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APPENDIX A: ASSIGNMENT COVER SHEET ASSIGNMENT COVER SHEET Surname First Name/s Nombulelo Student Number Subject Strategic Marketing Management Assignment Number 02 Tutor’s Name Examination Venue N/A Date Submitted 02/05/2021 Submission (√)First SubmissionResubmission X Postal Address Pinetown3610 E-Mail Contact Numbers Course/Intake January 2021 Declaration:I hereby declare that the assignment submitted is an original piece of work produced by myself. SignatureDate: 02/05/2021 1
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Contents QUESTION..........................................................................................................................3-3 COMPANY BACKGROUND.............................................................................................4-4 INTRODUCTION................................................................................................................5-7 PROBLEM STATEMENT..................................................................................................8-9 SITUATIONAL ANALYSIS...........................................................................................10-16 IMPACT ON THE BRAND............................................................................................17-19 POSITIONING STRATEGY...........................................................................................20-21 CURRENT SOLUTIONS FOR FINALIZING VOLKSWAGEN SCANDAL...............22-24 PUBLIC RELATIONS CRISIS MANAGEMENT.........................................................25-29 ETHICS............................................................................................................................30-31 RE-BRANDING..............................................................................................................32-32 RECOMMENDATION....................................................................................................33-33 REVISED MARKETING STRATEGY..........................................................................34-43 BIBLIOGRAPHY............................................................................................................44-49 2
QUESTION Having been appointed as Marketing Manager of Volkswagen just after the emissions incident happened, you are required to advise the board on the most appropriate brand crisis management and provide a revised marketing strategy going forward, to restore confidence in the brand and prevent any further negative impact on the brand. 3
COMPANY BACKGROUND Volkswagen Group is a German multinational automotive manufacturing company headquartered in Wolfsburg, Lower Saxony, Germany. Following Toyota, Volkswagen is the second largest automaker in the world. Over 600,000 employees scattered around the globe produce over 28,000 vehicles per day in 2016. Volkswagen currently owns 12 subsidiaries which make up the Volkswagen Group. These include Volkswagen Passenger Cars, Audi, Seat and Skoda, Bentley, Bugatti, Lamborghini, Porsche, Ducati, and Volkswagen Commercial Vehicles, Scania and Man T. Bowler (2015). Currently, the global automaker has 120 production plants spread over 4 continents with the majority of manufacturing operations in Europe and China Volkswagen AG (2017). Its vehicles are sold in 153 countries T. Bowler (2015). As outlined in Appendix A, the 12 subsidiaries that make up the Volkswagen Group is composed of an incredible 347 different models. Volkswagen (VW) is a large international automobile manufacturer with its world headquarters located in Wolfsburg, Germany. Volkswagen is owned by the Volkswagen Group - a multinational corporation that includes other car manufacturers such as Audi, Bentley, Ducati, Lamborghini, and Porsche McGee (2018). The firm is currently Europe's largest automaker with a market share of over 20% as of 2010. Worldwide, Volkswagen has ranked as the third-largest auto manufacturer behind Toyota and General Motors. In 2010, Volkswagen posted record sales of 6.29 million vehicles, with its global market share at 11.4%. In September 2015, Volkswagen admitted to United States regulators that it had deliberately installed "defeat devices" in many of its diesel cars, which enabled the cars to cheat on federal and state emissions tests, making them able to pass the tests and hit ambitious mileage and performance targets while emitting up to 40 times more hazardous gases into the atmosphere than legally allowed. The discovery had prompted the U.S. Environmental Protection Agency (EPA) to halt the final certification of Volkswagen's 2016 diesel models, and Volkswagen itself had halted sales of its 2015 models. As the fallout from the defeat devices developed, Volkswagen posted its first quarterly loss in more than 15 years, and its stock plummeted. Top executives were replaced, and Volkswagen abandoned its goal of becoming the world's largest automaker Volkswagen (2016). 4
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INTRODUCTION The Volkswagen emissions scandal, also known as Dieselgate or Emissionsgate, began in September 2015, when the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group. The agency had found that Volkswagen had intentionally programmed turbocharged direct injection (TDI) diesel engines to activate their emissions controls only during laboratory emissions testing, which caused the vehicles' NO output to meet US standards during regulatory testing, while they emitted up to 40 times more NO in real-world driving. Volkswagen deployed this software in about 11 million cars worldwide, including 500,000 in the United States, in model years 2009 through 2015. Executive Summary To evaluate the strategy and performance of Volkswagen, the world’s second largest automaker, internal resources and capabilities, industry environment, and institutional environment of the company were evaluated. From these analyses, critical issues, threats, and challenges were identified. Namely, the 2015 emissions scandal, company culture, quality and productivity, and a new electric car strategy were identified as the primary issues which Volkswagen needs to proactively address. Four recommendations were developed to not only address these issues but increase the automaker’s competitive advantage as wellM. Hanno, R. Magadia, A. Kadoo & D. Akinsaya (2019). This report examines the corporate governance practices of the German automotive multinational, Volkswagen AG, in relation to the revelation of the diesel-engine emissions scandal by the U.S Environmental Protection Agency (EPA) in 2015. The Analysis focuses on how a monetary mindset and negligence towards other elements of 3P’s (People, Planet, and Profit), that are embedded in corporate structure, ownership composition, Supervisory Board (SB) and Corporate culture leads to decisions that serve the interest of power-hungry shareholders at the expense of other stakeholders. The finding reveals power imbalance and abuse-of-power from dominant shareholders; Porsche-Piëch family, the intrusion of Lower Saxony (German Government) to ensure national employment, risk of labor inclusion on SB under the Co-Determination Act and company culture focusing only on profit led to unethical 5
conduct of ‘implanting cheating device’, hence displaying the firm’s poor Corporate Governance proceduresL.J. Lynch; C. Cutro; E. Bird (2016). Furthermore, analytical research has been done using two prominent theories in this field – Agency Theory and Stakeholder Theory. Using Agency Theory, it is found that the presence of the controlling shareholder in Volkswagen induces principal-principal problem by exploiting opportunities catered to their interest at minority shareholders’ cost. In addition, Germany’s two- tier board system that ideally separates job is not effective for Volkswagen due to the dominance and abuse of power from major Shareholders regarding controlling the direction of management activityL.J. Lynch; C. Cutro; E. Bird (2016). On the other hand, Principal-Agent Problem also exists due to the presence of Government as the second-largest shareholder of the firm ever since World War II. This intrusion is negative to Volkswagen due to conflict of interest between Government and Shareholders – focus on welfare or increase shareholder returns. Furthermore, the inclusion of labor representatives in SB is also risky due to the possibility of these representatives exercising decisions based on their personal interest, maintaining their job. In view of Stakeholder Theory, it is found that Volkswagen’s intention to save profits by carrying out activities that are unethical backfired, causing the firm to incur a massive loss and damage its brand image. Therefore, the company’s long-term sustainability can only be achieved if the company aligns its profit intentions with ethical intentions of serving People and Planet. To improve good corporate governance practice in Volkswagen, this report provides various recommendations to modify internal governance procedures L.J. Lynch; C. Cutro; E. Bird (2016). Firstly, setting a contract that specifies clear expectations and roles. Following this, the firm will benefit greatly by having regular evaluations and instilling a whistle-blower protection system managed by the third partyL.J. Lynch; C. Cutro; E. Bird (2016). Secondly, to increase performance, reformation on the structure of SB needs to be conducted by having more independent members, professional-hired as a government representative, and allowing other representatives on the nominee committee to limit majority shareholders’ power L.J. Lynch; C. Cutro; E. Bird (2016). 6
Lastly, to restore its brand image and gain stakeholders’ trust, Volkswagen must rebrand and plan on fulfilling corporate social initiatives that will gear the firm into strategic success and sustainability in the long runL.J. Lynch; C. Cutro; E. Bird (2016). 7
