Skoda: Volkswagen's Hot Growth Engine

The Czech unit of VW has gone from post-Communist laughingstock to global success story. Next stop: Asia
by Gail Edmondson
German automaker Volkswagen (VOWG) is wielding a secret bullet to challenge rivals Toyota (TM) and General Motors (GM) in global markets and it isn't a new small car. It's VW's Czech-built Skoda cars. Lower-priced and higher-quality than similar models built by Volkswagen, Skoda's automobiles are driving a global growth jag, with sales up 13.2% in the first half of 2006. "Skoda has become the true Volkswagen (people's car)," says Commerzbank (CBKG) auto analyst Albrecht Denninghoff.

Skoda's brash challenge to Japanese, Korean, and American automakers in emerging markets is new, and spotlights a savvy renaissance of the Czech automaker from regional player to global contender. This year, Skoda expects to sell 630,000 cars, and it's now targeting sales of 1 million by 2010. (Until recently, Skoda forecast reaching that goal by 2012.) "We had no idea we could go global in the 1990s," says Skoda Chief Executive Detlef Wittig, who adds the original plan was to focus only on Europe. "The major potential is in Asiaand it's a huge potential."

Back in the Game

A strong player in Western Europe and a market leader in Central and Eastern Europe, Skoda is now speeding into Asia's emerging markets with a vengeance. Revenues hit $5.2 billion in 2006 as customers in 100 countries around the world snapped up its well-built cars, and profit jumped 22% to $491 million. A new Russian factory in Kaluga, south of Moscow, will start producing Skodas and VWs in October. In India, Skoda has built its own assembly plant, separate from parent VW's Pune factory, where it aims to produce 30,000 cars a year. Skoda also assembles cars in China, Ukraine, Bosnia, and Kazakhstanand is considering a lower-priced model that could go head-tohead with Renault's (RENA) no-frills Logan. The Czech comeback has been driven by a combination of affordable prices, spacious interiors, and top quality. Skoda's cars share many modules, technology, and even platforms with Volkswagen. But a VW Golf compact starts at 16,000 ($22,240), while the comparable Skoda Octavia goes for 14,790 ($20,560). Analysts say over time VW's management may consider letting Skoda become the largervolume brand, while making Volkswagen's cars more upmarket to defend its margins. "So far, the only limit on Skoda's expansion has been the resources to growthey have to do it on their own cash flow," says Denninghoff.

Quality Vehicles

Once the butt of jokes about its unreliable cars during the Czech Republic's Communist era, Skoda has now become synonymous with high quality. In the 2007 European consumer satisfaction and quality studies by market researcher J.D. Power & Associates (which, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP)), Skoda ranks among the top 10 in France and Germany; and in Britain it ranked No. 2 (tied with Honda), scoring just a fraction below Lexus. The Skoda Superb, a midsize sedan that starts at 21,990 ($30,570), ranked No. 2 in its class this year in the British survey. Those scores are far above the quality rankings German parent Volkswagen achieves in J.D. Power's U.S. surveys. (Skoda does not sell in the U.S. market.) They are also a point of pride at the 112-year-old Czech automaker's headquarters in Mlad Boleslav. "We realized when we started to restructure Skoda that to fix its brand image we needed to go for top quality," says Wittig. "We needed to overshoot. For Skoda, the importance of quality for the turnaround was life or death. We can't allow failure, or the old image might come back."

Comeback Kid
Skoda designers have been on a winning streak, too. The new Fabia subcompact, unveiled in March at the Geneva Auto Salon, looks friendlyeven huggableechoing some of the lines of BMW Group's (BMWG) hot-selling Mini. Its flat roof gives the car a faintly similar silhouette to the Mini, and the roof can be ordered in contrasting white, another Mini feature. Skoda's transformation went into turbo drive in the late 1990s when it introduced the Octavia and Fabia, the first Czech-built cars based on VW platforms. One of the world's oldest automakers, Skoda had been the industry leader in the Soviet bloc. But starved of resources, its quality was subpar and its technology hopelessly out of date. With anemic sales volume of 170,000 cars in 1990, Skoda faced extinction as the Communist economy collapsed. VW inked a joint venture in 1991 and took majority control in 2004, eventually pumping $14 billion into its revival. That investment has more than paid off. Sales in Western Europe now represent 55% of total sales, and Wittig has nearly doubled Skoda's distribution network to 531 exclusive dealers. Skoda now makes up 7.3% of VW's group sales, and 12.6% of its operation profit. As Wittig moves from Skoda back to VW headquarters on Oct. 1 to take up a new global sales position, and VW's new management ponders how to challenge Toyota, the role of VW's Czech ace is only likely to grow. "Skoda already outperforms Toyota, relatively," says Wittig. "Our return on capital is 19% to 20%Toyota's is 15% to 16%." Edmondson is a senior correspondent in BusinessWeek's Frankfurt bureau.

