mere 9%. Research revealed that consumers did not think that VW made cars suitable for Indian conditions, or offered value for money, or offered good customer services. On the other hand, Honda and Toyota were perceived positively. VW hired DDB Mudra to build its brand image and correct consumer perception.

Doyle Dane Bernbach (DDB) was a leading global advertising network belonging to the Omnicom group. It won the Spikes Asia ''Network of the year'' award for 2011. DDB had a joint venture with Mudra group in India. DDB Mudra was one of the four agencies of the Mudra group. William Bernbach - one of the founders of DDB was a creative legend. His work was characterized by simplicity, irreverence, and humor. DDB produced the ''Think small'' campaign for Beetle in 1959, which was voted the No. 1 campaign of the century by Advertising Age in 1999. The ad had a small image of Beetle that emphasized its minimalism and the text at the bottom of the page listed the advantages of owning a small car - a contrarian approach when most cars of those times were big. The follow-up campaign ''Lemon'' with its memorable tagline ''We pluck the lemons, you get the plums'' left a lasting legacy in America; - the word ''lemon'' being used to describe poor quality cars.

DDB believed in the twin philosophies of ''social creativity'' and ''behavioral planning.'' It defined social creativity as approaches aimed at groups rather than individuals. It believed in harnessing the power of social networks by triggering word-of-mouth publicity. DDB believed in ''behavioral planning'' as opposed to traditional ''account planning.'' It aimed at changing behavior and not just attitudes. It believed in creating play-points and not just touch-points. The ''fun theory'' campaign of VW in 2009 which aimed at increasing awareness of its environment-friendly ''BlueMotion Technologies'' transformed a subway staircase in Stockholm into a giant piano. As a result, 66% more people used the stairs. The videos on Youtube received more than 20 million hits and the campaign won Cannes Grand Prix for a digitally led integrated campaign.

The global vision of VW was to be the world's most innovative high-volume brand. The core values of the brand were Innovative, Valuable, and Responsible. VW provided outstanding quality and reliability such that the product retained its value in the long-term and it developed sustainable solutions for environment. The strategy for communication as well as product development in India was to have primary focus on ''innovative'' and secondary focus on the other two. The brand positioning was identified as ''German engineering. Made for India'' to emphasize on innovation for local market. The global tagline ''Volkswagen. Das Auto'' (which meant "The Car") stood for the quintessence of the automobile! VW believed that it was the generic term for automobile because it democratized mobility.

VW briefed DDB Mudra to communicate the brand values of VW and generate desirability for its products by grounding the arguments in technology. The agency was thus mandated to develop a campaign integrating corporate brand, product brands, and technology. The campaign had to highlight not just innovative features but also benefits and emotions. The VW brand personality had to be authentic, human, appealing, and transparent. Similar to VW's historic advertising, the campaign had to be understated, witty, uncluttered, with attention to detail and clear layout. The objective of the campaign was to double the brand awareness from 9% to 18% within a year and fill the capacity in the new factory in Pune while increasing the sales of the imported models. Sandeep Vij, CEO DDB Mudra said:

A major challenge was the clutter in car advertising - Rs. 10 billion was the ad-spend of the category per annum! Allocating even 10% of it would also be too much for VW. DDB Mudra needed an innovative idea that could break the clutter and create buzz.

DDB Mudra believed that social creativity requires media-inventiveness and not media-neutrality. It required combining of channels and content. Volkswagen did a roadblock campaign in which VW was the only brand to be advertised in the Times of India. Out of 28 pages of the newspaper, 13 were dedicated to VW, reaching out to 6.8 million readers. The campaign explained the brand claim of ''People's Car and The Car''. It highlighted VW's innovation in performance and fuel efficiency, comfort, and safety. It also showcased the various car models; the investments made in the Pune plant,5 and the extensive dealer network. To make it human, the campaign engaged people in how to pronounce Volkswagen. The campaign generated buzz - it made headlines in leading business channels; Volkswagen became the No. 1 searched term on Google hot trends, India.

VW then turned its attention to product brands. While it positioned Passat on comfort, it positioned Jetta on superior driving experience (see Exhibit 12 for positioning of competing brands). Positioning New Beetle was a challenge as it was priced very premium (Rs. 22 lakh as it was fully imported; 1 lakh = 0.1 million; 1$ = Rs. 54, in March 2013). Rajeev Sabnis, President, DDB Mudra said:

It was an iconic brand, but Indian consumers were rational and style was not enough to persuade them to buy. We chose fashion-conscious women as the target audience and tapped into the counter-culture. The fashion industry echoed size zero, but celebrities such as Jennifer Lopez and Shakira had brought back the trend of voluptuous, curvy figures. Beetle joined the fight against size zero with its campaign ''Curves are back''.

