(Sharepoint.

com, 2023)

THE EFFECTS OF THE ENVIRONMENT ON

A BUSINESS

Unit 1: Exploring Business

Assessor: P. Gondwa

By: Gabriel Kaimvi

Pearson BTEC Level 3 International Subsidiary Diploma in Business

1
 TABLE OF CONTENTS

ABSTRACT........................................................................................................................................................................ 3
C1 External environment...........................................................................................................................................................4
C2 Internal Environment...........................................................................................................................................................7
C3 Competitive Environment.....................................................................................................................................................8
C4 Benefits and Risks associated with innovation......................................................................................................................10
5C Marketing Analysis:.......................................................................................................................................................13
Conclusion:........................................................................................................................................................................... 18
BIBLIOGRAPHY:...................................................................................................................................................................18

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 ABSTRACT

The main purpose of this report is to investigate Volkswagen (VW) and using this research,
this report will discuss and assess the effects of the environment on the business, and how
the business has reacted to change. This report will include a situational analysis of the
change. This report will include a situational analysis of the business environment using a
variety of techniques such as PESTLE, SWOT, 5Cs analysis and Porter’s Five Forces. The
report will evaluate the extent to which the business has responded to past changes in the
market and business environment and suggest how this business may react to future
changes. This report will be logically structured and have a clear conclusion that is fully
justified by well-balanced, developed arguments and is supported by good use of research
evidence.

3
 Autotrader.co.uk, 2018)

Learning aim C: Examine the environment in which

business organizations operate
C1 External environment
Political:
 Government Stability: The political stability of the countries where Volkswagen operates significantly influences the
business. Unstable political environments can lead to supply chain disruptions and sales and may increase
operational risks. Volkswagen has a global presence, so it needs to account for political conditions in various
regions of the world (admin, 2023).
 Regulations and Policies: Government policies on emissions, vehicle safety, and fuel efficiency significantly affect
Volkswagen. After the Dieselgate scandal, these regulations have had an even stronger impact on the company.
Strict regulations in many developed countries force the company to invest heavily in research and development to
adhere to these policies (admin, 2023).
 International Trade Policies: Trade policies such as tariffs, duties, import/export restrictions, and Brexit implications
play a role in shaping Volkswagen’s political landscape. Any changes in these policies directly affect Volkswagen’s
cost of operations and profitability (admin, 2023).
 Political Relations: The relationship between Germany (where Volkswagen is based) and other countries is also
crucial. Good relationships mean more straightforward trade and fewer restrictions. However, strained relationships
could result in trade sanctions or restrictions (admin, 2023).
 Government Initiatives: Government initiatives promoting electric vehicles and other alternative energy sources
offer opportunities for Volkswagen, which is working to become a leader in electric vehicles. Governments
worldwide are providing subsidies to promote the use of electric vehicles, which Volkswagen can capitalize on
(admin, 2023).
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  Infrastructure Quality: Government investment in infrastructure quality can also impact Volkswagen. Better roads
lead to higher demand for cars, while good transportation infrastructure can facilitate supply chains (admin, 2023).
 Brexit deals and taxes: The UK is a major market in Europe and Volkswagen is a German brand. It means imports
and exports are taxed after Britain left the EU (European Union). However, the Brexit deal ensures free trade
between the UK and Europe. However, the documentation cost would increase the price of vehicles (Ahsan Ali
Shaw, 2021).
Economic:
 PANDEMIC OF COVID-19: The pandemic covid-19, lockdown, and shutdown of business, travel bans, and the
period of completion has had a negative impact on the sales, revenue, and net income of Volkswagen. That is why
the brand’s profitability mostly dropped (Ahsan Ali Shaw, 2021).
 Exchange Rates: Volkswagen operates globally, and changes in exchange rates can affect its profits, especially in
countries outside of the Eurozone. A weaker Euro might make Volkswagen’s products more competitive in
international markets but could increase the costs of imported inputs (admin, 2023).
 Fuel Prices: Fluctuating fuel prices can also influence consumer preference for vehicle types. Rising fuel prices may
lead consumers to prefer more fuel-efficient or electric vehicles, impacting the types of cars Volkswagen should
focus on producing (admin, 2023).
 Unemployment Rates: High unemployment rates lead to lower demand for vehicles, as fewer people have the
income necessary to afford them. Conversely, low unemployment rates usually correlate with stronger vehicle sales
(admin, 2023).

