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A winning combination for Skoda: a good brand at a good price

by Nigel Hollis | March 14, 2012

My brother drives a Skoda Fabia. I drive a VW R32. Both cars are a similar size and do not look that different from each other. If it was not for my ridiculous addiction to speed, a need for four-wheel drive and the fact that Skodas are not available in the USA, I might well drive a Skoda too. After all, they are reputed to be good vehicles offering excellent value for money.

The combination of good functionality and a good price has helped Skoda not only ride out the recession, but also to grow. A recent article in the Financial Times, reports that the brand’s worldwide sales surged 15 percent to 879,200 last year.

It is tempting to suggest that Skoda is just another value brand that has done well during the recession, and suggest that its rise will falter when the economy finally recovers. But I think that would be a mistake. To my mind, Skoda has done a great job of creating a good product and selling it at a fair price. 

The management team understand that they are a volume player and have tailored their business model and brand positioning accordingly. For instance, Skoda sticks to tried and tested model formats and only introduces new technology when the cost is right. This business and brand model is somewhat different to the usual premium brand model that most people have in mind when they think about brands. 

The basic brand strategy is the same for premium and value brands: to make their associations as relevant, positive and salient as possible. However, the thrust of that strategy and the tactics deployed will differ. In part, the difference is due to the target audience. In the case of the automotive market, many people are just not that enthused by cars. They need a car to get them from A to B and, provided it does that well, all they ask is that it does not cost too much. And then there are the people who would love a glitzy brand but have to settle for what they can afford.

I believe that Skoda has done a good job of creating an offer that appeals to the practical and price sensitive segments among automotive buyers. According to BrandZ, apart from in its Czech homeland, Skoda is rarely seen as a highly desirable brand. Based on the overall data you would have a hard time believing that this is a growing and healthy brand. 

But while its overall equity scores are relatively weak, its character profile is revealing: trustworthy, straightforward and different. This represents an intriguing contrast to its big brother, VW, which is seen as desirable, in control and trustworthy. But the biggest difference is that among those that have an opinion about each brand, far more people think Skoda is a fair price than VW (or most other brands for that matter). The balance between reasonable functionality, positive personality and fair price means that in most countries Skoda is positioned as good value.

One last thought, being a volume player does not mean a brand is destined to make low margins. The Financial Times, reports Skoda earned a 5 percent operating profit in 2010, a very healthy margin in the highly competitive automotive category. It makes Skoda one of the chief contributors to parent VW’s profits alongside Audi and the truck maker, Scania.

So what do you think? Is my assessment correct? Will Skoda stay the distance or fade as disposable incomes rise again? Please share your thoughts.

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