Case Analysis Framework

1. Statement of The Problem(s)

2. Development of Alternatives

CHAPTER 16. STRATEGIC ELEMENTS OF COMPETITIVE ADVANTAGE 495 CASE 16-1 CONTINUED (REFER TO PAGE 468) Volkswagen: The Assignment number of vehicles sold in the United States they must make cars that appeal to American drivers. A potential stumbling block in Volkswagen's quest for gobal leadership in the auto industry is the fact that the company unveiled new versions of several key vehicles within the span of just a few months Historically, one of WW's sources of competitive advantage is its core competence in the design and manufacture of small, fuel-efficient gaso line engines. Diesel engines are another strength, both types of engres offer the kind of money-saving performance that drivers seek when gaso ine prices are high. Several W models also rank high for crash Safety. Given these strengths, why does VW currently only rank third anong global autorakers? And why has it captured only 3 percent of the U.S. car market? Christian Kinger, Volkswagen Group board member and the executive in charge of sa es and marketing for the Volkswagen brand, offers this explanation. "We need the right products and local production," he says. "In the past maybe we had the right product but not the right price. Or the night prce and not therght product." Tapping Emerging Markets for Growth Vokswagen's experience in emerging markets helped cement its status as Europe's leading automaker. One example s the 1991 purchase of a 31 percent stake in Skoda from the Czechoslovak ernment. In 1992, the Czech Reoublic split from Slovaka. WW's presence drew TRW. Rockwell Intematonal, and other parts suppliers to the region. However, to maintain their low-cost position and ensure quality control, WW and Skoda executives went a step beyond the Japanese-style "lean produc- tion" system that emphas res just-in-time delivery from nearby suppliers. Several different suppliers manufacture components such as seats, instrument panes, and rear axles inside the pant itselt. As Skoda CFO Volkhard Kohler explained in 1994. "We have to organize better than in the Western world and use supplier integra tion. Wages will increase, so we have to find other ways of being cost-effective Supplier integration is part of the new thinking and what we do here can be a model for the West." After WW retooled its German plant for a successor to the Beetle, pro- duction was shifted to Brazil. The Beetle was absent from the U.S. market from in 1979 until 1999, at which time the second-generation Beetle was launched. The Unted States was the primary target market for the New Bectle, which was procucco at WW's plant in Puebla, Mexico. The des gn ers retained the cistinctive, iconic profile of the original so the new version was instantly recognizable. It featured whims cal touches such as a flower vase on the dashboard, nowever, the launch ad campaign prom sed "Less flower. More power." Other automakers rushed to capita ize on the nostalgia craze that ww was tapping, the BMW Mini Cooper was one rotable success. The New Beetle was especaly popular with worren, but it was discontinued n 2010. The third-generation Beetle went on sale in the fall of 2011. The new Bug was designed for the global market: besides the United States, China, Europe and Mexico are expected to be key. The new car has a bigger engine and is more sporty in appearance than its predecessor Ww hopes to attract more male buyers while still appealing to women, Product Strategy: Passat As noted in the chapter lead-in, the first cars rolling off the line at WW's new Chattanooga plant were Passat secans. However, production will soon be shifted to an NMS"New Midsize Sedan, " This entais risks, as David Sargent, a vice president at J.D. Powers and Associates, notes. "Brand-new plants with brand-new models historically have struggled to produce world-class quality. Not to say a plant can't oo that, but it's a strugg e," he says. The new plant is also capable of producing diesel-powered cars however, diesel versions of its current offerings only account for about one-quarter of W'S U.S. sales. Although diesel engines get higher mieage than gasoline engines, they are simply rot popular with the majority of U.S. drivers. By contrast, diesels are very popular in Europe. However, it remains to be seen whether W can change entrenched American attitudes towards dieses, especially since ese modes typically carry a price premium compared to their gaso ine powered counterparts. Christoph Sturmer is a director al IHS Global Insight consultancy Summarizing the strategic challenges facing Volkswagen, he said, "W has to get