Case Facts
According to Hotten (2015), in 2015, an automotive company, Volkswagen, was engulfed in a massive scandal related to harmful environmental emissions by its diesel-powered vehicles. Notably, the affected vehicles had passed the various emission tests required, which indicated that they were actually emission efficient. However, as Reuters (2019) points, the company had fitted the vehicles with test-cheating software. The role of the software was to detect emission test scenarios and consequently adjust the cars’ emission levels to lower amounts. Therefore, tests would indicate that the vehicles were emission efficient, whereas, in reality, they emitted over forty times above the EPA’s set limits (Atiyeh, 2019). Notably, Volkswagen capitalized on these favorable test results in its marketing campaigns. The firm marketed its diesel-powered cars as emission efficient and an alternative to electric and hybrid vehicles (Hotten, 2015). As a result, the company experienced substantial success in the market, particularly in the US, where it rose to own 70% of the diesel cars market share.
Notably, the company has incurred huge liabilities following the discovery of the case. First, as Atiyeh (2019) points, the firm agreed to a settlement worth $14.7 billion with a US district court. Also, the firm was to either buy back all the affected vehicles or freely fix the emission problem (Jolly, 2019). Additionally, criminal liability charges were opened against various Volkswagen executives who facilitated or knew about the test cheating software. One such criminal charge, as presented by Parloff (2018), involved one of the company’s engineers who were sentenced to a seven-year jail term and a substantial financial fine.
Also, it is worth noting that the company is yet to deal with the scandal adequately. Volkswagen is still facing lawsuits in multiple countries such as Canada and the UK from various stakeholders such as government authorities and consumer groups (Reuters, 2019). Consequently, the firm has been forced to ditch its longterm goal of being the biggest automotive seller globally and instead focus on solving the crisis. Also, the firm’s stock price has significantly fallen, and its market share has substantially dropped. Thus, this shows the full magnitude of the losses the firm has had to incur following the scandal.
Analysis
A notable critical aspect from Volkswagen’s case is the crucial role corporate social responsibility plays in marketing. According to Sanclemente-Téllez (2017), marketing takes place in a social context, and thus marketers must take into account the current social issues. Also, consumers are leaning more towards products that demonstrate a social commitment. This is evident in Volkswagen’s case, whereby consumers selected the brand because they felt that their cars were environmentally friendly. Notably, environmental conservation is a crucial social concern in the contemporary world, particularly with the issue of global warming. Thus, this explains Volkswagen’s tremendous success in the market, whereby it acquired 70% of the US’ diesel cars market. However, it also shows how corporates can misuse the concept of corporate social responsibility for profit gain through deceptive methods. In Volkswagen’s case, the deceptive practices gave the firm an unfair advantage over its competition and also misused consumer trust. Thus, more action is needed to protect consumers and the market in general against deceptive practices such as Volkswagen’s.
Additionally, Volkswagen’s case also indicates the costly nature of social responsibility scandals. The company incurred financial liability, which amounted to billions of dollars. This is in regards to the court settlements. Also, Volkswagen has incurred high litigation costs for numerous cases against it. Thus, it can be noted that as pointed by Jagd (2015), the damages incurred due to failed corporate social responsibility override the gains made from such practices. In Volkswagen’s case, the damage incurred extends from financial losses to significant losses in its intangible assets. These include aspects such as reputation and trust and loyalty by stakeholders such as consumers, investors, and the authorities. This can be evidenced by the company’s reduced market share and the dropped stock price.
Therefore, this reality should settle the prevailing debate on whether companies should focus on profits and corporate social responsibility. There is no denying that social responsibility initiatives incur high costs to firms. However, In truth, corporate social responsibility is interconnected to profitability and, most importantly, sustainability (Ghadiri, Gond & Brès, 2015). Whereby, as earlier pointed, corporate social responsibility is essential to gaining a competitive advantage in the market. As the Volkswagen case demonstrated, consumers prefer brands that show a commitment to various social issues. Additionally, it can be noted that focusing on profitability and ignoring corporate social responsibility is counterproductive for companies. Firms that do that, like Volkswagen’s case, not only lose financially but also lose other competitive assets such as reputation and consumer trust. Therefore, firms should strive to uphold corporate social responsibility as both a profit and a sustainability strategy.
References
Atiyeh, C. (2019). Everything You Need to Know about the VW Diesel-Emissions Scandal. Retrieved 13 December 2019, from https://www.caranddriver.com/news/a15339250/everything-you-need-to-know-about-the-vw-diesel-emissions-scandal/
Ghadiri, D., Gond, J., & Brès, L. (2015). Identity work of corporate social responsibility consultants: Managing discursively the tensions between profit and social responsibility. Discourse & Communication, 9(6), 593-624. doi: 10.1177/1750481315600308
Hotten, R. (2015). Volkswagen: The scandal explained. Retrieved 13 December 2019, from https://www.bbc.com/news/business-34324772
Jagd, J. (2015). Investor oriented corporate social responsibility reporting. New York: Routledge, Taylor & Francis Group.
Jolly, J. (2019). Volkswagen emissions scandal: mass lawsuit opens in Germany. Retrieved 13 December 2019, from https://www.theguardian.com/business/2019/sep/30/volkswagen-emissions-scandal-mass-lawsuit-opens-in-germany
Parloff, R. (2018). How VW Paid $25 Billion for Dieselgate — and Got Off Easy. Retrieved 13 December 2019, from https://fortune.com/2018/02/06/volkswagen-vw-emissions-scandal-penalties/
Reuters. (2019). Volkswagen Headquarters Raided Again Over Diesel Scandal. Retrieved 13 December 2019, from https://www.nytimes.com/2019/12/03/automobiles/volkswagen-diesel-scandal.html
Sanclemente-Téllez, J. (2017). Marketing and Corporate Social Responsibility (CSR). Moving between broadening the concept of marketing and social factors as a marketing strategy. Spanish Journal Of Marketing – ESIC, 21(1), 4-25. doi: 10.1016/j.sjme.2017.05.001
