Volvo Goes Beyond Safety

To increase sales, Volvo's new brand strategy aims to convince drivers that its cars aren't just about safety. Will they respond?

by David Kiley

Volvo Cars is hoping to have a new brand strategy, or at least a new idea for one, by late April, when it names a new global advertising agency to handle the company's image worldwide.

As it plows through the process, though, it's difficult for outsiders to understand why a brand so singularly identified with safety and trust should need a new strategy.

Or perhaps that's the answer to the question of why they need a new brand strategy. For years, the Swedish automaker has been frustrated by its indelible, slightly nannyish image of being the ultimate safe car. Finding that identity limiting, it has dabbled in marketing speed and performance with a few cars in the hopes of exciting men, many of whom view Volvo, much like they view minivans, as a compromise buy after children are born. And it has made its styling more interesting since the late 1990s, giving up the relentlessly boxy designs that characterized its sedans and wagons for more than 30 years.

But sales have plainly disappointed. Volvo in the late 1990s believed it could reach a worldwide sales goal of 600,000 vehicles a year by mid-decade, with 200,000 of those in North America, based on widening its audience and expanding the product line. Last year, it managed just 139,000 in the U.S. and Canada. As the volume leader inside Ford's (F) Premier Automotive Group, though, and with Ford under mounting financial pressure to make all of its brands deliver to the bottom line, Volvo is looking for a new brand idea to elevate its status in the mind of consumers—especially men—and realize its unmet sales goals.

Still Worth a Bundle

Executives inside Ford say Volvo's performance last year was slightly better than breakeven. That's especially disappointing, say Ford insiders, considering Volvo doesn't have the image problems of Ford's other PAG brands—like Jaguar's old rep for quality problems and dated design or Land Rover's singular identification with sport-utility vehicles, the demand for which is decreasing, even in the luxury segment. Luxury-car maker Aston Martin had been part of PAG until it was sold for $848 million to a group of investors on Mar. 13 (see BusinessWeek.com, 3/13/07, "After Aston, Could Jaguar Be Next?").

Despite the lackluster results, Merrill Lynch (MER) recently said Volvo would be worth $7 billion to $8 billion if Ford were to sell the company today. That's a premium above what Ford paid in 1999 to acquire the brand and roughly half of Ford's total market capitalization today. It's more than some analysts have said the entire Chrysler Group (DCX) is worth. That's because Volvo is a legitimate global premium brand with no negative baggage.

To solve the problem of underperformance, don't get the idea Volvo is ditching its "safe" brand equity. "We have to maintain our position as the leader in safety, and communicate that in new, engaging ways all the time," says Hans Krondahl, executive vice-president of marketing for Volvo Cars of North America. Krondahl admits that other carmakers have closed the gap in safety, driven in part by stiffer regulations that all automakers must follow. "But there still has to be a leader, and that's Volvo," he says.

Global Slump

Volvo's sales drop last year in North America and Europe, says Krondahl, was driven by the fact that Volvo hasn't introduced a new design in a high-volume segment in almost three years. The newly designed S80 sedan was launched in January. A new XC70 crossover wagon, which hasn't been redesigned for seven years, goes on sale in October. The C30 subcompact, a new model segment for Volvo, goes on sale in November. And a new V70 wagon goes on sale in January. Based on last year's sales, that means that four of Volvo's eight models will be all new by January, in addition to the C30.