Social:
 Lifestyle Trends: Changes in lifestyle trends can influence the types of vehicles in demand. For example, increased
remote working due to the COVID-19 pandemic could decrease the demand for commuter vehicles. Rising interest
in outdoor activities might boost the demand for SUVs or off-road vehicles (admin, 2023).
 Changing Consumer Attitudes: As societal attitudes towards sustainability and the environment evolve, consumers
increasingly prefer eco-friendly, electric, and hybrid vehicles. Volkswagen needs to cater to this change and
accelerate its efforts in sustainable vehicle technology (admin, 2023).
 Consumer Trust: Following the Dieselgate scandal, Volkswagen may have to work to rebuild trust among
consumers. Trust plays a significant role in customers’ purchasing decisions, especially in industries like
automotive, where safety and reliability are crucial (admin, 2023).
 Demographics: Changes in population demographics, like aging populations in developed countries, could shift
demand for several types of vehicles. For example, an aging population might demand more comfortable and safer
cars, while younger consumers may look for more technologically advanced, stylish, or environmentally friendly
vehicles (admin, 2023).
 Lifestyle Trends: Changes in lifestyle trends can influence the types of vehicles in demand. For example, increased
remote working due to the COVID-19 pandemic could decrease the demand for commuter vehicles. Rising interest
in outdoor activities might boost the demand for SUVs or off-road vehicles (admin, 2023)

5
  Cultural Preferences: Cultural preferences can vary significantly by region. For instance, in some markets,
consumers may prefer larger, family-size vehicles, while in others, compact cars may be favored due to crowded
cities or high fuel costs. Understanding these cultural nuances can help Volkswagen better tailor its product
offerings (admin, 2023).
Technological:
 Autonomous Driving: Volkswagen is also working on the development of self-driving vehicles and autonomous
technology. The automobile brand is going to launch it in the mid of 2021. In fact, the company has formed an
alliance with Ford, Amazon, and Microsoft in the development of technology. It is because the company knows the
value and importance of the latest technology (Ahsan Ali Shaw, 2021).
 Battery Technology: Advancements in battery technology are key to the viability and success of electric vehicles.
Investing in or securing access to the most efficient, cost-effective, and long-lasting battery technology is crucial for
Volkswagen’s electric vehicle strategy (admin, 2023).
 Electric Vehicles (EVs) and Hybrid Technologies: The world is transitioning towards more sustainable means of
transportation. Volkswagen must invest in and prioritize electric vehicle technology, hybrid cars, and innovative fuel
alternatives like hydrogen fuel cells to stay competitive (admin, 2023).
 Manufacturing Technology: Advancements in manufacturing technology such as automation, robotics, and 3D
printing can increase efficiency, reduce costs, and improve the quality of Volkswagen’s products (admin, 2023).
 Cybersecurity: With the rise of connected cars and digitization, cybersecurity has become a critical concern.
Protecting customers’ data and ensuring the safety of connected and autonomous vehicles are crucial for
maintaining consumer trust (admin, 2023).

Environmental:

 Climate Change: Increasing concerns about climate change are driving consumers and governments towards eco-
friendly alternatives, including electric and hybrid vehicles. Given its substantial investments in electric vehicle
technology, Volkswagen could establish itself as a leader in this area (admin, 2023).
 Emissions Standards and Regulations: After the Dieselgate scandal, Volkswagen faced significant pressure to
adhere to strict emission standards set by governments worldwide. The company must ensure its vehicles meet or
exceed these standards to avoid penalties and reputational damage (admin, 2023).
 Biodiversity: Volkswagen’s operations, particularly in manufacturing and resource extraction, can have implications
for local biodiversity. The company needs to ensure that it minimizes its impact on local ecosystems (admin, 2023).
 Energy Use: The amount and type of energy used in Volkswagen’s production processes can impact its
environmental footprint. Transitioning to renewable energy sources can help the company reduce its environmental
impact and save on energy costs (admin, 2023).

Legal:

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  Emissions Standards and Regulations: After the “Dieselgate” scandal, where Volkswagen was found to have
cheated emissions tests, the company has faced substantial legal scrutiny and penalties. Compliance with
emissions standards worldwide is a critical legal issue for Volkswagen (admin, 2023).
 Data Protection and Privacy Laws: With the rise of connected cars, data protection, and privacy have become
important legal considerations. Volkswagen must ensure compliance with regulations like the European General
Data Protection Regulation (GDPR) and similar laws in other countries (admin, 2023),
 The General Data Protection Regulation (GDPR) is the toughest privacy and security law in the world. Though it
was drafted and passed by the European Union (EU), it imposes obligations onto organizations anywhere, so long
as they target or collect data related to people in the EU (GDPR.eu, 2018).
 Labor Laws: Volkswagen operates in many different countries, each with its own set of labor laws regarding wages,
working conditions, overtime, and worker rights. Non-compliance can result in legal issues and damage to the
company’s reputation (GDPR.eu, 2018).
 International Trade Laws: As a global corporation, Volkswagen must navigate complex international trade laws,
including import/export regulations, tariffs, and trade agreements. The changing landscape of trade laws, such as
the impact of Brexit, also poses legal challenges (admin, 2023).