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PROBLEM STATEMENT The purpose of this research report is, firstly, to analyze the reasons that triggered the state of the brand crisis and then look at the strategies to manage the brand in 6 particular the typical components of a marketing strategy that can be useful for the mitigate the problem. The report will interrogate every possible solution through situational analysis and then employ every suited strategy to perform the brand impact diagnostic, while more emphasis will be put on brand positioning for customer confidence purposes. From this report, the revised plan will be produced to the board for them to be able to deal with other future similar crises related to the brand. On 18 September 2015, the US Environmental Protection Agency (EPA) informed the public about Volkswagen’s and Audi’s violation of the Clean Air Act by installing “defeat devices” that allow their cars to pass all tests but then emit nitrogen dioxide at up to 40 times the permitted level. The Volkswagen engineers had initially admitted to the EPA on September 3 that defeat devices had been fitted to 480,000 diesel cars in the US – but the news only reached the wider world on 18 September when the regulator, not Volkswagen, disclosed the issue M. Wang, J. Fitzpatrick (2019). In 2015, the world became aware that Volkswagen had installed “defeat devices” in 500,000 of its American diesel cars, enabling them to pass America’s strict emission standards and then return to non-compliant emissions during normal driving. It has been several years since the initial news broke, but the repercussions from this scandal are ever evolving, from the many fines and lawsuits that Volkswagen will have to contend with, to the arresting of Volkswagen Group executives over their involvement. There is urgent need to work on Communication Strategies with media resources and to address the nation effectively M. Wang, J. Fitzpatrick (2019). On 2 November, the EPA said it had uncovered another defeat device in the VW Group’s other cars, namely in Audi, Porsche, and VW 3-litre diesel cars, which affects a further 85,000 8
vehicles. VW’s response to this was short and quick, denying that they had installed any software that would alter emissions characteristics M. Wang, J. Fitzpatrick (2019). On 4 November, Volkswagen made a U-turn and admitted to a third emissions problem: 800,000 cars had understated their carbon dioxide levels, and that the company was setting aside €2 billion to deal with the problem. Despite their commitment to solving the problem, critical information was only revealed after probing questions to VW officialsM. Wang, J. Fitzpatrick (2019). 9
SITUATIONAL ANALYSIS This section will analyze the situation faced by Volkswagen for the emissions incident that happened which resulted in penalties imposed after Volkswagen admitted to the US court regarding the cheating mechanism, they employed in order to get the license and the brand damage. The reason we will do the situation analysis is that, before we develop any marketing strategy, it is important to conduct a situation analysis to determine the impact on the business brand. This analysis serves as a useful tool for determining Volkswagen's business's strengths and weaknesses, and any opportunities and threats (SWOT) that can affect the brand. Volkswagen had been in the automobile manufacturing industry since 1937. Over the years it rose to popularity with a consumer needs centric mindset. In 2009 it became the largest automotive manufacturer worldwide Auto car (2015). However, in 2015 it was overtaken by its rival Toyota, as the top ranked automotive company in terms of salesMorris (2015). Indeed (2020) explains situational analysis as a collection of methods used to analyze the internal and external factors in a business. It allows you to use market research to evaluate projected growth, define your potential customers, assess your competitors and evaluate the state of your business. An effective situational analysis includes an examination of both internal and external factors. The key elements for that analysis are: Strengths: Strong points about your brand, products, and services, and marketing programs. Weaknesses: Aspects of your products, brand image, and marketing programs that you could improve upon. Opportunities: Includes ways you can increase success, such as new ways to reach customers or a new market you could enter. Threats: External elements that could negatively impact your sales or profitability. According to D. Vrontis, A. Thrassou (2006) the situation analysis or audit is described as the ‘where are we now, is the means by which a company can identify its own strengths and 10
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weaknesses as they relate to external opportunities and threats. It is thus a way of helping management to select a position in that environment based on known facts. According to M. Wang, J. Fitzpatrick (2019)initially, it looked like Volkswagen were going to nail their crisis communication response. They responded quickly, with then-CEO Winterkorn immediately committing to resolving this issue and being transparent (in the future). As we teach in the Honest Words and Crisis Apology module of our media training workshop, it is all well and good to make public commitments; provided you can deliver them. Research from leading sociologists List and Ho (2017) shows that if you fail to come good on your promises, this will damage your reputation more than if you make no apology and no commitment in the first place. Unfortunately for the sake of Volkswagen’s reputation, they were unable to keep their promises of transparency and honesty, with the EPA later revealing the installation of more defeat devices. If this was not damaging enough, company executives were not willing to truly accept responsibility with Winterkon denying any wrongdoing in his resignation statement and new CEO Matthias Müller (who has also since been replaced) claiming on live radio that they did not lie – only to later retract his comments after public outcry. While the promise of a fresh start was welcoming to stakeholders (albeit frivolous in hindsight), their leadership’s denial of any direct wrongdoing angered everyone – causing additional unnecessary attention and damage M. Wang, J. Fitzpatrick (2019). In our opinion, Volkswagen made this crisis much worse than it needed to be by not coming clean from the start and the consequences show M. Wang, J. Fitzpatrick (2019). During the Volkswagen (VW) Crisis the negative brand image was established because of no active media relations team which could have managed the issue before hand. There was no crisis management strategy devised by company. But the company supervisors acting immediately prioritized the people safety and save the product by effectively withdrawing/recalling nationwide Volkswagen Diesel vehicles affected. It also addressed the public issues by actively involving all media resources and introduced new tamper resistant packaging in interest of public. The company was successful to reintroduce themselves as most trusted over the counter product in America. Volkswagen scandal has led to a devastating series 11
of critical consequences to its direct and indirect stakeholders. This emission scandal is still under investigation by various authorities with the purpose of identifying actual impacts and coming out with a suitable solution to finalize the case. The impact of the incident had on the brand: Volkswagen hit a huge drop in market shares. In the year 2014, Volkswagen was the world’s second largest automaker in automobile industry after Toyota Motor Corporation. In the year 2015, Volkswagen admitted rigging in diesel emission test which caused the company to suffer from huge amount of cost burden. Volkswagen has brought in three (3) public relations firms based in United States, Britain, and Germany to assist the company to cope with the crisis. Moreover, Volkswagen has employed the former communications of BMW as a consultant to work 60 hours a week with salary of $22,000 per month Hakim (2016). Moreover, since this case includes various countries over the world, Volkswagen is required to deal with different international regulations. The primary consequences of this unethical deceptive scandal are listed as follow Hakim (2016). Threatening People’s Health Unlike safety crises faced by other automakers, VW’s crisis did not result in immediate human health impact that could be directly tied to the emissions scandal. However, environmental experts weighed in on the dangers of adding additional air pollutants and the long-term coststo human healthN. Mansouri (2016).. Selin (2015) in her article for grist.com explained the impact: The pollutants that VW failed to effectively control are nitric oxide (NO) and nitrogendioxide (NO2), which are collectively known as NOx. Combined with other atmospheric pollutants, NOx can form even more dangerous pollutants: ozone and particulate matter. The EPA regulations for diesel engines limit the amount of NOx that can be emitted per mile travelled. VW classified its vehicles as meeting the so called TierII/Bin 5 emission standards, which meansit was allowed to emit 0.07 grams of NOx for every mile travelled over the lifetime of the vehicle. Actual emissions from affected cars were reported to be 10 to 40 times higher. With 12
more than 480,000 cars affected, estimates have ranged from 10,000 to 40,000 tonsofextra NOx released in the United States Selin (2015). By end of 2016, Volkswagen cars with defeat device will have produced additional toxic pollution to directly trigger premature death of roughly sixty (60) individuals merely in the United States. From the year 2008 to 2015, 428,000 Volkswagen and Audi diesel cars pumped out nitrogen oxide forty (40) times more than it was allowed by the Clean Air Act. It is estimated by the researchers that with six (6) years Volkswagen and Audi diesel produced an excess of 36.7 million kg nitrogen oxide to the environment Selin (2015b). Nitrogen oxide is a primary element of particulate and smog matter which paves the ground for various disease namely heart disease, premature death, bronchitis, and respiratory and cardiovascular disease. Researchers have estimated that significant impacts of nitrogen oxide produced by Volkswagen cars endanger 60 human lives from 10 to 20 years prematurely Selin (2015). It is noted that excess of pollution from Volkswagen vehicles participated directly in thirty-one (31) and thirty-four (34) chronic bronchitis and admission of respiratory and hearth cases respectively in the United States. Additional pollution to the environment will results in 120,000 minor restricted activity day and approximately 210,000 days of less respiratory signs. The sickness of people over six (6) years from 2008 to 2015 will cost United States $450 million Kalaugher (2015). If Volkswagen declines to recall vehicles with defeat device, from 2015 onwards 140 premature deaths will take place. In addition, health cost of $840 million will be caused by the Volkswagen diesel cars Chue (2015). In addition, excess of nitrogen oxide to the natural environment by Volkswagen diesel cars results in acid rains The Editorial Board (2016). The acid rains not only have crucial impact on human health bot also have vital destruction on nature and natural resource. 13