http://www.businessweek.com/globalbiz/content/sep2007/gb20070914_057808.htm

Skoda Superb Estate 1.8tsi DSG Elegance

By David Wilkins Saturday, 22 May 2010 More for your money: The Superb Estate offers space, comfort, quality, value and performance
Price: 24,705 Top speed: 136mph 0-62mph 8.6 seconds Consumption: 38.7mpg CO2 emissions: 170g/km Best for: Audi buyers in search of a bargain Also worth considering? Ford Mondeo, Vauxhall Insignia, Volkswagen Passat estates

Do you remember Skoda jokes? I mention the subject reluctantly because it's been a while since these now appealing rather than appalling Czech cars have been a fit subject for humour. What's more, it was hardly the fault of Skoda, which had to labour for years under the limitations of a planned economy, that its products weren't fully competitive with Western models produced under far more favourable conditions. Nevertheless, when I drove this impressive new estate version of the company's big Superb, I couldn't help but be reminded of one of the jokes in particular. "How do you double the value of a Skoda?" it started. The rather predictable answer was: "Fill its tank with fuel." But now, such is the transformation that has been wrought at Skoda, a completely different punchline suggests itself: "Stick an Audi badge on it." Perhaps I'd better explain. The starting price for the new Superb estate is just 17,715, but over at Audi, the entry point for a not dissimilar agglomeration of Volkswagen-group components wrapped in an equally handsome body in the form of the A6 Avant, is 27,390 not quite, I agree, twice as much, but certainly a great deal more. In fact, if, at a late stage in its development, the powers-that-be at Volkswagen had decided the Superb estate was just too good to be a Skoda and should instead be sold as an Audi, and priced accordingly, I suspect that they would have got away with it. But today's Skodas aren't just about providing you with more for your money than the opposition do although that was certainly the main basis of their appeal five or 10 years ago. Rather, at the same time as keeping its keen pricing, Skoda has been developing some of the attributes of a premium brand. Its products have a growing reputation for quality and reliability, and have also acquired a distinctive family look that embodies precisely what they are all about; the cars' rather upright, square-rigged, conservatively handsome shapes are relieved by just enough intriguing quirky detailing to remind us that they are Czech, for all the German engineering they contain.

The Superb estate is the culmination of two decades of hard but inspired work at Skoda; its rear styling overcomes the slight visual awkwardness of the standard model while its combination of space, comfort, quality, value and performance is almost impossible to beat
http://www.independent.co.uk/life-style/motoring/road-tests/skoda-superb-estate-18tsi-dsgelegance-1977323.html

case study - the re-branding of s kod a

Introduction The re-branding of Skoda provides a useful case study of the challenges faced by brands wishing to reposition themselves Remember the Skoda jokes?