it right. Get adjusted to American standards of what on-the- road quality is. It's a bg challenge for a company so deep-dyed German." Product Strategy: Jetta Having conquered key emerging markets, WW must now shore up its U.S. business. To accomplish this, executives are determined to "Americanize" W's cars, the first example of this effort is the 2011 Jetta. Developed at cost of $1 billion, the new mode is produced at WW'S N80 assembly plant in Mexico City. The new Jetta arrived at dealers in fall 2010 backco by an advertising campaign that emphasized the $15,995 Sticker prce. The advertising tagline was "Great. For the price of good." The 2011 model is bigger than its 2010 predecessor, and cost-cutting changes were made to the rear brakes and suspension Product Strategy: Beetle Industry observers are closely following the aunch of the third- generation Beetle. The original Beetle (also known as the Bug) featured an air-cooled engine (no radiator!) that was located above the rear tires. The Beetle was very popular in both Europe and the United States, where about 5 million were sold between 1949 and 1979. In the American market, an advertising campaign created by Bill Bernbach has achieved mythic status in the industry. Berobach is credited with launching the Creatve Revolution by "telling the truth" about cars and encouraging buyers to "Think Smal." Discussion Questions 1. Do you think CEO Winterkorri's pronouncements about 2018 are legitimate goals, or are they "stretch" goals designed to rotvate etioloyees? 2. In VW's advertising, the "Das Auto" tagline encourages potential buyers to associate the brand with its German heritage. Is this the right approach for VW? 3. Which riva s present the strongest competitive threat to WW's Strategic plans? Sources: Ed Crooks, "Volkswagen Flags up its Plans for U.S. Market." Firavical Times May 26, 2011), o 20: Chris Woodyard. "W Takes Risks with 3G Beetle," USA Today April 18 7091, 00. 14, 18, James it. Healey 2012 ww Beetle Gets 994 Ditches 'Girls' Car Image, USA Today (April 18, 2011) Healey. "VW Pars to Be No. 1 Car Seler in the World by 2018. USA Toy (September 3, 2010, pp. 1A,1B; Ferley, "Volkswager Wents to be the No. Autoraker USA Today November 30, 2009) pp. 14, 15, Stephen Power, Aggressive Driver Top Volkswagen Executive Tries US-Style urramund lactics ihe tall Street puma Ouly 18, 2006, 2. 1. CHAPTER 16. STRATEGIC ELEMENTS OF COMPETITIVE ADVANTAGE 495 CASE 16-1 CONTINUED (REFER TO PAGE 468) Volkswagen: The Assignment number of vehicles sold in the United States they must make cars that appeal to American drivers. A potential stumbling block in Volkswagen's quest for gobal leadership in the auto industry is the fact that the company unveiled new versions of several key vehicles within the span of just a few months Historically, one of WW's sources of competitive advantage is its core competence in the design and manufacture of small, fuel-efficient gaso line engines. Diesel engines are another strength, both types of engres offer the kind of money-saving performance that drivers seek when gaso ine prices are high. Several W models also rank high for crash Safety. Given these strengths, why does VW currently only rank third anong global autorakers? And why has it captured only 3 percent of the U.S. car market? Christian Kinger, Volkswagen Group board member and the executive in charge of sa es and marketing for the Volkswagen brand, offers this explanation. "We need the right products and local production," he says. "In the past maybe we had the right product but not the right price. Or the night prce and not therght product." Tapping Emerging Markets for Growth Vokswagen's experience in emerging markets helped cement its status as Europe's leading automaker. One example s the 1991 purchase of a 31 percent stake in Skoda from the Czechoslovak ernment. In 1992, the Czech Reoublic split from Slovaka. WW's presence drew TRW. Rockwell Intematonal, and other parts suppliers to the region. However, to maintain their low-cost position and ensure quality control, WW and Skoda executives went a step beyond the Japanese-style "lean produc- tion" system that emphas res just-in-time delivery from nearby suppliers. Several different suppliers manufacture components such as seats, instrument panes, and rear axles inside the pant itselt. As Skoda CFO Volkhard Kohler explained in 1994. "We have to organize better than in the Western world and use supplier integra tion. Wages will increase, so we have to find other ways of being cost-effective Supplier integration is part of the new thinking and what we do here can be a model for the West." After WW retooled its