Audi's Aggressive Action Plan

By Marty Bernstein
AIADA Contributing Editor
Special to The Auto Channel

Audi of America, in my opinion, could be the equivalent of Rodney Dangerfield, the comedian who got no respect.

Consider a few facts: BMW, Mercedes-Benz and Lexus each out-sell Audi by thousands of vehicles. The brand spends less in advertising than the other big luxury–status car brands may spill. There’s that terrible lingering 60 Minutes episode for the older generation of car buyers.

But don’t even think of crossing off Audi or minimizing the company’s objectives. They are very, very serious, aggressive and ambitious.

The Past is not Prologue

Audi, the other German luxury brand, is trying harder to set a fast pace the others will attempt to emulate and eventually envy. Consider a few of the little things it has already accomplished, such as:

•Almost tripling U.S. sales from 34,160 units in 1997 to 90,116 in 2006;

•Doubling model count in the next 8 years with 18 new models;

•Expanding exclusive Audi dealers to almost half its retailers;

•Increasing sales in major metropolitan areas; and,

•Setting record paces with the first diesel powered racecar.

And don’t forget, Audi has the rather deep Euro pockets of Volkswagen which owns almost all (99.7 percent) of the 4-overlapping-ring-logo company to help assist with its ambitious goals.

As examples, a plant in Belgium was recently added to the list of Audi plants in Germany, Slovakia, Hungary, and China. It will manufacture a new compact Audi, yet unannounced but in development. Then, there is a corporate commitment to invest €11.8 billion in new products between 2006 and 2011, which at current conversion rates equals $15.9 billion. Not exactly chump change.

Audi AG sales so far in 2007 (excluding March) set new records as worldwide sales of Audi vehicles rose to more than 144,000 vehicles in the first two months of 2007, up 9 percent on the same period last year. In February alone, the company equally recorded an increase of 9 percent and recorded the best February in the company’s history by selling in excess of 69,000 vehicles.

Audi of America had a good first two months as well, registering a 37.5 percent increase in February 2007 sales compared to February 2006. Sales totaled 6,609 for the month. Sales in 2007 through February are up 19.4 percent to 3,008 vehicles. But surprisingly for a luxury brand, the U.S. is not the number 1 export market for Audi – it’s China!

That’s right, China, where in the first two months of the year Audi reported a sales growth of 31 percent with 15,600 vehicles sold in total (excluding Hong Kong). Just in February, Audi recorded a considerable rise of 29 percent to 7,200 units sold.

Audi’s business also grew in other important markets, such as: France (8,800 units, up 17 percent), Great Britain (12,000 units, up 12.2 percent), Italy (10,600 units, up 10 percent), while sales in Russia recorded a rise of 91 percent to 1,900 vehicles.

America’s Luxury Buying Component

According to a recent wealth report by TNS Financial Services, there were 8.9 million (yeah, million) millionaires in the United States last year. That’s up 700 thousand from the previous year. Forbes had more billionaires than ever on its current list. And there’s the ‘emerging-aires’ – those with a net worth in excess of $250 thousand, who number almost 25 million. Big numbers. Bigger bucks.

Audi is appealing to America’s fascination with the Gemini twins of celebrities and show biz. They opened a design center and lifestyle studio in a former hanger at the Santa Monia, California airport, sponsored the Elton John Academy Awards bash for a few years, have opened a luxury showroom and space venue on Park Avenue called the Audi Forum, and have set new records in the �ber-rich sport of automobile racing, with of all things, a diesel engine racecar.

Growing Audi’s Business in America

Last year, Johan de Nysschen, executive vice president and head of Audi of America, Inc., appointed Scott Keogh as CMO – Chief Marketing Officer – a newly formed position in Audi, much less other car manufacturers, designed to oversee all marketing strategy and department responsibilities for the brand in America.

Keogh is a very bright, capable and young (age 37) marketing executive, who for 15 years had a succession of ever-upward marketing, communication and managerial positions at Mercedes-Benz, including a stint as general manager of Smart.

He’s a very smart, forward-thinking marketing exec who really knows and understands the luxury car business in America, today’s shifting media models, and his own budget constraints.

One of his first moves as CMO was to search for a new advertising agency partner to raise the visibility and viability of the brand. So, with this information I began the conversation with Scott recently.

MB: How can Audi grow in the luxury car market in America?

SK: If you look at any luxury brand, there are two things you need to get right on various levels…

MB: They are?

SK: The first thing, I call the ‘sense;’ and, the second, is what I call the ‘soul.’

MB: Sense?

SK: In the sense quotient are elements of safety, value, quality, residual value. So, people will say, “I trust this brand, it makes sense.”

MB: And in the soul area?

SK: In the soul category are things like performance, sexiness, the cool factor and the emotion the car inspires.

MB: So, Audi’s sales increase now comes from which area? Sense? Soul? Both?

SK: When you stop and think about what Audi’s been doing for the last five years, we’ve been behind the curtains working our tails off in the nitty-gritty business of making this brand make sense.

MB: What are some specific examples?

SK: ALG just announced Audi’s have the highest residual values, which is very important as you know in leasing, releasing and resale; Consumer Reports just recommended four of our cars for the first time ever; we’ve just had the highest CSI scores we’ve ever had; NHTSA just gave the A6 the award for the safest large car on the road.