What do you call a Skoda with a sun-roof? Answer: A skip - Why does a Skoda have a heated rear windscreen? Answer: To keep your hands warm when you push it - What do you call a Skoda with twin exhaust pipes? Answer: A wheelbarrow Critics of the Skoda would be surprised to hear the Skoda is now one of the fastest-growing car brands in the UK motor industry. The Czech car company boosted its sales in the UK in 2001 by 24% as opposed to the average market growth of 10.7%. This built on growth of 34% in 2000. How has this been achieved? Background Skoda had a monopoly in car manufacturing in Czechoslovakia until the 1989 'Velvet Revolution'. After this the Czech government started looking for a commercial partner to revitalise its Skoda factories. In 1991, Volkswagen took a 30% stake in Skoda and started work in training and educating the workforce to Western quality standards. It invested over 2 billion in the plant, research, development and new models. Ten years later, in 2001, VW took total control of the business. The first two launches from the new Skoda camp were well-received by the automotive press. The Felicia - launched in 1994 - was built as an old-style Skoda, but enjoyed the benefit of VW features. The 1998 Octavia was built on the VW group platform. The costs of the improved VW car structure pushed up Skoda prices. The cars carried a higher price tag and Skoda needed to convince consumers that this price was worth paying. A VW marketing manager working for Skoda explained: "We needed to move away from being a cheap brand to being a value-for-money brand. At the same time, we badly needed to find our own positioning within the group, rather than just trading on being part of the VW Group. Otherwise, we might just as well have re-branded ourselves as VW, with very little reason for existence." Launch of the Octavia Skodas first VW-backed model was the Octavia. It was launched in the UK with a 10m promotional campaign- Skoda's highest-ever spend on a marketing campaign. However, the Octavia launch was a failure. Just 6,154 Octavia cars were sold over the year following the car's launch, despite the fact that the car achieved almost unanimously good reviews. Market research at the time suggested that sixty per cent of people said they would never buy a Skoda. Only a fifth of early Octavia buyers were under the age of 45 and a third had previously owned Skoda cars. Skoda's image was old, unfashionable and out of sync with its products. VW's Strategy VW resisted the temptation to scrap the Skoda brand altogether. Despite its poor image in the UK, Skoda still commanded respect in Eastern Europe and held its own in other Western European countries. The Skoda brand also had high brand awareness in the UK even if it was for the wrong reasons and a reliable distribution channel through a network of independent car retailers.

The next product launch was the Skoda Fabia. It was launched with a much smaller marketing campaign and an advertising message that poked gentle fun at Skodas customer perception: "The Fabia is a car so good that you won't believe it's a Skoda" Key elements of the promotional mix were as follows: The Fabia was launched with a number of television, print and poster ads The initial TV campaign ran for four-and-a-half weeks and the print and poster campaign ran for two weeks. Expensive TV and print campaigns were supported by both PR and direct mail campaigns The PR push targeted the consumer press and attempted to get journalists to discuss Skoda in a positive light The direct mailings tried to build on loyalty levels among Skoda drivers and get across the brand's new image. AutoExpress magazine carried a competition to win a Skoda car that generated 27,000 responses. The respondents who didn't win the car were profiled to check their similarity to the average Skoda driver and followed up. Hot prospects received a scale model as a consolation prize and an invitation to test drive a full-size model. Impressive results The results of the marketing campaign were impressive. By the end of 2000, more than 11,000 Fabias had been sold and even Octavia sales were seeing a 29% increase on the previous year. In July 2000, the near impossible finally happened - Skoda had a waiting-list for its cars. There was also a less obvious, but equally important shift in the public's perception of Skoda. Only 42% of those polled after the campaign said they would not consider buying a Skoda. Many UK customers now dont see a Skoda in front of them they see a cut-price VW.

http://tutor2u.net/business/marketing/casestudy_skoda.asp

Amazon was once viewed askance by cynics. They licked their chops over the firms failure to make money. They thus missed the financial significance of its business model. The convenience, speed and pricing advantages of selling Amazons books online easily outweighed the traditional methods of marketing. Founder-CEO Jeff Bezos was convinced that the negatives - the gap between Amazons costs and its revenues - would be gradually closed as the marketing proposition, delivering higher value at a lower price, won more and more converts.

