Volkswagen Case Study

Volkswagen ADV370J/PR367 MWF 8-9 Eric Webber Name(s): Paige Kroll UTEID: pk5926 Case: Volkswagen Date: 10/7/15 Problem Statement: Volkswagen hopes to recover their brand reputation after their decision to deliberately install software to cheat emissions tests in order to meet authorities’ standards, which will result in high costs, investigations, criminal charges, media coverage, and loss in stock.

Opportunity Statement: As the largest automaker in the world, Volkswagen has a community of loyal consumers, which can be sought out to rebuild trust in the brand and address customer concerns. A new CEO can help recreate a brand image by discarding an untrustworthy executive, and using a new face of the company to create a better culture.

Critical Factors: • The software installed in about 11 million cars concealed the fact that Volkswagen’s diesel cars produce about 40 times the legal amount of nitrogen oxide.

• Volkswagen’s stock fell more than 17 percent and eventually lost more than a third of its market value after Volkswagen confessed to using the software.

• A new CEO, Matthias Mueller, took the place of former CEO of Volkswagen Martin Winterkorn who took responsibility for the scandal but denies any wrongdoing.

• Volkswagen prepared to pay 6.5 billion euros ($7.3 billion) to cover recalls and other costs, which may rise when penalties and fines are enforced for their actions.

• Volkswagen has a loyal customer base as the world’s largest automaker.

• Consumers tend to be less forgiving of a crisis when the action is intentional. (The University of Kansas, 2015) Alternatives: Alternative 1: “Making Strides” and Enhanced Customer Service Volkswagen can create a new customer service model, using social media such as Twitter and Facebook, dedicated to addressing customer concerns and answering questions. They can provide an outlet to get real issues fixed for customers. It is important to let the customers complain and be heard. Volkswagen should not delete comments or tweets that are negative, as it may seem like Volkswagen is trying to cover up additional issues. The customer will feel valued if they get a real response from the customer service team. It is important that they hire a social media team large enough to handle the number of concerns with quick response time. It is also necessary to hire a team with members familiar with each country in which their cars are sold. The team needs to be fluent in the languages of Volkswagen’s customers and understand their cultures. In addition to enhanced customer service, Volkswagen can produce a video series about “Making Strides” toward a better company culture and better product. The new CEO can be the face of the series, guiding consumers through their efforts to fix the emissions issue. This can be seen with footage in a factory, testing cars, and conversations with leaders in the company.

Rewards: Customers will see that Volkswagen is dedicated to improving their services, so they will gain more trust and appreciation for the brand. Customer problems can be solved faster with an efficient social media team and new system to get their concerns heard. Using social media to reach customers will yield a quick way to gauge customer response to Volkswagen's efforts. The new CEO is less associated with the crisis, so this provides Volkswagen a clean slate to build trust with a new leader. A video series can bring consumers to their social media channels and create a group of followers interested in their road to improvement.

Risks: Customers and non-customers will choose to vent on the social media accounts, so employees must be prepared to address the issues or follow up with positive statements. Creating a larger customer service team will cost more

money. With a tight budget to cover costs of the crisis, spending money on a YouTube channel series may not have the return-on-investment the brand would approve.

Alternative 2: Stop Selling Diesel Cars in the U.S. Volkswagen can stop selling diesel cars in the U.S. Diesel sales were starting to slow across the market before the emissions testing scandal broke (BBC, 2015). Typically, diesel cars make up around 20 to 25 percent of Volkswagen’s sales in the U.S. (Volkswagen Media Centre, 2015). Volkswagen can focus their marketing and sales efforts on the established and trusted models. They would still fix the cars that were recalled, but they would discontinue selling the diesel models in the U.S. Volkswagen would continue working to improve the diesel models for the rest of its markets, as they are expected to make up the majority of the diesel cars recalled (New York Times, 2015). American consumers may not approve of their diesel model after the cars are improved, so instead, they could spend money on helping develop new methods for safer emissions. With Mueller as the new CEO, he could show his dedication to finding a cleaner and more eco-friendly solution to emissions. In addition, Volkswagen can use social media to update consumers and tailor these communications to each country. Different accounts on Twitter are established for different countries and regions. For example, the U.S. Twitter account would be used for updates on the company’s efforts to handle recalls and funding research for cleaner emissions options. The UK Twitter account would be used to disperse recall updates and share information about improving their diesel cars.

These social media channels will be important as they are sending unique messages to different countries.

Rewards: This may dissociate Volkswagen with the diesel industry in the U.S., which may be harmed by this crisis in general.

Consumers may start to associate the brand as an environmental leader when they hear that they are choosing to spend money on better emissions research. A new CEO provides a clean slate to create a new brand image as one that cares about honesty and environmental effects of cars. Different social media channels with tailored messages can address the needs to a diverse consumer market.

Risks: Volkswagen may lose credibility from Americans that purchase diesel cars if they are offended by the decision to discontinue diesel sales only for the U.S. If Mueller and Volkswagen do not seem genuine in their interest in future research for cleaner emissions, consumers will find them dishonest. Other automakers could take Volkswagen’s diesel customers, losing Volkswagen sales. Some consumers may believe that Volkswagen is sending mixed messages.

Recommendation: Alternative 1 is the preferred choice because of the commitment to the customers. Developing a program that demonstrates Volkswagen’s dedication to improving the product and company culture by listening to the consumer will repair some of the damaged relationships. Customers will build trust in the brand again when they see that there are major changes taking place and their concerns are being heard. Social media is a great way to measure consumer reaction to changes. It will give the company the ability to fine tune their plans and make slight adjustments, if the metrics indicate a need to do so. The video series on YouTube will also be a platform for Volkswagen executives, like the new CEO, to prove to customers that the company has a new attitude and is making progress in the diesel industry.

References: Donahue, P. (2015, October 4). VW Chief Warns Cheating Scandal May Threaten Company's Existence. Retrieved October 4, 2015, from http://www.bloomberg.com/news/articles/2015-10-04/volkswagen-chief-warns-of-existential-threat-ofcheating-scandal Ewing, J. (2015, September 22). Volkswagen Says 11 Million Cars Worldwide Are Affected in Diesel Deception.

Retrieved October 5, 2015, from http://www.nytimes.com/2015/09/23/business/international/volkswagen-diesel-car-scandal.html?_r=0 Greenberg, K. (2015, September 23). Volkswagen's Brand, Reputation, Existence At Stake?

Retrieved October 1, 2015, from http://www.mediapost.com/publications/article/258921/ volkswagens-brand-reputation-existence-at-stake.html Hotten, R. (2015, September 25). Volkswagen: The scandal explained - BBC News. Retrieved October 2, 2015, from http://www.bbc.com/news/business-34324772 Media advisory: Branding repercussions expected in Volkswagen emissions scandal, professors say.

(2015, September 23). Retrieved October 2, 2015, from https://news.ku.edu/2015/09/23/experts-available-talk-about-volkswagen-emissions-scandal VOLKSWAGEN REPORTS DECEMBER 2014 SALES AND 2014 YEAR-END RESULTS : Volkswagen Media Centre. (n.d.). Retrieved October 4, 2015, from http://media.vw.com/release/907/