Audi AG is a German company founded by August Horch in 1910 is involved in designing and manufacturing luxurious automobiles and SUVs. Since its birth it has been serving technophiles and elite groups and so it has been focused on innovation and technology. It’s logo of ‘4 rings’ signifies the union of four autonomous motor-vehicle manufacturers – Audi, DKW, Horch and Wanderer (Audi, 2010). Currently with its two brands Audi and Lamborghini, it caters to the both premium and supercar segments. Back in 1921, Audi founded the use of left-handed steering by launching Audi-K-type model. It soon became automobile industry’s standard to have left-handed steering cars. Later in 1964, it was bought by Volkswagen. Then in the course of 1970s, Audi gained recognition in US by introducing 100LS luxury sedan, energetic Fox coupe and sedan. Later in 1980 at the Geneva Motor Show, Audi revealed the Audi Quattro – an all-wheel-drive sport coupe that gained an enthusiastic response at the show. (Audi, 2010) This completed boosted Audi’s future image and growth. More models like V8, A4 and Cabriolet models, A6 “allroad” wagon, A8 with galvanized aluminium and light weight were pioneered. Then it never looked back and kept experimenting, innovating and increasing market share. Recently TT, Audi’s low-slung sport coupe, Q5 crossover SUV and the exotic R8 sports car have been introduced. (Audi, 2010)
Objective:
The objective of this report is to make Audi an aspirational brand. The key success factors that form hindrances in achieving this objective will be figured out with examples for evidence. Also, Literature review on factors that generally affect brand aspiration and loyalty will be sought and compared with Audi’s current performance and strategy execution.
Aspirational Brand:
Precisely, an aspirational brand is a brand which has large population with a desire to own it or be part of it but is unable to afford it but they have this desire to own it in the future when capable. This population is known as aspiring audience whereas the part of population that can afford it is known as consumption audience. The fact that an aspirational brand adds positive characteristics to the consumers, people are willing to pay a premium price for it in return. (Business & Companies, 2008) For example, Louis Vuitton – has bags prices up to $1.100 or even more and still with the current economic conditions, women love to buy products from this luxury brand. (Morago, G., 2008) This is how Audi has to be positioned and is the aim of this report. A possible way employed by Ackermans can be considered too. Ackermans is a retailer in South Africa has repositioned itself as an aspirational brand by catering to various segment needs – now it has introduced family-focused products, endorsed its stand-alone stores, enhanced visual aspects, in-store experience, hiring criteria, training and staff schedule. Due to all this, now it’s the third most shopped store in SA. (Barten, M., 2007)
Audi in Middle East:
Audi Middle East was recognized in 1998 with its regional offices in Dubai, Iraq and Yemen. Currently, there has been an increase of 8.5% in Audi sales in the fast half of 2010 in the Middle East which proves the strong image and an established market share. According to Mannering – MD of Audi Middle East, Audi Q7 SUV has been the best-selling model till now and Audi R8 spyder and A8 are expected to be introduced by the end of this year. (McGinley, S., 2010) Furthermore, it has been actively participating in Motor Exhibitions like the ‘Dubai Motor show’ and optimizes the opportunities of growth and recognition on such events by launching new models like the TT RS, recently. (Khan, A., 2010)
Product Portfolio:
German luxury car maker manufactures premium and sports cars comprising of A-series, Q5 – Q7 SUVs, TTs roadster and coupe, S4 and A6 allroad Quattro wagon along with Lamborghini (Italy based subsidiary of Audi) that manufactures Murcièlago and Gallardo. Moreover, it has financial services that makes finance available for leasing and purchasing vehicles, manages insurance of the vehicle, and also offers Audi Visa Signature credit card. (Hoovers, 2010)
Key Success Factors
Applying Porter’s five force and PESTEL analysis, the factors that are currently interfering with the achievement of the objective mentioned above can be identified. It faces fierce competition from Mercedes-Benz and BMW – German based car manufacturers.
Audi’s Porter’s Five Force Analysis:
A tool that allows to evaluate the performance and strategies of competitors within a specific industry, for example, laptops – electronics, and further compare them with our own business functionality and offerings. It gives a good understanding of the competitive environment in which a firm exists and reveals threats and opportunities of the market.
