In the single-minded pursuit of its goal to become the world’s most successful car manufacturer by 2018, Volkswagen sacrificed what they stood for. The fallout from the diesel emission scandal continues to spread, and examining the extent of the damage reveals why a company must align its internal business activities with its brand – as well as what can happen when a company loses sight of its core values and fails to fulfill its customer promises.
It is no coincidence that, in the emission scandal’s aftermath, Volkswagen’s brand value is estimated to have dropped by $10 billion at the same time that the company posted its first quarterly loss in 15 years. The health of a brand is directly linked to the health of a business.
The damage has also extended beyond the Volkswagen brand itself to the portfolio brands. Porsche, Volkswagen’s majority shareholder, reported that its profits were down by half at the end of 2015, while Audi – another Volkswagen sub-brand – suffered the embarrassment of having to launch special features on its website so that customers could check whether their cars are among the 2.1 million that may have to be recalled.
And the damage doesn’t end there. Both the Volkswagen and Audi brands are closely linked with Germany, which has enjoyed a position as one of the strongest nation brands in the world – not just with regard to German engineering. German people are seen as honest and hardworking, and German industry is thought to be reliable and efficient. As the country’s largest employer, Volkswagen bears direct responsibility for tarnishing its reputation.
Brand image and reputation
Only time will tell just how big a toll the crisis will take. Early indications are that the Volkswagen brand may have enough equity with consumers to weather the storm, but the speed and degree of recovery depends entirely on how well the Volkswagen leadership addresses the scandal and the internal issues that caused it. Customers may not be so forgiving if they are let down a second time.
But in all this, a question remains: why would such a sophisticated company make such an avoidable mistake – with such dire consequences – for the sake of achieving a short-term business objective?
Regardless of who had knowledge of what and when, the cause of this epic scandal can be traced back to one simple source: Volkswagen failed to implement its brand internally.
A brand founded on honesty
A brand is an extension of a company’s core values, which in Volkswagen’s case are responsibility and sustainability. Core values exist to guide business decisions, and when used correctly they drive every aspect of a company – from the employees it hires to its corporate culture to its marketing.
Volkswagen certainly presented itself to the public as a responsible, sustainable company. For example, the company has won customers’ loyalty by successfully positioning itself as a maker of honest cars for honest people, starting with those revolutionary plainspoken “Think Small” and “Lemon” ads, all the way up to its environmentally conscious “Think Blue” campaign. Over the years, these efforts have successfully cultivated a brand that consumers associate with trustworthiness, reliability, and efficiency.
And in light of how deeply consumers care about the issue of sustainability, Volkswagen’s actions – installing a “defeat device” in its diesel engines to cheat on emissions tests – are all the more shocking. From a branding standpoint, the company couldn’t have told a bigger lie. No wonder its customers feel betrayed.
Why implementing the brand internally matters
Volkswagen’s intentional, systematic deceit indicates a disconnect between how the company communicated its brand values externally and how they implemented them internally. Internal implementation is hard work, requires just as much dedication, and is just as important as external branding. It requires both a clear strategy and a dynamic approach if the brand is to thrive in a corporate environment. And no matter whether then-CEO Martin Winterkorn had direct knowledge of the “defeat device” scheme, he was guilty of failing to ensure that Volkswagen’s corporate culture reflected its brand values.
The Volkswagen scandal shows that this mistake – of allowing a company’s business activities to contradict its brand – is a temptation that even the most marketing-savvy companies can give in to.
The importance of transparency
There is another valuable takeaway from this scandal. The light-speed flow of information around the world, from social media and gossip blogs to the 24-hour news cycle, doesn’t just increase competition among brands. It also heightens scrutiny and also helps to form – and strengthen – public opinion faster than ever before.
If a company is unable to meet its business targets honestly and on-schedule, it must be open and upfront about that from the beginning. Cheating and attempting to conceal bad behavior is a fool’s errand – the truth will be revealed sooner or later. Companies, no matter how large or small, should take heed: transparency is the only option.