For quite some time, as the online models gathered strength, I used to attack businesspeople with the warning that they faced the most deadly of enemies. The old, time-honoured marketing choice lay between three propositions. First, a premium price yielding higher profits at higher costs than the competition; second, me-too prices that exploited greater efficiencies on the supply side; third, at the bottom, a cut-price platform that relies on inferior production and supply for its viability, but which is inherently weak. The key words were best, same and worse. But business listeners now had to learn a new word, the most powerful of all - FREE. Internet users in the new world had quickly discovered that their needs in many markets could be served at zero cost. That way, the new suppliers could swiftly build customer acceptance based entirely on the relative success of a literally priceless marketing platform. The first Big Bang was delivered by an unknown start-up named Netscape. The browser innovators whose non-paying users enjoyed their services for free never found the answer to the problem of Priceless Profit except what can be called a final solution: Netscape was sold to AOL for $4.2 billion in 1999. The pioneers had been defeated by Bill Gates of Microsoft, whose bundling of its browser with other FREE necessities pulled the carpet away from beneath Netscapes feet. That was easy though costly to do, even for a Bill Gates, whose strengths lay more in the basics of business than in high technology. Those business strengths, however, were fundamental, and still are. The richest man in the world, however, stayed that way by fully recognising the force of the simple process that created his wealth. Every Midas faces the same difficulty; the success of the new idea inevitably attracts competitors, some new in every respect, others established in other market sectors. But history shows clearly that all good things come to an end, unless you can identify, exploit and lead the next stage of market change. The negative question is clear: What changes must we make to the business model to sustain the company and serve its markets? The positive question is much harder: How can we build a new company that will be devoted to the new markets and their opportunities? The flood of new devices has its risks - Apples tablet computer has attracted much criticism. Nobody seemed very clear over where the market lay. But Apples Steve Jobs has changed the World As We Know It so radically already - not least with the brilliant iPhone - that he can be forgiven the odd false.

http://www.thinkingmanagers.com/management/internet-business-models

11 Effective Strategies Apple Uses to Create Loyal Customers

Complete solutions, familiar formats and "the cool factor" keep customers coming back.

By Inside CRM Editors

When shoppers sleep outside of stores just to be one of the first to buy an iPhone, it's obvious that Apple Inc. is a company that enjoys fanatical brand loyalty. However, this brand success is not a result of dumb luck or forces beyond Apple's control; it's part of a well-thought-out plan to deliver strong products and to create an Apple culture. Find out more about these and other strategies that Apple employs to achieve its tremendous customer loyalty. A Store Just for Apple: Apple has historically been troubled by big-box sales staffers who are ill-informed about its products, a problem that made it difficult for Apple to set its very different products apart from the rest of the computing crowd. By creating a store strictly devoted to Apple products, the company has not only eliminated this problem but has made an excellent customer-loyalty move. Apple stores are a friendly place where Mac and PC users alike are encouraged to play with and explore the technology that the company offers. This is a space where Macheads can not only get service but also hang out with others who enjoy Apple products just as much as they do. By creating this space, Apple encourages current and new customers to get excited about what it has to offer. Complete Solutions: Apple's products complement and complete each other. Buy an iPod, and you can download music via iTunes. For the average user, most Mac programs are produced by Apple. This sort of control over the entire user process, from hardware to software, strengthens customer loyalty. Apple users generally don't have to stray to find products and solutions they want. Are You a Mac?: Let's face it, Apple is a hip brand. It pushes a strong identification with everything young, up-tothe-minute and smart. Consider Apple's I'm a Mac campaign. The Mac guy is smooth and confident, while PC appears uptight and old. Once you've become smooth, would you want to go back to uptight? Varied Products: Many consumers may not be ready to buy an Apple computer, but they're willing to give gadgets like the iPod or iPhone a try. By selling products with lower entry costs, it creates an opportunity for new users to be introduced to Apple. If these users enjoy their gadgets, they're more likely to consider buying an Apple computer in the future. Media Fodder: Media outlets, especially bloggers, love to write about Apple. Why? Because Apple makes it so easy. With leaked rumors about new developments, its very own expo and mysterious shutdowns of its online store, Apple gift wraps news stories that are just begging for speculation and hype. By perpetuating this cycle of media frenzy, Apple keeps its customers excited about buying new Apple products now and in the future. Education Sales: By selling its products to schools and universities, Apple turns classrooms into showrooms. If students go through school using Apple products, they become comfortable with the interface and familiar with the superior performance the brand offers. By creating this early exposure, Apple captures customers before they even know that they are customers. Products That Deliver: Apple carefully considers what consumers are looking for, so its products are a result of both extensive research and strong design. This meticulous planning is a large contributor to Apple's high customer-satisfaction rates. It's plain and simple: Robust and easy-to-use products not only make your customers happy, but also make them want to buy more products from you in the future. Outsourcing Unpleasantness: With Apple products, the average consumer's interaction with the company is likely to be low. Unless something goes wrong, you don't have any reason to speak with an Apple customerservice representative. Of course, the iPhone presented an opportunity that could have made Apple much more involved, similar to administering iTunes for the iPod. With a phone, interaction becomes multifaceted. You have to consider billing errors, quality of wireless service, contracts and a number of other factors that often lead to customer frustration. With the iPhone, Apple was wise to stick with building a good product and letting AT&T handle the service. Consistency: All of Apple's products have the same basic architecture. Because of this consistency, customers who already own Apple products have a good idea of what they'll be getting before they make a purchase. They know that it will be easy to adapt to new hardware, and this makes them more open to making a repeat purchase. New Innovations: Although the architecture of Apple products is consistent, its portfolio is not. The company offers consumers a number of different ways to enjoy its products. By giving customers an opportunity to employ Apple in their living rooms, pockets and offices, Apple makes it easy to stay loyal to a brand they already like.

