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Audi dates back to 1899 when one of “Carl Benz’s engineers, August Horch, founded August
Horch & Cie in Cologne, Germany” (Audi). Horch was unexpectedly driven out of the company that he had founded—he immediately set up a new firm. In 1932 Horch adopted the name AUDI, a Latinized version of Horch’s first name, and it developed the four interlocking rings trademark that adorns Audi’s automobiles. Audi is now a subsidiary of Volkswagen and currently manufacturer’s premium automobiles since 1964. Audi's products are sold under the Audi and Lamborghini brand names, as well as other
Volkswagen group brand names in certain cases. Furthermore, the company provides sports cars, accessories, machinery, tools, and other technical articles. Audi's renowned passenger car models include the A3, A4, A6, A8; RS Models - S3, S4, RS4, S5, S6, RS6 Avant, S8; Q7 and TT coupé , allroad quattro and racing models like R8, R10, Quattro S1 .
Additionally Audi is developing an all-electric sports car known as the Audi e-tron.
The model is expected to hit the US market in late 2011 or 2012. The firm is investing $1.2 billion in its Hungarian plant. It also has automobile manufacturing facilities in Belgium, China, India and
Germany strategically situated to take advantage of cheaper engineering and labor services (Hoovers). In addition to designing electric automobiles, the company is advancing its brand positioning, as well as expanding into new car markets around the world. The company’s mission is to “delight customers worldwide” to become the number one in the premium segment (Audiusa).
Firm Performance
Despite the economic downturn Audi has been able to rank as the second largest premium carmaker globally in H111. A 15.3% took Audi sales to 762,000 units compared to Mercedes Benz with
668,353 units with a less impressive 8% during the same period. BMW is ranked number one in the global premium vehicle market, thanks to a roaring 19.7% increase in sales, to 833,366 units (Figure B-2). Part of the gains in the premium vehicle market is due to a strong global demand. See Appendix A.
Competitive Position
Audi has reputable a position in the premium vehicle market thanks to the firm’s set of business activities that enabled them to increase demand by developing, producing, and marketing its vehicles. Audi has taken different strategic approaches such as developing automotive concepts that fulfill customers’ high expectations, producing vehicles that offer technologically advanced vehicles that are particularly noted for their sophistication and reliability. Lastly, Audi has used clever marketing ideas that are pushing the brand even closer to No. 1 in the industry. In the month of November 2011 Audi has created value by investing in
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several strategic alliances. CSI Verwaltungs will produce additional capacity for the development of new models specifically in the core areas of interior and body development. According to Steffen Boil,
Managing Director and co-founder of CSI verwaltungs, “Our approaches to intelligent composite construction are a good fit—there will be plenty of scope for synergy” (Audi). PSW automotive engineering GmbH is Audi’s second strategic partnership this month that will create a competitive environment favorable to superior performance, as well as facilitating their development of technologically advanced vehicles. Audi has developed various models as part their long-term model initiative, which creates a competitive differentiation advantage amongst their competitors. The new Audi A8 and the Audi
A1 and A7 Sportback models have delighted customers with their emotional design, sportiness, efficiency and everyday suitability (AudiUSA). Audi’s model range will continue to grow according to audi.com—it is set to reach 42 models by 2015. Additionally, Audi produced a clean diesel power that provides an opportunity to significantly decrease dependence on foreign oil and counter the effect of global warming.
The firm’s goal is to create a strong brand by launching innovative marketing strategies. Audi is set up in the “A1 City” world of discovery at Munich Airport. The public was given the opportunity for an in-depth encounter with the new model. With the aid of a showroom configurator, those interested were able to configure their personalized A1 on large dimension flat screens. Scott Keogh, Chief Marketing Officer of
Audi is behind everything from Audi’s 2010 Winter Olympic, product placement, to this year’s Super Bowl ad campaign. Keogh’s marketing plan for the most part is to keep BMW and Mercedes lower than Audi.
Keogh’s creativity has created a distinctive competency at Audi—he has introduced new marketing ideas like iPads in showrooms and gave virtual drivers across the world a chance to win a real Audi. Executions like these have helped Audi to position themselves as number two in the premium vehicle market. Keogh vision for Audi is to take the No. 1 spot in the luxury market, and it might just do so. Recent data shows that Audi has delivered a total of 365,262 from 316,860 automobiles to customers in the third quarter of
2011. The Audi brand increased its deliveries by 16.7 percent from 274,417 to 320,276 in the third quarter of 2011 (Table C-1).
Firms Strategies
Audi’s strategies are based on four main goals—superior financial strength, continuous growth, image leader, and most attractive employer. Audi’s first long-term goal is to reach financial strength
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through effective and efficient structures and processes (Audiusa). However, DataMonitor specializes in industry analysis stated a concern regarding Audi’s recent recall announcement on its most popular models due to manufacturing and design problems. The company recalled 34,000 Audi A4 and Audi A6 due to defective engine fuel pump on August 2011. In April 2011, the company recalled up to 10,200 Audi TTs from the 2010 model year to fix fuel tank ventilation (DataMonitor). Due to significant product recalls it could indicate a decline in product quality and could negatively impact Audi’s financial strength. Second strategic goal is to continually grow. Audi lacks the scale to compete with large players in the markets in which it operates. According to DataMonitor many of Audi’s competitors such as Daimler, and BMW are larger in size. Daimler for instance recorded revenues of E97, 761 million in FY2010 and BMW recorded revenues of E60,477 in FY2010. In contrast, Audi only recorded revenues of E35,441 million which is much less than its competitors. Audi’s lack of scale limits their ability to compete effectively (Table C-2).
