VW Beetle - HBR Article

The marketing team has asked how VW could back the excitement it once had in the marketplace, while updating the brand's image to appeal to anew generation of consumers. The answer is the new VW Beetle. Our marketing team collaborated with Arnold Communications and are poised to position the VW Beetle with one foot in the past and the other on the accelerator heading for the future.

Newsweek recently indicated that the new Beetle is a marketer's version of "Mission Impossible". This is due, in large part, to the fact that the positioning of the new Beetle could either be defined as a niche product or could simple be a part of a single-product successes VW experienced during the late 1950's.

Beginning in the late 1950s, VW experienced a number of single product successes in the US market. These successes included the Beetle, the Rabbit, the Microbus, and the Karmann Gia sports couple. In fact, by the end of 1954, a total of 8,913 Volkswagens were purchased and were being driven by American consumers. Despite being seen as the automotive icon of the 1960s, US VW sales declined from over a half a million cars in the 1970s to less than 50,000 cars by 1993. (exhibit 1) A number of factors contributed to this:

ćThe appreciation of the Deutsche Mark against the dollar threatened to price VW cars out of the market

ćNew competitive threats from Japanese brands

ćThe 1982 recession; drop in oil prices

ćDeclining popularity of hatchbacks

ćRequirements of new environmental legislation, ceasing production of the Beetle

ćFailure to keep in step with the American consumers changing demands

ćSupply constraints at a Mexican plant

Despite the fact that sales were expected to pick up once supply constraints were lifted at the Mexican plant, it would not be enough to bring sales back to the levels seen in the 80s and 90s. In response to this challenge, VW began working with Arnold Communications to bring back the excitement while updating the brand's image to appeal to a new generation of consumers.

This was accomplished by the launch of the "Drivers Wanted" ads. The new campaign captured what it meant to drive a Volkswagen; rationally it was the only brand that offered the benefits of German engineering affordably, and emotionally it represented a completely different driving experience.

The brand was now positioned as a unique driving experience not just on the car's ability to get people from point A to point B. Overall, the campaign took the less traditional approach to marketing to consumers. Rather than focus on a defined, targeted audience, the campaign focused on a feeling, an experience that crossed cohorts. This contributed to the success of the "Drivers Wanted" ads, and ultimately led to higher sales when coupled with attractive lease-financing deals.

Another strategy to bring back slumping sales was the redesign of the 60s Beetle. The new vision for the car was to combine the equity of the past with the design of the future. The hope was to capture the Beetle's spirit and sense of history while still being a new model for the 90s. Four key design principles for the new Beetle were established; honest, simple, reliable, and original. Because one of the focuses of the redesign was based on a design for the future, a number of features were revamped, added from the original model:

ćFront end, water-cooled engine

ćFront and side airbags

ćAir-conditioning

ćSix-speaker sound system

ćAdditional storage space in the rear hatch

ćFour-wheel disc brakes

A target market and value proposition needed to be identified, allowing VW to maximize and capitalize on the strengths of the new Beetle. (exhibit 2) Through research and extensive customer interviews, it was decided that the unified characteristics of Baby Boomers (former owners of the 1960s Beetle), and VW's new core audience of 18 to 34 year olds would be the target markets.

Each of these audience's are confident, individualistic, need to be the center of attention, and have desire to drive a well-engineered German vehicle. These characteristics align with what the new Beetle is all about. Other marketing challenges emerged for the new Beetle, such as pricing, dealer loyalty, marketing budget, and fad versus long-term proposition.

The new Beetle was placed in the small car segment, accounting for 27% of the overall car market. Competition in this space was fierce. The Beetle's immediate competitors include Chevrolet Cavalier, Ford Escort, and Saturn. (exhibit 3) Together these brands accounted for over one-third of the segment's cars.

Additionally, the Toyota Corolla and the Nissan Sentra were considered competitors and accounted for 15.4% of the small car market. Given that the price range for this segment ranged from $11,035 to a high of $17,239, the Beetle's base price was determined at $15,200. Most Beetles' would list between $17-18,000 due to amenities such as a CD player and sunroof. Although this price range would make the Beetle one of the most expensive brands in the small car market, it was believed that if the car was priced too low, the car might not be attractive enough to dealers due to lower margins.

VW relations with dealers were eroded, and although the "Drivers Wanted" campaign improved relations somewhat, a lot of work remained. Dealers needed to become the center of attention for VW, especially if they wanted the new Beetle to become a successful selling brand. In an effort to build franchise / dealer loyalty, the company decided to fly dealers into VW headquarters to hear the company's vision, see the plant / technical facilities, and see the new product line up.

The company also attended a training session at the Disney institute, where employees were taught the value of creating a total brand experience for consumers. As a result of this effort, the launch of the new Beetle was successful. Dealers were excited about the new car and particularly encouraged by the number of pre-orders received in anticipation of the new Beetle.

Another hurdle for the launch was the advertising budget for the Beetle. Competition typically spent ~$100M in advertising behind the launch of a single car. (80% going to television, 15% to print, and 5% to radio / billboard) The budget for the launch of the new Beetle was less than $25M. However, the target strategy (i.e. the rational and emotional experience of driving a VW) allowed VW to maximize its budget and speak to the audiences more frequently. Refer to exhibit 4 for the proposed medial and print plan.

Dealers, consumers, and the company itself question whether the new Beetle will be a fad or a long-term product. Time will tell, but given the positioning of the product and alignment with the "Drivers Wanted" campaign, the Beetle is here to stay. With an established value proposition, the new Beetle will contribute to the enhancement of the VW image.