MB: Where have your dealers entered into the marketing equation?

SK: We’ve been working aggressively with our retail outlets. There are now about 270 dealers, 100 of them are dedicated, exclusive Audi dealers in big markets. And we want to get more dealers in this category.

MB: All of which has resulted to date in…?

SK: Putting it all together – after five or six years of intense work – this brand is making sense! I can trust this brand. We had to do that.

MB: The sense quotient is accomplished, how about the soul of Audi you mentioned?

SK: Audi has always been the very polite, reserved gentleman at a cocktail party who is holding a very interesting, informative and endearing conversation with someone. Now, we want to get our shoulders back, get out there and express ourselves.

MB: How did you set out to do this? Is this how you began a search for a new ad agency? What did you do?

SK: We started last fall. My colleague, Stephen Berkov and I went around to a number of agencies and we picked four. We were confident in our selection and felt no need to cast a wider review net. We held the conversations we needed to hold and knew these four were going to give us what we needed.

So, we put together a criterion of the strengths and weakness of each, and then saw how they merged up.

MB: Who were the final four?

SK: BBH – a mainstay in the U.K. came to New York and has been gaining ground in the states. The second, was Fallon; McKinney was the third; and, Venables, Bell & Partners was the fourth.

MB: Having been on both sides of the agency review process, that’s a tough job, isn’t it?

SK: I agree. It is tough work. You have so many factors: there are personalities, relationships, history, chemistry and it has all got to be in perfect alignment. It’s a tough thing for both sides.

MB: How did you indoctrinate the possible agencies?

SK: We headed to Ingolstadt, Germany (Audi’s headquarters in Bavaria) and had a big briefing there, including barreling around in A6’s and A8’s on the Autobahn. We got them fully briefed across the board. Then, we came back to the states and held a couple rounds of creative challenges and we selected Venables.

[Note: Venables, Bell and Partners is based in San Francisco, CA. Among the agency’s other clients are HBO Creative and the Fresca division of Coca Cola.]

MB: Obviously, the chemistry and creative works were good, but what were the primary reasons for selecting them?

SK: Simplistically, there are two reasons why we picked them: First, they clearly laid out what they see as the opportunity for Audi in the luxury market, and laid out the fact that “Audi’s time is now!” I think the luxury segment is a little bit staid and tired. It’s ready for a good rocket to take-off. We think the time is ripe for Audi to do it.

MB: Was the opportunity statement augmented with an action plan?

SK: The second thing they did which impressed us was ‘how you go to market’ now. They really laid out a strategy that revolved around the Internet, public relations, events and other elements. It’s not possible for Audi to go to market the way every other brand goes to market: with unlimited resources and unlimited everything. That’s not where we are. Venables did a great job with the planning.

MB: In the past, Audi’s advertising has been, I believe, lackluster – nice, but boring and obviously ineffective. What do you have planned for the future?

SK: It’s not as if everyone in America knows about Audi and we have to re-educate them and/or change their perceptions. What you have is a brand that people are really not aware of. The most simplistic thing we do because the response every one gives when they get inside an Audi is, “I had no idea.” So, what we want to do is get people in out cars.

MB: Your targets are already in focus, aren’t they?

SK: We’re seeing a little bit of tedium with the status quo. The Mercedes, BMW and Lexus brands in certain areas have 20 percent to 25 percent each in marketshare. These cars are stacked up everywhere. I think this is a good market for Audi to distinguish itself in. This is a market that stands out differently. More progress. More modern. It’s an alternative view of luxury.

MB: Given the competitive forces, that is a very ambitious marketing objective. When will the new marketing communications begin?

SK: Now, with the new agency and where we want to go this year, this is where we are going to start to nail the ‘soul quotient’ for this brand. Combine the new agency with the new products we have: the TT, R8, and the A5 coupe, which we showed in Geneva and is coming to the New York Show. Now is our time.

MB: What do you hope to achieve?

SK: We want to achieve Audi’s rightful place as a Tier 1 luxury brand here in the United States. If you go to Europe, irrefutably it’s BMW, Mercedes and Audi in image, sales and profitability. That’s what we want to do now here in the States. It’s as complicated or as simple as that.

In the early days of what is now Audi, one of the founders after a contentious period with partners wanted to use the family name, Horch, for the name of the company but was unable to do so. Some family member suggested that the family name in German means “Hark,” which is “Audi” in Latin. The dictionary definition of hark is “to listen attentively.” Over the next year or so, I intend to “listen and watch” what happens to Audi to see if they gain the status awareness and cach� they are seeking with this serious marketing endeavor.

Important news, this weekend Porsche, a very profitable company, announced it was increasing its stake in Volkswagen AG, a semi-profitable company, to 31 percent from 27.3 percent. Some say the move was an effort to keep Volkswagen AG in Germany, rather than watch it fall to conquest by non-German investors. An interesting concept, but it also raises the question of what would happen to Volkswagen and the other brands it owns: Bentley, Bugatti, Lamborghini, and, of course, the topic of this article, Audi. Nothing stops moving in the world of automotive intrigue. Stay tuned.