Beetle became a style icon such that it was used in several Bollywood films to establish the fashion credentials of their actors. VW sold 270 New Beetles against the targeted 200. Alongside Beetle, VW launched Touareg, a high- end SUV combining luxury and off-road ruggedness. The integrated campaign was targeted at men who loved the spirit of adventure. Mandeep Malhotra, Senior V.P. - Out-of-Home, Mudra Max said:

We attached a dummy Touareg outside a building as if it was climbing vertically whilst enlightening the VW logotype. This intrigued passersby and attracted media attention. Digitally, a rich media banner ad was developed which showed a Touareg descending at a 45 angle through the text of the page.

Phaeton was positioned as a high-end car targeted at the modern Indian royalty. The value proposition was matchless handcrafted experience wherein everything was personalized to bear the unique signature of the owner's personality. VW partnered with Hindustan Times such that the headlines in the Hindustan Times were printed using handwritten fonts.

In March 2010, VW prepared to launch Polo in the compact car segment B+. While the B+ segment presented great opportunity, it was intensely competitive. Maruti Swift which had 28% market share was identified as the core competitor. VW set the target of achieving 9% market share in the segment by the end of 2010. The brief given to DDB Mudra was to create mass awareness of Polo and get people interested in knowing more about the car through the internet or dealers; achieve 15,000 test drives within the first 4 months with 10% converting to sales. VW leveraged the Auto Expo to create mass awareness. Ananya Handa, Head Press Communication, VW Group Sales India said:

There is no bigger platform than auto expo as it attracts more than 400 media persons - both national as well as local. It is impossible to reach out to such a large number through any other event.

VW also partnered with the Times of India to cut out a Polo-shaped hole in each page of the special Times of India supplement. The media innovation created much buzz.

A challenge was the consumer perception of VW being a premium, sophisticated European car not suitable for Indian conditions. DDB Mudra chose to embrace the consumer arguments and answer them in a persuasive style. Ashish Marwah, Vice President, DDB Mudra said:

The insight for the idea came from the book ''The argumentative Indian'' by Amartya Sen, which highlighted the Indian tradition of skepticism.

A series of five ads put features such as road handling, ground clearance, and fuel efficiency to test, one at a time. Rajeev Raja, National Creative Director, DDB Mudra said: How we say was as important as what we say. We chose the ''narad-muni'' style which was the light-hearted and playful approach to refuting rational arguments against Polo.

The tagline ''German engineering. Made in India'' also highlighted suitability for India. A rich media pop-up ad took viewers on a digital journey to famous Indian landmarks to connect with Indianness. The campaign was targeted at the ''young progressive'' male, 30 years of age and well-informed. The campaign met with success. On the day of the cut-out innovation, there were 240,000 website visits. In the 4 months until June 2010, there were 68,000 inquiries, 28,000 test drives, and 3,919 cars were sold (14% test drives converted into sales). In 2011, Polo was the first choice of 13% consumers.

In September 2010, VW planned the entry of Vento, its second volume car, in the Upper C segment. The segment constituted 6.4% of the market in 2011 and grew by 28% over 2010. While Honda City was the undisputed segment leader until some time back, it had started to trail behind Verna. The segment was under pressure from lower C models such as Maruti D'zire, Chevrolet Aveo, and Tata Indigo. VW targeted sales of 9,200 units of Vento and market share of 10% within 4 months of launch. The qualitative goal was to establish Vento as an aspirational and benchmark brand in entry sedans aptly reflected in the tagline ''German engineering best in class''. VW believed that the core competencies required in the segment were quality, comfort, and driving experience. Vento differentiated itself with superior technology, spacious interior layout, effective air conditioning, authentic European design, and better road handling. It was aggressively priced and targeted a different segment. Lutz Kothe said:

The typical target customer for upper C segment cars was male, 35-40 years of age, businessman, and graduate with Rs. 1.5 million incomes per annum. Vento on the other hand targeted a younger (30-35 years), better educated, lower income, salaried, more value for money, and more demanding customer. It focused on the ''young progressive'' segment.

DDB Mudra had successfully launched Polo using rational appeal. However, Vento was an entry-level sedan, a segment in which purchase was made not only for rational, but also for emotional reasons. Rajeev Raja said:

While the Japanese and Korean brands had a strong footprint in India, they were perceived as geeky and mechanical. Hence, we saw an opportunity to build a strong emotional connect with the consumers. The strategy was to sell them not a car, but a piece of art. An artist was happy when his art was bought, but was emotionally ruffled as he watched it go away. This passion of the artist made the buyer appreciate the work of art.

High-decibel advertising in the segment meant that DDB Mudra had to think out-of-the-box yet again.9 It conceived the idea of the talking newspaper. In Times of India, a chip was pasted which had a pre-recorded voice of a Vento engineer who spoke about Vento with great passion. The campaign brought the engineer in direct contact with the consumer. This was followed by a TV commercial ''Crafted with so much passion, it's hard to let it go''; which showed the engineers manufacturing the Vento passionately and then bursting into tears after it was driven away by the buyer. By the end of 2010, Rs. 228 million in advertising resulted in sales of 7,002 units of Vento. In 2011, Vento gained further traction grabbing 22% market share in the segment.

