Fiat Brand – Issues and Opportunities in Brand Portfolio Management

Master Thesis: The Fiat Brand – issues and opportunities in brand portfolio management.

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Chapter one

1.1 Theoretical Framework

Several terms and definitions are related with the topic of brand and brand management. Nowadays, this argument is considered even more important and interesting in managing big companies that usually have to deal with a portfolio of brands. In the global environment, brands are used to differentiate products from each company and consumers perceive them with different value based on their preferences and other features.

The questions are about how the companies can evaluate their brands and what are the best practices to adopt in cases of a portfolio of brands.

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In this way, this chapter is going to focus on the role of brands, brand equity and the evaluation of brands. The chapter one is going also to analyse mainly the definition and the roles of brand, brand equity and brand portfolio with a brief specification of the global portfolio strategy.

The theoretical framework that would be useful for further analysis in the following chapters is based on the books written by marketing and branding expert, such as Aaker, Kotler, Keller, Kapferer and others.

All the arguments that will be treated in Chapter One will be useful for further analysis on the main topic of the thesis, thus the overview on the brand Fiat and on the management of brand portfolio of FCA N.V.

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2. Brand definition

Many experts define brands differently, depending on their experience and point of view when speaking about brand and branding. Several definitions were proposed in the past, but definitely the most shared is the one suggested by the American Marketing Association (AMA).

AMA said that “a brand is a name, term, design, symbol or any other feature that identifies one seller’s good or service as distinct from those of other sellers.” (AMA website).

The aim of the definition proposed by AMA is to identify the particular features that differentiate the products in the market. All the features (name, design, symbol, image) are the distinctive parts of the brand that make the real value and differences from a product produced by one company or another one.

The distinctive parts of the brand explain also the uniqueness and the originality of the brand itself and the product that is linked to the brand. Brands are unique and original according to the rules that aim to protect the intrinsic brand value depending on which feature of brand the firm wants to protect.

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“The brand name can be protected through registered trademarks; manufacturing processes can be protected through patents; and packaging can be protected through copyrights and designs. These intellectual property rights ensure that the firm can safely invest in the brand and reap the benefits of a valuable asset.” (Keller, 2013, p.35)

Keller underline the importance of protecting the brand features, the firm benefits from the protection of the brand name and image as no other firms can use them to represent their products.

The protection of the brand is one of the important issue of the topic, as stated in the definition, the use of intellectual properties became fundamental to protect the characteristic of each company from imitation. Brand name, packaging and manufacturing processes are usually protected by companies through the use of trademarks, copyrights and patents.

1.2.1 The role of the brand

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Brand plays several roles, not only for the company that owns the brand but also for the customer and for the market itself.

A company through the use of brands can identify its own products, doing so the firm shows to the consumer who is the manufacturer and who is the responsible for the experience sold or for the performance related to the product. Moreover, the consumer through the brand can understand who is the manufacturer and which is the product itself.

“If consumers recognize a brand and have some knowledge about it, then they do not have to engage in a lot of additional thought or processing of information to make a product decision. Thus, from an economic perspective, brands allow consumers to lower the search costs for products both internally (in terms of how much they have to think) and externally (in terms of how much they have to look around).” (Keller, 2013, p. 34)

Recognizing the brand and remembering of past positive experiences with the brand or the product, consumers can have a faster and then cheaper in terms of time purchasing decision by re-buying the same product.

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The brand express also the features of the product, the consumer seeing the brand image has a better understanding of the qualities and memories of past usage of that product. It is a mental process in which the customer mind is involved, that is remembering all the experience with the product and if it was fulfilling all the needs required.

The qualities experienced by the use of that product are translated into brand loyalty, the consumer is willing to re-buy the same item instead of another one.

With a strong brand, well-known and recognized within competitors, a company can sell more and for a higher price maintaining similar quality as competitors.

“Brands can serve as symbolic devices, allowing consumers to project their self-image. Certain brands are associated with certain types of people and thus reflect different values or traits.” (Keller, 2013, p.34)

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Buying some brands, consumers want to represent himself in a certain way, expressing others his status or his lifestyle. An example of it are fashion brands, consumers wants to show off and represent his luxurious lifestyle.

The same is possible with the purchasing of cars, different are the intentions of consumers that buy FIAT or Maserati, in fact who buys FIAT has different needs that who buys Maserati that wants to show off his purchasing power and his lifestyle.

