Getting the bugs out – Volswagen’s new beetle

Greg Farrell

Volkswagen’s new Beetle may become a sales hit. But it’s already a pr home run for a brand that, until recently, could have sued its owners for non-support.

Attention retailers. This is a problem you want to have: Mike Sullivan, owner of Santa Monica Volkswagen in California, claims the so-called New Beetle is such a traffic magnet that he has to remove it from his display window every afternoon at 2 p.m. to discourage gawkers and let his salespeople focus on serious prospects. When Sullivan takes it out of the showroom and onto the road, the results are similar. “You can’t change lanes,” he said. “People drive up beside you to look.”

The media hype over the new Beetle (VW calls it the “New Beetle”) has been staggering, but the car’s appeal appears to be transcending its stereotyped core demographic of Woodstock-recovered baby boomers. Despite the deviations from original Bug features that made it such a lovable, dysfunctional friend, such as rust-prone floorboards and a windshield that was literally in your face, new Beetles will sell for two reasons. First, the introduction comes smack in the middle of a plague of nostalgia in the U.S. More importantly, VW has for the past two years managed to unfreeze its brand from the 20-year cryogenic coma induced by both North American and German executives who understood product development, but were somewhat clueless when it came to comprehending the depth of the VW brand. Where three years ago it may have needed the Beetle to be its savior, the company, with agency Arnold Communications of Boston, has already redefined VW as simply a rejuvenating tool, ownership of which offers the consumer access to greater personal freedom. And that has effectively laid the groundwork for the Beetle to capture as many hearts as the pundits seem to think it will.

“This car breaks all the marketing rules,” Liz Vanzura, VW director of marketing and advertising, said at a recent press conference to unveil the Bug’s launch campaign. “it cuts across age, education, income and gender.”

Such breathy enthusiasm isn’t all just hot air. With a limited production run of some 50,000 vehicles this year, and a trunk full of rave reviews from the automotive press, the new Beetle is a can’t-miss product for 1998. The unanswerable question, though, is whether the new Beetle will become a linchpin of VW’s global strategy to overtake General Motors in the 21st century, or will it simply be remembered as a nod to a late 1990s commercial culture hot button labeled “retro.”

Dealers, at least, think the car has staying power. At Camp bell-Nelson Volkswagen in Edmonds, Wash., Bob Campbell is getting only 45 to 50 of the new Beetles, and his backlog is already up to four months. A hot property, no doubt, but Camp bell, a VW dealer since 1968, thinks the car will outlast any fad. “I was a little worried that the new Beetle would be just a flash in the pan,” he said. “But once you drive it, you really fall in love. “

The new Beetle’s introduction is truly remarkable, not just because of its initial success, but because it happened at all. A decade ago, as VW went into a slide in this country, Japanese marques were ascendant and Euro brands like Peugeot and Fiat cut their losses and bailed out of the U.S. altogether. Selling cars in a wide-open market like the U.S. isn’t just about price, it’s about product and, especially, brand image. But executives at Volkswagen seemed oblivious to the symbiotic relationship between brand and product; that a clearly defined and understood brand goes a long way toward developing the right products and the messages that sell them. A strong sense of brand also helps keep the revolving door of marketing stewards from making egregious errors.

In spite of the huge beachhead the Type 1 Beetle gained VW in the U.S. during the 1960s and ’70s, success proved to be a lousy teacher. After it discontinued the Bug, it cast about looking for the next big hit. Instead, it ended up like the Big Three against which it had played itself off so cleverly: the victim of a concerted Japanese effort to provide better quality at lower prices. VW even put a Big Three manufacturing veteran in charge of the U.S. company, and moved its headquarters from northern New Jersey to the culturally insular environs of Auburn Hills, Mich.

After years of poor planning, manufacturing snafus and wretched luck, the company had lost a lot of its confidence. So, before VW could even dream of launching the new Beetle, it would have to undergo a transformation at all levels of the organization: in management, manufacturing and marketing.

“The market is now ready for Volkswagen and Volkswagen is ready for the market,” said Lincoln Merrihew, director of product tracking at J.D. Power & Associates, Agoura Hills, Calif. “The only advantage to stumbling is that, when you come back, it’s outstanding.”

To say that VW “stumbled” is to be kind. Between 1990 and 1993, VW of America was in free fall. First, the recession of 1990-91 hit VW harder than most. Then, in 1992 and ’93, just as the economy had moved into recovery, VW set out to introduce its new Golf and Jetta, which were to be built in VW’s plant in Puebla, Mexico. But the changeover problems in Puebla were enormous. The glitches stemming from an old plant and a culture clash between German managers and Mexican workers I resulted in poor quality cars that had to be extensively fine-tuned (at considerable cost) at U.S. ports of entry.

In 1993, VW stopped production for eight months to reverse engineer the Puebla plant, thus reducing supply to the point where it could only sell 49,533 vehicles in ’93, less than 10% of what the company used to sell in its heyday 20 years earlier. VW’s U.S. dealers did not receive any cars for about eight months, an abysmal fix for any marketer, but particularly so for an automobile manufacturer with enormous overhead.