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Slump in Workforce’s Bonus When rigging in diesel emission test was revealed to the public, sales of Volkswagen was affected. Therefore, Volkswagen to cope with crisis, has announced that bonus of chief management will be reduced substantially Moulson (2016). Volkswagen said a statement that various models which establish fair and rational solution for all participated parties are being deliberated. As a result, this leads to a considerable diminution of variable remuneration. The reduction in bonus will include management board and a group of executive positions assisting CEO to operate the company’s daily routine. It is said that the bonus of German equivalent of board of directors, which is the supervisory of Volkswagen, would not be reduced except Volkswagen chairman Hans Dieter Poetsch Moulson (2016). In response to the scandal, Volkswagen published a video statement from then-CEO Martin Winterkorn on 22 September. Winterkorn iterated Volkswagen’s dedication to cooperating with the relevant organisations and authorities for any investigations undertaken, outlined the company’s willingness to “do everything necessary in order to reverse the damage this has caused”, and provided an apology. The statement ended with the promise to “do all this with the greatest openness and transparency.” Winterkorn then resigned on 23 September, stating that Volkswagen “needs a fresh start – also in terms of personnel” and reiterating that the “process of clarification and transparency must continue.” At the end of the statement, it was also mentioned that he was “not aware of any wrongdoing on (his) part.” Volkswagen admitted on the same day that the number of cars fitted with defeat devices were not the previously-announced 500,000 cars – but rather an astonishing 11 million (all around the world), and it had been a global practice for several yearsN. Mansouri (2016). Internal Factors The three main internal factors Volkswagen faces as it attempts to solve the emissions-cheating crisis and rebuild its brand image are management structure, performance impediments, and trust issues within the organization. Management Structure 14
The changes in management structure in Volkswagen need to be solved and maintained immediately. Because of this crisis, dishonesty was exposed within the organization, causing the CEO and executive board to be closely scrutinized. In effect, this pressured the CEO to step down from his position. When management structure is not the primary function of the organization, it causes insecurity and instability that is seen and felt both internally and externally. Thus, the initial step in VW’s self-analysis is to emphasize accountability through reform in the current management structure. Performance Impediments Employees drive performance. Accordingly, employees are responsible for the quality of VW’s goods and services as well as the viability of the causes and ideas that VW promotes. Whether in research and development of the product, engineering, sales and business development or communication, Volkswagen employee performance will be an integral part in managing this crisis and moving forward. Management should emphasize VW’s “mission statement” and “code of conduct,” to communicate to employees the importance of conducting business with honesty and integrity. It is necessary for employees to be educated about the crisis in maintaining the quality of its brand. Trust Issues Within the Organization It is imperative that Volkswagen builds back trust and confidence within the organization as to the uncertainty of its future. Employees of Volkswagen are not likely to perform to the best of their ability if they do not trust in the goals of the organization. This applies to all members of the entity and is most effectively applied by means of credible leadership. A two-step flow of communication from management to its employees provides legitimacy to the substance of the information. As aware and active publics, the entities within the organization are responsible for communicating credible information as an intercessory for the public. External Factors The three main external factors Volkswagen faces as it attempts to solve the emissions-cheating crisis and rebuild its brand image are: public concern for the scandal, financial impact on shareholders and challenges from stakeholder groups. 15
Public Concern for the Scandal The most urgent task is to win back trust for the Volkswagen Group. The Volkswagen emissions scandal has greatly diminished public trust in not only VW management, but has also caused motorists to question the integrity of the auto industry. VW has also revealed that the number of affected cars on UK roads are more than a 10th of the total worldwide. In effect, it is likely to start a recall of cars affected by its emissions scandal in January. Nonetheless, the company hopes all affected cars will be recalled and fixed by the end of 2016. In addition, Volkswagen has offered a $1,000 goodwill package to U.S. customers whose diesel vehicles are affected by the emissions scandal as the initial step in its effort to rebuild trust among its customers. Financial Impact on Shareholders The effects of such corporate crises are profound and lasting. The estimated total cost of the scandal is projected to exceed $8 billion. Moody’s has downgraded VW’s credit rating to A3 from A2 with a negative outlook following the latest irregularities. The downgrade was a direct result of the emissions issue that would have adverse effects on the company’s future earnings and cash flow. In addition, the U.S. Justice Department sued Volkswagen AG on Monday, seeking billions of dollars in penalties in the wake of the emissions-cheating crisis. Challenges from Stakeholders Globally, politicians, regulators and environmental groups are questioning the legitimacy of VW's business model. Volkswagen’s blatant faults not only tarnish its reputation, but also heighten consumers’ cynicism about VW’s ethical practices while engaging in “greenwashing” practices. Accordingly, satisfying these stakeholders’ concerns are essential to regenerating consumer confidence in the quality of VW’s goods and services. 16
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IMPACT ON THE BRAND Definition Is a “name, term, design, symbol, or any other feature that identifies one marketer’s product as distinct from those of other marketers” Hult (2012:366), “brand equity” refers to “the marketing and financial value associated with a brand’s strength in a market” Hult (2012: 369). According to Keller (2012:270), he discusses 6 building blocks that have been developed with customers in order to provide some structure to the building of brands. A brand in its simplest form, a brand name is a form of a signature that gives credit to the creator of a particular work or service and sets it apart from those created by others. Two of the main purposes of brand names are: Identification: To differentiate a particular product or service from other or similar brands. Verification: To authenticate that a product or service is the genuine or desired article A brand is not the name of a product but the vision that drives the creation of products and services under that name. That vision, the key belief of the brand, and its core values are called identity. Kapferer (2008). On 21 September 2015, the first day of trading after the EPA's Notice of Violation to Volkswagen became public, share prices of Volkswagen AG fell 20 percent on the Frankfurt Stock Exchange. On 22 September, the stock fell another 12 percent. On 23 September, the stock quickly fell 10.5 percent, dropping below €100 to a record 4-year low before regaining some lost ground. Share prices of other German automakers were also affected, with BMW down 4.9 percent and Daimler down 5.8%. A year later Volkswagen stock was down by 30 percent. Qatar, one of the biggest Volkswagen shareholders with a 17 percent stake in the company, lost nearly $5 billion as the company stock value fell. Several executives of Volkswagen and its subsidiaries have been charged or arrested for their involvement. The most recent is former Volkswagen CEO Martin Winterkorn, who had aggravated fraud charges filed against him by German prosecutors N. Mansouri (2016). 17
The scandal has forced Volkswagen Group to pay around USD 30 billion to settle the case, with the sum likely to rise by several billion dollars. Volkswagen’s share prices plummeted after the EAP informed the public about the company’s defeat devices and investors have filed a USD 10 billion lawsuit in Germany against the company to seek compensationN. Mansouri (2016). Drop in Volkswagen Sale Although Volkswagen diesel scandal has resulted in crucial impact on Volkswagen group brands namely Audi and Skoda, slump in sales of Volkswagen vehicles is far substantial than group brands. The bad reputation of Volkswagen has affected its customer loyalty; therefore, costumers switch from Volkswagen to its competitors which lead to a noticeable drop in sales Kottasova, (2015). Since 2002, for the first time, in 2015 sales of Volkswagen plunged world-wide substantially in virtue of deceptive scandal. The following figure represents that Volkswagen’s sales is continuously plunging in the United States (BBC, 2016; Sky UK, 2016; Waecsh, (2016). The US sale of Volkswagens was 23,882 vehicles in November 2015, a 24.7 percent decline from November 2014. In South Korea, sales in November rose 66 percent to 4,517 units from a year ago due to the Volkswagen's aggressive marketing efforts such as a discount of up to 18,000,000 (US$15,600 at December 2015 exchange rates) for some models. In Great Britain, the scandal did not affect sales, which increased in 2016 to an all-point high, placing Volkswagen second in the league of best-selling carsN. Mansouri (2016). VW sales across Europe returned to growth in April 2016 for the first time since the scandal broke, with a group market share of 25.2 percent, compared to its previous level of 26.1 percent. Plunge in Volkswagen Shares Unethical practice of Volkswagen led to a dramatic slump in share value. Immediately once Volkswagen scandal was revealed, market showed reaction thus share value of the company dropped by one third. In other words, the emission scandal wiped billion dollars from Volkswagen value Gomez (2016). The following figure depicts that Volkswagen stocks price is continuously slumping dramatically in the United States. 18