“Brands reduce perceived risk, and exist as soon as there is perceived risk. Once the risk perceived by the buyer disappears, the brand no longer has any benefit. It is only a name on a product, and it ceases to be a choice cue, a guide or a source of added value. The perceived risk is greater if the unit price is higher or the repercussions of a bad choice are more severe.” (CITATION????’)

Brands are playing also an important role in terms of decisions, and on the risk linked with these decisions. Purchasing a well-known brand, the consumer perceives a smaller risk than purchasing a product without brand. Thus, the brand name over a product is the real added value that represents a valuable characteristic within the consumer purchase intention.

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This is the reason why cars cannot be sold without any brand on it, the risk will be unknown as well as the reliability of the vehicle. Thus, every car maker has to show its brand in order to be recognized by consumers that will not perceive the risk in buying that vehicle.

To sum up, the relationship with customers are at the basis of building a strong brand, the experiences and qualities are the proof of a great brand and the customer is the judge. Sometimes the relation between brand and customer could be negative, in this case the brand does not have a great reputation in the consumer mind, and the consumption of it may happen only in the case of convenient price in relation with the competition.

In this way, the marketers’ aim is to create a brand association with the customers that has to inspire them a positive thoughts and feelings through the marketing activities.

1.2 Brand Equity

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Brand equity is a feature of each brand and branding in general, it goes more deeply in the function of the brand in financial terms and in the customer perception of brand.

A definition of brand equity is stated by Aaker: “A set of brand assets and liabilities linked to a brand, its name and symbols that adds to or subtracts from the value provided by a product or service to a firm and/or to this firm’s customer” (Aaker, 1991, p.15).

The function of brand equity is to keep a great product image in the customer mind, inspiring strong feelings and building heavy association with the brand. But building association is not always possible, and it is a difficult issue for companies, thus taking wrong decisions the company can subtract value on the brand that will change the customer perception of the product.

Thus the association of each brand with name or symbol is critical for the customer perception, companies are often associating qualities to their brands in order to have a direct correlation that consumer thinking about a brand has directly in mind the main quality of the brand itself and the product manufactured.

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In the automotive industry this function is evident, every company rely in their own diverse association such as Ferrari with performances, Tesla with electric and innovations, FIAT with small cars and eco-friendly.

“Brand equity defines the value of the brand and can refer two understandings of brand value, namely strategic, subjective understanding or brand equity as a financial, objective expression of the value of the brand” (Heding, Knudtzen and Bjerre, 2009, p.11)

Brand equity is usually analysed into two main perspectives, financial and subjective.

Financial perspective, brand equity is the way used by each company to measure the monetary value of brands. Even if it is analysed as an intangible resource it entries on the company balance sheet (in the same way as know-how). The correct evaluation of brand value is extremely important because it depends on various factors and in relation with financial statement to ensure its reliability.

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Subjective perspective, brand equity is evaluated by the consumer perception of the brand itself, its reliability, qualities, performance and image. In this sense brand equity is the value added to the product or service contributed by the brand name. This evaluation can result as positive or negative customer-based brand equity.

Customer-based brand equity is the evaluation of the marketing effort of the brand in relation with customers. Basically it is the customer reactions and feelings when a brand is recognized, and it can be classified into positive or negative.

Positive customer-based brand equity is the margin that the company can get by applying a price premium over their branded products, and customers are willing to pay this higher price in order to do business with that firm for the quality recognized to that brand or for the admiration they have for the company itself, even though they could get the same type of product for a cheaper price buying from other firms.

A positive brand equity is reflected in many other advantages for the company such as long-term firm growth, strong negotiation power with manufacturers and retailers, competitive advantage over competitors.

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Negative customer-based brand is exactly the opposite of the positive situation. A firm with negative brand equity has challenging issues to deal with, and it impacts negatively its business to the point that would be better to sell the product without any name or brand.

This situation may happen for company major product recalls, scandals within the firm or if the company is involved into environmental disasters.

Brand equity is correctly seen as a long-term approach, not only focused in maintaining a strong relationship with the customer but this approach is also concentrated into the right marketing activities to create and to cultivate a strong brand image.

1.      Brand Equity Elements

Brand equity is composed by several elements, that characterize the brand and the company itself. The goal of these characteristics is to keep and to improve the position in customer’s mind not only to be successful but also to be well considered when it is time for clients to buy a product. Several are the elements of brand equity, and this sub-chapter will explain the 5 more relevant.