In March 2011, VW re-launched Passat globally after modernizing its design and upgrading its technology. Product Head said:

Typically in the auto industry, product gets a facelift after every 5 years. The product is modernized, but the brand name is retained as consumers buy into the persona of the brand.

The Indian market started the build-up for the launch of New Passat a year in advance. VW India handpicked a few auto media men and took them to Paris motor show where the new Passat was to be unveiled. Ananya Handa said:

A motor show is more about the car than the company. It is not about business and profits. It is about the product and hence we chose media that is technologically savvy about cars. The media analyzed features available globally in the new Passat and wrote stories building anticipation of what could be expected in India.

In the next round, VW handpicked a few journalists and took them for test drive as part of global test drive. The New Passat was being introduced with BlueMotion Technologies. VW invited the auto media and wires such as PR Newswire and Press Trust of India (PTI) for a media round table and engaged with them on the concept ofBlueMotion Technologies.10 VW then gave a fleet of Passat to select journalists to drive for 4 months. As a result of the PR campaign, VW had some or the other journalist writing articles about Passat in the newspapers and magazines for 4 months.

The PR campaign was followed by advertising. The target audience for Passat was male, 35-45 years of age, postgraduate or professional, who had an income of Rs. 2 million per annum and owned at least two cars. He was mature, sophisticated, classic but confident, intelligent, well-traveled, well-informed, and a deep thinker. Toyota Camry and Honda Accord were identified as key competitors. Passat differentiated itself on ''comfort.'' The campaign showed a series of ads highlighting innovations that redefined comfort. The ''Park assist'' ad showed how the car was automatically guided into a parking space at the push of a button without the driver needing to steer and the ''fatigue assist'' ad showed how the car was automatically counter-steered as soon as it detected that Passat could leave its lane unintentionally. Another campaign highlighted BlueMotion Technologies - an efficient and eco- friendly way of life, in the New Passat.

VW advertising was hailed for its creativity, effectiveness, and media innovation, which were exemplified in the numerous awards it won. Beetle and Vento won the Abby for creativity; Polo won the Effies for effectiveness. Polo's dye-cut and VW's brand roadblock campaigns won the Emvies for media innovation. VW won the "outdoor advertiser of the year" award; Beetle won the "outdoor campaign of the year award" and Think Blue won the "public service award". VW attained a share of voice higher than its share of expenditure. The brand awareness increased from a mere 9% in 2009 to 37% in 2011. Consumers perceived the brand communication as memorable and the brand as likeable. Its favorability scores exceeded those of Ford and Skoda which had entered the Indian market much earlier. It was perceived as innovative, technically advanced, and a good quality brand. Lutz Kothe said:

DDB Mudra has understood the VW brand in a short period of time. They have adapted our global brand guidelines to India. They come up with multiple creative approaches and its working very well. Our awareness has increased, our sales have increased and our dealers are happy! DDB Mudra has laid a strong foundation of the VW brand in India.

In 2012, there was an aura of contentment as well as optimism in the VW India office. The group's India operations were likely to break even in 2012.vii The sales not only filled the capacity of the new plant, but would soon exceed it - the plant had the capacity of 130,000 vehicles annually; in 2009 VW sold 3,000 cars, which rose to around 30,000 cars by 2010 and 75,000 cars by the end of 2011. The products received critical acclaim with Polo being declared the "premium hatchback of the year 2010" by CNBC Overdrive; Vento, the "premium compact sedan of the year 2010" by ET Zigwheels and Passat "Green car of the year". VW was the No. 8 player by sales volume. Neeraj Garg said:

We want to be amongst the top 3 in India by 2018. Lutz Kothe said:

As we endeavor to move to the next level, perhaps we need to take a step back and review our marketing and communication strategy. Are we differentiating ourselves enough in the competitive market place? Are we giving a strong reason to the consumer to buy our brands? How can we communicate better?

MY QUESTION IS: what is the main takeaway? more specifically, what's the value proposition? what is the value we should deliver? why? and to whom?

what's the analysis of the 3 Cs?

This is the key issue in marketing decision making - it determines the value-exchange process - with implications for the value that customers will be willing to provide the firm. It is a key ingredient (sometimes used a synonym) of the value proposition. As we have discussed, this decision should fit with the overall environment (see above) in order to provide a valuable, strong and sustainable basis for competition.

Some suggestions:

a. Developing a well-defined, actionable position (value proposition) requires strong analysis of the 3Cs.in the previous step.

b. A well-defined, actionable position serves as the road-map or anchor to developing a strong marketing program (4Ps) in the next step.

c. There may be situations where the position is already defined and where you have to develop another decision - say a new segment for penetration, or one or all of the marketing program elements. In this case, you are not developing a position - rather, your 3C analysis helps understand the genesis of the position, its value, its liabilities, etc and will guide your product, brand decisions.