End of Pestel Analysis

C2 Internal Environment

Corporate culture

Performance-based Remuneration: Volkswagen does not base individual compensation on gender or other considerations,
their employees are selected, hired, and promoted exclusively based on their qualifications and their abilities. Remuneration
is based strictly on the job and an individual’s personal performance (Volkswagen-karriere.de, 1970).
Work-life balance: Volkswagen continuously works to improve the work-life balance of their employees by offering flexible
work schedule models. Their aim is to meet the special needs of young parents, single parents or employees who care for
family members (Volkswagen-karriere.de, 1970).
Inclusion on the job: Volkswagen also work hard to integrate employees with disabilities. As part of these efforts, we have
launched a range of initiatives to address the needs of these individuals. Their responsibility to provide their colleagues with
a productive position throughout their work lives, when possible, also applies to the needs of employees with disabilities
(Volkswagen-karriere.de, 1970).
End of Corporate Culture

Corporate Social Responsibility (CSR) & Business Ethics

Corporate Social Responsibility

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In the traditional sense, corporate social responsibility (CSR) means that a company actively contributes to charitable
measures and social welfare, in the form of donations or corporate volunteering (Volkswagenag.com, 2013).
Business Ethics
Business ethics refers to the standards for morally right and wrong conduct in business. Law partially defines conduct, but
“legal” and “ethical” are not necessarily the same. Business ethics enhances the law by outlining acceptable behaviors
beyond government control (Redlands, 2019).
 Volkswagen has declared that they are committed to the Paris climate agreement’s goal. The goal is to limit global
warming to 2°. To achieve this, the company intends to reduce its carbon footprint. They plan to reduce greenhouse
gas emissions for passenger cars and commercial vehicles. Alternatively, the company is also investing in electric
mobility (Mishra, 2020).
 The second important goal mentioned in their annual report is that they want to move towards a circular economy.
A circular economy ensures that we take bare minimum resources from nature and reuse the products without
dumping them back. The net effect of the circular economy is reduced carbon dioxide emissions. Secondly, it also
reduces the overall water, an energy requirement for production. Thirdly, it eliminates or minimizes the waste and
toxic materials that are dumped (Mishra, 2020).
 Commitment to environmental compliance. This is one of the trickiest and most difficult aspects of CSR at
Volkswagen Group. The company has looked at strengthening its corporate governance practices. Additionally,
they have also put into place checks and balances to prevent such corrupt practices. They are following the mantra
of Prevent, Detect and React to act proactively in such cases (Mishra, 2020).
 The mega scandal (2008-2015): Volkswagen was mired in a controversial CSR scandal in 2015. It was the
Volkswagen emissions scandal or the Dieselgate scandal. The company used defeat devices. The defeat device
was a mechanism to ensure two different modes of operation for their diesel engine. The device controlled the NOx
output and therefore passed the emission testing with flying colors. However, it deactivated this pollution control
and created 40 times higher NOx than the tests while on road (Mishra, 2020).

C3 Competitive Environment
Competition:
Local competitors- In Germany, local competitors for Volkswagen could include brands like BMW, and Mercedes-Benz
(Bhasin, 2017).
National Competitors- Some of the national competitors for Volkswagen in various countries could be Ford, General Motors,
Toyota, and Hyundai (Bhasin, 2017).
International competitors- Globally, Volkswagen competes with various international automakers such as Nissan, Volvo,
Tata, and Chevrolet (Bhasin, 2017).