Brand loyalty is the feeling perceived by the customer in relation with brands, it is reflected into his/her dedication and commitment in the re-purchase of the same product, regardless price and promotion of it.

“Superior brand performance outcomes such as greater market share and a premium price (relative to the leading competitor) may result from greater customer loyalty.” (Chaudhury & Holbrook, 2001, p.81)

Thus, the importance of building a strong and durable brand loyalty is functional to the success of the company itself, to its opportunity in expanding in terms of market share and higher price.

“Loyal consumers are valuable consumers because is much more expensive to recruit new customer than nursing and keeping the existing ones.” (Heding, Knudtzen and Bjerre, 2009, p.13)

Brand marketing is focused on building brand loyalty in order to ensure re-purchasing of the product. The aim of the strategy is stated in the citation above, it will result easier to maintain customers rather than acquiring new one and this is the reason of the strategy adopted by companies to ensure and maintain customers.

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Many strategies are adopted to cultivate loyal customers, such as loyalty programs and brand ambassadors.

Brand awareness is the characteristic of brand equity that plays a fundamental role in the purchase decision making.

“Brand awareness reflects the salience of the brand in the customer’s mind.” (Aaker, 1996, p.114) As stated by Aaker, brand awareness depends on what consumers think about the brand, their perception of it and the knowledge of the brand while seeing the name or the image representing the brand itself.

It means that the customer is able to recognize brands and to decide for the most valuable. Building a strong brand awareness is important in order to be always present in customer’s mind while they have to take a decision over the purchasing a product. A stronger brand awareness usually is directly linked to a bigger amount of sales and a better position in the market.

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To create brand awareness companies are usually focused into the use of three tools: social media, traditional advertising and sponsorship.

Social media advertising is becoming more and more influential in people’s mind, and companies are working in order to get profit and building brand awareness through the use of these. The advantages are clear, the usage of them is easy and with few minutes the advertisement could be reached by thousands of potential customers, the penetration of social media in daily life is increasing and people can share their feelings and reviews about products and brands. Banner and aggressive marketing are also used to increase brand awareness. Automotive companies are using social media to increase the awareness of their brands and to explain the feature of their vehicles.

Traditional advertising is still used even if magazines and newspapers are not popular as it was in the past. This strategy used in the right way can be profitable in term of creating brand awareness, an example of it could be an advertisement of a new product placed in a magazine that discuss of a topic related to the product. An example can be the launch of  the new Fiat in Top Gear magazine or other specialised magazines.

Sponsorship is often used to improve the brand awareness, advertising the brand during public events help the company to create positive connection and visibility of the company in the market. The fairs that automotive companies are attending every year are the best way to connect with customers and increase the brand awareness.

These are not the only tools that are used, others are: Infographic, giving a personal brand identity to the brand, Remarketing campaigns and Influencer marketing.

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Kapferer stated the importance of focusing on brand heritage, “By studying the heritage, roots and history of the brand (its DNA), potential facets of its core can be identified.” (Kapferer, 2012, p.286)

Brand heritage is the emotional connection that customers feel thinking about a brand depending on the past activities of the company. The reputation of the brand and of the company is fundamental in this way, a positive brand heritage means that the company is remembered in a good way from customer. Nostalgia and good reputation is what make the difference in brand heritage and often companies decide to offer a revival of the past experiences.

Based on this porpoise, Fiat decided to revive one of its more successful brand, 500, which had great reputation all around the world in the 60s.

“Perceived quality may be defined as the consumer’s perception of the overall quality or superiority of a product or service with respect to its intended purpose, relative to alternatives.” (Aaker, 1991, p.85)

Perceived quality is an intangible aspect that all the brands have, customers perceive the quality of each brand and product differently comparing the quality of a variety of brands from competitors and substitutes goods. In this way perceived quality is considered a subjective analysis of brands depending on many factors and features of the product. The consumer’s experience with the brand plays an important role in establishing the quality of it, thus it could be positive or negative depending not only on the brand features but also on customers.

Perceived quality depends on price premiums, brand usage and other features of brand equity, but it is critical to measure the high or poor quality of each brand.

Perceived quality, as it impacts on the customer decision of purchasing and on his/her willingness to be loyal to the brand, supports the company’s choice of building a strong brand image as a result of high perceived quality.