“We went through one of the most difficult times any manufacturer has ever faced,” said Steve Wilhite, senior marketing executive at Volkswagen of America. “You can imagine what would happen in our industry if Honda didn’t ship Accords, or Ford didn’t ship F150 pickups for seven or eight months.”

To keep disgruntled dealers in the fold, Bill Young, then president of VW of America, decided to cut the ad budget severely and use the money to pay dealers $ 1,000 for each car they would have sold based on prior years’ figures. Understandably, some frustrated dealers abandoned VW, and the German parent talked of pulling out of North America.

“It was an excruciating time for the people of our company and for dealers,” said Wilhite. “The truly miraculous element of this is that we didn’t lose one of our top 50 volume dealers. We worked incredibly hard to find ways to help them stay in business, and help round and balance their business. It really was not a very sound economic premise. But there was still enthusiasm, and lingering passion and this kernel of hope and expectation that kept dealers going and kept our people going. We knew that the product program that was on the drawing board and in place was sound. The product program was returning to our core values as German manufacturers of quality cars.”

At the end of 1993, a change in leadership took place at Volkswagen AG in Wolfsburg that would propel the North American turnaround forward. Dr. Ferdinand Piech, a brilliant engineer who had rejuvenated VW’s luxury division, Audi, took over as chairman of the worldwide group from Carl Hahn. Piech slashed costs, and named Clive Warrilow of VW Canada to head up the newly consolidated North American region. By the end of 1994, VW of America had fired close to 50% of its employees and reshaped the organization into a much flatter hierarchy.

“About the same time we started to receive cars in 1994, we went through a rigorous process internally, reorganizing our business and doing a considerable amount of soul searching about just what we wanted to be and how we could best go forward,” Wilhite said. “There were cries of, `All we need to do is build another Honda Accord,’ or, `All we need is to build GM’s version of some SUV’ In point of fact, what we needed to do was get comfortable with our own core values.”

Amid the period of turmoil, VW had lost focus on the most basic tool required for its re-engineering: brand strategy. For a intents and purposes, it had none. As it struggled to keep its dealers alive, and its customers interested, its message became confused and fragmented. “When you look back at our communications in all apertures,” Wilhite said, “you’d have to think, `Did these guys really know where they were going? Were they even talking to each other?”‘

For more than three decades, Volkswagen’s advertising had been handled by Doyle Dane Bernbach, the agency that put the car on the map in the 1960s with brilliant work that revolutionized the ad industry. By the early 1990s, the agency, now called DDB Needham, had come under fire from dealers irate over lagging sales. In the late 1980s, VW’s U.S. advertising shifted from “German engineering, the Volkswagen way,” to the tongue-twisting and much-lampooned “Fahrvergnugen.” In 1993, VW’s ads featured a spiritual soundtrack by the Irish-music group Clannad. Needham spun out a subagency–Berlin, Wright, Cameron–just to save the account, but the resulting ’94 campaign again merely flailed for some piece of ground that it thought VW could own: “The most loved cars in the world.”

At the cusp of the marketing malaise, new management demanded a clean break with the past, which meant choosing a new ad agency. After reviewing 29 agencies for the $ 100 million account, the assignment went to Arnold Communications. “They nailed our buyer,” said Santa Monica dealer Sullivan. He was particularly impressed when, during an important segment of Arnold’s pitch, the power went out on the presentation and Kristin Volk, director of customer insights at the agency, simply turned to the group and continued her argument, unflappable in the face of a potentially disastrous situation. Volk’s poise convinced Sullivan that the agency could handle any unexpected blowouts.

Still, it was more than grace under pressure that won Arnold the business. The agency did its homework, making sure to address three key audiences in its presentation, said Francis J. Kelly III, Arnold’s managing director and chief marketing officer. First, the agency focused on VW’s senior management team, asking “What do they feel good about and what are they trying to do?” Next, there were the consumers, not the people who had walked away from VW, but the believers who were still the target audience. And then, the 700 dealers in North America, some 200 of whom Arnold visited, conducting telephone interviews with 300 more. By the time the agency made its final pitch, it knew what the dealers wanted.

The result of its research led it to the brand position VW started using in July of 1995 and is still using today: “On the road of life, there are passengers and drivers. Drivers Wanted.” The agency developed the position, Kelly said, by studying successful campaigns, such as Ammirati & Puris/Lintas’ effort for UPS, “We run the tightest ship in the shipping business.”

“That campaign was a powerful motivator within UPS,” Kelly said. “With `Drivers Wanted,’ we wanted a campaign that was integratable, that would last 5 to 10 years. You could put it on hats, on posters in showrooms and on TV.”

From this brand platform, Arnold has created a number of memorable executions.

Most notable were “Speed Racer,” tapped characters from the cult cartoon with a VW helping them win the race; and “Sunday Afternoon,” better known as the “Da-Da-Da” spot for the obscure minimalist song that the commercial’s popularity resurrected. But the ad that best symbolized VW’s new position was an early execution that dealers like Mike Sullivan thought was too narrowly targeted, “Cappuccino Woman,” which showed a boisterous, caffeinated 20-something woman darting about a big city in her sporty Golf, delivering coffee to various places, and parking her VW comfortably and quickly in places where other cars would never fit. By identifying a target audience so clearly and distinctly, Volkswagen cut against standard car advertising.

