It is now a little over a fortnight since the Volkswagen group announced that it would be investing ₹8,000 crore to reboot its India innings.
The big splash event in Delhi saw Skoda Auto’s global CEO, Bernhard Maier, take centre stage since his company has been entrusted with the responsibility of leading the India 2.0 project.
Does this mean that VW takes the back seat while group company Skoda will call the shots?
Steffen Knapp dismisses any such notion and believes that too much is being made of a non-issue. “What is very important is that we have the investments in place now. Tasks are being allocated to group brands for specific regions,” says the Director of Volkswagen Passenger Cars India. For instance, Skoda will lead-manage Russia in addition to India while VW will handle North and South America as well as the sub-Saharan region. Audi will take care of Asia-Pacific (barring China) and West Asia while North Africa will be managed by SEAT. China will be in the hands of the VW group, which reflects its standing as the largest and most important market.
Eventually, as Knapp reiterates, India 2.0 is great news for the company’s people and network, which will see both VW and Skoda having their work cut out in increasing market share to 5 per cent by 2025.
It is here that proper implementation of the strategy becomes critical.
“We need to work a lot more closely and still be able to position our brands clearly and separately,” continues Knapp. For now, there is perhaps little to distinguish VW and Skoda in terms of image, awareness and customer profile, which means the top priority is to be “more separate and clearly focussed”.
‘Premium’ image in India
This differentiation is working well in Europe where VW is perceived as being more premium and aspirational. Skoda, on the other hand, is seen as an alternative to VW and a people’s car which is affordable. In India, though, the Czech brand has a premium image since it does not have an entry-level option.
As Knapp says, VW is synonymous with quality, safety and a fun-to-drive element that is part of its DNA. While these traits will be embedded in future products too, the added benefit of German engineering is yet another important value proposition “and a huge positive”.
From his point of view, the fun-to-drive part is especially interesting because the GT line-up in India will be a differentiator and an “emotional aspect which we need to get through”. Going by the European experience, Skoda customers are more rational and careful with their money though it will be interesting to see how the differentiator strategy pans out eventually in the subcontinent.
“We have to be very careful with our brand positioning in India and that is not particularly an area of concern since we have done this successfully elsewhere in the world. VW is a strong brand and we are not worried about others even if this makes me sound arrogant,” says Knapp.
Making it customer-special
The other important task on hand for VW is to ensure a different customer experience at networks. This is where digitalisation will play a key role at all levels in sales and service, “right from the time someone enters the VW dealership”.
This premium feel should extend to the workshop where issues relating to washing, painting and the car pick-up time are carried out without a glitch.
“You can have the hardware and software solutions available but the key is to deliver them smartly. Dealer mindsets should change to keep pace with the future,” adds Knapp.
As in the case of the network experience, there are tremendous possibilities on doing things differently in brand communication and product, be it in technology, engines and transmission, design, and so on.
At present, 89 per cent of VW cars sold in India are to “absolutely new customers” which is a huge bonus but still a challenge since this means that people are novelty-driven and change their tastes very fast. “We have doubled our loyalty rates and majority of customers coming into the market are first-time buyers. To someone like me, this is incredible since I am coming from a saturated market like Europe which is all about conquests and eating from somebody else,” exclaims Knapp.
Skoda will be responsible for the entire India 2.0 business — right from manufacturing and development to sales and marketing for the VW group. Interestingly, there has been a lot of exchange of people already from various group brands like Audi and Porsche which “is good since it will involve exchange of ideas”.
Team integration is critical in this exercise and there is a “new movement of energy” now coming into the entire organisation.
By the end of the day, it is clear that Skoda will eventually have to make the strategy work and generate market share along with VW. “We could perhaps work together in networks, going forward. Bear in mind that we are missing the Tier 2/3 regions which are the fastest growing while cities are slowing down,” says Knapp.
This means that both VW and Skoda could have the same dealer for exclusively branded showrooms but sharing workshops for greater synergies. While nothing is decided on this subject, it makes perfect business sense since labour costs in dealerships are on the rise and rentals are also increasing, especially in cities.
Eventually, the business case of dealerships becomes valid only if volumes grow and this can happen with the two brands operating in tandem in Tier 2/3 regions. “There are synergy possibilities between VW and Skoda which will also offer revenue to dealers. The future lies in cost-efficient network solutions and joint workshops will be a step forward in this direction,” reasons Knapp.
From his point of view, India 2.0 offers a lot more beyond products and market share since it will now be a mammoth transformational exercise. After all, there is going to a lot of hiring of local talent which understands the diverse Indian landscape much better. “This is the right strategy and will go a long way in improving our value proposition to the customer,” says Knapp.
He is convinced that the VW group now has the chance to take on the challenges of this market though it will not be easy with competitors as keen to step on the gas.
“We need to be faster and more nimble. Healthy competition between the two brands and still being able to work together will be the key ingredients to this partnership,” continues Knapp.
This will extend beyond the employees of the two companies to their dealers who will also compete with each other in an endeavour to do better.
If things work according to plan, the VW group will emerge stronger which is a good thing in terms of “optimising our abilities”. And to Knapp, that is way more important than worrying about what sceptics have to say about one brand dominating the other.