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Brand image is based on the feelings and the association of the brand perceived by the customer. A positive brand image is the one that is expressing great feelings to the customer, remembering him/her good experience. Brand image is everything that the consumers remember thinking about the company and its products. The strength of brand image and consequently of the company itself depends on the influence of it over customers and many marketing activities are used to strengthen the brand image.

Brand image is closely influenced and connected with the reputation of the company and of the brand itself, a strong national or international reputation can leverage the imagine of the company and the people interest in it.

Furthermore, reputation is highly controlled by the company, as they take care of it as they want to improve company and brand image, improving the number of items sold.

Fombrun stated that: “reputation is based on six factors or ‘pillars’:

• Emotional appeal (trust, admiration and respect);
• Products and services (quality, innovativeness, value for money and so on);
• Vision and leadership;
• Workplace quality (well-managed, appealing workplace; employee talent);
• Financial performance;
• Social responsibility.”

(Fombrun et al., 2000)

3. Brand Value

The brand value appears on the balance sheet of the company owner of the brand, but the evaluation of it was a trouble since decades. Basically brand value is a financial value and the calculation of it could be done following different methodologies and approaches, depending also on the institution that is going to evaluate brands.

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The evaluation usually is not focused only on tangible data such as marketing budget allocation, marketing ROI, portfolio management, brand extension, licensing but also on

intangible features that are more difficult to calculate and to evaluate such as the people’s perception of the brand and how much the clients are loyal to each brand and their willingness in paying a premium price.

The establishment of a strong brand value needs time and money invested in building brand image for companies.

1.      Global 500 – The World’s most valuable brands

One of the most reliable business valuation consultancy, the Brand Finance based in London is evaluating every year the most valuable brand in the world through their website and annual report.

The evaluation is done on the “Royalty Relief approach”, this is based on the estimation of the future sales of the brand and on the calculate on of a royalty rate that would be paid in case of usage of the brand by other company non-owners.

This approach is based on seven steps:

1. Calculation of Brand Strength Index;
2. Determining the royalty rate range for the sector;
3. Calculation of the royalty rate for each brand depending on BSI;
4. Determining the specific revenue estimated for a parent company;
5. Determining the forecast specific revenue based on history and economic growth rates;
6. Deriving brand revenues from the calculation of royalty rate and forecast revenues;
7. Discounting brand revenue with post tax to get net present value which is the brand value.

This methodology is used by Brand Finance since 1996, allowing readers and experts to analyse brand value under a more complex study, comparing Brand Finance’s evaluations for 20 years.

(Brand Finance Global 500 report)

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Figure 1 in the appendix shows the 20 brands most valuable in the world in the year 2016, interesting is also the comparison with the previous year. The report underlines the strongest position of Apple with a huge increase on brand value even if it was already in the first position in 2015.

In this extract of the complete ranking only two brands are linked with the automotive industry, Toyota (11°) and BMW (16°).

Figure 2 in the appendix shows 18 brands from car industry that were performing well enough to be part of the 500 most valuable brands. Fiat was ranked only as 277° brand, getting worse its position from the previous year.

4. Brand Portfolio

“The brand portfolio is the set of all the brands and brand lines a particular firm offers for sale in a particular category or market segment” (Kotler, 2009). As this definition explain the brand portfolio is composed by several brands in order to achieve determined goals. Generally, the portfolio has to be measured by marketers, in order to understand if it is too big or if there is any chance to expand it, increasing the profit of the company, the presence and the market share but also decreasing the cost structure by exploiting the economies of scale.

“The basic principle in designing a brand portfolio is to maximize market coverage so that no potential customers are being ignored, but minimize brand overlap so that brands aren’t competing among themselves to gain the same customer’s approval. Each brand should have a distinct target market and positioning.” (Trout, 2000)

Brand portfolios are created in such a way that consumers do not need to buy other brands because the architecture of them allow the consumer to be loyal to the same brand even for different, usually related, products. In this way, international companies such as Procter & Gamble and Unilever built their strengths in a huge variety of brands and products to have the maximum grade possible of marketing coverage, doing so no customers are ignored.

Besides of the market coverage, the scope of building a successful brand portfolio is to differentiate the business of the company. When the market is mature, differentiation is fundamental as a strategy to struggle with the competitors and to offer a huge variety of products for all the market segment.

