Expanding current product /service portfolio Read the report It’s the most optimal strategy for Volkswagen Phaeton to expand current product and service portfolio from the following perspectives.

23 Content 14 Potential Challenges Optimal Strategy Phaeton Profile China Luxury Car Market

China will become the world’s largest premium car market Main distribution province of luxury brand Divisions of Chinese luxury car users Content 1 China Luxury Car Market Distribution of brand attention in luxury car market Key buying factors – what truly matters?

4/21 Number of urban households by annual disposable income bracket Million households SOURCE: McKinsey Insights China – Macroeconomic model update (2012) ; Canback Dangel China Luxury Car Market 1 China will become the world’s largest premium car market Global premium car sales ranking, thousand units Perhaps as early as 2016, China will overtake the United St ates as the world’s largest market for premium cars. By 2020, there will be 23 million affluent urban households in China – 7 % of the population and roughly equal to the total number of households in Great Britain today.

海南 黑龙江 吉林 辽宁 河北 山东 福建 江西 安徽 湖北 湖南 广东 广西 上海 河南 山西 内蒙古 陕西 宁夏 甘肃 青海 四川 贵州 云南 西藏 新疆 江苏 浙江 北京 台湾 (Sales proportion of nationwide) 5/21 SOURCE: McKinsey Insights China – Macroeconomic model update (2012) ; Canback Dangel China Luxury Car Market 1 Beijing, Shanghai, Zhejiang Over 10%: Guangdong, Jiangsu, Sichuan Inner Mongolia, Shandong, Hebei, Liaoning, Fujian. 5%-10%: 2%-5% Main distribution province of luxury brand

6/21 3 Mainly Male(30-39). Attention on orgin and property. High percentage of women (25-35). Care about luxurious figure and cost performance most. Successful business owners or senior executive(35-45). Attention on social identity and comfort. Mainly Male(30-39). Willing to try the advanced features and technology Emphasis on representing personal identity and image. Chinese luxury car users are divided into five groups SOURCE: DAXUE Consulting 2013 Luxury Car Market Research of China China Luxury Car Market

3 7/21 SOURCE: DAXUE Consulting 2013 Luxury Car Market Research of China Multinationals dominate China’s premium car market, with German automakers (e.g. Audi, BMW, Mercedes, and the Volkswagen Group premium cars) accounting for 80 percent of market share; other European, Japanese, and US brands make up the remainder. However, competition is heating up, putting pressure on profit margins. Distribution of brand attention in luxury car market(May,2013)

3 China Luxury Car Market 8/21 SOURCE: McKinsey Insights China – Macroeconomic model update (2012) ; Canback Dangel

Origin of Phaeton Development of Phaeton Sales of Phaeton and its main competitors Content 2 Optimal strategy

10/21 The Volkswagen Phaeton, launched in 2002, is a full-size luxury sedan manufactured by German automaker Volkswagen, described by Volkswagen as their "premium class" vehicle, aspirating to compete on the level of its premium German counterparts in the luxury market likes of the Mercedes-Benz S-class, the BMW 7-series, and its VW Group siblings, the Audi A8 and Bentley GT Coupe. 3 Phaeton profile Origin The whole manufacturing procedure focus on sedan’s quality. It is the devotion to detail that makes a work of art and masterpiece. In the transparent factory, where Phaetons are assembled, passion, craftsmanship and precision are channeled into motor cars. Buyers will have an unforgettable experience enjoying the handcrafting interior and luxury design derived from German.

The Volkswagen Phaeton was a technological marvel with top configurations when it was exported to the United States. Sales fell short of expectations. The sales in America saw a short increase, but plunged to only 235 in So that, at the end of the 2006, Phaeton was pulled from the United States. 3 Phaeton profile Development Source:Annual Report of Volkswagen 11/21 In contrast to how the Phaeton performed in the U.S., the sedan captured the attention of buyers in foreign markets, particularly Asia, with much success coming in South Korea. In recent years, Korea has been surpassed by China as the Phaeton’s biggest sales market outside of Germany.