Factors influencing competitive advantage

Differentiation: Software is a key factor when it comes to competitive differentiation in the automotive market of the 21st
century – a way in which Volkswagen sets itself apart from other manufacturers. An intelligent and future-oriented software
8
architecture is a major selling point for a car – and a factor that will become increasingly important considering continuing
digitalization and automation (Volkswagen Newsroom, 2023).
Pricing Policies: With a huge number of sales every day, Volkswagen prices its cars through a competitive pricing strategy,
and it prices its luxurious collection a little more expensive to keep it premium for the upper class. The company also takes
into consideration the geographical factor while deciding the pricing, it has affordable prices for basic countries and high
prices for developed nations where people can buy its products (Xaif, 2023).The company justifies its high prices by giving
the customers a perception of getting high-quality products for a little more money which can be referred to as psychological
pricing (Xaif, 2023).
Market Leadership: The Volkswagen Group is one of the world's leading vehicle manufacturing companies in terms of sales
and revenue being a market leader in certain regions provides Volkswagen with advantages in brand recognition,
economies of scale, and the ability to set industry standards (cycles and Text, 2023).
Reputation: Volkswagen's competitive reputation is often linked to its long-standing history, strong brand recognition, and a
diverse vehicle line catering to different market segments. Its reputation for quality engineering, innovation, and a broad
global presence has historically been an asset, although the diesel scandal did cause a dent in its image (CEPR, 2018).
Market Share: The Volkswagen Group is one of the world's leading vehicle manufacturing companies in terms of sales and
revenue. In 2022, its namesake brand Volkswagen held close to 6.7 percent of the global automotive market shares,
second only to Japan-based Toyota (Statista, 2023).
Cost Control: VW is emphasizing cost control, with a focus on developing unified battery cell technology that can be utilized
across all its brands. This innovation has the potential to slash costs by up to 50 percent. The unified cell is versatile and
capable of accommodating both LFP and NMC chemistries. Varied chemistries offer flexibility for different car classes,
allowing the use of cost-effective materials for entry-level models, albeit with lower energy density and slower charging
capabilities. Streamlining production is also crucial for cost reduction (91Wheels, 2023).
Technology: The Volkswagen Group presented its technology roadmap for battery and charging until 2030 at its first Power
Day in March 2021. The objective of the roadmap is to significantly reduce the complexity and cost of the battery to make
electric vehicles attractive and affordable for as many people as possible (Volkswagen Group Annual Report, 2021)
Relationships with customers: Customer satisfaction. A high level of customer satisfaction is one of the key objectives of our
financial services activities. Our goal is to satisfy customers completely. This is the reason we have measured both external
and internal customer satisfaction in our markets in recent years (Volkswagenag.com, 2020).
Customer loyalty. Trust in and loyalty to our services rely on customer satisfaction with our product range and service. For
this reason, we ascertained the re-entering contract rates in our markets in past years based on product sales to customers,
for financing and lease agreements for repurchases of new Volkswagen Group vehicles (Volkswagenag.com, 2020)
Relationships with suppliers: Sustainability in supplier relationships with their business partners is based on observance of
human rights, compliance with occupational health and safety standards, active environmental protection, and combating
corruption (Volkswagenag.com, 2019).
Relationships with employees: The Volkswagen Group, including all its brands and companies, aims to be an excellent
employer worldwide and can produce Highly competent and dedicated employees who strive for excellence in terms of
innovation, added value, and customer focus (Volkswagenag.com, 2020). An exemplary corporate culture creates an open
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work environment that is characterized by mutual trust and collaboration. The Company’s human resources work is highly
employee-oriented, strives for operational excellence, and yields strategic value-added contributions (Volkswagenag.com,
2020).

Benefits and importance of establishing and maintaining a competitive advantage:

Establishing and maintaining a competitive advantage is crucial for Volkswagen for several reasons. Firstly, it enhances
market positioning by setting the brand apart from competitors and fostering customer loyalty. Secondly, a competitive
advantage often leads to increased profit though cost efficiencies or premium pricing. Additionally, it provides resilience in
dynamic markets, enabling Volkswagen to adapt to change and stay ahead of industry trends (Saleh, 2023).

C4 Benefits and Risks associated with innovation

Benefits:
 Product / Process improvements: Integrating cutting-edge technology into their vehicles, such as advanced
infotainment systems, driver assistance features, and connectivity options (John Hughes, 2013). Implementing
advanced safety features, including collision avoidance systems, adaptive cruise control, and enhanced airbag
systems to improve overall vehicle safety (Volkswagen.co.uk, 2020). Increasing efforts towards sustainability by
developing more eco-friendly and hybrid models, to reduce environmental impact (John Hughes, 2013).
 Volkswagen Group UK Customer Service Operations prides itself on delivering a high-caliber customer service
experience that is representative of its storied brand. The customer service group supports six brands: Audi, SEAT,
Skoda, Cupra, Volkswagen Commercial Vehicles and Volkswagen Passenger Cars (TTEC, 2023).
 However, the operation faces enormous market shifts: an emerging “green industrial revolution” where vehicles
powered by petrol and diesel will be phased out by 2030 and digital transformation imperatives as manufacturers
seek to connect with consumers through online sales and order management (TTEC, 2023). Customer
expectations are also rising for seamless omnichannel support. Volkswagen Group UK needed a partner to help it
stay ahead of the evolving market shifts and deliver smarter customer service for a better customer experience
(TTEC, 2023).
 Business growth: Volkswagen intends to drive up its performance and profitability in the long term with the
“ACCELERATE FORWARD Road to 6.5” global performance program. The goal is to sustainably achieve a return
on sales of 6.5 percent to safeguard investments in future technologies and jobs. To this end, the brand plans to
improve earnings by around 10 billion euros in 2026 (Volkswagen Newsroom, 2023).
 Development of new and niche markets: Pursuing a global approach to reach emerging markets and adapting
products to suit the diverse needs and preferences of consumers worldwide (Vw.com, 2016). Offering a range of
customization options for consumers to tailor their vehicles according to regional preferences and specific market
demands (Vw.com, 2016).
 Unique selling point: Volkswagen has a wide range of cars which provides enough options to choose from.
Volkswagen has a high brand presence and recall. One of the oldest car manufacturers, resulting in the increased
reach to the masses (MBA Skool Team, 2012).
 Improved recognition and reputation: VW has taken steps to restore consumer trust. For instance, they recalled
vehicles and offered a $1,000 goodwill package to its American car owners. They agreed to curb executive