Creating Hassel for Volkswagen Dealers When deceptive emission took place, a package of specific programs with the purpose of assisting retailers to cope with Volkswagen rigging in diesel emission test was provided to Volkswagen dealers Ausick (2016). The program includes specific amount of money in form of sales bonus, incentives, or subsidy injected to dealership network struggling with lower sales and profit. The sale of Volkswagen diesel cars, which includes just above 20 percentages of total sales, was stopped. Therefore, dealers are still suffering from thin profit and sluggish sales Beene (2016). On first of October Volkswagen of America with the purpose of relaxing crisis gave extra discretionary funds to Volkswagen dealers to use it in a way they wish. According to Automotive News, the amount of loan varied base on dealer’s volume and reached to the highest amount of ten (10) thousand dollar. Volkswagen crisis grew significantly and affected the brand name, whilst dealers were not permitted to sell diesel vehicles. Thus, dealers were concern whether the given fund is sufficient for survival or not. The CEO of Volkswagen America stated that further programs will be considered for dealers with cash flow, but still specific date is not declared for programs LaReau & Ryan (2015). The continuous Media reporting focused on VW polluting the environment led to negative brand image and costed company loss of million dollars. They understood that they need to have a proactive public affairs program as VW started using media and Public relations effectively during crisis helped them in regaining their market position eventually. They also established and used Remediation and Rectification, as well as Forgiveness strategies, in the VW crisis to re- establish the brand image and assist the affected peopleN. Mansouri (2016). 19
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POSITIONING STRATEGY This section of the report will evaluate how the emission scandal(cheat) affected the positioning of the brand in the mind of the consumer to how the brand can mitigate their issues to strategically position themselves. The definition: What is brand positioning - The act of designing the company's offering and image to occupy a distinctive place in the mind of the target market. Brands need to stand out from the crowd, to be perceived as unique and distinctive to their target audience. "The goal is to locate the brand in the minds of the consumers to maximize the potential benefit to the firm” Kotler & Keller (2012: 298). According to Koelzer (2019), Brand positioning is also defined as the conceptual place you want to own in the target consumer’s mind the benefits you want them to think of when they think of your brand. An effective brand positioning strategy will maximize customer relevancy and competitive distinctiveness, in maximizing brand value. The Strategy for VW it is focusing on positioning the Volkswagen Group as a global economic and environmental leader among automobile manufacturers. To achieve the goals the company has defined the most important objectives that it needs to meet to be the most competitive car manufacturer in the world and the goal is to make Volkswagen the most successful, fascinating, and sustainable automaker in the world by Volkswagen Group. Volkswagen intends to deploy intelligent innovations and technologies to become a world leader in customer satisfaction and quality. We see high customer satisfaction as one of the key requirements for the Company’s long-term success. By reducing the sales price and reintroduce the brand into those countries where its position is weak; the U.S, show more content by Volkswagen Group. In November 2010, Volkswagen for the first time made more cars than Toyota. However, Toyota still sells more vehicles each year, but the gap has narrowed down to less than 1.5 million cars. Though Toyotas reputation is going down after a series of recalls, low quality for Volkswagen 20
remains an issue in the U.S market. Volkswagen needs to strengthen its market in the United States to expand its market share. Stefan Jacoby, VWs U.S chief persuaded the board to build a U.S plant. The board later approved the plant and allocated $1 billion for the construction of the plant scheduled to open in 2011. Jacoby projected to sell 150,000 cars from the plant alone. The move is a good one as it helps overcome the American resistance for imported cars by Volkswagen Group. Volkswagen positioning strategy before and after the incident by Volkswagen Group: Before the Crisis: Volkswagen (VW) which was doing well before the crisis used media relations only for advertising and marketing purpose. They had a good brand image but no Media Relations team. During the crisis, an effective and proactive media relation could have saved the issue from being sensational nationwide and could have handled the situation beforehand by Volkswagen Group. After the crisis by Volkswagen Group They need to focus on proactive Media Relations. They need to devise the Crisis Response Strategies. 1)Share the Testimonial of people who were affected during crisis about the assistance they have received from the company. 2)Highlight the Triple packaging feature in advertisements. 3)Share the Forgiveness and Trust Building Notes to Public through Media 4)Highlight the Measures taken via Conferences and all media platforms to Public. 5)Company should have a Media Relations Team that is effectively communicating and involving with Media Persons. They should ensure that they are invited to cover all small to big measures being taken by company. 6)Media Persons should be communicated and notified throughout the year for all company related events and relation to be maintained efficiently. 21
CURRENT SOLUTIONS FOR FINALIZING VOLKSWAGEN SCANDAL On 21st April 2016, a judge in California United States declared that Volkswagen has offered a concrete plan which has been supported by United States government agencies and environmental protection agency to solve and finalize the case which Volkswagen cheated in emission test by installing a defeat device in car’s engine to game emission standards of EPA in the United States. Almost end of 2015 Volkswagen admitted that in eleven (11) million cars globally the deceptive software has been installed and 600,000 of those cars are on United States roads. Therefore, agreement in principle will be applied to Volkswagen cars in the United States Sorokanich (2016). Judge Charles Breyer, U.S. District Court in San Francisco, has proposed a deal which gives options to owners of Volkswagen tow (2) litre diesel cars to fix their cars based on emission standards of the United States or sell back their cars to Volkswagen and cancel their loans (if the cars were purchased with loan). In accordance with the judge, the proposed deal includes considerable compensation for car owners of 2 litre diesels and offers a fund for proper remediation hardship for any environmental harmful effects caused by Volkswagen cars exceeding pollutions to the environment. Still the details of compensation considered for Volkswagen car owners are not revealed Goodman (2016). Moreover, compensations for 3 litre diesels Volkswagen car owners are still underway. The deliberation of Volkswagen scandal is kept confidential. In accordance with the judge, the proposed agreement is approved and supported by California regulators, California attorney general’s office, and the United States Department of Justice, respectively. Lawyers stated that it is expected that the Federal Trade Commission (TFC) will accept the proposed deal. TFC recently sued Volkswagen for gaming in clean diesel test Goodman (2016). The proposed agreement requires more approvals and comments from Volkswagen owners. It is said by the judge hat by July. Volkswagen will be allowed to defend against a trial. The proposed agreement also consists of a section describing Volkswagen commitment to give further effort to create green car technology Sorokanich (2016). Based on Kelly Blue Book, it costs Volkswagen more than seven (7) billion 22
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dollar to buy back the affected vehicles. Therefore, it is estimated that Volkswagen scandal might impose further cost to the company from approximately 6.7million euros to twofold or even more than the amount Goodman (2016). Although Volkswagen and Porsche representatives, the Department of Justice, and others have given great efforts to work fourteen (14) hours a day to finalize an appropriate deal to solve Volkswagen deception, yet this case is not finalized yet. The judged announced that June 21st is the due date for all the involved parties to lodge their proposals before delivering the deal to public Goodman (2016). There is a proposal for Volkswagen emission scandal explained as follow. It is estimated that a giant amount of money is about to be spent in seeking to penalize Volkswagen for its deception. It is proposed that instead of imposing additional financial burden to punish Volkswagen, there are other ways such as green way to penalize Volkswagen rigging in emission test Schlanger (2015). It has been recommended rather than squandering huge amount of money on penalties, it is more favorable to spend this amount of penalty to advance traditional technology. This is a great opportunity to bring out significant changes to automobile industry by requiring Volkswagen to concentrate on electric vehicles. In addition, there is no guaranty that Volkswagen will be able to repair the defeat device. On the other hand, the car owners might prevent to bring their car for fixing compromising performance Yadigaroglu (2015). It is rational that EPA releases Volkswagen accountability to recall existing vehicles with defeat device to fix them. Subsequently, EPA has a crucial role to enforce Volkswagen to speed up its roll-out of zero emission cars which emit zero pollutant to the environment. Therefore, zero-emission cars tighten opportunities for cheating in emission tests. Moreover, EPA benefits greatly from zero-emission cars since it is not required to create new complicated and expensive emission test for zero-emission cars. This type of cars has an ample of advantage not only to the EPA and automakers but also to the environment Yadigaroglu (2015). Over few years, Zero-emission cars significantly diminish emission which is ten (10) times greater than Volkswagen producing with deceptive device. In practical terms, increasing number of Volkswagen electronic vehicles on roads compensates the emission of Volkswagen cars with deceptive device. Besides, zero-emission cars privilege economy as well by increasing the needs of batteries. To fulfil the needs of battery in zero- 23