3 Phaeton profile High demand for the Volkswagen Phaeton in China has given new optimism for its successor. In 2009, Chinese deliveries of the Phaeton worldwide rose to 40 %.Volkswagen successfully increased that figure to 3741 vehicles in 2010, a 158% gain, making China the biggest market for Phaeton. In 2012, the number of deliveries in China is With excellent performance in the serial years, China is now the chief market for Phaeton. The new Phaeton was presented in 2010 Beijing International Automotive Exhibition. And selecting China as the venue for the launch of the new Phaeton proves VW's commitment to this vast market. Phaeton is still far behind from its competitors in sales, although it has outstanding market performance in China. 12/21

3 Optimal Strategy Enrich China-specific product portfolio Personalized services in Phaeton Customization Center Phaeton Exclusive Lounge in the most understated way Content

smaller engines Optimal Strategy 3 14/21 offer China-specific car models at appropriate prices-- considerably less than the Mercedes-Benz S-Class and BMW 7 Series--lowering the entrance level of premium cars to embrace “new mainstream” consumers. To follow the trend of stricter control on fuel efficiency and stronger awareness of environmental protection. For example, VW Phaeton could ditch the thirsty V-8 and W-12 engines used previously, and use a range of turbocharged 4-cylinder and V-6 engines, couple to an 8-speed automatic transmission for production. A plug-in hybrid model could also join the range at some point. Enrich China-specific product portfolio with... The older generation of premium car owners purchased vehicles mainly to reflect their social status, but the increasingly sophisticated new generation of buyers is expressing their youthful vigor for buying premium autos. For example, the slab-sided and forgettable 3- box shape of the original Phaeton may give way to fender curves, a long and flowing roofline, and steeply raked rear glass. for Volkswagen Phaeton to expanding current product and service portfolio from the following perspectives. 1 more attractive design 2014 case competition we are acumen from SJTU

Optimal Strategy 3 15/21 personalized services in Phaeton Customization Center... for Volkswagen Phaeton to expanding current product and service portfolio from the following perspectives. 2 the phasing of individual assembly procedures makes production sector into stages such as engine fitting and window fitting. It is on these stages that the vehicles to be assembled are placed by lifters which feature a large selection of setting options. customers can choose from a variety of different configurations, providing them the most appropriate product according to their personalities and demands, which will be a first-mover advantage for VW Phaeton in the upscale segment. Because VW Phaeton will be the first one who introduces customized services into the production of cars millions valued, while it is only adopted in cars with tens million price now case competition we are acumen from SJTU

Optimal Strategy 3 16/21 Phaeton Exclusive Lounge -approaching, caring for, respecting customers for Volkswagen Phaeton to expanding current product and service portfolio from the following perspectives. 3 Builds the ”premium personality” or brand DNA, reflects the owner’s sense of individuality and emotional needs and gets win in the battle for premium car market share. Provides the Phaeton owners a private club to linger on the overall premium ambiance, soak in the very personalized lounge atmosphere, savor the details under-scoring the build quality, feel the pulse of innovation, and immerse themselves in a world of exclusivity. Encourages customers to bring their entire entourage to the lounge and they will be treated to a unique experience of one-on-one service, while consumers in lower- tier cities seek social acceptance case competition we are acumen from SJTU

Rivalry competition Customers’ choices and influence of the brand image Content 4 Potential Challenges Ordinary and conservative design of its appearance fails to attract its target group

Potential Challenges 4 18/21 of expanding the product and service portfolio: Faces intense competition with car manufacturers targeting elite customer segments hence limited market share. The Customized Service ， which Volkswagen Phaeton is featuring in China market, Nowadays, is being attached importance to by other German prestige market leaders, Mercedes- Benz and BMW case competition we are acumen from SJTU 1 Rivalry competition

Potential Challenges 4 19/21 of expanding the product and service portfolio: Volkswagen underestimated the weakness of their brand in the luxury segment. Reality of the luxury car market is the fact that luxury car customers are quite a conservative bunch and they are usually the last to embrace new brands. Furthermore, it was difficult for customers to transfer their beliefs about Volkswagen cars to the Phaeton as the luxury Phaeton not seemed to be a proper Volkswagen car. 2 Customers’choices and influence of the brand image: 2014 case competition we are acumen from SJTU

Potential Challenges 4 20/ case competition we are acumen from SJTU of expanding the product and service portfolio: Ordinary and conservative design of its appearance fails to attract its target group: 3 Phaeton’s target group is Young executives. VW released Phaeton to express the idea of using the conservative appearance to attract those who worked hard to earn wealth and wanted a luxury car that would be functional, not too flashy and that represented value for the money. However, the market reflections showed that young executives and businessmen didn’t show much appreciation for this idea. Therefore, this design style needs transformation.

Content THANKS We are ACUMEN from SJTU Cheng Yu Wu Hong Pan Qianqian Geng Zheng

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