Branding, Positioning and Segmentation at Volkswagen

von: Volker Schmid

Table of Contents

Abstract

1 Introduction 1

2 Branding Strategy 2

3 Segmentation Strategy 4

4 Positioning Strategy 8

5 The Future of the VW Phaeton 11

References 14

Abstract

This paper analysis the case study “VW Phaeton” by Röhm and Murphy (2005) about the launch of a luxury car by Volkswagen. Since the introduction of the VW Phaeton in May 2002, Volkswagen has been under pressure as the company did not reach their sales forecast, experiencing dramatic financial losses (Weernink, 2002).
It comments on the strategy of VW in terms of branding and positioning. It also considers segmentation, niche and mass marketing as essential issues for VW. Various aspects of these issues are discussed as well as their relationship to customer loyalty, and how they contribute to a business success. Finally, it is summarised why the future of the VW Phaeton is considered to be a bleak.
It could be shown that positioning is an outgrowth of segmentation, and therefore, presents an integral part of VW’s strategy. The paper shows that VW introduced the VW Phaeton to move up-market, and to polish the VW brand. However, the company did underestimate their own brand, which is associated with a people’s car. At the same time, Volkswagen missed to serve highly potential segments in the middle-class segment. In order to position the VW Phaeton in the upper-class, a comprehensive marketing campaign was launched, which could not add the missing emotional and prestige value to the VW brand. In the final section, it is argued why the future of the VW Phaeton is a bleak - mainly because of a strategic failure regarding the branding strategy.

1 Introduction

In May 2003, Volkswagen introduced its first luxury car – the VW Phaeton (Handelsblatt, 2003). This paper answers the following two questions of the ‘VW Phaeton’ case study:

1. “Is the future a bleak as the case suggests? Comment and discuss the issues in the case summarising why you feel you agree or disagree” (VW Case Study, 2005).
2. “Comment on the strategy of Volkswagen in terms of branding and positioning; what issues should they consider, given that they appear adamant about entering and sustaining the luxury market for their product?” (VW Case Study, 2005).

Question one asks to ‘comment and discuss the issues in the case’ which are branding, segmentation, positioning, and niche/ mass marketing strategies. These present similar issues as in question two. Therefore, this paper comments on the strategy of Volkswagen in terms of branding, segmentation, positioning in the first place - as these are all issues which VW should consider when introducing a luxury car. This answers question two, and gives partly the answer to question one (‘comment and discuss the issues’). Finally, it is summarised why the writer agrees or disagrees if the future of the Phaeton is a bleak.

In order to answer question one and question two, it is worthwhile to identify and define what branding, segmentation, and positioning strategies are, their relationship to customer loyalty and how they contribute to a business success. This theoretical underpinning presents the bases to analyse and comment on the mentioned issues.

2 Branding Strategy

This section gives different definitions what branding means, its elements, functions, and why it contributes to a business success. Furthermore, the VW brand is discussed; what VW stands for, its brand values, brand groups, and finally, why a luxury car has been launched under the VW logo.
Doyle (2002) states that the purpose of marketing is “to create a preference for the company’s brand”. A customer who perceives a brand as superior will be willing to pay more for the product or service. But what is a brand? The literature provides various definitions from different perspectives. For example, Duncan (2002) defines a brand as a “perception of an integrated bundle of information and experiences that distinguishes a company and/or its product offerings from the competition”. A similar definition is given by Kotler (in Esch, 2000), a brand is a “name, term, sign, symbol, or design or combination of them which is intended to identify the goods and services of one seller or a group of sellers and to differentiate them from those of competitors.” This means that the function of the brand is mainly differentiation and identification. To reflect the importance of the brand influence on the buying decision, and to position the customer into the centre of branding; Bruhn (1999) defines a brand as a “promise to the customer”. This promise stands for a continuous supply of standardised quality to the customer. A further element of a brand is its added emotional value. The emotional notion leads to a psychological product differentiation. For example Coca-Cola has a strong emotional brand. Another essential aspect of a brand is its image, which is in the mind of the customer in the form of pictures, feelings, attributes, values, content of the brand etc. (Knoblich, 1992). The buying decision depends on the difference between the communicated brand image and the consumer’s personality. In summary, the various definitions include the three components: promise, emotional values, and rational values (see also De Chernatony, 2003).

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