International Marketing plan for Volkswagen

Index of content

Table of figures

1. Introduction

2. PESTEL Analysis

3. Porter’s Five Forces

4. Three C’s

5. The Five M’s

6. SWOT Analysis

7. International Marketing Strategy

8. International Marketing Mix – 7 P’s

9. Budgeting

10. Controls – Balanced Scorecard

11. Conclusion

Table of figures

Illustration 1: PESTEL factors for Volkswagen in China

Illustration 2: Porter’s five forces for Volkswagen in China.

Illustration 3: Three C’s for Volkswagen in China.

Illustration 4: SWOT analysis for Volkswagen in China.

Illustration 5: SMART objectives. Goals should be:

Illustration 6: Volkswagen Cotha.

Illustration 7: Ansoff’s Matrix

Illustration 8: Generic strategies by Porter

Illustration 9: Overview of segmentation variables

Illustration 10: Positioning map of hybrid cars launched or to be launched in 09/10.

Illustration 11: Detailed overview of the annual Cotha marketing budget allocation

Illustration 12: General overview of the annual Cotha marketing budget allocation

Illustration 13: Balanced Scorecard and its functionality

1. Introduction

In 2007 the Volkswagen group with its headquarters in Wolfsburg, Germany sold 6,191,618 vehicles worldwide and 329,305 employees generated a sales revenue of 108,897,000€ with an operating profit of 6,151,000€ which in turn resulted in a profit after tax of 4,122,000€.¹ The group is divided into two divisions, namely the automotive one, accounting for 91% of total revenues plus the financial one, contributing 9% to the total turnover. Within the automotive sector, the company markets its vehicles under brands like, VW passenger cars, Audi, Bentley, Bugatti, Lamborghini, Seat and Skoda.

In 1984, Volkswagen as the first western auto maker, began its operational activity in China. When it entered the market it had to form a joint venture with a Chinese company to produce cars. By now the group has thirteen representative companies. Due to its early engagement in the biggest Asian market, it reached a leading position which despite some previous challenges lasted until today. For example, the corporation sold 910,000 vehicles (VW + Audi) in Hong Kong as well as in the mainland of China which resulted in a market share of 17.8% in 2007.² Therefore, China is (yet) after Germany the second most important market for Volkswagen, representing almost 15% of the company car sales. In the following international marketing plan, the author will describe how to increase car sales and boost market share up to 20% over the next 2 years with the introduction of a new small light weight hybrid car, the Volkswagen Cotha.

2. PESTEL Analysis

Before a marketing strategy for the launch of the new “Cotha” can be formed, a brief macroeconomic analysis of the Chinese market is beneficial to understand the external environment in which Volkswagen is operating. The PESTEL analysis is a strategic planning tool to do so since it sheds light on environmental factors having a possible influence on an organization, here Volkswagen.³ A detailed decoding of the abbreviation PESTEL for VW will be provided in the graphic below.

Illustration 1: PESTEL factors for Volkswagen in China

illustration not visible in this excerpt

Own design. The sources are from www.stats.oecd.org/wbos/Index.aspx?querytype=view&query name=86, visited on 27.11.2008; www.cia.gov/library/publications/theworldfactbook/geos/ch.html, visited on 27.11.2008 and An. (2008): China Income and Expenditure, www.portal.euro monitor.com/passport/DocumentView.aspx, visited on 27.11.2008.

illustration not visible in this excerpt

Own design. The sources are from Cha, Ariana Eunjung, (2008): China’s Environmental Retreat: www.washingtonpost.com/w p-dyn/co nte nt/story/2008/ 11/ 19/ST2008111900798.html, article from 19.11.2008, found on 30.11.2008; Walsh, M.P. (2000): Transportation and the environment in China, China Environment Series, Issue 3 Washington, DC, Woodrow Wilson Center, p. 28 et seq.; An. (2008): China holt die USA ein: www.n-tv.de/1044899.html, article from 31.10.08.

3. Porter’s Five Forces

With Porter’s five forces model, the author will analyze the automobile industry in China in which Volkswagen is engaged. This evaluation of the environment is useful since it directly impacts Volkswagen’s strategy to create a valuable position in the market. The following graphic shows the five forces that determine the attractiveness of a market.