10
 compensation because of the scandal (Team TBH, 2023). However, truly restoring its reputation will require VW to
incorporate ethical practices into the organization from the inside-out—something that was severely lacking in the
firm's corporate culture prior to the scandal (Team TBH, 2023).
 Smarter Working: Volkswagen AG employees can work remotely sometimes. Once the pandemic restrictions are
lifted, employees can request to combine the remaining working days into blocks. The "mobile working" concept
was regulated in the Volkswagen AG works agreement, which has been in place since 2016 and has now been
further developed. The new "Mobile Working - New Start" concept now complements the company's diverse range
of employee-oriented, flexible and hybrid working model (Verena, 2022).

Risks:
 Failing to meet operational and commercial requirements: the most recent Volkswagen “ethics scandal,” in which
VW engineers programmed computers in their diesel cars to detect emission tests. During the tests, the vehicles
would alter their engine operations to meet legal emission standards. But under normal driving conditions, the cars
released emissions into the air that were forty times the legal limit (Uni.edu, 2016).

C5 Situational Analysis
Swot Analysis:
Strengths:

 Excellent Brand Recognition- As one of the oldest automakers, Volkswagen is highly recognized globally. For one,
the company’s simple but iconic intertwined VW logo can be picked out of a line by most consumers across the
world (admin, 2023).
 Global Presence- With operations in multiple regions worldwide, Volkswagen has a broad customer base and is not
reliant on a single market for its revenue. This global reach also gives Volkswagen economies of scale in
manufacturing and distribution (admin, 2023).
 Impressive Portfolio- From Lamborghini to Bugatti, Bentley, Audi, Skoda, and Porsche, all these icons are part of
Volkswagen’s portfolio. Apart from high-end sports cars and luxury brands, the company also caters to the ordinary
folks. Volkswagen has something for everyone (Parker, 2020).
 Research and Development (R&D)- Volkswagen strongly focuses on R&D, allowing it to stay at the
forefront of new technologies and innovations. This includes investments in electric vehicles (EVs),
autonomous driving, and digital transformation (admin, 2023).
 Great Partnerships -Volkswagen’s partners are highly reliable and leaders in their respective fields, which has
contributed to their success. In matters of technology, Volkswagen has partnered with many leading technology
companies such as Microsoft, Siemens, Amazon (AWS), etc. to expand its e-mobility services (Parker, 2020).
 Sustainability Initiatives- Volkswagen has been investing heavily in sustainability, particularly in the development of
electric vehicles. Their “TOGETHER – Strategy 2025” indicates a clear direction towards becoming a world-leading
provider of sustainable mobility (admin, 2023).
 Product Quality and Innovation- Volkswagen’s brands are known for their quality, and the company has a reputation
for engineering excellence. It has also shown a capability for innovation, including in areas like EVs and hybrid
technology (admin, 2023).
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Weaknesses:
 Reputation and Trust Issues- The most significant recent issue was the ‘Dieselgate’ scandal in 2015, where
Volkswagen admitted to cheating on emissions tests. This severely damaged the brand’s reputation and resulted in
substantial financial penalties. While the company has made efforts to rebuild trust, this incident continues to have
an impact (admin, 2023).
 High Costs of R&D- While Volkswagen’s commitment to R&D is a strength, it also represents a challenge in terms
of its high costs. The company must continually invest large amounts of money to stay competitive, especially in
electric vehicles and autonomous driving areas (admin, 2023).
 Weak Marketing Strategies outside Europe- Volkswagen does not market or promote its brands aggressively
enough outside Europe. In most cases, the company will collaborate with a company already in the market. For
example, it is collaborating with JAC to produce low-cost electric cars in China (Hanley, 2020).
 Regulatory Challenges- As with all automobile manufacturers, Volkswagen is subject to various environmental and
safety regulations. These regulations can sometimes present challenges, particularly given Volkswagen’s past
issues with compliance (admin, 2023).
 Transition to Electric Vehicles- Although Volkswagen is investing heavily in electric vehicles, it still lags some
competitors, such as Tesla, in terms of EV (Electric Vehicles) technology and production scale (admin, 2023).