Brand portfolios are built strategically, each brand has its own strategic segment and the scope of them is to be successful within the segment. The portfolios are built maintaining the value and the identity of any brand, and the competition within the portfolio is not recommended in order to avoid cannibalization of brands. The identity maintenance of any brand is central to keep the brand image and the customer perception of it, in this way it is critical for the company to do not address too many qualities for each brand. Doing so each brand has its own qualities that represent the need of any market segment.

The segmentation of the market could be done in different ways, depending on the company and its willingness to approach the market with its differentiated brands and products.

The more frequent segmentations are:

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• Socio-demographic, based on the age and the preferences of the customers, companies are offering different brands to cover all the segments;
• Psychographic, based on the general lifestyle and the link between heritage and modernity;
• Benefit, based on the opportunity to get benefits and profit from each part of the market, thus each brand extension has its part of market that is profitable and related to the brand leader;
• Attitude, based on the offer of more than one brand similar to the others in the same segment to benefit from the cost structure and economies of scale, increasing the market coverage by launching innovative products alternating brands;
• Channel, based on offering a brand for each channel with the scope of avoid conflicts and increase the adaptation of the brand;
• Occasion, based on offering a brand or a range of brand for the several occasions that can happen during the day, thus consumption of some goods for a particular occasion. The case of Guinness beer as affiliated with the pub environment is one of the most relevant of this type of segmentation.

(Kapferer, 2012)

1.      Brand Architecture

“Brand architecture is often the external face of business strategy and must align with and support business goals and objectives. And different business strategies may require different brand architectures. Two of the most common types of brand architectures are called branded house and house of brands” (Petromilli, Morrison, Million, 2002)

Branded house is composed by a master brand and sub-brands that are adding features or specification to the master brand, thus these brand are related to each other, and they complete a wide offer to customers.

House of brands is composed by independent brands which are operating autonomously with separate department for a better management of the brand itself and for a better profit. The aim of the strategy is to increase the market share of each brand believing that this independent management is more suitable for the brand portfolio instead of a collective management.

“Today’s focus is on trying get the most from existing brands through better organizing and managing brands and brand inter-relationships within the existing portfolio.” (Petromilli, Morrison, Million, 2002)

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More and more companies are focusing on the management of the portfolio by positioning in other ways the brands, covering all the market and the customer needs, building strong relationships within the brand that allow a different customer perception of each brand.

Inter-relationship within brands can have a positive or negative impact, in fact a brand with a strong image can increase the awareness of other brand related to it, meanwhile a brand with similarities in positioning and brand value can cause strong competition with results of cannibalization of both brands.

Moreover, it is critical for any company to build a structured portfolio and to increase the efficiency of it, this analysis is done by understanding the positive effects that it might provide to customers:

• First brands have to describe their marketing activities, their roles and explain their relations with other brands. Then the brand relationship has to be evaluated in terms of advantages brought to the brand, thus how much the relationship can be useful for each brand and decide if it is worth to maintain it or broke it.
• The stakeholders have to be involved in the process, to understand their feelings in relation with the brand, what is their perception, and if the brand is perceived as required by the company. In this way, it is critical to communicate a clear and logical brand message to customer to explain all the values within the brand.

(Aaker, 1996)

Following this strategy, many companies with diverse businesses are building relationships to leverage brands, or exploiting the image of popular brands to increase the awareness and the image of the whole portfolio.

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Example of this strategy is given by Volkswagen Group that owns Audi and Porsche, these two brand have a huge potential in leveraging other brands, in fact the Volkswagen brand has strong relationship, especially with Audi, to increase the image of Volkswagen and provide better image for the customer perception that will feel better quality in the VW cars.

As well as Volkswagen Group, FCA is trying to implement this strategy, the willingness of the company is to increase the awareness of Fiat and Alfa Romeo by their connections with Jeep, already considered a global brand and successful worldwide.

Relationships are not only built within brands, but also in the production of different vehicles in the same plant and sometimes platforms. With this practise, the company is not only able to reduce the production costs but it is also building relationships within the brand portfolio establishing close connections between brands that are sharing the same platform. A relevant case of the use of this practice is the production of Jeep Renegade and Fiat 500X which are sharing the same platform and plant in Melfi, Basilicata that is the place which produce these cars for the European market.

