The ‘volks’ have their say on VW

New research finally reveals how Volkswagen, as a premium brand, has been impacted by the emissions scandal. Good luck advertising their way out of this one, writes Dominic Mills.

While the VW staff at Wolfsburg HQ fight like cats in a sack to prove they were nowhere near the cheat device scandal, the steady drip-drip of further wrong-doing emerges.

All the while, sales continue to drop.

But the biggest question for VW is the impact of the scandal on its brand. Its brand is its biggest asset and, ultimately, the factor that will determine whether it is saved or doomed.

If the VW brand remains strong, it can sell more cars at a higher margin (crucial to pay the fines and legal actions), and recover faster.

Interbrand’s brand study, published just after the scandal broke, seemed to downplay the impact on the brand.

But that was worked out by a load of ‘brand consultants’ playing with smoke and mirrors. A better test of the VW brand would be the preparedness of potential car-buyers – let’s call them the ‘volks’ – to pay a premium over and above the perceived intrinsic value of the car. For VW, its brand premium has always been its core strength, and the foundation of an illustrious advertising heritage.

Thanks to research company BDRC Continental, which talked to ‘in-the-market’ consumers in early November, we now have a handle on this.

Its Brand Margin research is based on asking consumers what they’re prepared to pay for branded products over and above a notional price.
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According to BDRC, from May last year, for example, Lynx carried a 30% brand premium on the basis that consumers were prepared to pay £2.14 for the deodorant versus a £1.50 standard price.

For VW, the BDRC results don’t make especially pretty reading. Versus May 2014, the perceived brand value of a mid-sized VW hatchback notionally priced at £12,000 has fallen by £1,042.

So what we see here is that the VW brand still carries a premium of 7%, and can command a higher price than some of its immediate competitors. But that’s where the comfort stops.

Just 18 months ago the premium was £1,900 – about 16% over the £12,000 mark. So the new level is in percentage terms, about a third lower.

Not good. And even that figure conceals a wide disparity. Amongst men (no surprise, there), the figure is a mere -£239. For women, it is much higher: minus £2,581.

By age group, there are equally marked discrepancies. The younger the respondent, the more negative they feel.

– 18-34: -£2215
– 35-54: -£639
– 55+: -£341

Again, this is not too surprising, but it seems then that VW won’t be selling too many cars to millennial women or, if it does, they’ll be demanding a hefty discount.

Indeed, given the news in the last 10 days, the hit on the VW brand has surely worsened. First, we heard the scandal involved petrol engines also; next that 85,000 Audis and Porsches contained a second cheat device; a Panorama investigation, broadcast last week, showed how removing the cheat device increased nitrogen oxide (NOx) emissions by 160%; and then the South Koreans chipped in ordering a recall and slapping VW with a fine.

But, according to BDRC’s James Myring, its director of media and branding, there is a contagion effect across the whole sector, not helped by recent problems with Honda airbags or flaming Vauxhall Zafiras. He says it’s the highest sector drop BDRC has seen across the 23 it has tracked, and is probably the result of a general cynicism towards car companies – a sort of ‘they’re all at it’ attitude.

Apart from a few ‘apology’ recall ads, I’ve not seen much VW brand advertising recently. Quite right too. There is nothing for them to say. But as the crisis rolls on, and as the need to shift metal (and prevent any further slip in market share) rises, so VW will sooner or later have to come back to the advertising table.

When it does, one of the most important tasks for any advertising will be to protect, or restore, the price premium. But at the same time it also has to reassure, and get consumers into dealer forecourts. That’s a tricky balance to pull off. I can’t wait to see how they try.

MEC offers tech start-ups a Tonic

You’d think, wouldn’t you, that when the desire is there on both sides, it would be easy to bring tech start-ups and agencies together.

But it isn’t. I’ve been talking to agencies and start-ups recently, and it’s clear there are plenty of issues.

-Budgets notionally earmarked for a start-up shift as priorities change, or sometimes disappear

-The client with the tech need and the authority to sign it off can be hard to find – sometimes they’re in marketing, sometimes elsewhere

-Schedules get put back, and the one thing you can’t do is leave a start-up hanging on

-What is fast in client-land (i.e. three months) is an eternity for a start-up

-Clients and agencies want stuff done on a free-trial basis – again, that just doesn’t help a start-up

-The agency may try to change the start-up’s business model to fit their own modus operandi, which is like hitting a butterfly with a hammer.

It is to solve just problems like these that media agency MEC has launched Tonic, a specialist unit designed to bring all three parts of the equation – client, agency and start-up – together.

Tonic is run by Hannah Blake, who previously had a similar role at BBC Labs where she matched start-ups with different divisions of BBC Worldwide. Some of the start-ups she linked there – Rezonence, for example – are now working with either agencies or media owners/publishers.

Tonic is by no means the first such agency initiative – others such as Ogilvy, Starcom (with its NextTechNow unit) and OMD already play in this space – but it has recognised that its efforts need full-time focus, not some hard-pressed agency account executive trying to fit it into a day job.

Blake is clear that, as well as evangelising for start-ups, she has a big education role to play: not just within the agency, but also at the client level.

She says: “Very little exists to educate and challenge established companies on working with emerging technology. Brands need to work faster, take risks, allocate budget and dedicate resource if they want to deliver innovation successfully.”

As with clients, so with agencies. Blake and Tonic look like bits of the jigsaw are beginning to fall into place.