Competition among Rivals – in automobile industry catering to the needs of elite segment, Audi being well established still faces direct competition from BMW and Mercedes-Benz in Dubai, who are equally strong in terms of brand name and product offerings. Whereas the indirect competitors can be Honda, Toyota, Nissan (Japanese firms), and Ford as these also operate globally, do have a good market share in Dubai, and are less expensive compared to Audi. But these firms have endorsed brands like Lexus owned by Toyota in an effort to serve elite segment. However, their prices are lower than Audi. The high diversity of rivals in relation to cultures and allied philosophies has increased rivalry in this industry and this can intervene in the achievement of Audi’s objective of being an aspirational brand. (Bradley, D., 2005). No doubt, with its cutting edge technology and innovation, Audi is able to sustain its current market position and survive the competitive environment but to become an aspirational brand, it will have to think and employ strategies even more better than what it’s currently doing.
Threat of new entrants: Foreign players like BMW, Jaguar, Ford, Aston Martin are already in the Dubai market and the capital investment required to enter the market is even more than before due to the economic conditions. So this force will be weak and less of a threat to Audi.
Power of Suppliers: production of Audi vehicles is maintained in Germany, Belgium, Hungary and China whereas the supply is concerned, one major supplier is Al Nabooda automobile co. existing in Dubai with few external ones. (Odiabat, H., 2010)Usually, luxury cars designed for upper class niche tend to be few in number compared to the other less costly brands. Hence, the bargaining power of suppliers is strong.
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Power of Customers: when purchasing luxury products, customers are more concerned about the features, design, quality rather than the price. As Audi has equally strong competitors like BMW and Mercedes, customers do have options and can purchase either of these brands instead of Audi, but those who just want to buy an Audi will not be bothered to explore these options. (Gillies, M., 2008 ) For this reason, bargaining power of customer is medium and Audi should make switching cost higher in order to have high customer retention. For instance, by providing semi-annual maintenance service, increased insurance duration, gifting gadgets useful for car or giving away a miniature replica model etc. This is another place where Audi can improvise in order to position itself as an aspirational brand.
Threat of Substitute products: possible substitutes can be little cheaper cars like Lexus, caprice or bikes like Harley Davidson but nothing is comparable to the experience of owning a luxurious car like Audi. Hence, this force is of less threat to Audi.
Audi’s PESTEL Analysis:
PESTEL analysis is a tool to evaluate environmental forces acting on an organization and comprises of political, economic, social, technological, environmental and legal factors.
P.E.S.T.E.L Analysis of Automobile Industry in UAE Market
Political Factors
Supportive Government with free trade and motivates globalization and FDI.
Tax- free system
Gulf news reports UAE as largest purchaser of German products and Dubai as the 7th biggest export market after Europe. (Al Baik, D., 2010)
Economic Factors
Rise in prices of fuel is a concern for Audi
Good labour availability
Inflation
Socio-Cultural Factors
Multinational population residing in Dubai.
Hot spot for exhibitions and events.
Educated and wealthy segment available.
Technological Factors
Dubai has always been a good platform for launching new technologies like GPS, iPhone. People are willing to adopt new technologies to enhance their lifestyles.
Legal Factors
Car evaluation test is performed to assess the safety and effective functionality before launching it in the market.
Environmental Factor
Eco – friendly standards need to be followed.
After analysing the market for Audi by employing both these tools, the five critical factors that would intervene with the objective are:
Intense competition – there’s no such brand that is not found in Dubai market. Audi faces strong rivalry environment and this factor can interfere with Audi being an aspirational brand. It’s found that UAE automobile market still is one of the strongest that helped in stabilizing the global car market, which suffered from recession. (Nelson, L., 2010) Audi is already being strong in dealing with this competitive environment by coming up with latest technology and innovative features like the MMI (Multi Media Interface) navigation along with integrated telephone, audio, and vehicle technology in its new Audi A8 model that provides extreme convenience and enhanced safety to the customers. (Datamonitor, 2010) The reaction of the rivals in the form of products against Audi’s latest invention is something inevitable and requires more efforts from Audi lo live up their existing image and be ahead of the competitors in the market.
Bargaining power of customers – With intense competition, customers get more and more options and so the power of making choices between brands with customers intensifies as well.