Opportunities:
 Electric Vehicles (EVs)- There is a growing global demand for electric vehicles, driven by environmental concerns
and supported by government policies and incentives. Volkswagen is already investing heavily in this area and can
become a leader in electric vehicle technology and production (admin, 2023).
 Digital Transformation- The increasing digitalization of vehicles, including connectivity and in-car services,
represents another opportunity for Volkswagen. This could also extend to areas like ridesharing and mobility
services (admin, 2023).
 Self-Driving Technology- Volkswagen has invested $2.6 billion in Argo AI, a start-up developing self-driving
technology. Argo is currently testing its driverless cars on public roads in cities such as Miami, Pittsburg, Detroit,
and Palo Alto. Volkswagen hopes to use Argo AI to have its driverless cars on the road by the end of the decade.
 Sustainability and Green Technologies- As concerns about climate change continue to grow, demand for
sustainable and environmentally friendly technologies is increasing. This is not limited to electric vehicles but
includes areas like energy-efficient production processes and recyclable materials (admin, 2023).
 Emerging Markets- There’s significant potential for growth in emerging markets such as India, Africa, and Southeast
Asia. These markets have growing middle-class populations, which could drive demand for vehicles (admin, 2023).
 After-sales Services- Expanding after-sales services like maintenance, repair, parts, and accessories could also
provide Volkswagen with additional revenue streams (admin, 2023).
Threats:
 Cybersecurity Risks- As cars become increasingly connected and digital, cybersecurity becomes a significant
concern. This includes not only the risk of cyber-attacks on vehicles but also data privacy and protection issues
(admin, 2023).

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  Reputation Risks- Volkswagen’s past issues, such as the ‘Dieselgate’ scandal, represent a reputational risk. Any
future issues could further damage the brand’s reputation and customer trust (admin, 2023)
 Supply Chain Disruptions- The global automotive supply chain is complex and vulnerable to disruptions. This
includes potential issues related to geopolitics, trade disputes, natural disasters, or pandemics. The recent global
semiconductor shortage is an example of this (admin, 2023).
 CONTROVERSIAL ADS Volkswagen- posted an advertisement on Instagram that contained racist content and it
offended a lot of people. However, the company removed the video later and sent a public apology to all the
customers. It pushed away many customers (Ahsan Ali Shaw, 2021).
 COMPETITORS- Koenigsegg, Zorya, Tesla, Toyota, Honda, and Ford are some of the main competitors
are Volkswagen. Their market share is increasing in the automotive industry. However, the company
must face competition in various categories like electric vehicles, ridesharing, sports vehicles, and
ordinary vehicle companies (admin, 2023).

5C Marketing Analysis:

Company:
 Research and development- Volkswagen spends heavily on research and development activities to preserve its
leadership position in various product segments. Heavy investment in building the IT network, marketing, product
design and process optimization supports the distribution and promotion strategies (Essay48, 2015).
 Culture- Volkswagen has a strong culture of process and product innovation. Top management supports innovative
and creative ideas, and employees are encouraged to participate in the problem-solving process (Essay48, 2015).
Organizational culture supports vision, mission, and values (Essay48, 2015).
 Scale of production- Volkswagen has a large scale of production, which enables the company to achieve the
benefits of economies of scale (Essay48, 2015). Large scale production enhances the company's competitive
strength and enables it to produce better quality products at reduced costs (Essay48, 2015).

Customers:
Market segments:
 Volkswagen targets both high end and low-end market segments (Essay48, 2015).
 The organization's decision to choose broader and multiple segments has expanded the scope of opportunities
(Essay48, 2015).
 The targeted segments are expected to have a steady market growth rate in future (Essay48, 2015).
 The primary customer segment of the Volkswagen is the family with children, which requires Volkswagen to do
social, emotional, and functional jobs to keep this market segment happy and satisfied (Essay48, 2015). The
functional job includes performing core operations, the social job includes providing augmented services to promote
family and social gatherings, and emotional job includes showing concern and commitment to take care of
customers (Essay48, 2015).
Customer needs:

13
  It is important to identify the critical customer desired features and incorporate them into marketing and advertising
strategies (Essay48, 2015).
 Customers changing attitudes towards healthy alternatives and prioritizing the quality over price also have important
consequences for the organization (Essay48, 2015).
Brand loyalty:
 Volkswagen operates in the low-involvement product category (Essay48, 2015).
 Usually, developing brand loyalty in low-involvement markets is challenging compared to high-involvement markets
as a lot of alternative options are available and psychological switching costs are also low (Essay48, 2015).
 Volkswagen’s customers are price sensitive. Their price sensitivity, changing tastes and preferences, and high
health consciousness require Volkswagen to invest in customer research activities and closely monitor their attitude
and consumption behavior (Essay48, 2015).
Frequency and quantity of purchases:
 The quantity and frequency of purchases in the targeted market are high, and both are favorable growth indicators
for the organization (Essay48, 2015).
 Volkswagen can adapt its marketing strategies according to changes in frequency and quantity by offering more
discounts and family deals (Essay48, 2015).