Brand role in portfolio strategy

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Brand portfolios need strong coordination to be successful, brands have to be related, pursuing the same scope but not duplicate each other within the portfolio.

The brand portfolio has to reflect the strategy of the company and it is not built just as an aggregation of independent brands but they are selected carefully to target the company’s goal. The goal of building a strong brand portfolio is to cover all the segments of the market by providing the right brand and product to the right market, then positioning brands in the segments which has similar feature to the brand values.

“Marketers carefully monitor brand portfolios over time to identify weak brands and kill unprofitable ones” (Kumar, 2009)

It is strategic to each company to evaluate the status of the brand, if customers perceive the brand values and if the position of the brand reflects the value of the brand and its characteristics. This practice is often done by companies in order to check if the investments on weak brands are worth enough or in case it would be better to withdraw them from the market.

Brands can also play diverse roles within the portfolio:

• Flankers or fighters are those brands positioned in order to compete strongly but protecting the flagship brands, or more profitable, to gain market share. Flankers are not easy to manage as they do not have to become more attractive than the higher-priced brand which is covered by the strategy.
• Cash cows are those brands that are profitable and the company can maintain this profitability without investing in marketing.
• Low-end entry level is the role of those brands that are low-priced and they are produced with the aim of increasing the number of customers and bringing them inside the brand and the final scope is to trade up the customer to higher-priced brand or product.
• High-end prestige is the role of those brands which are high-priced with the aim of giving prestige, luxury and credibility to the entire portfolio. They are examples of high qualities and abilities of what the company is able to do.

(Kotler & Keller, 2009)

FCA brand portfolio does not have any flanker or cash cow as the market is very competitive, and all the automotive companies have to invest in marketing campaigns to maintain the brand values and the customer perception of the brand.

Low-end entry level is adopted by Maserati brand with its all-new Ghibli which is considered as an affordable luxury, even if the 2 words are not related. Ghibli being affordable means that the brand is going down-market by providing a luxury vehicle for a cheaper price reaching a bigger number of customers that can afford this car and then have the first luxury experience with Maserati. The aim of the strategy, started by Ghibli and followed also by Levante, is to trade up customers to more expensive vehicles after the first luxury experience in order to gain higher margin.

High-end prestige is used to bring customers in the showrooms moved by curiosity or real interest on the brand or a specific product. An example of it was the marketing of Chevrolet Corvette which was a “traffic builder” brand, and comparable to it can be the brand Ferrari that sharing the showrooms with Maserati can leverage the brand and attract people to them.

Brand positioning

“Positioning is the act of designing a company’s offering and image to occupy a distinctive place in the minds of the target market” (Ries, 2000)

Positioning is the strategy held by each company in order to clarify the value and the benefit that each brand can give to customers. Positioning is then useful also for marketers that following the strategy know the message to communicate to customers and to make comparison with similar brands owned by other companies. The differences between brands can be published in order to distinguish brands and explain better how the products work better than the competitor ones.

Positioning has to be strategic, then marketers can show what is the brand and what it will be in the future, the changes and how the brand should be perceived by customers.

Following a strategic positioning, FCA is trying to explain to customers that Alfa Romeo is a premium brand, but the communication of it has to be gradual, so the company is showing the qualities and the characteristic of the brand to customers that is the first step to became a premium brand. In case these qualities are appreciated by customers and the public, Alfa Romeo can strongly position the brand as premium with better comparison with other premium brands.

Other example of positioning brand done by FCA is the one of Fiat. Fiat is perceived as a cheap car maker for the mass market.

2.      Global portfolio strategy

Global portfolio strategy is becoming more and more used by international companies that aim to create a huge and varied brand portfolio that allow them to satisfy different customers and the demand of diverse markets.

The benefit of building a global portfolio, as it is partly discussed above, is to join the forces and resources of each brand creating a strong correlation of them and saving costs sharing R&D, logistics, manufacturing and distribution processes. Other reason for building a strong global portfolio are the creation of a unique finance and human resources department instead of one for each brand, the opportunity of building a dominant position on the market, and the creation of a possible solution in the struggle against distributors.

The global portfolio strategy is more used by FMCG companies that aim to keep a strong or even dominant position over the market by owning a huge number of brands in order to be able to offer any kind of good to customers.

In the figure below is shown few of the brands owned by FMCG companies. The popular practise is to expand as much as possible the presence on the shelves, having a complete offer of brands for any customer need.

