Imagine you have recently bought, a new Volkswagen (VW) diesel car after closely exploring different automobile brands for a long time and all of a sudden news break that the carmaker has violated the Clean Air Act according to EPA, California (EPA 2015). How this issue can impact Volkswagen reputation and brand image in your eyes? How does this impact those who were considering buying a VW diesel and their decision? Here we are going to see how failures (scandals) like the case of VW can influence brands’ reputation and what consequences this loss of reputation can have for a brand.
WHAT IS BRAND?
These days brands can be found everywhere. In the other words we are living in a brand saturated environment where brands can be seen brands in every single part of our lives such as economic, culture, sporting, and even religion. (Maurya & Mishra, 2012).
According to American Marketing Association brand can be defined as “a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors”(Kotler, 2009). As Iacobucci (2013) notes in majority of cases brands are more valuable than the products itself. Regarding this, scholars have identified several essential building blocks of a brand (Farquhar, 1989; Herbig & Milewicz, 1993), which include (1) brand reputation (2) brand image and (3) brand credibility.
Brand Image can be considered as one of the major criteria for customers when choosing products or services. “brand image is defined here as perceptions about a brand as reflected by the brand associations held in consumer memory” (Keller, 1993). It has been proven by previous studies that a strong brand image can deliver strategic advantages for a firm and reinforce its position in a market (Porter & Claycomb, 1997). However, the down side of the brand reputation is that reputation is fragile. It can be lost or damaged easily and once lost takes much time and effort to restore (Herbig & Milewicz, 1993) and the brand would be affected heavily by this loss, like the way VW did.
VW scandal from a branding perspective
The Volkswagen Group is one of the biggest car manufacture in the Europe and world’s leading car manufacturer. The company has got broad variety of brands such as Audi, Porsche, Bugatti, Bentley, and Lamborghini, to name a few.
Everything was going well and as planned for VW until in September 2015, United States Environmental Protection Agency, after conducting several tests on VW’s cars found a software installed on the automakers’ diesel cars which starts working under test situation so it could reduce the emission while the engine was being tested. However, during normal driving the software was inactive so emissions could increase up and beyond the legal limits, mainly to enhance engine’s performance.
Shortly after EPA released its report, Volkswagen’s reputation and shares plunged. The Wolfsburg, Germany-based company’s stock fell 35 percent, shaving $22 billion from VW’s market value. The company also lost 25 percent of its market value (Kresge and Weiss 2015)
What is really VW is suffering from after the scandal is in fact the loss of reputation and image of its brand in the eyes of its potential customers. Brand reputation has key role for every single organisation. Reputation is customers’ opinion about a specific company and the way it behaves. Previous studies suggest that customers’ trust and confidence have a positive relationship with company’s reputation (Bracey, 2015). So on this basis, it wouldn’t be wrong to say beyond any financial hits, the damage to Volkswagen’s reputation could be even more difficult to repair. If Volkswagen brand wants to back to its previous position, the company have to work seriously and focus on a strategy aimed at restoring trust with all its customers.
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Iacobucci, D. (2013). MM 4: Cengage Learning.
Keller, K. L. (1993). Conceptualizing, Measuring, and Managing Customer-Based Brand Equity. Journal of Marketing, 57(1), 1-22. doi:10.2307/1252054
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Maurya, U. K., & Mishra, P. (2012). What is a brand? A Perspective on Brand Meaning. European Journal of Business and Management, 4(3), 122-133.
Porter, S. S., & Claycomb, C. (1997). The influence of brand recognition on retail store image. Journal of product & brand management, 6(6), 373-387.