SKODA AUTO INDIA

INTRODUCTION:
Skoda Auto (Czech pronunciation: [ˈʃkoda] , more commonly known as Skoda, is
an automobile manufacturer based in the Czech Republic. Skoda became a
wholly owned subsidiary of the Volkswagen Group in 2000, positioned as the
entry brand to the group. Its total global sales reached 684,226 cars in 2009 and
85,000 for the month of March 2011.

HISTORY:

Skoda Works was established as an arms manufacturer in 1859.

The origins of what became Skoda Auto go back to the early 1890s where, like
many long-established car manufacturers, a company started out manufacturing
bicycles. It was 1894, and 26-year old Vaclav Klement, who was a bookseller in
Mladá Boleslav, in today's Czech Republic, which was then part of Austria-
Hungary, was unable to obtain spare parts to repair his German bicycle.
Klement returned his bicycle to the manufacturers, Seidel and Naumann, with a
letter, in Czech, asking them to carry out repairs, only to receive a reply, in
German, states: "If you would like an answer to your inquiry, you should try
writing in a language we can understand". A disgusted Klement, despite not
having technical experience, decided to start a bicycle repair shop, which he and
Vaclav Laurin opened in 1895 in Mladá Boleslav. Before going into business
partnership with Klement, Laurin was established as a bicycle manufacturer in
the nearby town of Turnov. In 1898, after moving to their newly-built factory,
the pair bought a Werner "motorcyclist", which was produced by French
manufacturer Werner Brothers. Laurin & Klement's first motorcyclist, powered
by an engine mounted on the handlebars driving the front wheels, proved
dangerous and unreliable—an early incident on it cost Laurin a front tooth. To
design a safer machine with its structure around the engine, the pair wrote to
German ignition specialist Robert Bosch for advice on a different
electromagnetic system. The pair's new Slavia motorcycle made its debut in
1899.

In 1900, when the company had a workforce of 32, Slavia exports began, with
150 machines shipped to London for the Hewtson firm. Shortly afterwards, the
press credited them as makers of the first motorcycle.[4] The first model,
Voiturette A, was a success and the company was established both within
Austria-Hungary and internationally. By 1905 the firm was manufacturing
automobiles.

Rear of a Skoda Popular Special on display at the Sport auto Museum, Lány,
Kladno District, Czech Republic

After World War I the Laurin-Klement company began producing trucks, but in
1924, after running into problems and being hit by a fire, the company sought a
partner, and was acquired by Skoda Works, an arms manufacturer which had
become a multi-sector concern and the biggest industrial enterprise in
Czechoslovakia. Later production was under the Skoda name. After a decline
during the economic depression, Skoda was again successful with models such
as the Popular in the late 1930s.

During the World War II Occupation of Czechoslovakia, the Skoda works was
turned into part of Reichswerke Hermann Göring serving the German World
War II effort.
BACKGROUND:

Skoda had a monopoly in car manufacturing in Czechoslovakia until the 1989

'Velvet Revolution'. After this the Czech government started looking for a
commercial partner to revitalize its Skoda factories.

In 1991, Volkswagen took a 30% stake in Skoda and started work in training and
educating the workforce to Western quality standards. It invested over £2
billion in the plant, research, development and new models. Ten years later, in
2001, VW took total control of the business.

The first two launches from the new Skoda camp were well-received by the
automotive press. The Felicia - launched in 1994 - was built as an old-style
Skoda, but enjoyed the benefit of VW features. The 1998 Octavia was built on
the VW group platform.

The costs of the improved VW car structure pushed up Skoda prices. The cars
carried a higher price tag and Skoda needed to convince consumers that this
price was worth paying.