“Arnold’s doing a great job,” said Bob Campbell, the VW dealer in Edmonds, Wash., who is 57 years old. “The reason I like them is that I don’t like their ads and I don’t see them. So I know they’re getting to the right people.”

The thing that made VW great in its original entry into the U.S. was being able to communicate from a perspective that was unique in the industry, if not in the whole business world, said VW’s Wilhite, and it’s a notion he thinks is applicable again.

“The same is true of our work since Arnold took on the account,” he said. “`Speed Racer,’ `Sunday Afternoon,’ the new Beetle work–the art direction, the look goes in a lot of different directions, but from an attitudinal standpoint, from a brand character standpoint, there is only one car company that could produce those spots. `Drivers Wanted: that’s what we’re about; is that what you’re about?’ We’re not telling you we’re the best, the fastest, the cheapest, the sexiest or the most loved. This is who we are, and we’re inviting you in to join us.”

The results of VW’s new marketing “platform” have been encouraging, if not spectacular. During the review, Arnold promised a sales turnaround that would more than double the 1994 sales figures of 97,000, to 200,000 by the end of 1997. Instead, sales jumped to 115,114 for 1995, then up to 135,907 for 1996. In 1997, sales grew only 1.5% to 137,885.

But despite the modest sales increase for 1997, last year was much healthier for VW of America than previous years. Much of the sales growth of 1994-96 had been fueled by an aggressive leasing program that got customers into the driver’s seat of a new Volkswagen Golf or Jetta for $199 down and $199 per month. VW also offered Trek mountain bikes or K2 skis with new purchases for added value and added attitude. The leasing and outdoor sports cross-promotions helped sales, but cut into margins. Less aggressive promotions resulted in Volkswagen claiming its first North American profit in several years.

But to focus too intently on profit margins is to miss the bigger game being played by Volkswagen. The launch of the new Beetle marks the beginning of an engineering transformation underway at the company. Last fall, with considerably less fanfare, VW introduced the new Passat. The new Beetle is intended not simply to be a hit in its own right, but to draw potential buyers into VW showrooms, where next year, they’ll see the new, improved models of Golfs and Jettas.

Bolstered by the Beetle, Volkswagen sales could reach 200,000 in 1998. And if the Golfs and Jettas due in 1999 also reflect the exacting engineering standards Dr. Piech set at Audi, Volkswagen executives could set their sights on an ambitious goal that would have seemed laughable just a few years ago: 300,000 vehicles in North America.

The endgame already underway in Wolfsburg, and demonstrated by concept cars at recent international auto shows, is to attack not the Japanese, but the German luxury brands, Mercedes and BMW. Plans are afoot to develop a sports coupe modeled on the old Scirocco, and a luxury touring sedan. There is even discussion under way to develop a Passat-based sport utility vehicle. But it remains to be seen how high up the price ladder the company can go and still remain true to the classic brand image of Volkswagen as reliable-but-affordable.

“If we are really true to our brand character and values, and continue to build cars from this base of core values in our European driving and engineering experience,” said Wilhite, “there’s tremendous opportunity to move our brand upscale into higher price points, into different segments of the market that we currently don’t occupy.”

He’s not alone in seeing broader potential for the VW brand. “The market is ripe for these things,” said J.D. Power’s Merrihew. “Volkswagen has a lot of fresh product in existing and new segments. When you stack European brands up against Japanese brands head to head, and when the price/quality equation is comparable, most American consumers prefer European cars because of the heritage and romance associated with their names. Japanese brands can’t compete on romance and heritage.”

That preference for a European nameplate, as well as a strong economy, are helping VW considerably. The new Beetle will only propel Volkswagen further ahead, Merrihew said. “It’s a rolling bill board for Volkswagen,” he said. “People are paying to drive a rolling billboard.”

Advertising like that can’t be beat. As to Arnold’s advertising, and its relentless focus on the young, active consumers, VW dealers agree that it’s helping. It may not be as important as the turnaround in product quality and the ability to offer the cars at attractive prices, but it’s an important component of the company’s current success and a key to future growth.

“This is a brand turnaround,” said Arnold’s Kelly. “You can’t underestimate the role of the New Beetle in this turnaround. Volkswagen has built the foundation. [The Beetle] has been in their mind since the beginning. They’ve rebuilt awareness, they’ve rebuilt sales and they’ve made people like Volkswagen again.

“It’s a well thought-out, inspirational rebuilding of a brand. The New Beetle is breathing life into and electrifying the brand. It’s not just an end point: now it’s a magnet for the brand.”

J.D. Power and Associates recently issued its evaluation of brand franchises and how good an investment they will be over the next five years for dealers. The rating takes into account the company’s management, existing products, products in the pipeline and other factors. VW scored 3+, better than Nissan, Ford, Chrysler-Plymouth, Chevy and even Acura.

That’s a long way from having to pay dealers to keep their doors open.

COPYRIGHT 1998 BPI Communications, Inc.

COPYRIGHT 2000 Gale Group

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