Balanced Rocks

Balancing Brand Trust – Volkswagen

Balancing Brand Trust – Volkswagen

Balancing Brand TrustAnalyzing Brand Equity and Brand Trust

The evolution of marketing is continuous.  Understanding the impact of marketing activities, product experience, and company action on brand equity (BEq) and ultimately firm valuation is on the minds of marketers, academics, and business owners.  This paper explores a recent disaster in brand trust of a business to consumer (B2C) product that can be found readily on the news as ‘The Volkswagen Scandal’.  Readers will gain an understanding of the issue Volkswagen recently faces, be able to clearly identify areas of impact on brand trust, explore opportunities for Volkswagen to rebuild consumer trust, and connect trust as an important driver of BEq.Brand Trust Creates Enterprise Value – An Introduction to Brand Equity

 Having a basic understanding of how brand trust impacts brand equity before we dive into the Volkswagen scandal is beneficial.  Baser, Cintamure, and Arslan (2015), conducted a face to face interview study of over 1000 participants to help confirm the relationship between the experience with a brand or its products and consumer satisfaction. The research validated that “brand experience directly and positively affected consumer satisfaction, brand trust, and brand loyalty.” (P. 101)  One important finding in the study by Baser, Cintamure, and Arslan was that the experience a consumer has with a brand impacts the consumers trust of the brand more that loyalty which is also a factor in the overall BEq equation.  Consumer behavior is central to building strong BEq.  According to Kumar (2015), understanding the value of BEq as an integrated part of an organization’s marketing strategy is a current and evolving theme.  Duguleana and Duguleana (2014) confirm this concept and share how marketing activities increase brand awareness and drive an increase in brand valuation by impacting consumer perception and trust.  They also specify how marketing activities have a distinctive impact on the firm’s valuation.  Defining the specific drivers that influence BEq and firm valuation is critical to stakeholders as they collectively work to make crucial business decisions.  However, it’s clear from the data reviewed for this paper that a negative consumer experience or a non-trustworthy action by a company can have lasting impact.

To further validate the concept of how BEq affects firm valuation Belo, Lin and Vitorino (2014) confirm the relationship between brand equity and firm valuation through empirical research.  Their study depicts how BEq influences the consumers’ perception and ultimately adds or detracts value from the firm.  The perception of trust is important in building positive brand equity.

While a unified definition of brand equity is unclear, one can find two major perspectives of measuring brand equity throughout the literature.  Brunello (2013) sustains the 1998 viewpoint that BEq is measured through a marketing perspective and accounting perspective.  On the other hand, Davick (2013) suggests a customer-based approach and financial-based approach.  As the result of both of these viewpoints, a plausible definition for brand equity is the tangible and intangible monetary value of an organization or product’s name and perception.  Brand trust directly impacts both values.

The Volkswagen Scandal – A Case of Killing Consumer Trust or NOT

In late December of 2015, BBC and a number of other news sources reported on what is known today as The Volkswagen Scandal.  The “BBC News” (2016) website explains the scandal in simplest terms.  Volkswagen had been installing software on their diesel vehicles that detected testing or regular vehicle usage.  When the vehicles were being tested, they typically had certain speed parameters, tilt of the steering, and air pressure which could be sensed through a software device installed on the vehicle.  When the vehicle was in testing this software device, caused the vehicle to report better than “real” results due to lower engine performance triggered by the device during testing.  Several thousand cars were sold to a number of consumers based off of untrustworthy reporting and wrong performance results.  The article claims that the actual emissions of the diesel engines are found to be as high as 40 times the emissions limit in the United States and that nearly half a million vehicles could have issues.  Other countries are continuing the investigation and impact with some very high early projections of impact.  The current findings specific to the United States has fined Volkswagen just shy of US$14 Billion dollars of which the firm has agreed to pay.  Consumers who purchased the vehicles will receive fair compensation and restitution for any damages.  However, the question of consumer trust is at hand along with the scandal’s long-term effect on BEq.

