To increase sales, Volvo's new brand strategy aims to convince drivers that its cars aren't just about safety. Will they respond?
Volvo Cars is hoping to have a new brand strategy, or at least a new idea for one, by late April, when it names a new global advertising agency to handle the company's image worldwide.
As it plows through the process, though, it's difficult for outsiders to understand why a brand so singularly identified with safety and trust should need a new strategy.
Or perhaps that's the answer to the question of why they need a new brand strategy. For years, the Swedish automaker has been frustrated by its indelible, slightly nannyish image of being the ultimate safe car. Finding that identity limiting, it has dabbled in marketing speed and performance with a few cars in the hopes of exciting men, many of whom view Volvo, much like they view minivans, as a compromise buy after children are born. And it has made its styling more interesting since the late 1990s, giving up the relentlessly boxy designs that characterized its sedans and wagons for more than 30 years.
But sales have plainly disappointed. Volvo in the late 1990s believed it could reach a worldwide sales goal of 600,000 vehicles a year by mid-decade, with 200,000 of those in North America, based on widening its audience and expanding the product line. Last year, it managed just 139,000 in the U.S. and Canada. As the volume leader inside Ford's (F) Premier Automotive Group, though, and with Ford under mounting financial pressure to make all of its brands deliver to the bottom line, Volvo is looking for a new brand idea to elevate its status in the mind of consumers—especially men—and realize its unmet sales goals.
Still Worth a Bundle
Executives inside Ford say Volvo's performance last year was slightly better than breakeven. That's especially disappointing, say Ford insiders, considering Volvo doesn't have the image problems of Ford's other PAG brands—like Jaguar's old rep for quality problems and dated design or Land Rover's singular identification with sport-utility vehicles, the demand for which is decreasing, even in the luxury segment. Luxury-car maker Aston Martin had been part of PAG until it was sold for $848 million to a group of investors on Mar. 13 (see BusinessWeek.com, 3/13/07, "After Aston, Could Jaguar Be Next?").
Despite the lackluster results, Merrill Lynch (MER) recently said Volvo would be worth $7 billion to $8 billion if Ford were to sell the company today. That's a premium above what Ford paid in 1999 to acquire the brand and roughly half of Ford's total market capitalization today. It's more than some analysts have said the entire Chrysler Group (DCX) is worth. That's because Volvo is a legitimate global premium brand with no negative baggage.
To solve the problem of underperformance, don't get the idea Volvo is ditching its "safe" brand equity. "We have to maintain our position as the leader in safety, and communicate that in new, engaging ways all the time," says Hans Krondahl, executive vice-president of marketing for Volvo Cars of North America. Krondahl admits that other carmakers have closed the gap in safety, driven in part by stiffer regulations that all automakers must follow. "But there still has to be a leader, and that's Volvo," he says.
Volvo's sales drop last year in North America and Europe, says Krondahl, was driven by the fact that Volvo hasn't introduced a new design in a high-volume segment in almost three years. The newly designed S80 sedan was launched in January. A new XC70 crossover wagon, which hasn't been redesigned for seven years, goes on sale in October. The C30 subcompact, a new model segment for Volvo, goes on sale in November. And a new V70 wagon goes on sale in January. Based on last year's sales, that means that four of Volvo's eight models will be all new by January, in addition to the C30.
Part of Volvo's problem has undoubtedly been the stinginess of the brand's marketing budget. Worldwide, the brand spent some $150 million last year. Krondahl said that figure will climb by about 40% for the new agency.
Volvo sales haven't only been sluggish in the U.S. but also in Europe—outside of the home Swedish market. And it's been lagging in Asia as well. That's the scope of the problem the new ad agency will have to address. One ad-agency executive competing for the Volvo business says that the task is to make Volvo's safety leadership more relevant, while expanding the trust consumers have in Volvo to Europe, "where safety and trust haven't been as big a part of the brand as they have been in the U.S." Another big concern of Volvo's is building its brand and business in China, where it has little presence but where rivals BMW and Volkswagen have done well.
