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Volkswagen's India Strategy

13 April, 2012

For all the talk about companies coming to an emerging market like India and setting up shop, no one has been more passive aggressive than the Volkswagen Group. VW is most famously known for its Beetle one of the best-selling cars of all time at over 21 million units. In a bid to move beyond the Beetle, VW, in the 90s, started to acquire many brands and their complete portfolio is quite impressive: Audi, Bentley, Bugatti, Lamborghini, SEAT, Skoda and VW. VW also owns 49.9 per cent of Porsche and is set to take 100 per cent ownership in the near future. The linkage between VW and Porsche goes way back VW was founded by Ferdinand Porsche. Then Ferdinand went on to start Porsche where his son created the iconic 911. Even today, the bonds are strong; the Porsche Cayenne and the VW Touareg share the same chassis (platform in car speak).

Long-Term Commitment

Enough of the history lesson, let's now get back to VW's big bet on India. VW's foray into the country started in 2001 when it launched the Skoda brand and started selling the Octavia. Around 2007, the VW Group also added Audi, Bentley and VW to their Indian product line. These cars were available by importing them individually. However, servicing was always an issue since they didn't have official dealers on the ground in India. In another sign that VW is here for the long haul, it opened a massive manufacturing facility in Chakan (near Pune) in 2009 and spent $500 million in the process. Towards the end of 2011, VW will add the high-performance brand Lamborghini to the mix. They will most likely unveil the first Lamborghini showrooms when they ship the highly anticipated fire-breathing 691hp Aventador to India.

Breakout Hit

In the 4-door, mid-luxury segment, the market leader for years has been the Honda City. The breakout hit for VW has been the Vento which was introduced in 2010 and has already beaten the Honda City as the No. 1 selling car in that segment. The Vento's success is a combination of Honda lagging and VW bringing the right product to the market, namely a diesel engine. With petrol prices constantly going up, VW was right to tap into the Indian psyche of affordability. The Honda City has been around since 1998 and all the brand loyalty it built up went down the drain once the Vento was launched and petrol prices started to rise. Honda hit back in early June, 2011, with price cuts, attributing it to "cost-reduction efforts in the supply chain," which sounded more like public relations speak than reality. But it didn't matter. By then, the damage was done and the Vento took the top spot.

Audi's Rise

Around the world, Audi has always been No. 3 when compared to the more well-known German brands of Mercedes and BMW. However, that is changing in India, partly because Audi was able to capitalise on the new designs featuring the 'LED eyelids' which are now copied by every other car company. In addition, the Japanese strategy of not bringing their luxury brands of Acura, Lexus and Infiniti to India was a missed opportunity that Audi used towards its advantage. Toyota, which has been in India since 1997, has built a large distribution channel and could have easily used that existing network to seamlessly introduce the Lexus brand but failed to do so. Lastly, Audi got some great mileage with their feel-good advertising campaign featuring cricketer Ravi Shastri. Ravi was shown sitting on an Audi 100 on the cricket field when India won the World Championship of Cricket in 1985 where he was named the Man of the Match (most valuable player). Obviously, it was unplanned and Audi capitalised on the imagery.

Market Segmentation

Possibly the only issue with the VW Group's arrival into India is the market segmentation for their brands. When Skoda first came to India, its reputation in the Western European countries was not very high and it was considered a sub-standard product. However, under the VW umbrella, it slowly upgraded its perception and in India, it's often considered a premium brand. Many consumers gravitate towards the Skoda Superb who want luxury but want to 'fly under the radar' instead of appearing flashy. With the arrival of Audi and VW, the lines of market segmentation have started to blur. The Audi A4, Skoda Superb and VW Passat are all very similar and, in fact, share the same chassis. But there lies the problem. If a consumer wants to spend Rs 30 lakh on a car, which one should he choose A4, Superb or Passat?

Summing It Up

Overall, the timing of VW's entry into India couldn't have been more perfect as other competitors have been busy with their own problems. The American automotive giants are dealing with their domestic demand issues. The Japanese automakers are taking a very slow approach to India when it comes to their luxury brands Acura, Lexus and Infiniti. Lastly, the German automakers Mercedes and BMW have been battling for the top spot for the number of cars sold in India. BMW took the crown with over 6,200 cars sold in 2010, which is a very small piece of the overall Indian car market. Since the VW Group has many brands and able to target a much wider audience, it will most likely lead overall sales in the years to come.

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Volkswagen's India Strategy

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