emission cars, more battery manufacturers are required to be established over the world. High demand for battery manufacturing leads to an investment in lands and creating jobs for locals in the United States and other regions. Advanced technology will be significantly reducing environment pollution, alleviating regulation of complicated emission standard, and creating substantial domestic jobs. This is in facet an opportunity for Volkswagen to invest specific amount of money not only to compensate its scandal but also to strengthen its position. The proposed electronic cars have a dramatic role to repurpose the penalized money. According to the recommended proposal, it is evident that this is an ideal solution to finalize case of Volkswagen cheating in emission test Yadigaroglu (2015). 24
PUBLIC RELATIONS CRISIS MANAGEMENT In this segment will discuss the Public Relations steps/ approach to be approached to culm the consumers. One of the earliest definitions of PR was coined by Edward Bernays. According to him, "Public Relations is a management function which tabulates public attitudes, defines the policies, procedures and interest of an organization followed by executing a program of action to earn public understanding and acceptance. public relations responsibility is crisis management is to, handle situations in which public awareness of a particular issue may dramatically and negatively impact the company’s ability to achieve its goals. For example, when it was discovered that VW Journawiki (2021). Hakin, D., Joshi,P. (2016) wrote for years, Volkswagen successfully communicated an image of itself to the world: Our cars are green, and our engineers are the best. In September that fell apart when the automaker admitted it had engineered millions of vehicles to cheat on pollution tests. Since then, the company known for its insular culture and a carefully scripted messaging machine has stumbled repeatedly in explaining itself. Hans-Gerd Bode, Volkswagen’s communications chief since September, said in an interview. “Thousands of calls and emails coming in at the same time” Hakin. D (2016). “A crisis like this, the company was not prepared for,” he said. With the company continuing to negotiate with foreign governments, “We don’t know the right way out”Hakin. D (2016). In the months since it admitted it designed its diesel cars to cheat on tailpipe-emissions tests, the company has struggled with its messaging. A low point came last month when Matthias Müller, the new chief executive, visited the United States and told NPR, “We didn’t lie,” when VW clearly did. The outcry forced Mr. Müller to call NPR back and revise his statement Hakin, D (2016). But Volkswagen, which includes the Audi, Porsche and Lamborghini brands, faces a crisis that traverses the globe, complicating the response across borders and cultures. For instance, the company has argued that German privacy laws prevent it from fully cooperating with American 25
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investigators. On the other side of the world, prosecutors in South Korea are threatening to bring criminal charges against executives thereHakin. D (2016). At the same time, Volkswagen is an insular company based in a country that prefers to tightly manage and script press interactions. It is Mr. Bode’s job to clean up the mess. Before the scandal, he was top spokesman for VW’s Porsche division, hosting media events featuring vintage sports cars and the glamorous tennis star Maria Sharapova. Now he is leading the damage control in a globe-spanning public relations crisisHakin. D (2016). VW should have known it was headed for a disaster. For more than a year, the company told American regulators that its diesels simply had a technical problem that was causing tailpipe emissions to soar on the road. Then last September, Volkswagen admitted it had created software to detect and thwart laboratory tests for pollutants that pose health hazards. Its chief executive, Martin Winterkorn, chalked it up to “the mistakes of a few people.” Few believed that was true, however, considering that the scandal involves 11 million vehicles and engines developed over several years. When he resigned a few days later, Mr. Winterkorn said, “I am not aware of any wrongdoing on my part.” Recently, internal documents suggested he may have been aware of the issue as far back as May 2014. Since then, the company’s approach has often faltered. While VW has admitted cheating in the United States and is making good-will payments to customers, it has claimed that the same behaviour was not illegal under European rules. So, VW is not paying European customers, even though it is recalling its cars in both marketsHakin. D (2016). In an interview, Mr. Bode offered a more contrite message. “There’s no doubt that we built up things within the cars which were completely wrong, and which worked against the laws,” he said, when asked about VW’s posture in Europe.While there have been many past automotive crises, this one is fundamentally different. Consumers are used to automotive safety recalls big and small. There was General Motors’ crisis involving defective ignition switches and Toyota’s scandal related to sudden vehicle acceleration. Honda was recently fined $70 million for not reporting safety problemsHakin. D (2016). But Volkswagen is seen as particularly brazen. The public tends to show “a little more tolerance” for recalls and labour issues, said Wendy Salomon, a vice president at Nielsen, which conducted the recent Harris Poll. But the polling, she said, showed respondents were “least tolerant” of “lying and misrepresentation and intentional wrongdoing.Hakin. D (2016)” 26
Volkswagen has been scrambling to enlist help. The company has brought in three public relations firms based in three different countries, Kekst in the United States, Finsbury in Britain, and Hering Schuppener in Germany — to join Edelman, an American firm already on retainer. VW has been paying Richard Gaul, the former communications chief of BMW, 20,000 euros a month, about $22,000, to work as a part-time, 60-hour-a-month consultant, according to a contract reviewed by The New York Times. Mr. Bode, however, said Mr. Gaul had been advising the company on other mattersHakin. D (2016). VW also hired Jones Day, a law firm, to conduct an internal investigation, though the firm’s own website said it helps clients determine “whether and how to voluntarily disclose criminal conduct to the government,” suggesting disclosing criminal conduct is not a foregone conclusion. The top executive at VW’s Porsche division has already said he is hoping to reinstate Wolfgang Hatz, the suspended engineering chief who is seen as a central figure in the scandalHakin. D (2016). Mr. Bode himself was part of a broad reshuffle of management from within the company’s ranks. He said VW had revived a “newsroom” for rapid response to inquiries on the scandal from the news media and others, made up of 15 to 20 employees from the communications and sales teams and people with technical expertise. VW had such a newsroom during a prostitution scandal in 2007 and 2008 involving the company and its trade unionsHakin. D (2016). Mr. Bode accompanied Mr. Müller on his trip to the United States where he made the controversial statement. “It was my failure,” Mr. Bode said. He said the questioning, around the Detroit auto show, was too chaotic, with many reporters asking questions. He said he should have organized more individual interviews to forestall confusion. The company is also overhauling its advertising message. “Das Auto,” the chest-thumping old slogan, is out. The simpler tagline “Volkswagen” is in. Since apologizing in newspapers after the scandal broke, the company has been keeping a relatively low profileHakin. D (2016). Mr. Bode said Volkswagen was awaiting a resolution to its continuing talks with American regulators before settling on a new marketing strategy in the United States. Discussions have been contentious. The Environmental Protection Agency and regulators in California and Canada have accused the company of installing defeat device software in a set of larger vehicles that were not among those included in Volkswagen’s admissionsHakin. D (2016). 27
