Internal Analysis

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6.2.1 VRIO

R&D Capabilities

Volvo has a significant resume of delivering breakthrough innovations targeting safety and environmental issues, most notably the three-point safety belt, rear facing child seats, side collision protection, and the lambda sonde. The company’s clear focus on these matters has been consistent throughout its history and facilitated in building one of the safest car manufactures in the world. This is also reflected in its current mission, namely to have no fatal accidents in a Volvo vehicle by 2020 and introducing an electrified car by 2019. In addition to electrified vehicles, Volvo has recently brought its own developed and award winning Drive-E engine family to the market. As of 2015, the company is the only premium manufacturer exclusively offering three and four cylinder engines (Volvo Cars Press Release, 2015). As part of the engine family, the company offers a chargeable hybrid, increasing the environmental focus of the product offering. Moreover, the company’s new SPA and CMA platforms are designed to support both the current model fleet and the upcoming electrified versions, making the company prepared for fulfilling their vision of electrified vehicles making up 10% of sales by 2020 (Volvo Cars, 2015).

With regard to the company’s mission of zero fatal accidents, the company aims to leverage the current technological development of connectivity and autonomous drive, where fully autonomous vehicles will be important to fulfilling the mission (Volvo Cars, 2015). While fully autonomous cars are in a development phase, semi-autonomous technology is a matter of today. The company’s products currently include features such as pilot assist, which makes the car automatically follow the car in front in slow moving queues, stay within the lane markings on highways as well as autonomous emergency breaking when a driver turns in front of an oncoming car (Volvo Cars, 2015). Evidently, these are features that increase road safety.

However, even though Volvo claims to be market leading within safety and consistently produce cars that are ranked among the safest in the world, so are many of their main competitors (IIHS, 2016). Given the identified mega trends related to regulatory environment, all players are required to innovate with respect to producing more environmentally friendly vehicles.

Still, there are regulatory policies that prohibit self-driving vehicles. AMs and tech-companies are jointly lobbying for the development of a new regulatory framework regarding self-driving cars, which might take additional time (Self-Driving Coalition for Safer Streets, 2016). Despite the company’s rich history and ability to produce ground-breaking innovations regarding safety and the environment, the company that will emerge the winner is impossible to predict as all industry participants invest heavily in becoming number one. Further, as cars are becoming more technologically complex, the potential threat of tech giants such as Google and Apple to enter the market has increased. This development has increased the importance of getting knowledge and technologies from external sources through some form of strategic partnership.

48 In conclusion, even though Volvo’s R&D capabilities are valuable and imperative for delivering what the company promises, it is not considered rare nor in-imitable. Additionally, the increased importance of strategic partnerships makes it substitutable to some extent. With regard to Volvo’s organisation, the company increased its global manufacturing footprint and scale. The new SPA and CMA platforms, Drive-E engines and has enable the company to readily be able to capitalise on any new innovations that the R&D comes up with.

Brand Management

In order to assess the company’s brand management capabilities, and how these affect the performance of the company, it is imperative to define brand management and the value it brings. In essence, brand management is the analysis and planning on how the brand is perceived in the markets. The ability of creating a strong brand comes from the resources within the company (most distinctively from marketers), which focus on creating, maintain, enhancing, and protecting the brand (Kotler & Keller, 2012).

As a result, or capability/performance, the value of brand management is reflected in the company’s “brand equity”. According to Keller (2008), brand equity is defined as the added value endowed on products and services. This may be reflected in the way consumers think, feel, and act with respect to the brand as well as in the prices and profitability the brand commands. Studies have shown that a strong car brand can create significant value in the automotive industry; the price consumers expect to pay for otherwise identical premium vehicles can vary as much as $4.000 depending on the car’s brand (Hirsch, Hedlund, & Schweizer, 2003). The difference is attributed to consumer’s perception of the brand, which is evaluated in terms of its earned reputation (accumulated direct and indirect experience) for product excellence relative to the total ownership cost (Hirsch, et al., 2003).

Volvo has throughout the company’s history been focused on its traditional values of safety, environmental concern and traditional minimalistic design (classic Scandinavian “understated” design), as reflected in both the company’s mission and vision (Volvo Cars, 2015). Despite its relatively small size, the company has been premiered for its successful development of safety features and perceived as producing the safest cars in the world (Consumer Reports, 2014). The company’s current brand management strategy was introduced in 2011 under the slogan “Designed Around You”, as the company began its journey to move upmarket, which continues to build on the human centric foundation that the company was founded on.

Under this parole, the company has introduced the “Volvo Way to Market” in which the company aim to change the ways cars are marketed and sold through redefining the concept of customer service and customer relations (Volvo Cars Press Release, 2011). More specifically, by leveraging the Scandinavian heritage in dealerships (waiting areas would for example be fitted with Swedish furnishing), improving the digital platform to engage and serve customers (for example, customers will receive a short video showing what the car will look like when delivered). Further, this included a focus on building a personal relationship

49 with customers by providing a personal service technician that is available seven days a week during the duration of the car ownership (Volvo Cars Press Release, 2014). The new strategy also included a doubling the amount of money spent on marketing in which the company highlighted the Scandinavian roots, values as well as the 2020 safety visions through different media channels tailored depending on which market (McNamara & Moore-Mangin, 2015; Volvo Cars, 2015; Gurjit, 2016).

Clearly, all of these efforts aim to increase customer’s satisfaction and perception of the brand as means to increase sales. The new strategy’s success is reflected in the company’s fruitful transition into the premium segment, where profitability and sales has increased substantially despite the increase of price for its products. As a result, Volvo has, from a customer-based brand equity perspective, created a positive differential effect on consumers based on the consumer’s knowledge of the brand. According to Kotler and Keller (2012) consumers’ brand knowledge refers to all the thoughts, feelings, images, experiences, and beliefs associated with the brand. Given the company’s rich history of safety engineering and other innovations, customers [likely] react favourably to the product and the way it is marketed (in other words, the identity of the brand) and associate Volvo with solidity, safety and the characteristic Scandinavian minimalistic design.

Consequently, the brand equity is reflected in these perceptions, preferences, and the behaviour related to aspects of the marking of the brand. Research has shown that a strong brand leads to greater revenue (Ailawadi, Lehmann, & Neslin, 2003).Based on the company’s rise in sales, especially the two prior years, it is argued that both the company’s heritage and current brand management strategy have enabled the establishments of a strong brand⁷. This has facilitated the company to break through the noise in the increasingly competitive and homogeneous industry and move beyond a competition based on price.

Conclusively, though the company have succeeded due to a strong brand a point of differentiation, arguing that these brand management capabilities are rare is farfetched. Yet, these capabilities are embedded in the organisation as it is built over time and the Volvo brand rely on a rich heritage of a clear corporate identity and focus, which is not considered substitutable or imitable.