Case 5 Repositioning Skoda

The fall of the Berlin Wall in 1989 led to the privatization of the Eastern European car industry. The former state-owned monopolies began to look outside the region for new markets. However, the quality of the cars that had been produced under the central planning regime failed to live up to the expectations of Western European customers, and brands such as Skoda from the Czech Republic and Lada from Russia became the butt of countless jokes (such as, 'What do you call a Lada at the top of a hill?' 'A minor miracle!'). Therefore, while Skoda could boast 98 per cent brand awareness in the UK, perceptions of the brand were largely negative and, in a survey in 2000, 60 per cent of respondents reported that they would not consider buying one.

The roots of Skoda Auto are to be found in a company formed by Vaclav Laurin and Vaclav Klement in 1895 to manufacture bicycles. In 1905, this fledgling company built its first car:the Voiturette A. In 1925, the company merged with the Skoda company from Pilsen, whichsaw the end of the Laurin and Klement name and, after the end of the Second World War, the firm was nationalized as Skoda AZNP and granted the monopoly on passenger car production.With the end of Communism in the late 1980s, competition intensified as the major globalauto manufacturers took an interest in the region. Skoda Auto realized that it needed a strongforeign partner to survive, and the Czech government chose the Volkswagen Group from Germany on 16 April 1991. Volkswagen A6 is one of the world's leading manufacturers and distributors of cars and other vehicles. The group's main products include the Volkswagen, Audi, Seat, Lamborghini, Bugatti, Rolls-Royce and Bentley ranges of vehicles, and vehicle sales accounted for 80 per cent of its revenues in 2000. With the acquisition of Skoda, Volkswagen was able to complete its multi-brand strategy of offering products for all segments of the market, ranging from the Skoda offering good value for money at one end of the spectrum, to the Rolls-Royce and Bentley ranges, which have a high level of recognition at the luxury end of the market. Within the Volkswagen Group, the Skoda range is targeted at the products of competitors like Rover and Volvo.

The Volkswagen Group set about transforming the operations of Skoda Auto. The Skoda Favorit hatchback-its only model- was phased out and replaced by the Felicia (a five-model range) in 1994. In 1997, the company brought out the Skoda Octavia, a Golf-based sedan that is almost as big as a Passat. In 2000, the Octavia series, which includes the Octavia Limousine and the Octavia Combi, accounted for over 36 per cent of Skoda Auto deliveries to customers. The new Fabia series, introduced in 2000, is slightly bigger than the VW Polo and will replace the Felicia range. The Fabia is the winner of numerous awards including British magazine What Car? and Auto Express's 'car of the year' awards. In the European automobile press, the Fabia was 'car of the year' in the Slovak Republic, Croatia and Lithuania, and fourth overall in Europe. In 2000, the Felicia range accounted for 34 per cent of deliveries to customers, with the Fabia range making up the remaining 30 per cent. Details of production and sales at Skoda Auto are given in Table C5.1.

Skoda is the dominant car brand in the Czech Republic, where it sold over 80,000 units in 2000. The next nearest competitor is Opel with sales of just under 9000 units, some distance back. This performance in its home market has been exceptional as the general pattern throughout the Central and Eastern European region has seen the steady erosion of the market shares of local brands. Maintaining this dominance will be a challenge for Skoda, however. With the Felicia gone, it will have to defend the low end of the Czech market against cheaper competitors, including ageing Eastern European models such as the Dacia SuperRNova and the Lada 110,111 and 112, as well as contemporary models such a the Citroen Saxo, Daewoo Matiz, Fiat Seicento, Ford Ka, Nissan Micra and the Suzuki Swift. The new Fabia range is priced 10 per cent higher than the Felicia range.

Western Europe is Skoda's other big market, accounting for over 50 per cent of sales (see Table C5.2).

Succeeding in leading European markets, such as the UK, has been difficult for Skoda given the levels of entrenched competition and also the negative images associated with the brand. Despite its link with Volkswagen and the number of awards won by its models, Skoda had been unable to make much of an impact in the UK in the 1990s and had only managed to capture less than 1 per cent of the market by 1999. Conventional approaches to marketing the brand did not seem to be working. For example, when the Octavia was launched in the UK in 1998, the marketing campaign showed off the car's best features and sounded a serious, confident tone with the tag-line 'The New Skoda Octavia. The Way Things Should Be.' The campaign was aimed at existing Skoda owners and, despite a much-improved product and Skoda UK's largest marketing budget ever, the campaign generated an overall increase in sales of just 6 percent in the first year and only minimally changed perceptions.

It was then that the company decided it needed to tackle the negative image of its brand head on. Rather than aiming at existing owners, the company's marketing campaign would target 'rejectors' - those who say they wouldn't consider buying a Skoda. The marketing team created a series of self-deprecating, down-to-earth TV ads that challenged assumptions about the brand. In one ad, a distraught parking'attendant reports to a man returning to his car 'I'm afraid some little vandal has stuck a Skoda badge on the front of your car! In another, a pompous English dignitary on a tour of a Skoda factory showers praise on the new plant as well as the car. At the end of the tour, he whispers to the guide, 'I hear you make those funny little Skoda cars, too.' Each new ad ended with the tag-line 'It's a Skoda. Honest'.

The marketing budget for the campaign was only £4.5 million; well below that of competitors who typically spend two to three times that amount marketing their products. The majority of the budget (75 per cent) was spent on TV advertising as it was felt that this was the most effective way of changing perceptions of the brand quickly. But the TV advertising was also backed up with an integrated public relations (PR) effort. In the past, Skoda had focused its PR on motoring journalists, but while these individuals had all written glowing reviews of the cars, they weren't changing consumers' minds about Skoda. This time around, the company's PR agency targeted influential journalists from major UK consumer publications and newspapers such as the Guardian, the Mirror and the Spectator. Leading up to the launch, these journalists were given Skodas to drive and a sneak preview of the TV advertisements. This generated a wave of positive media commentary over the course of the TV campaign, with headlines such as 'History's biggest comeback since Bobby Ewing stepped out of the shower'.

Skoda UK's new marketing approach has won a variety of awards, such as Campaign magazine's 'Campaign of the Year' for 2000, and has been a great success. Its humorous ads stood out against a background of so many bland car ads with advertising for the Fabia achieving 50 per cent awareness, 6 percentage points higher than its closest competitor the Fiat Punto. As the campaign continued, awareness increased. A later Skoda ad, featuring the Octavia, was remembered by 70 per cent of respondents surveyed, of whom 84 per cent believed the ad made its point in a clever way. Skoda sales in 2001 grew by 23.2 per cent to more than 36,000 and its market share rose to 1.5 per cent. The image of the brand also improved significantly. In studies carried out immediately before the launch in early 2000 and a year into the campaign, the percentage of British consumers who said they would not consider buying a Skoda fell to 42 per cent, from 60 per cent, while those who would consider it rose to 21 per cent from 14 per cent. A total of 79 per cent agreed with the statement that 'Skodas are better than they used to be' compared with 54 per cent before the campaign; and 33 per cent said they could imagine themselves driving a Skoda, compared with 20 per cent before.

During its heyday in the 1930s, Skoda's top model was known as the Superb. Seven decades on, the name has been resurrected for a new top-of-the-range saloon to be launched in May 2002. Skoda has come a long way from when the jokers told you that if you wanted to double its value, you simply had to fill it with petrol!