Petrol price – rising price of fuel and economic crisis currently in Dubai also makes it difficult to encourage people to spend money on luxurious products. People, rather, prefer saving money by investing in projects/ businesses providing long term profits. According to the survey of Gulf news, locals were extremely dissatisfied with 3rd time increase in petrol prices within the same year.(Rasheed, A., 2010)
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Economic conditions (recession) – higher prices of food and transport gives rise to inflation in Dubai market, due to which people want to save money as much as possible. This economic trend, if continues will definitely affect consumers purchasing behaviour on luxurious products. (Gulfnews, 2010) As said by Crichton, J.,- Director Sales and Marketing for BMW Middle East that in 2009 sales for premium cars decreased by 27% due to the recession and increasing inflation. (Maierbrugger, A., 2010)
Pace of technological advancements – rapid advancements in innovation and technology is another issue. Though innovation and technology has been major focus of Audi but the rate at which this happens in Dubai market is surely a concern. One wakes up to find a similar product but with a new unique attribute every morning. To be an aspirational brand, Audi needs to match up with this pace. For instance, after the recent launch of Audi A8, BMW came up with X5M with few additional features – high acceleration in a SUV. (Benjamin, A., 2010)
AUDI’s Need and Value
Self-fulfillment needs
By using Maslow’s hierarchy of need, the need analysis of Audi will be investigated. According to Maslow human are motivated by their unfulfilled needs and these needs follow a pattern. When the basic needs (lower needs) are accomplished, new needs higher in the pyramid are established. The hierarchy is as follows:
Psychological needs
Basic needs
Audi usually targets at the Esteem and Self- actualization need of a consumer as it serves the upper class segment. One possessing basic facilities and social life can develop the need of achieving something that will raise his/ her social status from others or add on to the personality. Elite segment fulfil their esteem and self-actualization need by purchasing luxurious products. Safety need is equally important for them when becoming a part of any brand. This is what Audi targets and to be an aspirational brand it needs to live up to the expectations of the elite group and have emotional bond with them via personality traits of the brand, enhancing driving experience of Audi and customer service.
Unmet need: Audi can hold PR event annually where all elite group members get to meet other customers within the same segment, share their experience of the vehicle they own, and get information on company’s growth and success. By doing this, it will ensure customer satisfaction, loyalty and retention and strengthen its bond with the customers.
AUDI’s Target Segment
With the variety of models and the price range (86,000 AED to 454,000 AED) the possible target segments can be within the age range of 25 – 35 and 45 – 60. (DriveArabia, 2010) The first segment comprises of youngsters who are active, self-dependant, smart, focused, but it may not be necessary that they have successful lives and are capable of possessing a luxurious car. At this stage, they would be more focused at fulfilling their basic needs like investing in housing or life insurance. But still, high class people within this age range face no such difficulties. Whereas the second segment, do consists of elder and older age group but the fact that with in this age group, people are quite settled and successful in terms of life and finance and more priority is giving to self-fulfilment needs; so more potential customers can be derived from this age group.
As the motive is to make Audi an aspirational brand, the age group 25 – 35 years, who may not be able to afford this brand’s car, will be still considered as part of the target segment. Therefore, the target segment of Audi that is chosen is a group of individuals that fall in the age range of 25 – 50 years and possess characteristics of being self-dependent, ambitious, goal-seeking, successful, extrovert, updated, passionate, having higher average monthly income, high social class and status, want to be centre of attention amongst their social circle, possess sense of quality, well aware of brands in the market, possess sense of evaluating products, and value their lifestyle – balance of work and life.
Moreover, by observing the current age structure residing in UAE, it would be even easier to prove generation of turnover from the target segment that is mentioned above.
0-14 years: 28.86%
15-64 years: 68.74% (target segment lies with in this age range and as the percentage is higher so definitely it’s profitable for Audi.)
65 years and over: 2.4% (alloExpat, 2010)
Literature Review: Variables affecting brand aspiration and loyalty
Consumers’ needs are ever growing and evolving overtime. An anthropological study by Burnett and Hutton (2007) revealed that three new major consumers’ needs are knowledge, authenticity, and personal experience. Any brand providing positive experiences through knowledge and authenticity would be successful as it would be catering to the changing needs of the consumers. Thereby, building up consumer base and enhancing consumer retention. For instance, Land-Rover was well known for producing trucks for the roughest terrain but on discovering a market, who liked the brand image and name, needed a shiny and a comfortable version to drive on road, the brand came up with Range-Rovers and Freelanders to address such needs. (Ritson, M., 2006) Therefore, a brand’s ability to match up with the varying needs of the customers and delivering exceptional experiences are two important factors influencing brand loyalty and aspiration.
The customer love for any brand begins with a product/ product usage. It’s the innovation behind the products of a particular brand that plays a vital role in continuous satisfaction, loyalty and customer retention. Otherwise a brand offering traditional products would be of no interest to consumers. The brand cannot stand alone without innovative products/services so it’s suggested that effective implementation of product-brand typology is essential. An empirical research by Morago et al. (2008) on partial application of product-brand typology, where the choice was between electronic products (innovative) and wine (traditional) for consumers, revealed satisfaction and loyalty is more when evaluating brands and products together rather than when each of them is evaluated separately. For instance, BMW (brand name) and car performance (product innovative attributes) together delivers more satisfaction and more people would wish to be part of such a brand. Hence, innovation is crucial to brand aspiration and loyalty. This variable further emphasizes on appropriate brand extension – adding on new products or product line within the same brand name. If customers don’t find a proper fit between the new product and the brand image or the new way to position the brand is misunderstood by the customers then this involves a great financial and consumer base loss. (Aaker and Keller, 1990) For instance, a cheap car with less or economical features would not fit with the image developed by a Mercedes. It would be against its brand image.
