Why the Volkswagen Phaeton Failed in the U.S.

August 14, 2009

By: Ryan Konko

The Volkswagen Phaeton was a technological marvel during the time it was sold in the United States. It shared the same platform as The Bentley Continental GT and Flying Spur, featured technology found in the Audi A8, and started at $64,600. Thousands less than the A8, and tens of thousands less than its Bentley counterparts. Sales fell short of expectations and at the end of the 2006 model year was pulled from the United States. The Phaeton's marketing, pricing, and dealer network all contributed to its ultimate failure. The price was set too high and thus Volkswagen was unable to gain new buyers. Volkswagen had been marketed in the past to a younger generation and offering cheap, fun, German inspired automobiles. An expensive automobile being offered by a company that was born on providing affordable cars was a recipe for a sales disaster. A poor dealership experience for luxury car buyers only assisted in its failure. If Volkswagen were to alter its marketing to a different demographic, improve their dealership experience, and remodel their pricing, the Phaeton would have been more successful and may have prevented its untimely death in the United States.

Marketing killed the Phaeton. Volkswagen focused more so on advertising the Phaeton to a demographic that was already dominated by other luxury car brands such as Lexus, BMW, Mercedes, and even cross marketed with the Audi A8. The company was viewed by the public as one that offers affordable German cars, not one that sells premium luxury. People of ages 18-49 were part of Volkswagens demographic, which included only a very small number of flagship buyers. Instead it was marketed to an older, and wealthier demographic. This demographic focused more on brand heritage, something that Volkswagen lacked in this segment. The Phaeton was also a part of Volkswagens website, not a separate website. By not having a separate website, it wasnt differentiated from non luxury oriented Volkswagens. Volkswagen failed to differentiate the Phaeton and marketed the vehicle to a demographic that was already dominated by other luxury brands.

The pricing for the Volkswagen was too high for its demographic. Starting at $64,600 base and $94,600 with the W-12 engine, the Phaeton was priced lower than most of its competition. However at this price bracket Volkswagens demographic was alienated. A car company that offers $16,000 Golfs also offered a flagship which can be priced over $100,000. The BMW 7-Series in 2004 started at $69,300, the Mercedes S-Class started at $74,250, the Audi A8 at $68,500, and the Lexus LS at $55,573. The $64,600 base price was more inexpensive than some of its competition, but wasnt low enough to attract new buyers or steal them from other companies.

Luxury car buyers want a dealership experience that will not leave them frustrated, or make them feel alienated. A buyer of a high end luxury car wants to feel as though they are being treated better than someone who is spending $16,000 on a Golf. They wanted to trust the dealership while spending upwards of $64,600, and in an atmosphere where salesmen are selling both inexpensive compact and expensive luxury models, the dealerships failed to deliver. Dealerships were also forced to buy in if they wanted to sell the Phaeton, so many were unable to offer the car to the public. This deterred potential Phaeton buyers because they were not available, leading them to shop elsewhere for luxury cars.

The Volkswagen Phaeton would have been more successful in the U.S. had Volkswagen changed their marketing. The Phaeton should have been marketed as a separate part of Volkswagen in order to set it apart from the company's more inexpensive models, and marketed to a different demographic. Instead of being a part of Volkswagen's website, a separate website dedicated to just the Phaeton should have been created. This would change the perception of the Phaeton causing it to be seen as an authentic luxury car, and setting it apart from Volkswagens model line. While Volkswagen had marketed the Phaeton to a demographic already dominated by luxury car companies, focusing on younger professionals would have created more potential buyers. Advertisements aimed at a young professional demographic should have featured aggressive comparisons to expensive luxury cars, while including subtle humor to appeal to the demographic. These changes in marketing would have yielded a greater number of buyers for the Phaeton.

With base prices of $64,600 and $94,600 for each engine option the Phaeton was priced just under its competition. The Phaeton in retrospect should have been priced to compete with the likes of a well equipped BMW 5 Series and Mercedes Benz E-Class, Lexus GS, and Audi A6, benchmarks in the industry. In this bracket, the Phaeton would be more appealing to both young professionals and consumers looking to buy into the luxury segment. Dropping the W-12 option would give the Phaeton competitive pricing for a flagship luxury sedan. Giving consumers a bigger warranty and a maintenance free program instead of the basic 4 year/50,000 mile warranty would instill confidence in the consumer to buy the Phaeton. With pricing just under $60,000, subtraction of the W-12 option, and a larger warranty, the Phaeton would be more attractive to consumers and competitive to other luxury automobiles.

A major mistake by Volkswagen was that they didn't improve their dealerships in order to accommodate luxury car buyers. The Phaeton should have been made readily available to all dealerships instead of forcing them to buy in. Making the car more available to the public would increase sales for the Phaeton. Salesmen specially trained for the Phaeton would help to create a more comfortable and confident atmosphere for the consumer, and set them apart from the rest of the car buyers at the dealership. Retraining the service department and renovations would provide an efficient and friendly atmosphere to ensure the customer is taken care of and create a long term relationship with the customer. By improving the dealership experience Volkswagen would gain and retain buyers in the luxury car segment.

Marketing, Pricing, and Volkswagen's dealership network all contributed to the Phaetons failure in the U.S. market. The Phaeton was unsuccessfully marketed to a demographic controlled by other luxury car companies, its pricing did not give it a competitive edge in the marketplace, and the dealership experience offended luxury car buyers. Marketing towards younger professionals, more competitive pricing, and a refreshed dealership experience would have created a successful marketplace for the Phaeton. With its Bentley underpinnings and Audi technology the Volkswagen Phaeton was a luxury marvel plagued by poor sales.

Ryan Konko also writes for www.Konkocars.com

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