Competitors:
Competitive rivalry:
Increasing Competition:
 The auto industry is highly competitive with new carmakers like Tesla, Zorya, and Koenigsegg grabbing market
share from Volkswagen’s electric and high-end sports cars while fending off old rivals, such as Toyota, Ford,
Hyundai, and Nissan (Parker, 2020).

Threat of new Competitors:

 Volkswagen faces moderate new entrant threat, which means new entrants do not have a significant influence on
Volkswagen’ market share (Essay48, 2015).
 High level marketing knowledge with huge expenditure on marketing activities is required to enter the industry
(Essay48, 2015)

Volkswagen faces a moderate threat of new entrants for the following reasons:

 High brand development cost weakens the threat. (Essay48, 2015)

 Low switching cost increases the threat (Essay48, 2015).
 High capital cost weakens the threat (Essay48, 2015).

14
Collaborators:

 Collaborators include the downstream and upstream value chain partners, business allies, community leaders,
government, and others (Essay48, 2015). To choose the appropriate collaborator partners, Volkswagen needs to
evaluate different value chain factors, like- value chain flexibility, efficiency, agility, revenue sharing among value
chain partners and strengths and weaknesses of collaborators (Essay48, 2015).
 When operating at the international stage, multinational organizations like Volkswagen must understand the local
preferences of their customers and make all decisions (ranging from production to marketing) accordingly
(Essay48, 2015).
 An agile and flexible supply chain can make collaboration easier for Volkswagen (Essay48, 2015).
 Volkswagen has partnered with various collaborators that allowed the company to develop new product lines and
enhance the product development and distribution process such as Volkswagen, Porsche, Volkswagen, and LG
(Essay48, 2015).

Context:
Political Context:
Understanding the political context requires Volkswagen to identify possible political issues such as labor or tax laws,
changing trade regulations or legislative problems (Essay48, 2015).
 The present governance system requires Volkswagen to study the changing government policies closely (Essay48,
2015).
 The presence of multiple markets increases the risk of political instability (Essay48, 2015).
 The geopolitical risks have increased for Volkswagen due to recent developments in the global political scenario
(Essay48, 2015).

Social Context
Understanding the social context requires Volkswagen to analyze the major trends in culture, education, and demographic
patterns (Essay48, 2015).
 A general rise in the health consciousness of customers imposes a risk to Volkswagen (Essay48, 2015).
 Population growth and rising low-end market segments offer opportunities to Volkswagen (Essay48,
2015).
 The attitude towards migration in markets where Volkswagen is present requires the company to
consider its impact on changing demographics carefully (Essay48, 2015).

Economic Context:
Understanding the economic context requires Volkswagen to identify major economic issues like growth in important
economic indicators, changes in the labor costs and business cycle stages (Essay48, 2015).

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  Inflation exerts a strong impact on the pricing structure of Volkswagen (Essay48, 2015).
 The presence in multiple markets requires marketing managers of Volkswagen to adapt their strategies according
to consumer behavior, which is different during recession and boom (Essay48, 2015). The downward market
pressure and changes in customers’ purchasing power should also be considered effective marketing strategies
(Essay48, 2015).
Technological Context
Understanding the technological context requires Volkswagen to understand recent technological developments and their
impact on the organization’s cost structure and other business operations (Essay48, 2015).
 The entrance of new market players and their investment in research and development requires Volkswagen to
protect their intellectual property rights (Essay48, 2015).
 Technological advancement has shortened the product life cycles, requiring Volkswagen to enhance its value chain
efficiency (Essay48, 2015).
 Technological development has lowered production costs and increased the need to restructure the supply chain
(Essay48, 2015).
Overall, the purpose of understanding the context is to determine if any opportunities or risks are imposed by major external
environmental forces (Essay48, 2015).

