STRATEGIC MANAGEMENT
Introduction
Volkswagen is a German automaker that was founded in January 1937 with its headquarters in Wolfsburg. After the company was formed it ventured into the people’s car project due to the fact that the industry was mostly composed of luxury models so that many people could own it. Its trend saw other cars such as the Mercedes, Adler, Steyr and Hanomag being made. With time the company has been able to dominate the industry with the best luxurious cars models than any other automaker. Despite its success, the emission scandal negatively affected the company sales.
Volkswagen’s emissions scandal and background
The emission scandal of the German based automaker manufacturer erupted in the year 2015 after the United States EAP give a notice of violation to the Clean Air Act. The findings of the report indicated that Volkswagen had deliberately programmed turbocharged direct injection (TDI) of diesel engines that only emitted certain gas in the laboratory setting (Boston, & Houston, 2015). The controlled testing managed to reach the US standards but ended up emitting up to 40 times of the NOx in the real world of driving (Ewing, 2016). The car models affected was from the year 2009 through 2015 with eleven million cars globally and 500,000 in the united state. As a result of the scandal, Volkswagen became a target and a victim of the regulations in a number of companies (Monica, 2015).
The automaker industry has made tremendous steps in the manufacturing of the vehicles. In 2010 the company Volkswagen got into an agreement with other 21 German automakers for responsible actions and mission statement in business (Danny et al, 2015). As a result of operating without a clear set of principles and value’s guide, the company missed achieving what was in the agreement behaving centrally to what was expected. In 2011 Volkswagen was the largest automaker in the world as it offered 13 brands from Audi to Porsche (Farrell, 2015). Despite the success, it shares price in the stock market dropped by half as a result of the emission scandal (Danny et al, 2015). Moreover, it is not the first corporate scandal of Volkswagen.
Brand Finance
Reputation
The emission scandal of Volkswagen was a major blow to the automaker (Ewing, 2016). The scandal wrecked its reputation than any other scandal ever experienced by the company (Boston, & Houston, 2015). This is because it was intentionally done misleading the government and its customers with its key features of their products. The illegal use of the software that manipulated the exhaust emissions up to 40 times the normal amount made many Government Issue harsh reports to the company making their customers opt for other brands (Helm & Tolsdorf, 2013). The warnings made to the company were not friendly making the loss tens of billions as its market value decreases spontaneously (Lane, 2015). The company faces criminal charges which imply that it is going to get worse and even loss more while it clients and other potential clients will be lost to competitors(Farrell, 2015).
Brand Equity
The brand value of Volkswagen in 2014 was valued at $31 billion before the scandal erupted. It is estimated that the company has lost $10 billion of its brand value when the scandal came out. With more increasing revelation about the scandal, the future existence of Volkswagen is threatened even more. This tarnishes the national brand of Germany which intimidates it in losing the position of the world strongest brand as the most valuable asset (Keller, 1993).
Brand equity is used to refer to the valuable premium of an organization from its product which has a familiar name in contrast to the general equivalent. Brand evenhandedness is formed by the company in making unforgettable, reliable, easily identifiable and superior quality product (Keller, 1993). This is further enhanced by intense marketing strategies that help to create and strengthen the brand equity. Brand equity comprises of three basic components of customer perception, positive or negative effect, and a resulting value. Customer perception plays a critical role. This means that brand equity in customer perception consists of both knowledge and the experience that is associated with the use of the product. The customer segment towards the brand can either result to positive of negative effects (Helm & Tolsdorf, 2013). A positive brand equity effect relates to financial benefits while negative brand equity effects result to financial loss. The effects of the brand price result to a tangible and intangible value where the positive tangible effect increases the firm’s revenue and the positive intangible increases goodwill and market awareness. The negative effect of brand equity inform of tangible and intangible results to a negative value of the company (Lane, 2015). Negative brand equity is said to have occurred when a customer is willing to pay more for a generic product than the branded on (Helm & Tolsdorf, 2013). This is mostly likely to happen when a company recalls of the product sold as a result of exposed environmental disaster.
Volkswagen’s Brand Equity Impact
The emission scandal will have negative brand equity of the Volkswagen products. This is because the customers will be willing to pay more for the generic product rather than the Volkswagen branded one (Sanger-Katz & Schwartz, 2015). The exposure of the scandal directly relates to the environmental hazard caused by the huge rate of emission. This led the company to recall the product sold further threatening the brand equity of the company negatively. This implies that the customers will not be willing to buy any product that is branded by Volkswagen leading to fewer sales resulting to negative brand equity (Lane, 2015).
Ethical Way of Handling the Emission
An ethical issue surrounds Volkswagen massive scandal of emission testing. It had been proven that it was done deliberately so that it can pass the environmental testing standards. This move is illegal and hence unethical as it was meant to deceive the governments and the customers (Helm & Tolsdorf, 2013). It is, therefore, important for Volkswagen to come up with strategies that will help correct its mistake. This can first be done by buying back all the products sold to the customers and compensate them (Cremer, 2016). The confession by Volkswagen Company of the defeat device installation was a great move as it should commitment in making thing right (Fung, 2015). Reaching a deal with the US EPA is an ethical way of the company to show its commitment to managing the environment through the required ways which will enhance its brand products to be environmental friendly.
Ethical Issue of Manager and Consumer
There was an ethical failure of the emission scandal that affects both the consumers and the brand managers. Customers were deceived unknowingly. This means that they also unknowingly polluted the environment (Monica, 2015). As a result, the company managers should be held responsible for their actions and compensate the customers for their own interest of making more profit and their expense (Cremer, 2016). Through the management move, many lives were put at risk due to the environmental destruction of harmful gas emission. The brand managers aimed at maximizing the shareholder's value through unacceptable business perspective (Cremer, & Bettignies, 2013). The managers neglected social corporate responsibility as they did not think of the society. The managers neglected the environmentally friendly solution for personal gains of the company at the expense of the society.
Lessons Learn From the Case
The emission testing scandal is an eye opener to many organizations whose aim is to maximize profit (Cremer, & Bettignies, 2013). From this case, it is true to say that it is always important to consider the environmental impact of the product released to the market. It is also important for an organization to be socially responsible so that it can maintain its reputation that takes the time to build but it is simple to tarnish. It is advisable for the Volkswagen top management to show commitment to the governments and its customers that it is ready and willing to work with them in order to correct its mistake. This will create a picture of determination whereby the customers and the governments can restore some faith to the company.
Conclusion
The emission testing scandal by Volkswagen has greatly affected the brand equity of the company negatively. The company is at risk of losing its position as the world’s best automaker that has the best luxurious cars globally. It is important for the company to come up with strategies that will help it build its reputation once again. Despite profit maximization objective, it is important for the company to be socially responsible as well as environmentally friendly with its brand products.
Reference
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