Building brand equity A Skoda case study

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Page 1: Introduction

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Deciding to buy a certain product involves choosing between the many alternatives in the marketplace. Such decisions are rarely easy, as in most markets, there are many different brands, each representing a range of meanings and values. A successful brand is familiar to consumers and inspires them with confidence, making them aware of the brand and its associated products. Ultimately, a truly successful brand will encourage the consumer to buy the products and become loyal to the brand.

A brand comprises a range of features which identifies its products in a way which differentiates them from others. These features may be a name, logo, term, symbol or other creative element. The motor industry is an area where branding is particularly strong. Global awareness of the three pointed star of Mercedes-Benz is second only to the Coca-Cola brand. Recent research in the motor industry claims that some of the best-known brands can probably attribute at least half their worth to the brand. The worth attributed to a brand is known as brand equity. Brands with power and value in the marketplace are often said to have high brand equity.

This case study focuses on the turn-around in the fortunes of a well-known motor manufacturer - Skoda. It examines how Skoda has increased its brand equity through changing its image.

Page 2: A period of change

For the first half of this century, Skoda was one of the world’s greatest marques - manufacturing some of the most prestigious cars available, such as the luxury Hispano-Suiza limousines. It was a leader in motor car design, technical innovation and a pioneer in the new realm of motorsport.

The economic situation during the communist years in the former Czechoslovakia forced Skoda to become product rather than market orientated - with little regard for consumers and their needs. In time, Skoda became unable to keep up with western motor manufacturers in terms of style and innovation. The authorities made the rules - even insisting that the windscreens should not be raked too far back in case the cars looked decadently sporty! Without any outside influences in terms of creative and innovative ideas and manufacturing processes, the reputation and image of Skoda suffered.

The rebuilding of the Czech economy after the “Velvet Revolution” in 1989 was significant for Skoda. However, to benefit from the economic upturn, the company required a sound partner with the ability to invest, not only money, but also management expertise, thereby improving the efficiency of its factories, raising quality standards and planning for future development. Skoda’s partnership with Volkswagen was universally accepted as a way of guaranteeing the independence of the existing factories and the Skoda marque.

On April 16th 1991, Skoda became a public company, joining Volkswagen, Audi and Seat, to become the fourth brand in the Global Volkswagen Group. The strategic aim of the company was to reposition the marque, by returning to the core brand values of high quality standards, exceptional customer care and building a consistent marketing communications platform.

Page 3: Brand values

The key to changing consumers’ perceptions involved emphasising that Skoda cars represent exceptional value for money - the best Volkswagen technology at a very competitive price. Skoda’s brand values (i.e. what the brand stands for) are:

  • value for money
  • reliability
  • fitness for function
  • quality
  • integrity.

Skoda drivers tend to be people who are unpretentious, down to earth and honest.

Elements of a brand

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Although it can be argued that a product is simply something you use, the real picture is more complex. For example, you may buy a coat to keep you warm, or a newspaper to read – but what coat do you choose or what newspaper do you buy? Products are not purchased to meet a single need; a whole range of factors make up the product concept. In order to communicate these factors to customers, organisations use branding to help consumers identify the products they want. When consumers view a brand, it is important that they associate it with a range of features, benefits and services that meet their requirements. These elements are at the heart of the branding process.

When a customer buys a new Skoda, he or she will be concerned with its performance, looks, modernity, colour choice, design, engine and specification. The sale will be influenced by the brand's name and image, as well as the quality of the car and its various product features, such as twin airbags, electric windows front and rear, electric sunroof etc. The potential buyer will expect the option of a credit deal, a warranty, high levels of customer service and good after-sales services. In a recent independent customer satisfaction survey, Skoda was the highest placed European manufacturer, ahead of BMW and Jaguar.

Brands consist of three levels.

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The core product is the tangible product which provides the benefits that customers seek when they use the product. Skoda’s core benefits include how well the cars function and meet user requirements. All modern Skodas have a high specification and compete with Western, Japanese and South East Asian rivals. Skoda has invested heavily in research and development, resulting in many key product improvements. In fact, since its launch in 1995, Skoda’s Felicia has shone in both World and British Rally Championships and, in the 1996 RAC rally, was placed third overall, driven by former world champion Stig Blomqvist, as well as winning numerous industry awards from What Car?, Auto Express and Diesel Car.

The actual product consists of the features designed to support the core product. For a car, safety, reliability and quality are all key elements of the actual product. Skoda vehicles are manufactured to international industry standards and comply with current and future safety and emission legislation. Components are supplied by top manufacturers such as Siemens, Bosch and Rockwell and specifications have been improved. For example, research into the Felicia showed that consumers see it as being an attractive, comfortable car with a spacious interior and high quality upholstery.

