The Volkswagen diesel fraud scandal is one of the biggest and loudest scandals that happened in the year of 2015. It has erupted in September of last1 year when the Environmental Protection Agency (also known as EPA) detected that the cars manufactured by Volkswagen and sold in the United States of America do not match the requirements of the organization in reference to the amount of carbon dioxide emissions produced by the vehicles.
The conflict became aggravated to the fullest when it turned out that the newest series of the Volkswagen cars were equipped with a device designed to fabricate the test results when the vehicles were undergoing the emission tests. The software installed in the scandalous vehicles was quite sophisticated; its function was to identify when the cars are being tested and adjust the amount of emitted carbon dioxide making the reviewers recognize the vehicles as environmentally safer.
This massive case of cheating caused the reputation of the world-renowned car manufacturer to implode. The consequences and the public reaction to the fraud were heated up by the advertising campaign launched by Volkswagen prior to the scandal. The campaign videos emphasized that the cars were environmentally friendly and that their emissions were cleaner and safer. According to the findings of the EPA, about half a million of flawed cars were sold in the United States (including such models as Volkswagen Beetle, Jetta, Passat, Golf, and Audi A3) (Hotten par. 2).
The manufacturer’s reaction to the scandal was to admit to fault and accept the consequences. As a result, the company is in need for a new strategy in order to bring their brand image and reputation back to life, improve the consumers’ trust, gain revenues, and become a strong competitor in the industry. This paper proposes such strategy, presents sales forecast perspectives, customer management approach, sales training and mentorship, and outlines the key performance indicators.
Summary of Project
This project aims at the evaluation of the issues faced by Volkswagen Group after the massive scandal that occurred in 2015. The project is attempted as guidance and a set of recommendations for the future developments and strategy of Volkswagen on its way towards the restoration of its reputation and brand image damaged by the emission deceit.
The main principle of the proposed strategy is admitting the errors of the past, recognizing the wrongdoings, and emphasizing the ethical choices and lessons learned after the scandal. It is assumed that since the damage caused by the emissions deceit was significant at multiple levels, the company is now bound to handle the outcomes without ignoring the initial cause. In other words, regardless of how much the leaders of Volkswagen Group are willing to put the embarrassing experience behind, they are not to treat it as an insignificant issue that can be easily forgotten. Any actions related to the company’s ignorance towards its past actions will be characterized as unethical and cause further damage to the brand reputation and sales.
That way, the recognition of the mistakes is the major theme of the recovery strategy. It will be the driver of the company’s communication with the customer, one of the main predictors according to which they will evaluate their customer base perceptions of the brand, a necessary subject present in the upcoming marketing campaigns, and an indicator of the company’s performance. Moreover, the new representatives and sales managers are to be trained to operate in a way that would include the company’s admission of the fault and the measures undertaken for a purpose to address the adverse outcomes.
Moreover, the main challenge for Volkswagen Group outlined in the project is winning back the trust of the consumers. This aspect is viewed as the key force driving the improvement of the brand reputation. All the recommendations as to the opportunities to increase profitability are aligned with the major objective.
Besides, the project relies on the data from the past experiences of Volkswagen in order to compare and contrast the former and the new practices and determine which changes are to be undertaken so that the company could achieve the desired results. In the project, it is specified that the outcomes of the emission fraud scandal have social, political, financial, ethical, and environmental consequences. They tend to affect the company’s performance, public perception, reputation, and profitability at a variety of different levels. That is why the company is challenged in many ways at the same time, and it is to list its priorities in order to be able to allocate the required resources.
Volkswagen Group is going through a stage when the brand image is not a positive impact on the sales, but a negative one. The fame the company has been surrounded with lately works against it and causes the consumers, shareholders, and dealers to turn away from the company which makes its path towards recovery even more challenging.
Developing a Strategy
Bloomberg recognizes that the catastrophe that happened to Volkswagen has a moral and a political character (Reiter par. 1). In other words, the adverse outcomes produced by the scandal are quite widespread and tend to affect the performance and a business of the car manufacturing company at multiple levels. As a result, the new strategy is to take into consideration the company’s plan as to the management of the fraud effects and address all the challenges they have created.
First Actions
Volkswagen’s first steps in response to the scandal were to admit the existence of the fraud. This behavior can be seen as an ethical reaction to an unethical problem. The company’s leaders accepted the blame without trying to deny it. Of course, this action was of little help since the violation was quite serious. In fact, it caused a major loss of revenue as the acceptance of the fraud by Volkswagen cost the company over 22 billion USD in the market revenue and resulted in the retirement of the CEO (Reiter par. 3). However, this first action was correct from the strategic point of view as it has paved the way towards a recovery of the brand image. To date, the main challenges faced by Volkswagen include the severely damaged reputation on a global level, lack of trust from the side of the consumers, low profitability, and dropping sales.
