The change of Škoda´s public perception analysis
Marking Code: Z0923727
10th of March 2011
ŠkodaAuto Company was founded in 1985 in Czechoslovakia by Laurin and Klement. Initially, only bicycles were made, but gradually they began the production of motorized vehicles, debuting their first automobile in 1905. Up to 1989, Škoda kept its car business monopoly, but due to the existing political climate - the communist government had just been overthrown- the new Czech government and Škoda management began to look for a suitable partner to revitalize the brand and approximate it with what western companies were achieving in terms of design, technology and naturally, in market influence. So in 1991, Volkswagen was chosen. Unlike Renault, Škoda’s other strong contender, Volkswagen didn´t want to merge Škoda into their company, but instead have it act as a subsidiary so as to take advantage of its 35% market share in Eastern Europe (Ledgard, 2005), and to be able to expand its prospective customer base. Following Škoda’s total acquisition in 2001, expectations from VW were surpassed, with Škoda contributing with 25% of profits today (Neroth, 2009). The brand has slowly, yet steadily been able to increase its market share, thus allowing VW to aim towards a more up-market clientele. * Through diverse management strategies and approaches it managed to change its image, design, technology and target consumers in order to transform itself into the profitable, renowned and award winning car manufacturing company.
It used the market penetration approach, which according to Johnson et al. (2008), is the strategic direction “by which the organization takes increased market share of its existing markets with its existing product range (…). It builds on existing strategic capabilities and does not require the organization to venture into uncharted territory.” Škoda was already a good car manufacturer; Czechs are known for vehicle assembly capabilities; but skilled labour and new machinery were scarce, which lead to unanswered demand and below-standard output (Neroth, 2009). Mainly it needed to assess and consolidate its position in the market.
Source: Johnson et al, (2008). Adapted
Analysis and Change
Škoda´s SWOT analysis permitted an informed insight about what weaknesses and threats, internal and external were hindering this company’s market performance. Škoda’s main weakness was a negative public perception of the company and a small market share due to a strong competition. VW´s management soon worked around in different directions, aiming to improve every possible area. Changes in terms of design, image and technological innovation were taken through various investment activities, such as new engine plants, employment of new designers and engineers, including the first corporate university in Czech Republic providing business and technical degrees. Facing Competition
According to Porter, (Competitive Advantage, 1985), he indicates three forms of competitive advantage that firms can adopt in order to succeed. The group decided to focus on two generic strategies: to focus on a few market segments, typified by being homogenous with similar customer characteristics (Napuk 1993; Holtje 1981) and within those, it pursued differentiation, offering a good-value for money car. Source: Porter, 1985 (adapted)
Škoda´s competitive strategy
By its association with the reputable brand of VW, Škoda was able to move its product upmarket: cars were now produced using common product platforms (Meyer&Lehnerd, 1994), design and quality enhancements were made so that the new generation of cars appealed to a younger public, with a focus on families, with the launch of the Škoda Felicia in 1994 for example. Škoda’s subsequent launches like the 2002 Škoda Superb with its attractive design joined with elegance and...