VW Phaeton: The Ultimate How-Not-To Guide for Marketing, Branding and Product Positioning

Never heard of the most expensive luxury car VW ever built? There's a clue! Here's another: The marketing strategy was based on the chairman's desire to get even with an arch rival, and there's more: The Branding was an exercise in grand delusion, and the product positioning was the result of a buying spree motivated by blind ambition. Read on: this story has more twists than 'The Young and The Restless,' and some great lessons for technology marketers.

The Phaeton has been one of the most humiliating episodes in the life of VW, second only to getting caught cheating in emission tests in 2017. The car’s production never got near the target of 20,000 a year - just 85,000 Phaetons were built over its 15 year life. Worse, the company lost almost 30,000 Euros on every Phaeton built, making it one of the costliest failures in European automotive history.

Getting Even makes for a Bad Marketing Strategy

Mercedes used the 1997 Frankfurt Auto Show to unveil its new A-Class, which was clearly aimed at VW’s traditional market. The story goes that this move enraged VW chairman Ferdinand Pi?ch so much that he decided to retaliate by building a VW that would take on Mercedes on its luxury turf.

Pi?ch was the grandson of Ferdinand Porsche, and a colossus of the German car industry who made Porsche a major force in motor racing in the 1970s, turned Audi into a competitor to Mercedes and BMW in the 80s, and led VW into a bright new post-Beetle future.

Pi?ch’s design brief for the Phaeton was for a car that could not only compete with Mercedes‘ S-class, but beat it at its own game. Among the parameters he laid down was the ability to travel at 300km/h all day long in 50°C heat while keeping the interior temperature at a constant 22°C.

The Phaeton offered an advanced W12 engine, 4-wheel drive, aluminum body panels, double-paned glass, computer navigation, adaptive air suspension, radar adaptive cruise control, heated and cooled seats, and a cabin that oozed serious luxury. The downside was a weight of 2.5 tons, which dulled its performance and made it very thirsty. 

Dumb Names Kill Cars

A furious chairman does not make a great basis for a winning marketing strategy, but Pi?ch was a man used to getting his way. The weekly magazine Der Spiegel once described the work environment at VW as ‘North Korea without the labour camps’.

The marketing brains at VW fell into line, of course, perhaps without first checking their Greek mythology. Bad mistake. Phaeton was the son of Helios, the Sun God. When he let his offspring drive his chariot across the sky one day, Phaeton couldn’t control the horses so they strayed off course. As a result, the chariot scorched the earth and all the crops, and the heat killed all the animals as well. In the end Zeus stopped Phaeton with a thunderbolt, which was the end of him.

Dumb Games Kill Dreams

VW’s marketers decided to avoid broad-shot TV advertising and instead focused its campaign on direct marketing, telemarketing and personalized mail shots to thousands of luxury car buyers. The mail-out contained a hardback book in a matte-black sleeve to reflect the luxury theme. Classy advertising was placed in luxury lifestyle publications and on luxury-focused websites.

The Touareg, VW’s new high-end SUV, was part of the campaign - a bad mistake when you’re launching a brand new car into a brand new market. The Touareg had nothing in common with the Phaeton - it shared parts with Porsches and Audis, and was clearly aimed at a different market segment.

The obvious question here is: what made the marketers think they could establish VW as a player in the luxury car market with a tragic name, a glass factory and a bit of clever advertising? The most likely answer is that no one at VW had the guts to tell Chairman Pi?ch that it was a dumb idea.

Seeing is Believing

A better idea was the purpose-built factory with glass walls, which let customers see VW craftsmen put the finishing touches on their cars before they picked them up. And the cars were impressive, collecting rave reviews even from the hard-nosed US media.

Forbes called the Phaeton a ‘great car.’ USA Today wrote: ‘The interior decor sets a standard for class and taste. Comfort is exceptional. Driving personality is ever-so-lovely. Power’s right.’ Business 2.0 said the Phaeton ‘might be the most compelling luxury vehicle currently sold. It is overwhelmingly the best value among high-end luxury cars. Without question it is a magnificent vehicle.’