Attractiveness: From packaging to aesthetic design to user-interface experience, Apple makes its products accessible and attractive. Bright colors, a smiling icon and slick-looking hardware remind customers every time they use Apple products that what Apple offers is appealing.

http://www.insidecrm.com/features/strategies-apple-loyal-customers/

Over 100 years of getting people from A to B. 1895 to 1905. From push bike fanatics to motorcycle madness.

You might think it strange but our founders started by making push bikes! In Czechoslovakia during December 1895, keen cyclists Vaclav Laurin (a mechanic) and Vaclav Klement (a bookseller) started designing and manufacturing bicycles. At that time, most Czechs were fervently patriotic, so they called their first company Slavia. Their bicycles sold well, so Laurin and Klement decided to take the next step and add motors. They started making motorbikes in 1899, changed the name of their company to the Laurin & Klement Co and chalked up several racing victories. While making nearly 4,000 motorbikes of various types, they started experimenting with a new phenomenon the car - which began to gradually replace motorbikes from 1905 on.

1905 to 1933. From cars to planes to ploughs.

In the early 1900s, the Laurin & Klement Co could do no wrong and their first car, the Voiturette A, was a huge success, becoming a classic in Czech motoring history. The company established a stable position in the developing international market. When war began in 1914, it started manufacturing for the armed forces too. Because of the economic conditions in Czechoslovakia at the time, Laurin and Klement needed a strong industrial partner to strengthen and modernise their company. They were now not only producing a range of cars, but also trucks, buses, aeroplane engines and agricultural machinery, such as motorised ploughs. They merged with Pizen Skodovka Co in 1925 and became koda.

1933 to 1939. A Popular legend.

In the early 30s, koda had some difficult times. Luckily, they made a breakthrough with the Type A koda Popular, which was to become a legend in the second half of the decade. Weighing only 650kg the koda 420 Popular could reach 80km/h and was offered at a fantastic price too (sound familiar?). At one end of the scale, Populars served as reliable utility vehicles, such as ambulances and delivery vans, while at the other they completed a four-month trip to India with Czechoslovakia's most famous goalkeeper in tow, and the roadster version performed brilliantly in the famous Monte Carlo rally of 1936.

1939 - 1960. From the Second World War to the first Octavia.

In 1939 came World War 2. Czechoslovakia was occupied by the Germans and the period until 1945 was a disruptive one for koda. The civilian car production programme was very limited and the majority of manufacturing was to support the German war effort.

After the war, as part of large-scale nationalisation in Czechoslovakia, the company became a national enterprise and took over all passenger car production. This period saw the koda Tudor successfully exported as far as Australia and the introduction of the mould-breaking koda 1200 which was modernised several times before, as the 1202, finally ceasing production in 1973! koda also manufactured the koda 440 which, in 1959, evolved into the first Octavia, named because it was the eighth model to be produced after the end of World War 2.

1960 1989. Lots of innovation, not enough production.

The Czech economy performed well up until the 1960s, then began to suffer because of new technology in the western world. koda continued to make new and improved cars in the form of the Octavia, the Felicia, the MB range and the Rapid - but production really only grew again with the arrival of the Favorit model range in 1987. Such was its success that the final, very pretty version of the Favorit was designed by the legendary Italian, Bertone.

1990 onwards. The new era of driving happiness.