“We have to start with this campaign when we have agreed to a solution with the authorities.” Mr. Bode said. “Then we have to see the overall picture.” Irving Schenkler, a professor, and crisis management expert at New York University, said there have been few parallels in history. “It’s unprecedented in terms of the cross-national scope of it, the degree of the problems,” he said. “There are so many different fronts.” Even in Germany, the news media has hardly given the company a free pass. “VW is overwhelmed,” said Kayhan Özgenc, a reporter at Bild am Sonntag, a newspaper that has been particularly aggressive, adding, “It was a change from paradise directly into hell, from the most profitable carmaker to an emergency situationHakin. D (2016).” Mr. Bode, for his part, has been critical. “What the German press did was call everything wrong which is and was done by the company,” he said. Managing the crisis, he added, has been “a step-by-step thing, learning by doing.” Someday, he said, he could become a university professor and give speeches on how to manage a crisis. “Hundreds of speeches,” he said. “That’s a joke. We are far away from joking about this. It’s a deep, deep thing for the company Hakin. D (2016).” VW’s communications to customers throughout the crisis followed an arc that began with its public pledge to first cooperate with the investigation and “to fixing the issue as soon as possible” Volkswagen: News & Updates (2015) and several statements about its “shock” related to the findings. The company established a website to keep customers informed, www.vwdieselinfo.com, and regularly posted news about its activities related to Dieselgate. In its very first posting to the site on Sept. 23, 2015, VW signalled that it understood the road ahead to rebuild its reputation, saying “the executive committee is aware that coming to terms with the crisis of trust will be a long-term task the requires a high degree of consistency and thoroughness” Volkswagen: News & Updates (2015, September). Finally, in January of 2016, the company announced what it called its attempt to “restore the invaluable trust” of its customers by offering them a “goodwill package” of two $500 gift cards (one which could be redeemed anywhere, another that could be used for products and services at VW dealerships and free access to roadside assistance) Volkswagen: News & Updates (2016).The package was estimated to cost VW nearly $250 million. The company conducted 28
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several outreach initiatives to customers to promote the compensation package, and approximately 125,000customers signed on to receive the gift cards in the first ten days after it was offered Volkswagen CEO admits. Accepting the gift cards did not affect customers’ right to pursue other legal action in the future Ewing & Mouawad (2015). Media coverage of the goodwill package focused on customer reaction and recorded comments from customers who said they felt insulted. These customers expressed anger and characterized the action as an empty gesture. A Kansas City Star editorial called the package a “half-‐hearted attempt to compensate the people they had lied to, offering them a paltry $1,000” VW scandal a case study, (2016). Prominent voices weighed in on the adequacy of the goodwill package. Two United States senators, Richard Blumethal and Edward Markey, called the offer “grossly inadequate” and “a fig leaf attempting to hide the true depths of Volkswagen’s deception” Leinert & Cremer (2015). They called for further investigation and urged VW to offer all owners a buy-‐back option for their TDI models. The goodwill package was the company’s only compensation outreach to consumers until June of 2016, when it finally reached an ultimate settlement of more than $10 billion with the United States government. The settlement offered owners either a buy back or fix for all affected vehicles, as well as restitution payments of several thousand dollars to each owner. In total, The New York Times said that consumers could expect to get between $12,500 to $44,000 depending on the age of the vehicle Gates (2017). Owners received individual notices about their buyback or fix offer with terms dependent on the age of vehicle and other benchmarks. The final settlement was easily the largest in the history of the auto industry and surpassed recent settlements from other crises faced by GM and Toyota by several billion dollars. 29
ETHICS In this section, we will analyze the importance of ethics and the importance of business and advertising. Definition: business ethics is defined as the principles and standards that determine acceptable conduct in business organizations. Personal ethics, on the other hand, relates to an individual’s values, principles, and standards of conduct. The acceptability of behavior in business is determined by not only the organization but also stakeholders such as customers, competitors, government regulators, interest groups, and the public as well as everyone’s personal principles and values. The Volkswagen case highlights the failures of ethical compliance Warford (2016). The ethics scandal is about Volkswagen engineers altering engine operations to meet U.S. emissions testing standards Rogerson (2017). Volkswagen used ̳ defeat devices ‘which ensured that emissions control would only be activated during regulatory tests Trope & Ressler (2016). Under normal driving conditions, exhaust emissions were forty times higher than the legal limit VanSandt, (2016). This cheating continued for ten years until detected Shepardson (2017). The scandal started when Volkswagen was issued a notice by the U.S. Environmental Protection Agency (EPA) in 2015 for violating the Clean Air Act Shepardson (2017). The investigation found that 482,000 cars were using defeat devices Plungis (2016). Volkswagen initially lied to the EPA and cited̳technical problems ‘Stoklosa (2016). Eventually, Volkswagen pleaded guilty in 2017 and settled to a $4.3 billion agreement, the highest ever criminal fine imposed on a carmaker in America Shepardson (2017). Subsequently, Volkswagen issued a public apology and arranged to pay $22 billion to claimants including car owners, dealers, and regulators Hotten (2015). Volkswagen lost more than one-third of its stock value, 500,000 cars were recalled, sales were stopped, six executives were charged and the chief executive officer for North America and other directors resigned Singer (2015). Volkswagen ‘s actions are legal under European Union emissions regulations and only American customers are being compensated O ‘Dwyer (2016). Volkswagen ‘s U.S. boss knew about the misconduct since early 2014, engineers rigged the tests due to pressure from management and executives kept all stakeholders in the dark Rogerson, 30
(2017); Zhou (2016). Aggressive goals for the U.S. market, technical loopholes, fraudulent marketing, unethical governance and management ‘s justification of ethical violations have led to the cheating Lynch (2016). The ethics failure can be traced to Volkswagen ‘s organizational culture, underlining the importance of proper board and management structure Elson, Ferrere & Goossen (2015). However, it is beyond the scope of this paper to justify that made the decision; the fact is that an unethical choice was made VanSandt (2016). The Volkswagen emissions scandal represents the antithesis of ethical business conduct, having negative repercussions for both direct and indirect stakeholders Mansouri (2016). The case is cautionary because the legendary German automaker was considered a globally dependable brand, having self- proclaimed to be ethical and ecological Adams (2015). Human resource policies, codes and employee training were questioned as the world was shocked by Volkswagen ‘s brazen disregard for business ethics and environmental regulations Halfond (2016). Consequently, Volkswagen ‘s ambitions of becoming the world ‘s leading car manufacturer came crashing with its decades of reputation Singer (2015). Compliance-based ethics and regulations often have the reverse outcome Mansouri (2016). Accordingly, many authors propose a reformulation of U.S. emissions standards to coordinate with automakers Mansouri (2016). How Volkswagen handled the crisis and recommendations to improve consumer confidence? The Volkswagen Group is now faced with a problem of establishing credibility to its consumers and stakeholders. There are no set guidelines on what to do when a company’s reputation is damaged. However, three possible solutions include having Volkswagen restart under a new name, join an independent verification agency, and/or set up a bond. Volkswagen should implement as many measures as possible to restore credibility to its company. The worst-case scenario would be a lack of action that may spark a consumer boycott. This would lead to a decrease in sales and the eventual collapse of this company. 31
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RE-BRANDING In the last 60 years, Volkswagen has become a global brand and it is the biggest car company in the world. While some believe that the scandal will be forgotten soon, other Volkswagen directors have discussed the possibility of restarting the company under a new name. If the company restarts under a new name, this may improve brand image to have a company that is smaller and more efficient than the current Volkswagen Group Zhou, A. (2016).̳. Re-branding will make it easier for the company to speed up efficiency programs and potentially save the company. Rebranding can be expensive and risky, but it may reduce the negative publicity that was caused by the scandal. It is important that the rebranding not only focuses on exterior changes, but also changes in other aspects of the company. The Volkswagen group is headed by the group chief executive Matthias Mueller Zhou, A. (2016).̳. The management board includes 9 bosses led by Herbert Diess, the Volkswagen car chief. The management board oversees the supervisory board which is composed of 20 members, including key investors, led by Berthold Huber, interim chairman. Most shockingly, Martin Wintercorn is likely to receive two years pay and a pension of more than £22 million. This is the same man who first tried to cover up the scandal by claiming the company did not lie but faced a “technical problem. “Bernd Osterloh, the Chairman of the General and Groups Works Council of Volkswagen AG, has suggested a new CEO who has a deep knowledge of technology needs to be appointed. He stated, “We need changes in our corporate culture. For the future we need a climate in which problems are not concealed, but rather are openly communicatedto management. “A new CEO will bring a new lease of life into the organization and lead to a change in business strategy, competitive position, and business environment. A change in the governance process such as shareholder process, open election of directors, and wide inclusion of membership may also prove to be beneficial to the new companyZhou, A. (2016). 32