While many issues with brand trust in the case of Volkswagen are still unclear, three problems that impact consumer trust can be identified.  First, the fact that Volkswagen intentionally tried to bypass the testing system is a concern of consumers which has caused Volkswagen to report its first quarterly loss in over 15 years according to BBC.  Second, other brands are also impacted by the heightened sense around the testing process causing additional consumer concern while it appears companies might not be fully transparent in their processes and technology.  Third, the perception of reliability of a Volkswagen automobile as well as their family of brands has decreased.  While these problems are detrimental to an organization, positive strategic action from the car giant can reverse the consumer’s trust in the brand.

Creating Solutions to Rebuild Brand Trust and Brand Equity

Huang (2015) states that a strong customer relationship with a brand significantly influences value.  In addition, that relationship supports the lifecycle of a consumer and as consumers like and ultimately love a brand, firm valuation increases (Romaniuk, 2013), (Castana and Perez, 2014), (Maxian, Bradley, Wise, and Toulouse, 2013) and (Nguyen, Melewar, and Chen, 2013).  With the mindset of consumer relationship at hand and as a core piece of building brand value and consumer perception, it becomes critical that Volkswagen takes a leadership stance in compensating and getting close to their customers.  As example of this taking place can be seen as the reorganization of the senior leadership team, the company’s firm commitment to a full investigation, and ultimately, the clear commitment to fairly compensate those individuals who were misled (“BBC News”, 2016).

Similar cases, while not as liberal as this case, were able to turn around consumer perception and ultimately increase brand trust, brand value, and brand equity overtime.  Consumer can often be triggered by actions in which the consumer feels the company cares enough to make things right.  With that said; however, the reconstruction of trust only comes with time.  The question at hand then becomes, how long will it take for the breakeven of the loss and future gains in trust to balance out the valuation of Volkswagen’s brands?

Conclusion

Many questions are still left uncovered in the Volkswagen scandal.  However, the research clearly indicates the need for organizations to invest in building brand trust.  Trust in a company’s products is a critical piece of the BEq puzzle.  While mistakes happen, the reaction from those who were wrong can have a dramatic effect on consumer perception and trust.  If the actions are favorable to the consumer, trust grows.  The power of building consumer trust can often be found within the simple action of admitting wrong doing, making changes in process, and delivering consumer satisfaction that resolves their hardship.  In the case of Volkswagen and others, time will define what value, positive or negative, this mistake causes.

References

Baser, I. U., Cintamure, I. G., & Arslan, F. M. (2015) Examining the effect of brand experience on consumer satisfaction, brand trust and brand loyalty 37(2), 101-128. doi:10.14780/iibd.51125

BBC news. (2016). Retrieved from http://www.bbc.com/news/business-34324772

Belo, F., Lin, Xiaoji., & Vitorino, M. A. (2014, May). Brand capital and firm value. Review of Economic Dynamics, 150-169.

Brunello, A. (2013). The relationship between integrated marketing communication and brand equity.  International Journal of Communication Research, 3(1), 9-14. Retrieved from http://search.proquest.com.proxy1.ncu.edu/docview/1324458303?accountid=28180

Castano, R., & Perez, M. E. (2014, November). A matter of love: consumers’ relationships with original brands and their counterfeits. The Journal of Consumer Marketing, 31(31), 475-482.

Davcik, N. (2013). An empirical investigation of brand equity: drivers and their consequences. British Food Journal, 115(9), 1342-1360.

Duguleana, L., & Duguleana, C. (2014). Brad valuation methodologies and practices. Bulletin of The Transilvania University of Brasov. Series V: Economic Sciences, 7(1), 43-52.

Huang, J. (2015, February). A review of brand valuation method. Journal of Science and Management, 8, 71-76.

Kumar, V. (2015, January). Evolution of marketing as a discipline: what happened and what to look out for. Journal of Marketing,79, 1-9.

Maxian, W., Bradley, S. D., Wise, W., & Toulouse, E. (2013, June). Brand love is in the heart: physiological responding to advertised brands. Psychology and Marketing, 30(6), 469-478.

Nguyen, B., Melewar, T.C., & Chen, J. (2013, February). A framework of brand likeability: an exploratory study of likeability in firm-level brands. Journal of Strategic Marketing, 21(4), 368-390.

Romaniuk, J. (2013). What’s (brand) love got to do with it? International Journal of Market Research, 55(2), 185-186. doi:10.2501/IJMR-2013-018

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