With the political changes of 1989, when the Berlin Wall was brought down, came new market economy conditions. The government of the Czech Republic and the management of koda began to search for a strong foreign partner in an effort to secure the company's long term international competitiveness.

In December 1990, they decided on Volkswagen and a joint venture began the following year. koda became the fourth brand in the Volkswagen group, alongside Volkswagen, Audi and Seat. Since then, koda has gone from strength to strength, manufacturing not only many excellent cars but many happy drivers.

http://www.skoda.co.uk/gbr/pages/homepage.aspx

No piece of cake
AD BREAKDOWN The Magazine's review of advertising

THE AD: Skoda Fabia

THE BRIEF: Build a Skoda out of cake (and continue to change people's perceptions of the brand). THE SCHTICK: Bakers are shown making an array of differently shaped and sized cakes and then assembling them into something. It becomes clear eventually that they are assembling an orange car, but it's only when you see a Skoda badge being fixed with icing sugar to the front of the cake car that the brand is revealed. THE BREAKDOWN: This is advertising on a big scale. It's imaginative, ambitious, painstakingly crafted, and - thanks in no small part to the soundtrack of Julie Andrews singing My Favourite Things - destined to hit the target of being the ad you are glad to see. It's an instant classic. Shot at Shepperton Studios, the cake took eight people 10 days to make. While the basis of the chassis is seen being built up with sponges, the moulded parts of the bodywork are made with a mixture of Rice Krispies. A home economist reveals in a "behind the scenes" video that the cereal was "the best edible material which will set to the exact shape of the panel" - something anyone who's made an Easter egg "nest" cake will confirm. The headlight covers are made from glacier mints, the brake lights from red jelly. The engine and wing mirrors, from marzipan. Not only does director Chris Palmer think it was worth the trouble, he says it's the reason the advert works at all. "Thank God we did it for real," he says. "It was doing it for real in real time that was the worst possible way. We didn't have a practice run. It was all theory up until we had done it. But I'm so glad that we did, and that the people in the advert were the people who did it - the model makers were building it for real." This is an enormous amount of trouble to go to for an advert - some estimates say that it cost 500,000 to make; one newspaper pointed out the comparative value of a Skoda (the advert costs 62 times as much). So is this a bid for Skoda to make the most of its recent good press and performance in driver surveys? It's some time since the brand stopped apologising for itself, but does the scale of the advert indicate a bolder aspiration? Simon Barker, communications manager for Skoda, says not. "For us, it's not about being brash or proving a point, it's about self-confidence," he says. But he accepts that on first viewing this does not look like a Skoda advert. The initial shots of bakers hard at work is reminiscent of Asda's recent campaign starring Victoria Wood (coincidentally produced by the same advertising company), but as it progresses one expects it to be a Honda magnum

opus, a worthy successor to its legendary Cogs in which various car parts beautifully collide with each other like a domino-felling exhibition. Barker says: "Lots of people have said to me that when it starts you don't even spot it's a car advert, until you see certain glimpses. And you certainly don't realise it's a Skoda advert. When they realise it is for a car, the first one that comes into their mind is a Honda. That's fantastic for us Honda make great adverts. For us to be thought of being at their level is great." In fact, a distinguishing feature of the remarkable series of recent Honda adverts has been that none is in any way like any of the others. The latest, Hondamentalism, has three scientists battling against an almighty gale. It's a statement about scientific advance but feels bleak in comparison to previous feel-good efforts. One bit of trivia about the Skoda advert: Julie Andrews gave her personal approval to the soundtrack, following Skoda asking EMI's permission. Ad Breakdown has noted in the past just how much the right song can contribute to an advert's watchability, and that's never been truer than here. It reminds you what a towering talent Julie Andrews really is. The perfect clarity of the recording, her diction and flawless voice emphasise the unusual distinction of this work. And the remaining question - what happened to the cake? Barker says they looked at donating it to charity, but by the time the cake had been in the studio and under the lights during construction it was not thought fit for human consumption. It ended up in a compost heap - though the chocolate speedometer and marzipan wing mirrors were, reportedly, kept for posterity. Ad Breakdown is compiled by Giles Wilson

http://news.bbc.co.uk/1/hi/magazine/6705541.stm