German plant for a successor to the Beetle, pro- duction was shifted to Brazil. The Beetle was absent from the U.S. market from in 1979 until 1999, at which time the second-generation Beetle was launched. The Unted States was the primary target market for the New Bectle, which was procucco at WW's plant in Puebla, Mexico. The des gn ers retained the cistinctive, iconic profile of the original so the new version was instantly recognizable. It featured whims cal touches such as a flower vase on the dashboard, nowever, the launch ad campaign prom sed "Less flower. More power." Other automakers rushed to capita ize on the nostalgia craze that ww was tapping, the BMW Mini Cooper was one rotable success. The New Beetle was especaly popular with worren, but it was discontinued n 2010. The third-generation Beetle went on sale in the fall of 2011. The new Bug was designed for the global market: besides the United States, China, Europe and Mexico are expected to be key. The new car has a bigger engine and is more sporty in appearance than its predecessor Ww hopes to attract more male buyers while still appealing to women, Product Strategy: Passat As noted in the chapter lead-in, the first cars rolling off the line at WW's new Chattanooga plant were Passat secans. However, production will soon be shifted to an NMS"New Midsize Sedan, " This entais risks, as David Sargent, a vice president at J.D. Powers and Associates, notes. "Brand-new plants with brand-new models historically have struggled to produce world-class quality. Not to say a plant can't oo that, but it's a strugg e," he says. The new plant is also capable of producing diesel-powered cars however, diesel versions of its current offerings only account for about one-quarter of W'S U.S. sales. Although diesel engines get higher mieage than gasoline engines, they are simply rot popular with the majority of U.S. drivers. By contrast, diesels are very popular in Europe. However, it remains to be seen whether W can change entrenched American attitudes towards dieses, especially since ese modes typically carry a price premium compared to their gaso ine powered counterparts. Christoph Sturmer is a director al IHS Global Insight consultancy Summarizing the strategic challenges facing Volkswagen, he said, "W has to get it right. Get adjusted to American standards of what on-the- road quality is. It's a bg challenge for a company so deep-dyed German." Product Strategy: Jetta Having conquered key emerging markets, WW must now shore up its U.S. business. To accomplish this, executives are determined to "Americanize" W's cars, the first example of this effort is the 2011 Jetta. Developed at cost of $1 billion, the new mode is produced at WW'S N80 assembly plant in Mexico City. The new Jetta arrived at dealers in fall 2010 backco by an advertising campaign that emphasized the $15,995 Sticker prce. The advertising tagline was "Great. For the price of good." The 2011 model is bigger than its 2010 predecessor, and cost-cutting changes were made to the rear brakes and suspension Product Strategy: Beetle Industry observers are closely following the aunch of the third- generation Beetle. The original Beetle (also known as the Bug) featured an air-cooled engine (no radiator!) that was located above the rear tires. The Beetle was very popular in both Europe and the United States, where about 5 million were sold between 1949 and 1979. In the American market, an advertising campaign created by Bill Bernbach has achieved mythic status in the industry. Berobach is credited with launching the Creatve Revolution by "telling the truth" about cars and encouraging buyers to "Think Smal." Discussion Questions 1. Do you think CEO Winterkorri's pronouncements about 2018 are legitimate goals, or are they "stretch" goals designed to rotvate etioloyees? 2. In VW's advertising, the "Das Auto" tagline encourages potential buyers to associate the brand with its German heritage. Is this the right approach for VW? 3. Which riva s present the strongest competitive threat to WW's Strategic plans? Sources: Ed Crooks, "Volkswagen Flags up its Plans for U.S. Market." Firavical Times May 26, 2011), o 20: Chris Woodyard. "W Takes Risks with 3G Beetle," USA Today April 18 7091, 00. 14, 18, James it. Healey 2012 ww Beetle Gets 994 Ditches 'Girls' Car Image, USA Today (April 18, 2011) Healey. "VW Pars to Be No. 1 Car Seler in the World by 2018. USA Toy (September 3, 2010, pp. 1A,1B; Ferley, "Volkswager Wents to be the No. Autoraker USA Today November 30, 2009) pp. 14, 15, Stephen Power, Aggressive Driver Top Volkswagen Executive Tries US-Style urramund lactics ihe tall Street puma Ouly 18, 2006, 2. 1