A VW marketing manager working for Skoda explained:

"We needed to move away from being a cheap brand to being a value-for-money
brand. At the same time, we badly needed to find our own positioning within the
group, rather than just trading on being part of the VW Group. Otherwise, we
might just as well have re-branded ourselves as VW, with very little reason for
existence."
PRODUCTS AND SERVICES:
After enjoying the first mover's advantage in the Indian auto market for nearly
nine years as a high-end, niche car maker, Skoda India, a group subsidiary of
German car maker Volkswagen AG, is planning to emerge as a full-service, mass-
market player. The exercise will also eliminate the overlapping of offerings from
Skoda and its parent company so that top-end models from VW can offer a
broader pricing range.

Skoda has already started realigning its products (on the pricing side) with its
new offerings, New Superb and Laura, priced less than earlier. The new superb
price starts at Rs 18.90 lakh in Mumbai against around Rs 20.65 lakh. Similarly,
the new Laura is priced at Rs 12.74 lakh against a starting price of around Rs
13.54 lakh in Mumbai earlier.

The two brands — Skoda and Volkswagen — share a host of aggregates, at

times even power trains and technologies. For instance………

Jetta and Laura share a similar platform. Also, the previous generation Superb,
current VW Passat and the Audi A4 (another VW brand) shared the same
platform. For instance, the new Superb launched in India earlier this year has
much more difference in appearance than in its innards.

VG Ramakrishnan, director, automotive and transportation, Frost and Sullivan,

South Asia and Middle East, said, "In the hierarchy, Skoda stands at the last in
the ladder, while Audi stands on the top as a luxury brand, followed by the VW
flagship brand, which is perceived as high quality and reliable. Skoda is seen as
commuter brand and has less recall value in the minds of customers globally
compared to VW." He added that it was due to its first mover advantage in the
country that it could garner the premium tag. He added that Audi, another
brand from the VW group in the market has no clash with the VW flagship
brands due to its completely different customer base. However, Skoda will have
to make way for VW products to let it get aggressive in the market, which is
currently hampered by the duplication in pricing of the two brand products.

Further, the company is also planning to position the successor of Octavia,

arriving two years down the line, in the C-segment (Rs 6-10 lakh bracket),
instead of the C-plus segment in the price bracket of Rs 10 to Rs 12 lakh in
Mumbai currently. It is also talking about new engine programmed on
hatchback Fabia and positioning it right with potential buyers. There is a
possibility of the car having a few extra features in the entry-level version to
make it more affordable. Fabia is priced between Rs 4.74 and Rs 6.12 lakh in
Mumbai. And marketing, Skoda Auto India, said, "Today, customers are not
aware that Fabia comes below Rs 5 lakh, which we want to correct. This market
is different and there are customers who just want mobility than, say air bags.
We want to position Fabia to the target customers."

He added that the brand wants to be in the volume game. Fabia is expected to
see a localization of 50% by 2010-end and 75% in the near future. The car's
current positioning is seen apt for soon-to-be-launched VW Polo. While experts
expect the Polo to be positioned below Fabia, the buzz is it will be positioned
higher.

VW sells Jetta and Passat in the country at a starting price of Rs 13.19 lakh and
Rs 23.07 lakh in Mumbai, respectively.

The company also sells Touareg for Rs 52.47 lakh in Mumbai. Skoda's new SUV
Yetti will be priced in the Laura price range. Yetti will be launched in 2010....

KEYS TOWARDS BUSINESS STRATEGIES:

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 over came 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 than5 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. SWOT is an acronym which stands for:•

Strengths – the internal elements of the business that contribute to

improvement and growth•

Weaknesses – the attributes that will hinder a business or make it vulnerable to

failure•

Opportunities – the external conditions that could enable future growth•

Threats – the external factors which could negatively affect the business. This
case study focuses on how

Skoda UK’s management 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.
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 20,000car 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’.

SWOT analysis inaction at Skoda

CURRICULUM TOPICS
•Strengths •Weaknesses •Opportunities •Threats
GLOSSARY Franchised:
Business that works under the name of another and is authorized to sell its
products for a fee or percentage of turnover.