In a 2004 Motor Tend comparison test, the Phaeton came ahead of the Jaguar Vanden Plas, the Mercedes S430 and the BMW 745i, but behind the Lexus LS 430 and the Audi A8L.

Despite the rave reviews, buyers stayed away in droves. The VW badge on a car that looked like a stretched Passat just didn’t have the cachet buyers in the luxury car segment treasured. In this market, the badge counts for much more than mechanical excellence, or speeds and feeds, and value for money is low on the list.

Buyers Refused to Believe

In the important US market the Phaeton was a giant flop, selling just a few thousand cars in over 3 years before VW tossed in the towel in 2006. When former Audi of America chief Axel Mees conceded at a press event that the Phaeton's poor sales were due to Volkswagen ‘underestimating the weakness of the brand,’ he was sacked. When CEO Bernd Pischetsrieder pulled the Phaeton from the U.S. market in 2006, he was sacked as well. 

So why didn’t VW follow Toyota’s lead? The original Lexus sedan was a success because it clearly shared nothing but the parent company of those boring Camrys. It’s not as if VW didn’t have badges with more prestige than VW: a year after Pi?ch made the fateful Phaeton decision, he went on a buying spree and came home with both Bentley and Bugatti brands, and added Lamborhgini through his Audi subsidiary.

With those famous badges, Ferdinand Pi?ch had a hand of cards that could surely beat Mercedes at its own game. As it happened, the meisters of the 3-pointed star had just decided to revive the old Maybach limousine brand for the luxury market, which turned out to be another bad idea that ended up squirting red ink all over this car maker's books That's a story for another day.

Pi?ch Refused to quit

If anger makes a poor basis for a marketing campaign, adding obstinacy guarantees failure. Not content with his collection of high-class badges, Pi?ch decided to show the world that VW could build the most advanced sports car ever: the Bugatti Veyron, a car that was to shatter speed records for road-going machines with ease, a car that pushed mechanical boundaries like rubber bands, and a car that must’ve given VW engineers nightmares.

You see, no sports car ever built could serve as a guide or a target for them, unless you went back to the 1930s when Auto Union and Mercedes dueled for the land speed record with whatever-it-takes-über-technology. Of course, these were purpose-built racing cars, pushed to the limit by legendary drivers like Caracciola and Nuvolari, supercharged V12s that produced over 500 horsepower for top speeds in excess of 450km/hour.

The eventual Veyron’s engine was an 8.0-litre W16 configuration sporting 16 cylinders, 64-valves and 4 turbochargers. In its final guise – the Grand Sport Vitesse - it produced 883 kW and enough torque to pull out giant tree stumps. Revheads can check the details in the footnote below.

The Veyron accelerated faster than a Boing 747 on take-off and reached 400 km / hour with ease. Every Veyron was built by hand, and most of the components were unique in design. Just over 300 Veyrons were built between 2002 and 2016. The price tag was a couple of million Euros.

Product Marketing Mayhem 

The Phaeton had 4 or 5 facelifts in its life, but they failed to make it more attractive to buyers, so it remained sitting alone in a corner like a gauche girl at the prom.

Pulling the Phaeton off the US market in 2006 surely gave Pi?ch pause for thought, and a chance to pivot. He could have given the Phaeton a new set of clothes, and a new name, or he could’ve re-launched the car under one of the badges he now owned. Mind you, that was easier said than done since the Phaeton had no synergy with Bentley, Bugatti or Lamborghini. Nor did those 3 badges have much synergy with each other.

Audi was the obvious home for the Phaeton. The car’s engineering advances could’ve made the Audi 8 a stronger contender in the luxury car market, and it could have been built in the old Phaeton glass factory. Instead Ferdinand Pi?ch kept the Phaeton alive for another decade, bleeding money all along the way.

Did VW use the stupendous Veyron to make the Phaeton more marketable? Such as a play on shared engineering advances? A product of the company that had mastered the most advanced automotive technology in the world? Not that we know of – the Veyron was mostly out there in its own hyperspace, a planet with insufficient gravity to exert any pull on VW’s satellites.