RECOMMENDATION Firstly, VW should have not done that as it violates their code of conduct and the trust . Secondly, after the discovery, they should have communicated to all the stakeholders and come clean not what they did by denying the issue. Now, Volkswagen should dedicate all efforts and resources into re-establishing credibility with the company. Volkswagen may choose to re-brand, although this option is unlikely. It can also join independent verification agencies, which is more feasible and easier to accomplish. Finally, the costliest option would be to sell one of its brands and post a bond. This is the most expensive option and probably a method of last resort, however it would also restore the most faith in the Volkswagen brand. A combination of the second and third option would be the best recommendation Zhou, A. (2016). As consumers slowly regain trust in the brand, then sales will most likely gradually increase. Consumers are currently debating on purchasing the cheap Volkswagen stock because many have faith that the company will take the necessary steps towards mediating the scandal. Itis doubtful that the stock prices will return to previous levels anytime soon, but if Volkswagen shows consumers that it regrets deceiving consumers and is dedicated towards better corporate social responsibility practices, then perhaps it can regain its status in the global auto industry Zhou, A. (2016). 33
REVISED MARKETING STRATEGY In order for organizations to build strong brands, strategic brand management is necessary. Strategic brand management “combines the design and implementation of marketing activities and programs to build, measure and manage brands to maximize their value" Kotler & Keller, (2012: 263). What is the marketing mix strategy? The marketing mix strategy can be defined as a theoretical framework designed to help businesses plan and put into action effective launch and sell strategies for their products DK publishing (2014). It is also a list of important elements and forces that make up marketing programs for a company Borden (1984). Volkswagen AG (2021)says Volkswagen has always made individual and affordable mobility possible for millions of people. Under the vision "Shaping mobility - for generations to come.” we are providing answers to the challenges of today and tomorrow with our sharpened TOGETHER 2025+ Group strategy. Our goal: We aim to shape the future of mobility while safeguarding it sustainably – more actively for present and future generations. is to make mobility sustainable for us and for future generations. Our promise: With electric drives, digital connectivity, and autonomous driving, we want to make the automobile cleaner, quieter, more intelligent and safer. With an appealing product portfolio of impressive vehicles and forward- looking, tailor-made mobility solutions we have set ourselves the goal of continuing to excite our customers and to meet their diverse needs. In this way, the car can continue to be a cornerstone of contemporary, individual, and affordable mobility in the future. Four target dimensions: 34
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Excited customers This target dimension focuses on the diverse needs of our customers and on tailor-made mobility solutions. We aspire to exceed our customers’ expectations, thus generating maximum customer benefit. This requires not only the best products, the most efficient solutions, and the best service, but also flawless quality and an outstanding image. We want to excite our existing customers, win over new ones, and retain their loyalty in the long term – because only loyal and faithful customers will recommend us to others. The strategic KPIs consist of the conquest rate and KPIs pertaining to loyalty, customer satisfaction and quality Volkswagen AG (2021). Excellent employer To achieve sustainable success, we need skilled and dedicated employees. We aim to foster their satisfaction and motivation by means of equal opportunities, an attractive and modern working environment, and a forward-looking organization of work. An exemplary leadership and corporate culture form the basis for this, allowing us to retain our core workforce and attract new talents. The strategic KPIs of this target dimension cover internal employer attractiveness determined by means of the opinion survey, external employer attractiveness, an external employer ranking as well as the diversity index Volkswagen AG (2021). Role for the environment, safety, and integrity Every day, we at the Volkswagen Group assume and exercise responsibility in issues relating to the environment, safety, and society. This commitment should be reflected both in our thoughts and actions and in all our decisions. We pay particular attention to the use of resources and the emissions of our product portfolio as well as those of our sites and plants, with the goal of continuously improving our carbon footprint and lowering pollutant emissions. Through innovations and outstanding quality, we aim for maximum product safety. Our primary objectives in this process include complying with laws and regulations, establishing secure processes and dealing openly with mistakes so that they can be avoided or rectified in the future. In terms of integrity, Volkswagen aims to become a role model for a modern, transparent, and successful enterprise. The strategic KPIs of this target dimension consist of the decarbonization 35
index and fleet CO2 emissions figures, compliance, a culture of dealing openly with mistakes, and integrity Volkswagen AG (2021). Competitive profitability Investors judge us by whether we can meet our obligations as regards interest payments and debt repayments. As equity holders, they expect appropriate dividends and a long-term increase in the value of their shares. We make investments with a view to achieving profitable growth and strengthening our competitiveness, thus keeping the Volkswagen Group on a firm footing in the future and ensuring it remains an attractive investment option. The goals we have set ourselves are operational excellence in all business processes and becoming the benchmark for the entire industry. The strategic KPIs are operationalized for internal management purposes: target and actual data are derived from Volkswagen AG (2021). Our values - the foundation of our strategy We want Volkswagen to be a company with integrity through and through and to be respected in the best sense of the word. Volkswagen AG (2021) says To meet this requirement, we have created the Group-wide integrity and compliance program Together4Integrity (T4I for short). It bundles all the activities for integrity, compliance, culture, risk management and HR and thus creates the basis for our success. T4I is our common path towards a corporate culture that enables every manager and every employee to act with integrity and in accordance with the rules at all times and everywhere. We have summarized our promises to our customers, shareholders, business partners and ourselves in seven key principles. They describe what the Group stands for in all its brands, companies, and countries: We take on responsibility for the environment and society. We are honest and speak up when something is wrong. We break new ground. We live diversity. 36
We are proud of the work we do. WE not me. We keep our word. Strategy building blocks – the elements in brief. To exploit the full potential of our Group, the strategies of the brands, regions and functional areas must be optimally aligned with one another. Under the umbrella of TOGETHER 2025+, we have defined five modules as central work packages that ensure the success of our further developed strategy. Under the motto Focus & Speed, we are sharpening our activities and accelerating our actions Volkswagen AG (2021). Our main areas of action in five modules Volkswagen AG (2021) Best Governance Focused, lean, trustworthy The Volkswagen Group has already taken important steps to streamline its structures and make decision-making processes more decentralized. But we still have potential - and want to constantly improve. In the "Best Governance" module, we address deficits in a structured and consistent manner: We streamline our committees, reduce bureaucracy, and streamline Group administration considerably. We are systematically checking whether we are still the best owner for the various divisions. We are using a decarbonisation index to make our CO2 targets measurable and our progress transparent. And we are intensifying the dialogue with all key stakeholders to regain and further build trust Volkswagen AG (2021). Our goal: We form a focused, lean Group holding company that optimally manages its brands and continuously leverages synergies within the Group. Our stakeholders perceive Volkswagen as an efficiently managed, trustworthy, sustainable, and transparent Group. As a company that creates value in every aspect and powerfully shapes mobility for us – and for future generations Volkswagen AG (2021). 37
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Best Performance Efficient, profitable, sustainable Volkswagen can only assume its responsibility towards all stakeholders, society, and the environment in the long term if we are economically even more successful. In the “Best Performance” module, we set ourselves ambitious financial targets, work even harder than before on its implementation and make our progress transparent with a comprehensive set of KPIs Volkswagen AG (2021). We are substantially improving our Group-wide financial performance to achieve our target of a 7-8 percent return on sales (ROS) by 2025. We are working to sustainably increase the value of the company with a stronger focus on return on investment (ROI). By 2025, we aim to achieve a return on investment of over 15 percent for the Automotive Division. In addition to the key factor CO2, we also base our management of vehicle projects on the return on investment. Our claim: Volkswagen will set standards in efficiency, productivity, and profitability by 2025. We meet our forecasts and continually challenge the targets we have set ourselves. In this way, we strengthen the confidence of investors and the capital market in the Group. And in this way, we create the basis for making powerful investments in our company, our employees and in mobility for future generations Volkswagen AG (2021). Best Brand Equity Sharpened brands, full potential The Volkswagen Group’s brand portfolio has grown strongly in recent decades. This has led to a high degree of complexity in brand and product management Volkswagen AG (2021). In the “Best Brand Equity” module, we are working on realigning and sharpening the brand portfolio. Based on the major future trends and changing customer needs, we aim to define the ideal brand portfolio for 2030. For each brand, we define the profile, brand mission and core competitors in a clear-cut manner. On this basis, we decide on the future design, products, services, and appearance of each Group brand – based on the wishes and lifestyles of our customers. We intend to increase our regional profit pools in Europe, China, and North America 38