Costs and Profitability Prospects
As a result, the aspects mentioned above are to become the key dimensions of the new strategy. Earlier this year, the new CEO of Volkswagen Group, Matthias Mueller specified that the new strategy 2025 will be orientated at the maximization of the company’s profitability (“VW’s Strategy 2025 will focus on profitability” par. 1). One of the ideas the company leader has in mind is the reduction of the number of models produced by Volkswagen.
Currently, the company’s products are divided into luxury and mass market models. However, when profitability is the priority the development of such extremely expensive luxury models as Bugatti Veyron seems impractical. With the present brand reputation, VW simply cannot afford to build such models. This aspect of the production should be restructured for a purpose to direct the costs towards other spheres.
Brand Image
One of the major expenditures in the new strategy is the revitalization of the brand image. In order to accomplish this goal, Volkswagen is to invest in a powerful and convincing promotion campaign. Since the cause of the company’s troubles is an ethical problem, it would make sense for Volkswagen to build their new campaign on the basis of the fraud scandal instead of ignoring it.
Besides, it is worth mentioning that the strategy developed by Volkswagen in 2008 involved such goals as the use of innovative technologies, the increase in sales up to ten million vehicles annually, the maximization of the return on sales before tax, and the promotion of the company as the top employer in the industry (Volkswagen par. 2). The first goal is highly applicable to the new strategy driven by the recovery from the scandal.
Volkswagen is to employ the newest technologies in order to manufacture better cars, achieve fair reduction of carbon dioxide emissions, prove their excellence, and compete with the rivals at the top of the industry. To sum up, the new objectives of the company are the following:
- Innovation and technological improvement of the operations.
- Focus on product excellence.
- Better customer satisfaction.
- Transparency and stronger corporate ethics.
- Brand promotion to win the trust of the consumers back.
Developing a Sales Forecast
Volkswagen’s previous sales forecast stopped being reliable and accurate as soon as a major threat in a form of the diesel fraud scandal occurred. As a result, the numbers predicted by the market researchers for this year are no longer useful. When it comes to the company’s future sales, the numbers are likely to go down even more in 2017 (Sweeney and Victory par. 5).
Supply Chain
The predicted downfall of the prices for the production of Volkswagen is explained using basic laws of economy and marketing. For example, the production of a vehicle involves multiple manufacturers and suppliers of raw materials and parts. As the final products begin to lose popularity due to the diesel scandal, and the buyers’ reluctance to purchase from an unreliable brand, the demand for the cars falls.
Consequently, the revenue losses of Volkswagen reflect on the incomes of all the participants in the supply chain since the company is forced to reduce the production costs due to the drop in income. In turn, the suppliers refuse to deal with the problems inflicted by Volkswagen. Such reaction of the partners is rather logical as the issue of the scandal does not involve them, and thus, its adverse outcomes should not affect them (Sweeney and Victory par. 10).
Drops in Revenue
Moreover, it is important to keep in mind that the loss of income caused by the distrust of the consumers is not the only reason for the revenue fallbacks of Volkswagen. According to Sweeney and Victory, the costs of all the lawsuits and recalls of the vehicles may result in losses much larger than those suffered by BP after the infamous Deepwater Horizon oil spill (par. 14). To be more precise, Smith and Parloff report that the total number of class actions the owners of the flawed vehicles filed against Volkswagen exceeded five hundred (par. 7).
Forecast Indicators
As a result, the sales forecast should be based on such indicators as the current perception of the brand by the shareholders and consumers, as well as the losses of capitals that will occur after all the payments to the affected parties are made. The former determinant (the buyers’ image of the brand) is the leading factor accountable for the future sales. The market share of Volkswagen has dropped significantly during 2016 and is anticipated to go lower in the next few years.
I will take the company quite some time to get over the consequences of the diesel fraud scandal. The latter determinant (the capitals lost by the company due to the scandal) is the driving force of the company’s attempt to recover and also the indicator of the available assets that will be used as the company’s security funds. In particular, the larger the assets – the better Volkswagen’s opportunities to gain income and begin winning the consumers’ trust back.
Dealers
Another important aspect to remember building the sales forecast for Volkswagen is the attitude of the dealers. As mentioned by Durbin, Volkswagen has some sales issues in the United States even before the scandal erupted – namely, the dealers were complaining about the vehicles of the German manufacturer not being adjusted to the American standards and the desires of the consumers; in particular, the prices of the cars were recognized as too high for the American consumers (par. 9).
