Audi Case Solution - Preeti Anchan

(B065)

Q1) Describe and evaluate Audis Brand building initiatives?

Sol: Audi has taken the following Brand Building

Initiatives:

1. It improvised the looks of the A6 and A8 sedans by its

deep front grille giving Audi an edgier look which started
hitting the market in 2004.
2. Its a premium performance car with all-wheel drive at
lower prices than its rivals.
3. They started launching new models as part of their
branding strategy thereby being market driver.
4. Audi has worked on the quality improvement. It out
engineered its rivals settling industry benchmarks in
everything from lightweight aluminium frames, drive
systems and engine performance to the soft skin materials
covering plastic parts that gives Audis interiors a rich feel.
5. The auto makers navigator and information system wins
high marks as user friendly and intuitive. Its like the iPod
of cars, its more intelligently designed
6. The wholesale sharing between Audi and VW has given
way to a more sophisticated sharing of modules that still
saves money but allows Audi cars to look and behave
differently.

The evaluation of these brand building initiatives is

as follows:
1. Rankings improved
a. In 15 Feb 2005, Auto Motor and Sports ranked Audi
as No.1 in the four models
b. On 16 Feb 2005, Auto Week voted Audi the car of the
week
c. In 2004, Audi was ranked 11th out of 37 for quality by
J.D Power Ranking and Audi made its place a number
above BMW and a number less than Mercedes
2. Profit Margins improved
a. Profits in 2004 rose to 7.4% to hit a record of $1.15
billion
b. The share price has soared to $347 from $79 in 2000
Q2) How important are quality gains to Audi in closing revenue
gap with Mercedes and BMW?

Sol:

1. Quality gains are very important to Audi as closing the

revenue gap with BMW and Audi will take a long another
generation of cars as BMW and Mercedes sell more top
end models and generate greater revenue and higher
profit margin.
2. In 2004, Audi was ranked 11th out of 37 for quality by J.D
Power Ranking and Audi made its place a number above
BMW and a number less than Mercedes
3. Audi has worked on the quality improvement. It out
engineered its rivals settling industry benchmarks in
everything from lightweight aluminium frames, drive
systems and engine performance to the soft skin materials
covering plastic parts that gives Audis interiors a rich feel.
4. Audi aims to achieve an operating profit margin of 8%
within the decade.
5. Audi needs to invest heavily in marketing and distribution
outside Europe to match BMWs and Mercedes global
reach.
6. Audis profits are fraction of its rivals income, since it has
fewer expensive models on the market. To remedy that
Winterkon aims to spend some $15 billion over the next
four years, 80% on it new products. But it will take more
than new models to vault Audi into top luxury tier in the
U.S which is still haunted with the memories of sudden
acceleration scare of 1980.
7. Audi needs to turn out near perfect cars to build it quality
reputation , it has to overcompensate.
8. Audis chiefs biggest priority for 2005 is clinching quality
gains. If they get the quality right, they could pick up a lot
of dropped straws.
Q3) Discuss the role of SUV models in Audis competitive
strategy?

Sol:

1. Audis rivals depend on SUV for a big percentage of sales

in U.S. Audis market share in SUVs in 2004 was 0% in U.S,
it needs a SUV.
2. Audis keenly awaited model is the Q7 SUV, costing
roughly $40,000 which will hit the European showrooms in
early 2006. But the problem is the new model wont be
available until spring 2006. They are currently addressing
only half the market in US if they sell only cars.
3. In 2007 they plan to bring a baby SUV, the Q5.
4. As Audi has fewer expensive models, Winterkon aims to
spend some $15 billion over the next four years, 80% on it
new products. They plan to have the newest products
lineup in the luxury sector.
5. Audi is also dead set against raising incentives and that
includes more generous lease deals. Piling on big
incentives effectively lowers a cars pricing, which would
hurt both Audis image and the resale value of its cars.
They dont want to undo all the good done.
6. But it will take more than new models to vault Audi into
top luxury tier in the U.S which is still haunted with the
memories of sudden acceleration scare of 1980.
7. Marc Trahan, Audis U.S quality director still has to work
hard to convince the Germans to listen to American
consumers and move cup holders from the instrument
panel, where coffee sloshed onto the stereo controls, to
the center console
8. De Nysschen hopes the efforts will turn customers into
goodwill ambassadors for the brand. That is very essential
if Audi does not want to loose on its loyal customers.
Q4) Discuss the strengths and weakness of Audis financial
performance?

Sol:

1. As per exhibit 1 in the case, the sales and net profits dipped
in 1999 and then onwards saw an upward track which is also
shown in the table below:

Parameters Past Records Current

Scenario
Revenue/ve 1994 2005
hicle $25,125 $41,389
2004
Audi - $7,79,000
Tripled more than
Sales BMW - $1.2 million
Mercedes $1.2 $32 billion
million
55% of BMW
Revenue -
48% of Mercedes
2004
$1.15 billion
Profit - (Increased by
7.4%)
2000 2005
Share Price
$347 $79

2. Audi aims to spend some $15 billion over the next four years,
80% on it new products. They plan to have the newest
products lineup in the luxury sector.
3. The strengths are as follows:
a. Audi is coming up with new models, SUVs
b. Huge investment in new product development
c. Their rating on quality is at a healthy competition with
rivals as per J.D Power Ranking in 2004
d. Wholesales parts sharing between Audi and VW saves
money makes Audi cars look and behave differently
4. The weakness are as follows:
a. Weak Dollar
b. Shaky U.S dealer network
c. Narrow lineup that includes no sport-utility vehicles
d. Needs to build its quality reputation due to
sudden acceleration incident