The Value of Customer Loyalty

Last September VolksWagon (VW) was facing a severe brand crisis, perhaps, some speculated, even an existential one. The firm had been caught intentionally rigging emissions performance on its so called “clean” diesel engines to pass emissions tests. Belying VW’s marketing claims, its diesel engines were anything but clean, emitting up to 40 times more the amount of pollutants into the air than testing showed, according to findings from an emissions study commissioned in 2014 by the International Council on Clean Transportation.

To address the crisis, VW admitted the wrongdoing and apologized to buyers and dealers. New cars affected were taken off the market and fixes were developed for recalled vehicles. In November, VW issued a “Goodwill Package” offering impacted customers a $500 VISA prepaid card, a $500 credit for dealer services and a three-year extension of roadside service.

Were these seemingly tepid steps sufficient to regain trust in the marketplace and limit longer-term loss of share? If the latest sales reports are any indication the answer appears to be yes. VW passenger vehicle sales in the U.S. in October 2015 were flat year over year, and then dropped by 25% and 8% year over year respectively in November and December. But these drops largely reflected the cessation of sales of all diesel models. In fact, sales of non-diesel VW’s actually increased in these months and are expected to continue to rise in concert with stronger auto sales industry wide. Sales of VW affiliate companies, Porsche and Audi, both tarnished by the scandal, have also been up substantially in recent months. Overall, VW U.S. vehicle sales were down less than 5% in 2015 versus the prior year.

What’s happened at VW may be a testament to the importance of brand value and loyalty in the marketplace. It may also say something about what impacts customers’ product decisions. In this case, buyers appear to have discounted the significance of a single “rogue” manufacturing choice against a long history of proven, high-quality engineered products.