These factors have added to the actual product, so that the Felicia is viewed positively by customers, in terms of styling and looks. A number of associated issues are important for customers. The augmented product involves the quality of after-sales service, extended warranty conditions and credit. Skoda uses these elements to create new and repeat purchases. In fact, Skoda’s customer loyalty, i.e. repeat purchases, is second only to Mercedes. Skoda aims to become more successful through a process of continuous improvement. The process began in 1991, with key events including:

  • April 1995 - UK Launch of the Felicia
  • June 1995 - UK Introduction of Exposure Marketing Programme
  • January 1996 - UK Introduction of Felicia Estate
  • February-June 1996 -UK TV advertising
  • May 1998 - UK Launch of the Octavia.

The launch of the Skoda Felicia helped to strengthen the Skoda image with existing customers and challenged the entrenched perceptions of the public. Since then, the process has continued, backed by advertising, awareness building and new product launches. The new Skoda Octavia represents an even greater quantum leap forward for Skoda.

Page 4: Brand strategy

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Volkswagen faced some important decisions concerning the Skoda brand. Using the Skoda brand name to launch a new product, through the strategy of brand extension, enabled Volkswagen to enter new market segments. The development of the Octavia highlights Volkswagen’s confidence in the Skoda brand. Skoda and Volkswagen decided that the brand needed a broader product base and that Skoda’s movement into another product category would provide instant recognition and market acceptance - simultaneously improving market share.

Positioning involves developing features of the marketing mix, such as ‘product’ and ‘pricing,’ in a way which takes into account consumers’ thoughts and perceptions. At the same time, the positioning process provides Skoda products with key advantages over other products in each market segment.

Skoda’s product range is priced towards the lower end of the market. This creates a ‘fit’ with the strategy of the Volkswagen Group which already has products ranging from prestige cars towards the top end of the scale, to those which were competitively priced at the lower end. Audi, for example, is pitched at the premium end of the market to compete with BMW, Seat is pitched to compete with Alfa Romeo and Fiat, while Skoda is positioned as a competitively priced, quality product, to compete directly with brands such as Rover.

The Octavia

The Octavia is available as a five door hatch and estate car, with a clean, aerodynamic, modern design and an attractive, sleek appearance. The prominent front grill will be incorporated into the design of future vehicles. With the Octavia, Skoda aims to:

  • satisfy the future market requirements
  • set the trend and the pace for further development
  • present and develop its own identity
  • communicate the metamorphosis of the Skoda brand.

The car’s fully galvanised steel body is mounted on a vehicle platform engineered by Volkswagen, representing high quality workmanship and meeting current world safety standards. The Octavia made its world debut at the Paris Motor Show in October 1996. Its presentation involved not only a new car but also a new production concept. Skoda’s new manufacturing plant, incorporating modular production, is one of the most modern in the world. With the launch of the Octavia, Skoda was able to maximise the synergy of the partnership with Volkswagen and communicate the new, modern face of Skoda.

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The reaction to the Octavia has been overwhelmingly positive and sales are strong in Western Europe. It is due to be launched in the UK in May 1998 and already press and public interest is high. Skoda had always been a one-model manufacturer but with the arrival of Octavia, Skoda now competes in the small and medium sectors. The market segment in which Octavia will compete is the lower medium segment - undoubtedly the UK’s most competitive. This segment is the heartland of the company car market, which is predominantly status and image driven.

Octavia represents everything that the redeveloped brand stands for - i.e. an attractive price, modern European product, high quality, style and safety. The Octavia has become the first Skoda product to be built on a Volkswagen Group platform and has been constructed using the latest technology at an all new, purpose-built, state-of-the-art, factory in the Czech Republic.

Page 5: Brand image

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People perceive a brand’s values and evaluate them either positively or negatively. A well-positioned positive image helps to establish a strong position enabling the brand to differentiate itself from competitors and improve its performance in the marketplace.

Skoda’s advertising campaign portrayed the positive changes which have taken place in the company and in the cars. The partnership with Volkswagen was also emphasised. Over a short period of time, research revealed that perceptions of the marque were changing. Skoda’s image across a range of areas received rapidly improved ratings.

Previously, the stereotype of a Skoda owner was predominantly male and retired. This is no longer the case. Changes in the brand image and positioning have attracted individuals from other segments of the market including:

  • affluent retired people
  • independent working mothers
  • non-working women/mothers
  • married working women
  • younger family men.

This has led to large increases in sales in the UK and world-wide.

Page 6: Conclusion

In today's modern motor industry, a car’s brand is vitally important. It is more than just a marque - it represents product features, image, customer service and servicing. Today’s customers want authentic, individual products with integrity. Skoda has seized a unique opportunity - emphasising its values and creating a strong identity which has become the brand story of the decade.

Skoda | Building brand equity