even more systematically based on clear brand territories and orders. With consistent brand management, we are working to further increase our individual brand values. We are convinced that even in the electric and digital age, strong and independent brands will be a key factor in purchasing decisions. Our Group brands will convince and inspire with a coherent portfolio of vehicles and mobility services. In this way, we create added value for our customers and for the company Volkswagen AG (2021). Software-Enabled Car Company On the way to becoming a Tech-Company Our brands have long set standards in technology, design, and quality with their vehicles. They inspire customers and achieve economic success. That alone will not be enough in the future. Digitalization is fundamentally changing the car; the automobile is becoming a software product. In the "Software-Enabled Car Company" module, we are therefore working to make software the new core competence of the Volkswagen Group. To this end, we are pooling our existing strengths and strengthening our position massively. We were the first automobile manufacturer to separate hardware and software development organizationally. We are developing a cross- brand software platform for vehicles and the Volkswagen Automotive Cloud. By 2025, all new vehicle models throughout the Group will run on our own software platform. It has the potential to set standards in the industry Volkswagen AG (2021). Our goal: By 2025, the Volkswagen Group and its brands will not only stand for the best vehicles, but also for exciting and superior digital products and services. With our hardware and software platforms, which we are opening to third parties, we are the global scale champions in the automotive industry. With our digital ecosystem, we bring our customers’ world into the car – with the best user experience and mobility services that make everyday life easier and more enjoyable Volkswagen AG (2021). Excellent Leadership Versatile, integrity, strong leader To be successful in the new world of mobility, we must make rapid progress towards an open, cooperative, and integrated management culture. 39
In the “Excellent Leadership” module, we are creating the prerequisites for this: we are fundamentally restructuring our management development and qualifications. We systematize succession planning to have the right talents in the right positions at the right time. We want to significantly increase the diversity of our management team. That is why we are setting ourselves clear, measurable goals for more female and international managers. The common goal: By 2025, Volkswagen will set an example for others with open, partnership- based, value-based leadership. Our management development sets standards. We live and reward entrepreneurship and future-oriented thinking every day. We live diversity at all levels Volkswagen AG (2021). Functional areas – Ideas from the heart of the company K-B Procurement Volkswagen Group Procurement sources products and services for the Group that provide optimum customer value using the best possible cost structures. The Procurement functional area aspires to be the world’s most efficient and attractive organization of its kind. Specific aims include gaining access to supplier innovations, leveraging Group-wide synergies, and ensuring a supply chain that excels in all dimensions. A key element of this strategy is the active role played in the early stage of the project – the only way to actively manage costs, achieve price leadership in new technologies and ensure market-driven concepts. Volkswagen Group Procurement’s strategy is based on very highly qualified and motivated employees as well as a state-of-the-art, future-oriented organizational structure Volkswagen AG (2021). K-GV Sales Customer Delight is the driving goal for Group Sales. It is the Sales’ mission to aim at creating unique and strong positions for Volkswagen’s brands, conquering new markets, and addressing a broad segment of various customers. Key cornerstones of the Strategy are: Excellent Sales 40
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Organization, Effective Brand Portfolio Management, Outstanding Sales Performance, and a Sustainable Growth. The Sales and distribution of innovative mobility – for customers globally – secures profitability long term and enables sustainable growth Volkswagen AG (2021). K-F Finance Acting as the financial navigator for sustainable growth, the Finance and Controlling functional area intends to contribute to the Volkswagen Group of the future. To ensure competitive profitability, liquidity and financial stability for the Group, this area counts on a strong team as well as reliable compliance and an effective risk management system. These elements are accompanied by partnerships with stakeholders based on trust, loyalty, and openness. Stakeholders in turn can bank on neutrality, reliable standards and a focus on targets that invariably considers what is best for the Group Volkswagen AG (2021). K-I Integrity and Legal Affairs The trust our customers continue to place in us and the perception of Volkswagen as an excellent employer are crucial for the Group’s success. The strategic objective of the Integrity and Legal Affairs functional area is therefore to anchor these factors as the basis for daily activities in the Group, thereby making a vital contribution to Volkswagen’s sustainable growth. This specifically entails safeguarding customers and staff against compliance risks and positioning the functional area as a competence centre for integrity and legal affairs, data protection, compliance, and risk management Volkswagen AG (2021). K-AE Research and Development Technological innovations play a pivotal role in the design of pioneering mobility solutions with inspiring products and services that define the brands. Staff in the Research and Development functional area are aware of this huge responsibility. To generate sustainable growth while serving as an example in relation to the environment, safety, integrity and resource efficiency at the same time, Volkswagen relies here on an exceedingly efficient cross-brand development alliance. Characteristic features of this alliance are close networking among experts, collaborative working relationships on equal terms, an innovative working environment and selective pooling of development activities to leverage synergies and efficiencies throughout the Group Volkswagen AG (2021). 41
K-PP Production Intelligent networking of people, brands and machines in global manufacturing and logistics is the vision of the Production functional area. Intelligently networked means that the strengths and potential of Group-wide production are combined, and the resulting synergies are leveraged to make Volkswagen competitive and fit for the future. The strategic objective is to organize production as sustainably and productively as possible. This will be achieved through future- proof work structures, greater efficiency, intelligent processes, and a versatile production network that anticipates future developments in the markets as well as in relation to competition, products, environmental issues, and innovation. The strong alliance in the Volkswagen Group and the open, cross-brand exchange of ideas and information between all parties involved in the production process provides the basis for this continuous development Volkswagen AG (2021). K-GQ Quality Delivering outstanding quality and reliable mobility to customers worldwide is the strategic objective of the Quality Assurance department. As the “voice of the customer” the principle of dual control is relied on in critical company processes; products that are superior to those of the competition are developed within budget requirements. The department’s commitment to quality runs the gamut of current and future mobility solutions – vehicles as well as services. Finally, all markets will pay close attention to differing regional needs to make a substantial contribution to the Volkswagen Group’s sustainable growth Volkswagen AG (2021). K-S Human Resources Positioning the Volkswagen Group as an excellent employer of the future is the strategic objective of the Human Resources and Organization functional area. Expert, enterprising staff form the basis for Volkswagen’s success, both today and tomorrow. To give all employees optimum conditions for delivering supreme performance, the human resources activities support individual development paths, diverse training opportunities and the organization of modern working environments. Increasing diversity, integrity, appreciation, and respect is a key objective of the Volkswagen Group’s human resources strategy. The unifying framework for implementing this strategy is provided by an exemplary leadership and corporate culture that is shaped by team spirit and ingenuity Volkswagen AG (2021). 42
K-FI Group Information Systems Best-in-class IT solutions, enthusiastic users, progressive data protection and, not least, an extremely attractive working environment are the strategic objectives of the IT functional area in the Volkswagen Group. Mobility will be turned into an exciting experience at a digital level as well. The IT department also aims to add value in the future, thereby contributing to the Group’s sustainable growth. Through open, straightforward partnerships, the Group’s global IT expertise will be harnessed to advance innovation and ensure reliability. Effective protection of digital information has top priority at all levels Volkswagen AG (2021). Volkswagen AG (2021) says brands and regions – For innovation, sustainability, and profitability. Volkswagen Audi SEAT Porsche ŠKODA Commercial Vehicles Volkswagen AG (2021) says Volkswagen Group Components TRATON SE Volkswagen Financial Services Volkswagen Group China 43
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