Brand:
A name, symbol or design used to identify a specific product and to differentiate
it from its competitors.

Market research:
Data sourced from both within and outside business that informs it about how
its products and services are performing relative to competitors.

S K O D A U K

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 that98% of its drivers would recommend Skoda to a friend. This is
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 maximizing sales of a product. As a result, Skoda’s biggest strength waste
satisfaction of its customers. This means the brand is associated with quality
productand 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? 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.
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 realized it was now time to say what the brand
Does stand for. The marketing message for the change was simple.
Skoda owner’s 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 and Threats

Opportunities

Opportunities occur in the external environment of a business. These include for

example, gaps in the market for new products or services. In analyzing the
external market,
Skoda noted that its competitors’ marketing approaches focused on the product
itself.
GLOSSARY Brand image:
How a particular brand name is perceived within the market by potential
buyers.
Fragmented market:
a market containing many sellers and many products.

Audi emphasizes the technology through its strap line, ‘Vorsprung Durch
Technik’ (‘advantage through technology’). BMW promotes ‘the ultimate driving
machine’. Many brands place emphasis on the machine and the driving
experience.
Skoda UK discovered that its customer solved their cars more than owners of
competitor brands, such as Renault or Ford. InformationfromtheSWOTanalysishelped
Skoda to differentiate its productrange.Havingcompleteunderstandingofthebrand’sweaknessesalloweditto
developastrategytostrengthenthebrandandtakeadvantageoftheopportunitiesinthemarket.Itfocusedonits
existingstrengthsandprovidedcarsfocusedonthecustomerexperience.Thefocuson‘happy Skodacustomers’isan
opportunity.Itenables Skodatodifferentiatethe Skodabrandtomakeitstandoutfromthecompetition.Thisis coda’s
uniquesellingproposition inthemotorindustry.

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 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: T H E Skoda Fabia is sold as a basic but quality ‘city
car ‘ t h e Skoda Superb offers a more luxurious, ‘up-market’ appeal
t h e 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. 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. This was done by 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, areas painted to protect
against corrosion use lead-free, water based colors. 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.

Outcomes and benefits of SWOT analysis

Skoda UK’s SWOT analysis answered some key questions. It discovered that:• Skoda car
owners were happy about owning a Skoda the brand was no longer seen as a
poorer version of competitors’ cars. However, the brand was still very much
within a niche market change in public perception was vital for Skoda to
compete and increase its market share of the mainstream car market.
Key Steps towards Strategic Planning
The preparation of a strategic plan is a multi-step process covering vision,
mission, objectives, values, strategies, goals and programs. These are discussed
below.

The Vision
The first step is to develop a realistic Vision for the business. This should be
presented as a pen picture of the business in three or more years time in terms
of its likely physical appearance, size, activities etc. Answer the question: "if
someone from Mars visited the business, what would they see (or sense)?"
Consider its future products, markets, customers, processes, location, staffing
etc. Here is a great example of a vision:

I will come to America, which is the country for me. Once there, I will become
the greatest bodybuilder in history.......... I will go into movies as an actor,
producer and eventually director. By the time I am 30 I will have starred in first
movie and I will be a millionaire...... I will collect houses, art and automobiles. I
will marry a glamorous and intelligent wife. By 32, I will have been invited to the
White House. Attributed to Arnold Schwarzenegger who was elected Governor
of the State of California in 2003.

The Mission
The nature of a business is often expressed in terms of its Mission which
indicates the purpose and activities of the business, for example, "to design,
develop, manufacture and market specific product lines for sale on the basis of
certain features to meet the identified needs of specified customer groups via
certain distribution channels in particular geographic areas". A statement along
these lines indicates what the business is about and is infinitely clearer than
saying, for instance, "we're in electronics" or worse still, "we are in business to
make money" (assuming that the business is not a mint !). Also, some people
confuse mission statements with value statements (see below) - the former
should be very hard-nosed while the latter can deal with 'softer' issues
surrounding the business.
The Values
The next element is to address the Values governing the operation of the
business and its conduct or relationships with society at large, customers,
suppliers, employees, local community and other stakeholders.