The dealers, who are dependent on the sales because their salaries are comprised of commissions, are under a serious threat when the sales of a particular car are not going well due to the troubles of the manufacturer. Forced to struggle with the drop in income, the sales people are likely to engage in the immoral and unethical professional practices in order to push the vehicles and earn money. This tendency is one of the main concerns of the distributors and dealer firms who work with Volkswagen. In addition, the dealers who had sold the flawed vehicles prior to the scandal are likely to become the victims of the consumers’ dissatisfaction and be treated as a part of the diesel fraud (Durbin par. 11).
Under such circumstances, the reputation of the distributors and dealing firms is seriously damaged by the failure of the manufacturer to deliver high-quality cars. Moreover, as the partners of Volkswagen, the dealers are also forced to lie to the public about their attitude towards the company; while in the interviews they emphasize that the German manufacturer is a reliable business run by highly professional and experienced leaders who can be trusted in the present circumstances, in reality, they are dissatisfied with the effect the scandal has produced on them and worried about their incomes and future (Durbin par. 12).
Even though the models of vehicles that are powered by diesel engines were banned from being sold, one of the benefits is that many consumers are unaware of which brands are sold by Volkswagen. For instance, such vehicles as Audi, that are rather popular in the United States, may not be associated with the scandalous German manufacturer.
Sales
As it was mentioned above, the dealers are highly critical of the fraud calling it the biggest in the history of business (LeBeau par. 2). In fact, the numbers of the sales revenue estimated prior to the exposure of the deceit are rather impressive. In particular, the German car manufacturer managed to sell three hundred billion worth of cars on the territory of Europe, and the value of the vehicles sold in the United States comprised about fifteen billion dollars (LeBeau par. 2). That way, the overall benefit gained by the company from the sales of the flawed vehicles exceeds those of such loud and well-known financial frauds as the ones created by Madoff and Ponzi (LeBeau par. 2).
Due to the no-sell order, Volkswagen has to obey, the dealers are suffering a massive loss of revenue since they are unable to sell any Volkswagen vehicles that are liable to the order. Besides, the downfall of the brand reputation of the German company has made the buyers avoid purchasing their cars regardless of the model. The number of the flawed cars sold equals more than eleven million (LeBeau par. 6).
One of the primary current strategies of the sales managers at Volkswagen is the offer a significant price discount (around two thousand dollars per car) in order to attract the new buyers and to persuade the existing owners of the Volkswagen cars to return to the company (LeBeau par. 13). However, to maintain their sales levels, the company has to accomplish more than one task. Attracting the consumers is a challenge, but attracting the dealers may be an even more complicated mission.
Growth Plan
Volkswagen does not stop considering growth even after the scandal that has produced a massive damage to the company’s reputation. In order to improve the sales performance, the current leaders of Volkswagen plan to go through with something they call redefining the brand. This complex activity involves such aspects as the creation of a stronger product portfolio, the selection of the new management team, and the security of their partnerships with the car dealers (Lippert par. 3).
The ultimate desire of the Volkswagen leaders is to exceed the sales levels of the past years. The definition of the future sales and product strategy used by the top team of the company is “price-competitive German engineering’’ which is likely to reduce the prices and the cost of production of the new vehicles focusing on the engineering and quality but not on the luxury and highly pricy materials.
Another aspect of the sales improvement plan of the company involves the investment in the joint ventures in China, the state where the sales of Volkswagen dropped by about four per cent after the scandal (Spring par. 2-3). The focus models of the upcoming years will be the SUV (sports utility vehicles) and the NEV (new energy vehicles). The latter model is the innovation aimed at the consumers of the future; also, Volkswagen plans to invest more and more resources to the production of plug-in hybrid cars. This is a smart solution since the alternative sources of power are being targeted by multiple countries; the appreciation of the electrically powered vehicles is growing. That way, expanding this sector of cars is likely to become a source of sales benefits in the next five to ten years.
Customer Management
The relationship between the customers and the manufacturer was one of the key aspects that have suffered severe damage due to the diesel fraud scandal. The happening led to adverse consequences such as the loss of trust of the consumers by the company followed to the drop in sales, multiple lawsuits, and returns of the flawed vehicles. As a result, addressing the breach of trust between Volkswagen and its customers is the primary objective of the customer relationship management plan.
Prior to the scandal, Volkswagen was determined to maintain its good relationships with the customers and preserve their trust based on multiple programs and strategies orientated at the attraction of the new consumers and the satisfaction of the existent customer base (“Volkswagen: Putting the Customer in the Front Seat” 792).
