Building brand equity: Skoda case study

This case study focuses on the turn-around in the fortunes of a well-known motor
manufacturer - Skoda. It examines how Skoda has increased its brand equity
through changing its image.
For the first half of this century, Skoda was one of the world’s greatest marques -
manufacturing some of the most prestigious cars available, such as the luxury
Hispano-Suiza limousines. It was a leader in motor car design, technical innovation
and a pioneer in the new realm of motorsport.

The economic situation during the communist years in the former Czechoslovakia
forced Skoda to become product rather than market orientated - with little regard for
consumers and their needs. In time, Skoda became unable to keep up with western
motor manufacturers in terms of style and innovation. The authorities made the rules
- even insisting that the windscreens should not be raked too far back in case the
cars looked decadently sporty! Without any outside influences in terms of creative
and innovative ideas and manufacturing processes, the reputation and image of
Skoda suffered.

The rebuilding of the Czech economy after the “Velvet Revolution” in 1989 was
significant for Skoda. However, to benefit from the economic upturn, the company
required a sound partner with the ability to invest, not only money, but also
management expertise, thereby improving the efficiency of its factories, raising
quality standards and planning for future development. Skoda’s partnership with
Volkswagen was universally accepted as a way of guaranteeing the independence of
the existing factories and the Skoda marque.

On April 16th 1991, Skoda became a public company, joining Volkswagen, Audi and
Seat, to become the fourth brand in the Global Volkswagen Group. The strategic aim
of the company was to reposition the marque, by returning to the core brand values
of high quality standards, exceptional customer care and building a consistent
marketing communications platform.
The key to changing consumers’ perceptions involved emphasising that Skoda cars
represent exceptional value for money - the best Volkswagen technology at a very
competitive price. Skoda’s brand values are:

Value for money

Reliability
Fitness for function
Quality
Integrity

Skoda drivers tend to be people who are unpretentious, down to earth and honest.
Elements of a brand

Although it can be argued that a product is simply something you use, the real
picture is more complex. For example, you may buy a coat to keep you warm or a
newspaper to read – but what coat do you choose or what newspaper do you buy?
Products are not purchased to meet a single need; a whole range of factors make up
the product concept. In order to communicate these factors to customers,
organisations use branding to help consumers identify the products they want.
When consumers view a brand, it is important that they associate it with a range of
features, benefits and services that meet their requirements. These elements are at
the heart of the branding process.

When a customer buys a new Skoda, he or she will be concerned with its
performance, looks, modernity, colour choice, design, engine and specification. The
sale will be influenced by the brand's name and image, as well as the quality of the
car and its various product features, such as twin airbags, electric windows front and
rear, electric sunroof etc. The potential buyer will expect the option of a credit deal, a
warranty, high levels of customer service and good after-sales services. In a recent
independent customer satisfaction survey,
Skoda was the highest placed European manufacturer, ahead of BMW and Jaguar.

Skoda’s core benefits include how well the cars function and meet user
requirements. All modern Skodas have a high specification and compete with
Western, Japanese and South East Asian rivals. Skoda has invested heavily in
research and development, resulting in many key product improvements. In fact,
since its launch in 1995, Skoda’s Felicia has shone in both World and British Rally
Championships and, in the 1996 RAC rally, was placed third overall, driven by
former world champion Stig Blomqvist, as well as winning numerous industry awards
from What Car?, Auto Express and Diesel Car.
The actual product consists of the features designed to support the core product. For
a car, safety, reliability and quality are all key elements of the actual product. Skoda
vehicles are manufactured to international industry standards and comply with
current and future safety and emission legislation. Components are supplied by top
manufacturers such as Siemens, Bosch and Rockwell and specifications have been
improved. For example, research into the Felicia showed that consumers see it as
being an attractive, comfortable car with spacious interior and high quality
upholstery. These factors have added to the actual product, so that the Felicia is
viewed positively by customers, in terms of styling and looks. A number of
associated issues are important for customers. The augmented product involves the
quality of after-sales service, extended warranty conditions and credit. Skoda uses
these elements to create new and repeat purchases. In fact, Skoda’s customer
loyalty, i.e. repeat purchases, is second only to Mercedes. Skoda aims to become
more successful through a process of continuous improvement. The process began
in 1991, with key events including:
April 1995 - UK Launch of the Felicia
June 1995 - UK Introduction of Exposure Marketing Programme
January 1996 - UK Introduction of Felicia Estate
February-June 1996 -UK TV advertising
May 1998 - UK Launch of the Octavia.