Source: Guthuer, Joki. Oxfam 2012, Marketwatch. Web 08 July 2014

http://blogs.marketwatch.com/themargin/2014/07/08/10-powerful-companies-that-put-nearly-all-the-food-on-supermarket-shelves/

Companies have to be aware of troubles that could happen in managing this strategy and in building the global portfolio. The creation of the portfolio is done by merger, acquisition, affiliation or partnership with other brands, following this strategy, managers have to always control the portfolio structure avoiding over-centralisation of brands that could cause loss of brand identity and differentiation within the global portfolio.

The practice of companies by acquiring brands has the scope of entering a segment which is not served yet or offering a more complete line-up to do not lose any customer, doing so the company can acquire also more clients and attract those to other brands already owned.

The decision about the perfect number of brands that a company has to own is not stated, the matches of the brands within the portfolio is critical. Thus, brands have to be inter-related by supporting and completing each other, but also by sharing some department held only by the holding. This practice would save money for the company and built connections within the portfolio.

The strategy is also useful to increase the perceived quality of the brand, especially if those connections are done with a premium brand that its image could be exploited by the holding.

This strategy is often used by car makers, that built the brand portfolio by acquiring brands to expand the offer and enter new markets and segments. Those portfolios are usually composed by a mass-market brand, premium brand and a top range or luxury brand. The portfolio, with this structure can offer cars for a wide number of customers with different needs and without cannibalize any brand.

An example of this strategy is done by Volkswagen Group and FCA, in fact Volkswagen and Fiat are their mass-market brands, Audi and Alfa Romeo as premium brands and Porsche and Maserati as Luxury brands. Even though those are not the only brands owned by the two companies, the segments are fundamental for a wide position of the holding in the global market.

As stated by Kapferer (2012), the practice is to decrease the number of brands owned in order to concentrate and to invest in the more profitable brands which have positive prospective ahead and not just to increase the number of items sold.

In fact, FCA decided to dismiss the exportation of Lancia and to maintain the distribution of Lancia Y only in Italy in order to save money for other investments that nowadays are done mainly for Alfa Romeo, Maserati and Jeep. This decision was taken because of the troubles in which Lancia is right now and for its negative perception that it has in Europe as a consequence of wrong adaptation with the Chrysler brand.

The brand identity prism

The identity prism is a marketing tool created by Jean-Noel Kapferer which aims to describe the brand identity by characterizing the main features of the brand. The Kapferer prism has six facets that represent the brand identity.

As stated by Kapferer (2012):

Brand identity should be represented by a hexagonal prism:

1. A brand, first of all, has physical specificities and qualities – it is physique. It is made of either salient objective features (which immediately come to mind when the brand is quoted in a survey) or emerging ones. (…)
2. A brand has a personality. By communicating, it gradually builds up character. The way in which it speaks of its products or services shows what kind of person it would be if it were human. (…)
3. A brand is culture. There is no cult brand without a brand culture. A brand should have its own culture, from which every product derives. The product is not only a concrete representation of this culture, but also a means of communication.
4. A brand is a relationship. Indeed, brands are often in the crux of transactions and exchanges between people. (…) This facet defines the mode of conduct that most identifies the brand. This has a number of implications for the way the brand acts, delivers services, relates to its customers.
5. A brand is a customer reflection. (…) Reflection and target often get mixed up. The target describes the brand’s potential purchasers or users. Reflecting the customer is not describing the target; rather, the customers should be reflected as he/she wishes to be seen as a result of using a brand. (…)
6. Finally, a brand speaks to our self-image. If reflection is the target’s outward mirror (they are…), self-image is the target’s own internal mirror (I feel, I am …).  (p.182 – 186)

The brand identity prism aims to describe in a detailed way all the features of the brand, starting from the physical qualities so what the customers remember about the brand when he/she sees the logo; the interior personality so the feelings that the brand could express as a human being; the culture of the brand and its origins in terms of countries or historical background; the connections that the customer associates with the brand; and finally analysing what the brands wants to be in the customer perception and what the customer really perceives and what he/she feels in consuming that brand.

Source: Kapferer, J. (2012). The new strategic brand management. 1^st ed. London: Kogan Page. (p.183)

The prism as showed above is divided into the picture of the sender, which describe what the company is delivering to the customer, who are them and which are the main characteristics of the brand.

