EMS2BSE Week 7 – Preliminary work
Below you will find a full worked and descriptive case study where a SWOT analysis has been applied in industry. This case study focuses on how Skoda management in the UK built on all the areas of the strategic audit. The outcome of the SWOT analysis was a strategy for effective competition in the car industry.
Introduction
In 1895 in Czechoslovakia, two keen cyclists, Vaclav Laurin and Vaclav Klement, designed and produced their own bicycle. Their business became Skoda in 1925. Skoda went on to manufacture cycles, cars, farm ploughs and airplanes in Eastern Europe. Skoda overcame hard times over the next 65 years. These included war, economic depression and political change.
By 1990 the Czech management of Skoda was looking for a strong foreign partner. Volkswagen AG (VAG) was chosen because of its reputation for strength, quality and reliability. It is the largest car manufacturer in Europe providing an average of more than five million cars a year giving it a 12% share of the world car market.
Volkswagen AG comprises the Volkswagen, Audi, Skoda, SEAT, Volkswagen Commercial Vehicles, Lamborghini, Bentley and Bugatti brands. Each brand has its own specific character and is independent in the market. Skoda UK sells Skoda cars through its network of independent franchised dealers.
To improve its performance in the competitive car market, Skoda UK”s management needed to assess its brand positioning. Brand positioning means establishing a distinctive image for the brand compared to competing brands. Only then could it grow from being a small player. To aid its decision‐making, Skoda UK obtained market research data from internal and external strategic audits. This enabled it to take advantage of new opportunities and respond to threats.
The audit provided a summary of the business’s overall strategic position by using a SWOT analysis.
Strengths
To identify its strengths, Skoda UK carried out research. It asked customers directly for their opinions about its cars. It also used reliable independent surveys that tested customers’ feelings.
For example, the annual JD Power customer satisfaction survey asks owners what they feel about cars they have owned for at least six months. JD Power surveys almost 20,000 car owners using detailed questionnaires. Skoda has been in the top five manufacturers in this survey for the past 13 years.
In Top Gear’s 2007 customer satisfaction survey, 56,000 viewers gave their opinions on 152 models and voted Skoda the ‘number 1 car maker’. Skoda’s Octavia model has also won the 2008 Auto Express Driver Power ‘Best Car’.
Skoda attributes these results to the business concentrating on owner experience rather than on sales. It has considered ‘the human touch’ from design through to sale. Skoda knows that 98% of its drivers would recommend Skoda to a friend. This is a clearly identifiable and quantifiable strength. Skoda uses this to guide its future strategic development and marketing of its brand image.
Strategic management guides a business so that it can compete and grow in its market. Skoda adopted a strategy focused on building cars that their owners would enjoy. This is different from simply maximising sales of a product.
As a result, Skoda’s biggest strength was the satisfaction of its customers. This means the brand is associated with a quality product and happy customers.
Weaknesses
A SWOT analysis identifies areas of weakness inside the business. Skoda UK’s analysis showed that in order to grow it needed to address key questions about the brand position. Skoda has only 1.7% market share. This made it a very small player in the market for cars. The main issue it needed to address was: how did Skoda fit into this highly competitive, fragmented market?
Perception of Brand
This weakness was partly due to out‐dated perceptions of the brand. These related to Skoda’s eastern European origins. In the past the cars had an image of poor vehicle quality, design, assembly and materials. Crucially, this poor perception also affected Skoda owners. For many people, car ownership is all about image. If you are a Skoda driver, what do other people think?
From 1999 onwards, under Volkswagen AG ownership, Skoda changed this negative image. Skoda cars were no longer seen as low‐budget or low quality. However, a brand ‘health check’ in 2006 showed that Skoda still had a weak and neutral image in the mid‐market range it occupies, compared to other players in this area, for example, Ford, Peugeot and Renault. This meant that, whilst the brand no longer had a poor image, it did not have a strong appeal either.
Change of Direction
This understanding showed Skoda in which direction it needed to go. It needed to stop being defensive in promotional campaigns. The company had sought to correct old
perceptions and demonstrate what Skoda cars were not. It realised it was now time to say what the brand does stand for.
The marketing message for the change was simple: Skoda owners were known to be happy and contented with their cars. The car‐buying public and the car industry as a whole needed convincing that Skoda cars were great to own and drive.
Opportunities
Opportunities occur in the external environment of a business. These include for example, gaps in the market for new products or services. In analysing the external market, Skoda noted that its competitors’ marketing approaches focused on the product itself. Many brands place emphasis on the machine and the driving experience:
Audi emphasises the technology through its strapline, ‘Vorsprung Durch Technik’ (‘advantage through technology’).
BMW promotes ‘the ultimate driving machine’.
Skoda UK discovered that its customers loved their cars more than owners of competitor brands, such as Renault or Ford.
Differentiation
Information from the SWOT analysis helped Skoda to differentiate its product range. Having a complete understanding of the brand’s weaknesses allowed it to develop a strategy to strengthen the brand and take advantage of the opportunities in the market. It focused on its existing strengths and provided cars focused on the customer experience. The focus on ‘happy Skoda customers’ is an opportunity. It enables Skoda to differentiate the Skoda brand to make it stand out from the competition. This is Skoda’s unique selling proposition (USP) in the motor industry.
Threats
Threats come from outside of a business. These involve for example, a competitor launching cheaper products. A careful analysis of the nature, source and likelihood of these threats is a key part of the SWOT process.
The UK car market includes 50 different car makers selling 200 models. Within these there are over 2,000 model derivatives. Skoda UK needed to ensure that its messages were powerful enough for customers to hear within such a crowded and competitive environment. If not, potential buyers would overlook Skoda. This posed the threat of a further loss of market share. Skoda needed a strong product range to compete in the UK and globally.
In the UK the Skoda brand is represented by seven different cars. Each one is designed to appeal to different market segments. For example:
the Skoda Fabia is sold as a basic but quality ‘city car’
the Skoda Superb offers a more luxurious, ‘up‐market’ appeal
the Skoda Octavia Estate provides a family with a fun drive but also a great big boot.
Pricing reflects the competitive nature of Skoda’s market. Each model range is priced to appeal to
different groups within the mainstream car market. The combination of a clear range with competitive pricing has overcome the threat of the crowded market.
Environmental Constraints
The following example illustrates how Skoda responded to another of its threats, namely, the need to respond to EU legal and environmental regulations. Skoda responded by designing products that are environmentally friendly at every stage of their life cycle. For example:
recycling as much as possible. Skoda parts are marked for quick and easy identification when the car is taken apart.
using the latest, most environmentally‐friendly manufacturing technologies and facilities available. For instance, painting areas to protect against corrosion use lead‐ free, water based colours.
designing processes to cut fuel consumption and emissions in petrol and diesel engines. These use lighter parts making vehicles as aerodynamic as possible to use less energy.
using technology to design cars with lower noise levels and improved sound quality.
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