END OF 5Cs ANALYSIS

Porter’s Five Forces Analysis:
Bargaining Power of Suppliers: The bargaining power of Volkswagen Group’s suppliers is low, which is mainly
because Volkswagen has suppliers throughout the world scattered in various regions (Pratap, 2018). Moreover, suppliers
and subcontractors are required to follow the code of conduct prepared by Volkswagen. Volkswagen is a large and
financially strong company which has a global supply chain and distribution system (Pratap, 2018). The bargaining power of
its suppliers is also low because it can always switch to new suppliers (Pratap, 2018). However, what gives the supplier's
slight bargaining power is the company’s need for quality raw materials and Volkswagen's dependence on long-term
partnership with suppliers who can cater to its needs responsibly (Pratap, 2018). In this regard, apart from training its
suppliers, it also rewards the best ones among them. Overall, the bargaining power of the suppliers is low (Pratap, 2018).

Bargaining power of Customers: In the 21st century, the bargaining power of customers has increased because
of several factors (Pratap, 2018). There are several options before the customers as there are several brands on the
market. Apart from that the customer of the 21st century is a well-informed customer (Pratap, 2018). He evaluates every
aspect of the product from quality to safety, environment friendliness and fuel efficiency before he buys it. Moreover,
companies are spending so much on marketing and advertising to lure every customer (Pratap, 2018). All these factors
have led to an increase in the bargaining power of the customer (Pratap, 2018). Apart from that the size of individual
purchase in the automotive industry matters and is sufficiently large to be considered important. the overall bargaining
power of the customers is high (Pratap, 2018).
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Threat of Substitute Products: The threat of substitute products is high because of the high competition from
several brands in the automotive industry (Pratap, 2018). Apart from these various brands, there are other options also
which work as substitutes for Volkswagen products. Other modes of public travel also act as substitutes for Volkswagen
products (Pratap, 2018). The things that mitigate this threat for Volkswagen are its financial strength and brand image. Its
products are stylish as well as of good quality, which has led to higher trust and therefore less threat from substitutes. The
overall threat of substitute products is moderate (Pratap, 2018).

Threat of New Entrants: The threat of new entrants in the automotive industry is very low. It is because of the high
barriers to entry which make it near impossible for any brand to enter the market (Pratap, 2018). While there is a very large
investment in the infrastructure including manufacturing, marketing, supply chain and distribution, apart from it there is a
large expenditure related to human resources as well (Pratap, 2018). Moreover, legal regulation also makes it difficult for
brands to enter the market. The overall threat of new brands entering the market is very low (Pratap, 2018).

Intensity of Rivalry in the Industry: The intensity of rivalry in the automotive industry is also very high (Pratap,
2018). It is because while the number of competing brands is large most of them provide matching products with similar
levels of quality and efficiency (Pratap, 2018). It is why most brands invest very heavy sums in marketing as well as
research and development which enables them to bring new and effective technologies into the market (Pratap, 2018).
Overall, the intensity of rivalry is very high (Pratap, 2018).

END OF PORTER’S FIVE FORCES

Impact on pricing and output decisions of competitors in different market structures:
Competitive Market: In a perfectly competitive market, businesses are price takers, meaning they have no control over the
price of their products (Tutorchase.com, 2022). This is because there are many firms selling identical products, and
consumers can easily switch from one seller to another (Tutorchase.com, 2022). Therefore, businesses must accept the
market price and adjust their production costs accordingly to maximize profits. They need to focus on cost efficiency, as any
cost advantage can translate into higher profits (Tutorchase.com, 2022).

Monopoly: In a monopoly, a single firm controls the entire market. This gives the monopolist the power to be a price maker,
setting the price at a level that maximizes its profits. However, the monopolist must also consider the demand elasticity
(Tutorchase.com, 2022). If demand is elastic, a higher price could lead to a significant drop in quantity demanded, reducing
total revenue (Tutorchase.com, 2022). Therefore, pricing decisions in a monopoly are more complex and require careful
analysis of demand conditions (Tutorchase.com, 2022).
Oligopoly: In an oligopoly, a few large firms dominate the market. Pricing decisions are interdependent, as a price change
by one firm can lead to reactions from competitors (Tutorchase.com, 2022). This often results in price rigidity, where prices
tend to be stable, and firms compete more on non-price factors such as product differentiation and advertising. However,
oligopolies can also engage in price wars, leading to lower prices but also potentially lower profits (Tutorchase.com, 2022).
Therefore, firms in an oligopoly need to consider both their own cost conditions and the potential reactions of competitors
when making pricing decisions (Tutorchase.com, 2022).

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Conclusion:
In Conclusion Volkswagen has adapted to their internal and external environment because of their proactive approach to
address challenges and improving opportunities as shown through the SWOT analysis in which Volkswagen faced
challenges such as the Dieselgate scandal in 2015 In which the used cheat devices to provide false emissions, however
they also improved their opportunities such as taking the initiative in becoming a leading producer of electric vehicles. And
committing to ethical practices, sustainability of the environment and innovation to navigate the changing landscape of the
automotive industry whilst meeting the demands of consumers, suppliers and regulators.

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