Illustration 2: Porter’s five forces for Volkswagen in China.

illustration not visible in this excerpt

Own design in imitation to Porter, Michael E. (1979): How competitive forces shape strategy, Harvard Business Review, March/April 1979; seen on, www.harvardbusinessonline.hbsp.harvard.edu /hbsp/hbr/articles/artice.jsp?mlaction=get-article&articleID=79208, visited on 29.11.2008.

For Volkswagen, the Chinese market can be seen as attractive since it is has been long in the market and has therefore still a strong competitive position towards its rivals. Due to medium entry barriers the number of companies willing to enter the automotive field in China in the future might be manageable and the fact that car manufacturers have a certain power over suppliers is also beneficial. Furthermore, the threats of substitute products is low, meaning outside the industry people do not have real alternatives when considering the purchase of a car. Inside the car industry there are slow but steady movements towards “clean” vehicles that reduce environmental damages. If Volkswagen jumps on this bandwagon they can also reduce the existing high bargaining power of buyers. As being one of the first would give Volkswagen a possibility to boost market share and strengthen its market position.

4. Three C’s

A Japanese strategist, named Kenichi Ohmae, came up with a business model called the three C’s. He points out that a competitive advantage only fully exists if the key factors; company, customer and competition can be integrated into a strategic triangle.⁴

Illustration 3: Three C’s for Volkswagen in China.

illustration not visible in this excerpt

Own design in imitation of Ohmae, Kenichi (1982): The mind of the strategist, Mc Graw-Hill, New York, p. 92.

As the market situation over the years changed for Volkswagen, e.g. from selling its cars not to state owned enterprises anymore but to consumers plus from having almost no competition to now facing plenty, the company set up a strategic plan.

The restructuring plan, called “Olympic” program comprised the following elements:

- Clear differentiation of the 2 Volkswagen joint ventures to avoid internal competition
- Launch of 10 -12 new models, that meet Chinese customers needs
- Cost reductions, like centralized purchase and focus on local manufacturing
- Improve synergies between the 2 joint ventures through more cooperation
- Reformation of sales organization
- Refresh partnership among the 2 joint ventures and create a win-win attitude⁵

The second triangle edge represents the customer. After Volkswagen focused on strategic changes from 2005 on, they also introduced new models to satisfy newly targeted customers. The segmentation is done by objectives, meaning different models are and will be sold that match the different needs of the customers, ranging from compact class to the luxury one plus in 2009 “green” cars.

Regarding Volkswagen’s competitors, it differentiates its products through performance, and the image of a German engineered car offering high quality at a compatible price. The company does not offer very cheap cars since the position of the brand would deteriorate. Advance through high quality, design, innovations and services offered are differentiating aspects.

5. The Five M’s

Besides the mentioned external marketing steps within a marketing plan, there is an instrument to analyze the present internal marketing environment. This process is called “the five M’s” and includes men (labor), minutes (time), money (finances), machinery (equipment), and materials (production factors).⁶ Due to a lack of internal information, this analysis will be done briefly and superficially.

[...]

¹ Volkswagen (2007): Driving ideas, annual report 2006 – 2007, Volkswagen, Wolfsburg, p. 4, found on www.volkswagenag.com/vwag/ gb2007/content/en/annual report 2007.html, on 27.11.2008.

² Volkswagen (2007): Driving ideas, annual report 2006 – 2007, Volkswagen, Wolfsburg, p. 118, found on www.volkswagenag.com/vwag/ gb2007/content/en/annualreport2007.html, on 27.11.2008.

³ http://www.idea.gov.uk/imp/aio/1033478, visited on 27.11.2008.

⁴ Ohmae, Kenichi (1982): The mind of the strategist, Mc Graw-Hill, New York, p. 91 et seq.

⁵ www.vw.com.cn/cds/?menuuid=451&conid=1465, visited on 30.11.2008.

⁶ www.marketingteacher.com/Lessons/lesson_marketing_audit.htm, visited on 30.11.2008.