The literature on brand personality and survey research carried out by Maehle and Shneor (2010) on association between the brand and human personality uncovered that consumers buy from those brands only that match up with their own personalities. They used 15 propositions as suggested by Ekelund and Aaker and verified them against the statistical survey result. They classified consumers’ personality in 3 main dimensions – blue: task-oriented, structured and logical successful executers; red: people under this category are integrators with a relational focus, personal involvement and social perspectives; and green: people focusing on change, vision and ideas. Their findings revealed consumers with Blue DI type show clear dislike from the excitement dimension of brand personality, while consumers with Red DI category display strong preference for the sincerity dimension of brand personality. But no clear findings were developed for the Green DI type, probably related to the individualistic, non-conformist and innovative orientations of such individuals. (Maehle and Shneor, 2010) If a customer is unable to build up this bond with a specific brand’s personality, that brand would not be preferred. So, brand personality is an important component and a tool to differentiate a brand from its other competitors. For example, Honda uses “the power of dreams” while Toyota focuses on that one should “get the feeling”. Customers’ attraction to brands’ personality is more intense than the product or service.
Another study by Gabay et al. (2009) where interviews with 5,364 participants from food industry were conducted, unveiled that brand value (quality v/s price) across segments lies in product functionality, degree to which product solves individual problems or enhance his/her situation and features rather than the name. For instance, Starbucks has created value in terms of the quality of the coffee and the experience at the outlet delivered by it. Though it has premium prices but it’s worth it and preferred by customers due to the quality of the product, experience at the outlet and the customer service. This suggests that the value to the customers in terms of quality of the product/ service and experience offered by the brand plays a vital role in brand aspiration and loyalty.
Moreover, a brand’s country of origin and its personality does influence a consumers’ purchasing intent due to the stereotypic perception in consumers towards any country. Thereby, affecting brand aspiration and loyalty. It can have both positive and negative impact. Also with the information on country of origin customers do build up perception on quality of the product as well. This is proved by a cross-city survey of china auto industry for German – China joint venture for auto brand ‘BORA’, conducted by Wang and Yang. The questionnaire comprised of 2 parts – first one dealing with the brand and related topics and the second one was about demographic background of the respondent. The findings revealed that German cars known for good technology and performance in consumers’ mind when will form a joint venture with China, (as in case of Bora) it would definitely portray a positive image, hence causing higher purchase intention. This variable actually forms the basis of brands’ aspiration and loyalty. As people being patriotic would prefer their country brands over other countries as well as a brand from a country holding strong image will gain recognition, continuous growth and would be desired and preferred over others like shoes from Italy or electronics from Japan.
Any brand is known by its logo and the message it portrays. Also, the architecture of the retail outlet signals brand identity and experience delivered to the customer. It’s a direct or indirect way of communicating brands’ promise to the target segment like the Nokia logo exhibits its motive – connecting people. A slight change in brand logo can affect strongly committed consumer base. Interviews carried out by Walsh, Winterich and Mittal (2010), with six design firms and 4 large corporate identity firms revealed that rounded shapes logos are in trend and when changing logos, the change in roundness (shouldn’t be angular) should be less in order to avoid the negative impact on the strongly committed consumer base like the Volkswagen which means people’s car in German, its logo has always been round and was actually derived from Nazi flag. It had been black and white until 1999. Since 2000, colours were added to the logo exhibiting a positive change and capability to adapt to the new era. (Dkumar, M., 2009) Moreover, huge expenses are incurred by companies in logo redesigning like $20 million spent by UPS for its new logo in 2003 as this is a very critical aspect of brand communication. Any change in brand promise or commitment as well as positioning via logos eventually affects brand aspiration and loyalty.
Literature on consumer behaviour also emphasizes on having differentiating attributes associated with the product or the brand for it to be on the track of aspirational brand. Findings of the survey conducted by Caruana et al. (2009) disclosed that differentiation as an important positioning aspect of brands and winning awards and reputation represented in ranking magazines for a particular brand does have an impact on customer’s emotions and preference. So to be an aspirational brand, differentiation along with high ranking is essential.
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