The company has been known to adopt innovative approaches in order to address the needs of the consumers, ensure trusting relationships, and promote sales. In fact, quality customer service has always been one of the key points emphasized by the company as the most important aspect of their vision and operations. During the first decade of the 2000s, Volkswagen shifted its focus to the synchronization of the sales process, after-sales service, management of complaints, and the campaign management for a purpose to achieve more efficient interactions with the consumers (“Volkswagen: Putting the Customer in the Front Seat” 792).
Langley Van Der Kley characterizes the effect produced by the diesel fraud as a PR crisis (par. 4). Therefore, it is crucial for the company to address all the PR damage that it has inflicted.
Admit the Fault
First of all, is it was mentioned earlier in the paper, the initial steps made by the leaders of Volkswagen (namely, the quick reaction to the scandal and admission of the errors) were an ethically appropriate behavior and paved the way towards the image recovery. The testing software fraud was nothing but the deceit of the state policies as to the emission levels and the consumers. Acting as it is far away in the past or it was not a big deal would not be the correct behavior. Instead, the company is to show the consumers that they regret about all the damage and are willing to work hard to fix their mistakes.
From the consumers’ point of view, one of the most harmful aspects of the fraud was the false advertisement campaign that emphasized the reduced emissions of the new VW engines and promoted the vehicles as environmentally friendlier and the company – as a responsible manufacturer. This happening would not be forgotten fast. That is why it has to become a part of the new campaign. Volkswagen is recommended to launch a series of advertisements demonstrating their awareness of the past wrongdoings and sincere regrets. Also, the advertisements are to inform the consumers that all the challenges of the past are being worked on and addressed thoroughly. In other words, the scandal is not to be excluded from the public outreach of the company.
Communication with the Consumers
It is vital for Volkswagen to show that the opinions and desires of the customers are highly meaningful for the company. This is a good way towards earning their trust back. The company may employ various ways of communication online. For instance, the could engage with the consumers using social networks such as Twitter and Facebook, develop questionnaires, generate more content, and monitor the public perception of the brand, what the consumers tend to associate with it, and search for the ways to influence the negative beliefs.
The research of the customer base is the most accurate source of information concerning the further strategies and changes that would be the most pleasing for the consumers (Van Der Kley par. 8). The company’s recovery plan is to be aligned with the needs of the consumers and their perceptions of Volkswagen (Van Der Kley par. 10).
Global Implications
In addition, apart from the deception of the buyers, the diesel scandal has implications in terms of global health and environmental impacts (Lyons par. 2). These outcomes make the scandal a serious ethical concern for the company. That is why treating it lightly or ignoring it is not an option for the future customer relationship management. The behavior of Volkswagen in response to the scandal will be carefully monitored by the media and the experts of various spheres. Following the ethical approach to the issue is the only way out without causing even more damage.
To sum up, the company will be able to bounce back from the losses caused by the diesel scandal. However, the recovery will take several years; it will involve the struggle with the distrust of the consumers, a weak brand reputation, and the constant monitoring of the ethics of the company’s actions and responses. The way of winning trust of the society once again is to own up to the errors, demonstrate the process of working on the errors, inform that what lessons were learnt and what measures are taken to elevate the consequences, be prepared to invest large amounts of money in the restoration of the company reputation and handling the outcomes of the scandal.
Sales Training and Mentorship
One may say that the reputation of Volkswagen was injured so badly during the scandal that the company has to start rebuilding it from scratch. However, in reality, the reputation did not become destroyed, it became negative. That way, in order to restore it, the company has to go a long way from being perceived as an unethical and cheating organization to an image of a trustworthy manufacturer of high-quality vehicles. The sales people of the company are the key players in the process of Volkswagen’s recovery as a business. They represent the company and its products and also facilitate the direct connection of the manufacturer with the dealers and the consumers.
According to Baldwin, the first step towards strengthening the sales and turning the simple reps into the sales managers is to create a powerful and influential mentoring culture in the organization (par. 2). The author specifies that this process is can take up quite a lot of time, and that is why the leaders are to stay patient and thorough as this activity is aimed at the long-term benefits. The effort is worthy of all the time since the paybacks are high.
Selection and Hiring Practices
First of all, the company is to focus on the selection and hiring of the new sales professionals. It is important to outline and list the features of the most desired candidates. The traits, abilities, and skills are to be evaluated and measured in terms of their significance so that the selectors knew exactly how to evaluate the applicants (Baldwin par. 4).