The Objectives
The third key element is to explicitly state the business's Objectives in terms of
the results it needs/wants to achieve in the medium/long term. Aside from
presumably indicating a necessity to achieve regular profits (expressed as return
on shareholders' funds), objectives should relate to the expectations and
requirements of all the major stakeholders, including employees, and should
reflect the underlying reasons for running the business. These objectives could
cover growth, profitability, technology, offerings and markets.

The Strategies
Next are the Strategies - the rules and guidelines by which the mission,
objectives etc. may be achieved. They cover the business as a whole including
such matters as diversification, organic growth, or acquisition plans, or they can
relate to primary matters in key functional areas. They are as follows:

o The company's internal cash flow will fund all future growth.
o New products will progressively replace existing ones over the next
3 years.
o All assembly work will be contracted out to lower the company's
break-even point.

Use SWOTs to help identify possible strategies by building on strengths,

resolving weaknesses, exploiting opportunities and avoiding threats.
PROCESS OF STRATEGIC MANAGEMENT:
Strategic management process has following four steps:

1. Environmental Scanning- Environmental scanning refers to a process of

collecting, scrutinizing and providing information for strategic purposes. It
helps in analyzing the internal and external factors influencing an
organization. After executing the environmental analysis process,
management should evaluate it on a continuous basis and strive to
improve it.
2. Strategy Formulation- Strategy formulation is the process of deciding best
course of action for accomplishing organizational objectives and hence
achieving organizational purpose. After conducting environment scanning,
managers formulate corporate, business and functional strategies.
3. Strategy Implementation- Strategy implementation implies making the
strategy work as intended or putting the organization’s chosen strategy
into action. Strategy implementation includes designing the organization’s
structure, distributing resources, developing decision making process, and
managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy
management process. The key strategy evaluation activities are: appraising
internal and external factors that are the root of present strategies,
measuring performance, and taking remedial / corrective actions. Evaluation
makes sure that the organizational strategy as well as it’s implementation
meets the organizational objectives.

These components are steps that are carried, in chronological order, when
creating a new strategic management plan. Present businesses that have
already created a strategic management plan will revert to these steps as per
the situation’s requirement, so as to make essential changes.
 Components of Strategic Management Process

Strategic management is an ongoing process. Therefore, it must be realized that

each component interacts with the other components and that this interaction
often happens in chorus.

BCG MATRIX:

Refer to table above SKODA AUTO in quadrant 1 we called question mark.

Division in quadrant 1 have a low relative market share position and they
compete in a high growth industry.

Generally, firms need highly cash for growing industry but their cash generation
is low. The global automobile industry has become intensely competitive with
Toyota, Nissan, and Honda attacking worldwide and at the same time Skoda’s
parent company Volkswagen having financial problem. Besides that, Skoda
management should decide whether continue their assembly plants outside of
Chezh Republic and whether Skoda automobiles should exported to the united
state. We can see their lack of cash but market growth very high. Skoda auto
must decide whether to strengthen them by pursuing an intensive strategy. In
this quadrant they require intensive strategy efforts to improve existing product
and market.

Product development

 The new infusion of capital and emphasis on research and development

to create new model like small car and middle class car.
 Improving the efficiency and attractiveness of new car. Market
Penetration
MARKET PENETRATION
 Marketing communication was developed for the Skoda Roomster aimed
at a new target audience.
 Introducing low price model.
 The customer receives service standard compliance and improves service
quality.
 The comprehensive campaign is develop to launch of new model Market
Development

DIVESTITURE
 Trimming the number of jobs.
 Cutting back on its current overcapacity of 30 percent.
 Sale of some operations, VW has already sold their car rental business,
Euro car, to European investment firm Eurazeo