Volvo's advertising in the 1970s and '80s was nearly as iconic as Volkswagen's ads in the 1960s. The ads, which were often studied in business schools, showed often outlandish demonstrations of Volvo's strength: One showed an elephant standing on a Volvo. Another showed Volvos stacked on top of one another. Another showed a tractor-trailer planted on one.
But that demonstration-style advertising came to an end in 1991, when the ad agency staged a demonstration of a monster truck driving over a lineup of cars, crushing each one except the Volvo. Though the Volvo had withstood one pass of the truck, the car had to be reinforced to withstand the multiple passes required by the video shoot. The Texas Attorney General went after Volvo for fraudulent advertising in a highly publicized case.
Euro RSCG has the Volvo business in the U.S. and developed the current brand platform and ad slogan, "Volvo. For Life." The incumbent agency is competing against Fallon Worldwide, which until last year handled BMW's U.S. advertising and developed the famous BMW Internet Film series. Also competing is Havas/Arnold Worldwide (HAVS), which is known for rekindling Volkswagen's advertising in the late 1990s and is teamed with London ad agency Nitro. Omnicom's (OMC) Amsterdam-based 180 is in the running as well.
What's the Big Idea?
So what's wrong with Volvo? Critics inside and outside of Ford say Volvo should have been leading in alternative-power technology as a natural extension of its safety and family brand image. It's now planning a hybrid version of the new C30 hatchback. But it may be too little, too late. One Ford insider says Volvo could have and should have had a vehicle in the lineup already that makes use of the Ford hybrid system in the Ford Escape and Mercury Mariner.
Why doesn't it? Up to now, Ford hasn't coordinated vehicle development at its European brands with Ford North America, or even something as basic as an electrical architecture key to a gas-hybrid vehicle (see BusinessWeek.com, 3/20/07, "Hybrids: Stuck in Neutral").
That's also the reason Volvo won't get the Synch in-car communication system pioneered for Ford vehicles that plays MP3 files from voice commands and cell-phone conversations into the car's surround sound, among other features. "For a brand with so much massive equity and acceptance, there has been a shocking lack of vision in taking advantage of it," says independent marketing consultant Dennis Keene.
The winning agency must come up with a big idea to persuade more consumers to consider Volvo more often and to associate the cars not just with safety but also with security and "smart money," says Keene. "People feel incredibly responsible after buying a Volvo, but the challenge is to make them feel smart and even a little jazzed," he adds.
And there will be changes to the brand to cope with, such as the likelihood that Volvos will soon be built in the U.S. It's been an idea that has been floated and rejected in the past. But as Ford streamlines its product development between Ford and Volvo and builds vehicles off common engineering platforms, it will only make sense that it maximize productivity and avoid losses from currency spreads by building Volvos stateside. While Volvo executives have fought that move, new Ford CEO Alan Mulally is driving that kind of streamlining. If BMW can build its cars in South Carolina, it shouldn't be a big problem for Volvo's image.
The company has also been notoriously lax in pursuing quality and reliability improvements. In J.D. Power & Associates' Initial Quality Study, which measures consumer-reported defects, Volvo scored 133 defects reported per 100 vehicles in the first 30 days of ownership. That's well above the industry average of 124, and a long way from the 93 scored by Toyota's (TM) Lexus and even Hyundai's 102. The story doesn't get much better for Power's measure of dependability, where Volvo scores 272 problems per 100 vehicles over three years of ownership. That's about twice as many complaints as Lexus.
Such lackluster performance on quality is why Volvo can't afford to let up the gas on its safety positioning. Despite its so-so scores on quality and reliability from J.D. Power and Consumer Reports in recent years, Volvo is by far the most trusted brand in the auto industry. In surveys conducted by Strategic Vision last year, more than 60% of consumers surveyed associated Volvo with a feeling of trust as the leading brand attribute. Toyota came in a distant second, at about 42%. That's a pretty good place to start a brand recovery.