The launch of the Skoda Felicia helped to strengthen the Skoda image with existing
customers and challenged the entrenched perceptions of the public. Since then, the
process has continued, backed by advertising, awareness building and new product
launches. The new Skoda Octavia represents an even greater quantum leap forward
for Skoda.

Brand strategy

Volkswagen faced some important decisions concerning the Skoda brand. Using the
Skoda brand name to launch a new product, through the strategy of brand extension,
enabled Volkswagen to enter new market segments. The development of the
Octavia highlights Volkswagen’s confidence in the Skoda brand. Skoda and
Volkswagen decided that the brand needed a broader product base and that Skoda’s
movement into another product category would provide instant recognition and
market acceptance - simultaneously improving market share.

Positioning involves developing features of the marketing mix, such as ‘product’ and
‘pricing,’ in a way which takes into account consumers’ thoughts and perceptions. At
the same time, the positioning process provides Skoda products with key
advantages over other products in each market segment.
Skoda’s product range is priced towards the lower end of the market. This creates a
‘fit’ with the strategy of the Volkswagen Group which already has products ranging
from prestige cars towards the top end of the scale, to those which were
competitively priced at the lower end. Audi, for example, is pitched at the premium
end of the market to compete with BMW, Seat is pitched to compete with Alfa
Romeo and Fiat, while Skoda is positioned as a competitively priced, quality product,
to compete directly with brands such as Rover.
 The Octavia
The Octavia is available as a five door hatch and estate car, with a clean,
aerodynamic, modern design and an attractive, sleek appearance. The prominent
front grill will be incorporated into the design of future vehicles. With the Octavia,
Skoda aims to:

 satisfy the future market requirements

 set the trend and the pace for further development
 present and develop its own identity
 Communicate the metamorphosis of the Skoda brand.

The car’s fully galvanised steel body is mounted on a vehicle platform engineered by
Volkswagen, representing high quality workmanship and meeting current world
safety standards. The Octavia made its world debut at the Paris Motor Show in
October 1996. Its presentation involved not only a new car but also a new production
concept. Skoda’s new manufacturing plant, incorporating modular production, is one
of the most modern in the world. With the launch of the Octavia, Skoda was able to
maximise the synergy of the partnership with Volkswagen and communicate the
new, modern face of Skoda.

The reaction to the Octavia has been overwhelmingly positive and sales are strong
in Western Europe. It is due to be launched in the UK in May 1998 and already press
and public interest is high. Skoda had always been a one-model manufacturer but
with the arrival of Octavia, Skoda now competes in the small and medium sectors.
The market segment in which Octavia will compete is the lower medium segment -
undoubtedly the UK’s most competitive. This segment is the heartland of the
company car market, which is predominantly status and image driven.
Octavia represents everything that the redeveloped brand stands for - i.e. an
attractive price, modern European product, high quality, style and safety. The
Octavia has become the first Skoda product to be built on a Volkswagen Group
platform and has been constructed using the latest technology at an all new,
purpose-built, state-of-the-art, factory in the Czech Republic.
 Brand Image

People perceive a brand’s values and evaluate them either positively or negatively. A
well-positioned positive image helps to establish a strong position enabling the brand
to differentiate itself from competitors and improve its performance in the
marketplace.

Skoda’s advertising campaign portrayed the positive changes which have taken
place in the company and in the cars. The partnership with Volkswagen was also
emphasised. Over a short period of time, research revealed that perceptions of the
marque were changing. Skoda’s image across a range of areas received rapidly
improved ratings.
Previously, the stereotype of a Skoda owner was predominantly male and retired.
This is no longer the case. Changes in the brand image and positioning have
attracted individuals from other segments of the market including:

 affluent retired people

 independent working mothers
 non-working women/mothers
 married working women
 Younger family men.
This has led to large increases in sales in the UK and world-wide.

Conclusion
In today's modern motor industry, a car’s brand is vitally important. It is more than
just a marque - it represents product features, image, customer service and
servicing. Today’s customers want authentic, individual products with integrity.
Skoda has seized a unique opportunity - emphasising its values and creating a
strong identity which has become the brand story of the decade.