Dieselgate

Ferdinand Pi?ch left VW in 2015 after a bitter power struggle with CEO Martin Winterkorn. A year later, the Phaeton was retired as well. In 2017, VW was caught cheating in emission tests on its diesel engines. The sad saga cost the company some 30 billion Euros, and heaven know how much more in reputational damage. All the effort that went into the Veyron will dissipate in the public’s mind, while Dieselgate will be the dominant thought associated with VW for years to come.

German prosecutors charged CEO Herbert Diess and chairman Hans Dieter P?tsch, as well as the former CEO Martin Winterkorn, with stock market manipulation for their alleged failure to reveal the scandal. Winterkorn and other executives already faced separate fraud charges in the US and Germany.

Marketing Mayhem

By now VW owned Audi, Lamborghini, Porsche, Ducati, Bentley, Bugatti, Skoda, Seat, and truck makers Scania and MAN. The conglomerate has survived and flourished because of its engineering prowess; not because of its marketing, and certainly not because of its product positioning.

Was there an overarching product strategy? Yes, Pi?ch and Winterkorn were hell-bent on making VW No 1 in the world, bigger than Toyota, so they bought all the car companies that came up for sale.

The result was a product marketing nightmare: VW, Skoda and Seat compete with each other in the traditional market for people’s cars. In 2017 Reuters reported that VW was considering punitive measures against Skoda, as the Golf and Passat were feeling the competitive heat from cheaper Skoda equivalents.

Scania and MAN both make mid-size trucks, with little to differentiate them. In the supercar market, Porsche competes with Lamborghini and Audi for holding the lap record at the Nürburgring race track (a big thing in that market). So it goes.

FOOTNOTE ON THE BENTLEY CONNECTION

Did VWs marketing campaigns milk the Bentley connection for all it was worth? There's not much evidence of that. One connection I found is that the Phaeton became known as the 'Budget Bentley' because it shared the same platform, engine and electronics with the venerable marque, but even that didn't help sales. What helped Bentley sales on the other hand was the spare capacity in the Phaeton glass factory. VW offered this capacity to Bentley, which had long waiting lists for its new Continental Flying Spur.

In another example of grand delusion, Bentley management hesitated since it was worried that the firm's customers placed great value on the car's 'Made in England' label. They clearly hadn't read British newspapers that printed headlines like this: 'Bentley ranked least reliable car maker in Britain' (2015). Once the board accepted VW's offer, customers were more than happy to take delivery of a Bentley built in Europe's most advanced car factory, and soon the order backlog had shrunk to manageable numbers. More Here.

FOOTNOTE ON INNOVATION

Pi?ch’s original idea for the Veyron’s engine was a W18 configuration, achieved by coupling 3 VR6 engines together. However, the complexities of building such an engine were so daunting that even the man who always got his way backed off.

It wasn’t for a lack of engineering prowess. With the VR6, VW’s engineers had produced an ingenious breakthrough design: a V6 with a 15 degree angle between the two banks of cylinders, which meant both banks fitted into a single engine block that was just a bit wider and longer than typical 4-cylinder engines. That meant the 3 litre engine could be fitted into cars as small as a Golf, instantly turning into it into a very hot hatchback.

The diagram below shows – from left to right – a 4-cylinder inline engine, a traditional V6, and the VW VR6, all in a simplified top-down view

Image Source: zerotohundred.com

The engine that eventually powered the ‘production’ Veyron was a W16. The engineers created this engine by adding a couple of cylinders to the VR6 to make a VR8, then bolting two of these together around a common crankshaft. The resulting 16 cylinder engine was remarkably compact, but far more compact than traditional V16 engines.

There’s a whole lot more detail in this article https://www.zerotohundred.com/forums/threads/explained-vws-vr6-w12-and-w18-engines.162056

After its acquisition by VW, Bentley slotted the W16 engine into a new Spirits prototype, but later production cars used a smaller W12 engine – the same one that was the top option in the Phaeton. Bentley became the centre of excellence for the 6-litre W12 engine, and has coaxed over 600 bhp out it, enough to power its heavy machines to over 200 mph.  

Please Note: this post was contributed by Tech Torque's Content Chief Kim Brebach, who is a bit of a rev-head.