Third, Audi has a strong brand image, and is amongst the most desirable premium brands in the world. The firm faces intense competition, and ultimately their objective is to implement a strategy that sustains their competitive advantage and creates more economic value than the rival firms through their brand image.
Fourth, Audi’s potential for competitive advantage includes their human resources. The firm performs regular internal surveys of the workforce, and provides its personnel with attractive working conditions, commensurate pay and high job security (Audiusa). These components will help the firm reach a strong competitive advantage.
Recommended Strategies
Audi has several manufacturing facilities throughout the world (Figure B-3). This indicates that
Audi is less vertically integrated relying on other manufacturing plants to produce their vehicles. Audi experienced thousands of recalls just this year alone—which leads us to believe that the resources used to manufacturer vehicles is not yet reach its value. Audi stated in their 2010 financial report that “Long-term superior financial strength can be achieved above all through effective and efficient structures and processes” (Audi). For Audi to meet long-term superior financial strength they should re-evaluate their activities in technology development, product design, and manufacturing. Thus, embracing vertical integration to reduce recalls and offer high quality vehicles to consumers. Furthermore, Audi’s second strategic goal is continuous growth. Recent data shows that Audi lacks the scale to compete with larger
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players in the market. Daimler, BMW recorded higher revenues than Audi. The lack of scale will enable
Audi the ability to compete effectively. Therefore, Audi should work to increase their sales in countries like
Brazil, Russia, India and China that possess a growing demand for cars (Figure B-1).
Audi can accomplish their continuous growth goal by forming valuable economies of scope by stepping up its activities with International markets to increase revenues. Audi’s third strategy is to maintain a strong brand image in emerging countries (Figure B-4). The global luxury market is highly competitive, and many first time buyers purchase on reputation.
According to Andrew Jacobs, the most rewarding country in future years is going to be China.
With an annual growth rate of 30 percent in recent years, the Chinese auto market is progressively surpassing the U.S. as the world’s most lucrative destinations of commerce. Last year Chinese families bought 13.8 million passenger vehicles, compared to 11.6 million in the U.S.
Jacobs describes that Audi took advantage of historical conditions and made a first-mover advantage by gaining access to the Chinese markets in 1988 with a joint venture with Yiqi, a Chinese carmaker. BMW only entered in 2003 giving Audi a 15 year head start. Audi capitalized on the lucrative government-car market, with 20 percent of sales coming from the Chinese government in 2009. Audi must continue to secure contracts with the government to assure its position in the government vehicle market in
China. “Audi is the de facto car for government officials,” said Wang Zhi a Beijing taxi driver for 18 years.
Jacobs states, in China 80% of purchases are made by first-time buyers. Because the market is so young, brand perceptions or “the face of a care” are critical. Mercedes-Benz is seen as an old person’s car, or retiree. BMW is usually driven by corrupt rich individuals, and Audi is seen as a high-level government car. A basic model Audi A6 cost $56,000, whereas BMW 5 series cost $67,520.
Audi is seen as a humble respectable company compared with BMW whose cars cost over
$10,000 more. Jacobs describes that the more money usually comes from greedy corrupt individuals. This stereotype came from stories such as in 2003, when a young female driver ran over and killed a homeless man who had accidently dented her BMW X5. This was seen as a social divide of the rich and poor in
China, which in turn damaged BMW’s brand reputation.
Audi must capitalize on its brand’s reputation in China and show middle-class and upper-class
Chinese that Audi is the luxury car for them. Audi must take proper marketing initiatives to let the public
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know their car is trusted by the government. Audi must utilize this competitive advantage and increase its market share.
Conclusion
Audi is one of the world’s most reputable automotive manufacturers in the world. Audi has achieved success through innovative design and technology such as the use of LED lights which have become ubiquitous in the luxury market, and now every luxury auto maker is using LED lights. Audi also continues to make strides in computer technology by having the first Wi-Fi enabled automobile, which makes their cars moving hotspots for internet access. Audi has made a very user-friendly user interface for
GPS utilizing Google maps.
Compared to its counterparts in BMW and Mercedes, Audi sacrifices power for more environmentally conscious engines, more refined interior, and advanced technology. Another factor Audi has been so successful is because it’s more subtle reputation compared to BMW or Mercedes. Most people buy a “Beemer” or a “Benz” for social status.
To continue and succeed Audi must take advantage of its brand image and market it’s design and technological qualities. Audi must continue to make reliable, stylish, eco-friendly, and technologically advanced cars. Audi must assure to differentiate itself from BMW and Mercedes in order to take control of the luxury car market.
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Table A-6:
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Table A-8:
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