Also, it is crucial to remember that the selection practices tend to consume quite a lot of money in a form of direct investment or time of the selectors who are normally chosen from the top management of the company. Selection practices refer to the new employees, the existing workers who will be trained, as well as the mentors who will be in charge of the mentorship. The key aspects to clarify include target populations, purpose and scope of the activity, learning outcomes, and benefits (Baldwin par. 4).
Roles of the Participants
The managers in charge of the mentorship program are to create a clear range of duties and responsibilities for both the trainers and the trainees. That way, all the learners will be taught based on equal requirements and plans, and all the mentors will be aware of their tasks. Ignoring this step is exposing the program to a potential failure as unevenly trained managers would be likely to show inconsistent results, fail their assignments, and cause a disorder in the future sales operations (Baldwin par. 5).
The Leaders as Champions
The role of the leaders is to serve as examples of the mentoring behavior. Also, the leaders are responsible for the criteria of evaluation of the work of the mentors and the trainees. Providing support from the top, the leaders are to empower both parties and encourage further success. In addition, the leaders are to monitor the teaching process and provide timely feedback to both the mentors and the mentees.
Best Practices
For the improvement of the results, the best practices revealed through the monitoring of the program outcomes and processes are to be used as the further guidance for change. Moreover, the leaders are to listen to the mentors’ feedback as to the needed changes in the teaching process driven by their practical experiences.
Key Performance Indicators
Key performance indicators are a highly useful and meaningful part of the evaluation and reflection on the company’s practices and results. Key performance indicators make up guidance for the company. Each department is to have their own KPIs according to which their performance is evaluated. The comparison of the existing results and the KIPs is to be conducted on a regular basis in order to be able to detect and address all the negative results in time.
When it comes to Volkswagen, their major business KPIs involved the evaluation of sales and included such criteria as vehicle sales, sales revenue, sales to third parties, and operating results. These characteristics were measured for each brand represented by the Volkswagen Group individually. Within the divisions, each of the abovementioned aspects was divided into some other activities and indicators. That way, not only the sales performance of the company was evaluated but also the strategies through which the success was achieved (or the failures that caused the loss of revenues).
The new KPIs for sales are to involve the numbers of sold vehicles and the revenues generated in order to monitor the success of the company. At the same time, some more KPIs are to be included in order to make the company’s performance sensitive to the consequences of the diesel fraud scandal. For instance, the markers of the sales performance could indicate the number of new customers (the ones who have never owned a VW vehicle before) and a number of the customers who have bought Volkswagen cars in the past.
Such indicators would help the business to evaluate the consumers’ reaction to their new campaigns and reach-out practices targeting the revitalization of the company image and brand reputation. Based on the KPIs, the sales persons, who would convince the old customers of Volkswagen to return and cooperate again could be provided with bonuses and rewards. Separately, it would make sense to measure the number of the customers coming from the sector of the buyers who were affected by the diesel fraud scandal. The return of such consumers and their willingness to buy from Volkswagen again would signify the progress towards the restoration of the company’s image.
At the initial stages of the recovery from the diesel scandal consequences, the leadership of Volkswagen in to engage in the ongoing measurements of the performance. The strategic marketing choices and practices are to be evaluated in correlation with the response of the customer base. Deep maintains that there are two types of the performance indicators – executional and tactical (par. 3). The value of an intangible entity such as a brand can be defined in terms of financial costs (such as the sales revenue and its dependence on the brand reputation).
Executional metrics focus mainly on the way the operations are performed by the employees; at the same time, the tactical metrics involve the brand image and the trust of the customer base. While most of the successful businesses focus on their executional metrics and optimize the operations, Volkswagen is to concentrate on the tactical indicators as its brand value has been damaged and it no longer can count on the strong reputation of a world renowned car maker. In fact, Volkswagen is currently at the stage when its brand name is hurting the company’s performance.
Conclusion
To sum up, the situation in which Volkswagen Group has found itself after the emissions fraud scandal of 2015 is extremely complex and challenging. The business is facing serious problems at every dimension of its operations. However, the leaders of Volkswagen are determined to overcome the difficulties and bring back the former success and recognition. In order to create an efficient strategy and address all the challenges, the leaders are to take into consideration many different aspects some of which were outlined in this paper.
The present project targeted such issues as the forecast of sales, the management of customers, the improvement and mentorship in the sales departments, and the key performance indicators for the business. The past and present experiences of Volkswagen were compared in order to develop the strategies appropriate for the future challenges. Due to the fact that the brand image of Volkswagen was not destroyed but became negative, significant changes are to be introduced to the future marketing, advertisement, customer management, selection, hiring, training practices, and the KPIs of the company.
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