The picture of the recipient aims to define the customers, what the brand expect from them and what the clients feels using the brand.

Relationship and culture, as stated by Kapferer (2012), “bridge the gap between sender and recipient”. (p.187)

This tool will be useful for further analysis in Chapter 3 for a better understanding of the strengths and the weaknesses of FCA brand identities and to define opportunities to increase the awareness and the brand perception of the portfolio, especially of the brand considered in the FCA strategy.

Chapter 2

2.1 The History of FIAT

2.1.1 The foundation of FIAT

On July 11th, 1899 few Italian aristocrats founded the “Società Anonima Fabbrica di Automobili – Torino – F.I.A.T” that means translated in English language “Anonymous Society Automotive Factory – Turin”.

Giovanni Agnelli was one of the co-owner of the company, he was elected Operational Secretary, but later on he became the most influent figure in the F.I.A.T company with the biggest shared owned.

In the following years, thanks to Giovanni Agnelli, F.I.A.T. became profitable and it was listed on the stock exchange.

In 1906 F.I.A.T. proceed with acquisition of others Italian industrial firms that permitted the creation of a new company named FIAT, without any dot. In the new company, Giovanni Agnelli could possess a bigger share than in the previous one, getting a dominant position within the firm.

“The FIAT design and industrial capabilities were concentrated in the production of engines in the first period. Starting from this strength, the company started the first attempt to diversify its activities.” (Scotti, 2003)

Doing so, Giovanni Agnelli was able to follow his strategy, extending the production, diversifying the business and implementing a new organizational structure.

The production was now based on the American assembly line that he discovered travelling in the U.S., allowing the plant to produce a higher number of vehicles based on applying the Henry Ford theories.

The perception of the quality of the new cars built by FIAT plants was measured by national and international races, the reliability of the cars in the competitions was important to increase the market share and the potential customers. Participating at the car races, people saw the FIAT victories and the feature of the car, reliable and fast.

The foreign market was increasing as well as the Italian market, thus FIAT started with the exportation of its cars abroad but the number of car produced was not enough to cover the international demand.

In the years just before the War, FIAT started the production at Lingotto factory, the innovative plant built in Turin that was at that time the largest factory in Europe. The new factory was built with the aim of increasing the production of cars and decreasing the cost of manufacture to offer cheaper vehicles for the middle class.

After World War I FIAT had to challenge the issue of turning the production from war equipment to civil manufacture. The conversion of the production was not the only problem that Fiat had to deal with, in fact the Italian company had to face the frequent workers strikes according to their willingness of reducing the working hours and increasing the salary.

FIAT was already considered as one of the most influent company in the industrial sector, and one of the few in the Italian automotive industry to have an enormous capacity of car production as some of the other companies were acquired by FIAT or they dismissed the production, while only two firm were able to survive to the strong competition imposed by FIAT and these were Alfa Romeo and Lancia.

2.1.2 The Fascist Period

In 1923, Giovanni Agnelli was elected Senator of the Reign of Italy as an acknowledgment of his success and his pioneering.

During the Fascist period, FIAT continued its exponential growth, even though it suffered from the Crisis of 1929, the Italian company was able with the help of Mussolini to struggle against the crisis and improve the quality and the quantity produced.

Mussolini enforced customs duties for the vehicles imported from other countries that helped the internal production, and it decreased the importation of foreign cars, especially the ones produced by Ford industries in the U.S.

Though, the solution was not adequate to solve the company’ situation, in fact “The value of the FIAT share decreased of 70%” (Vladimiro, 2002).

In that period, Mussolini was preparing the war in Ethiopia, and FIAT was one of the factory that had to produce the war equipment and it allowed FIAT to maintain the employees and sustain the high production.

The production of the war equipment was due in the perfect period, the stagnation of the demand in the automotive market was deep, allowing FIAT to involve more resources in the preparation of the equipment for the war. FIAT gained an increase in revenues, profit and new resources to invest. It was the starting point for a new project, the expansion of the production by building a new factory.

2.1.3 The situation after the Second World War and the Marshall Plan

The damages on the infrastructures were substantial, the bombardments in Turin were multiple and targeted directly to the plants, destroying the places where fascist could get new vehicles, then within those also FIAT factories.

During the war, FIAT reduced strongly the production of civil vehicles due to the increase in manufacturing trucks, airplane, marine engines and tanks.

The important change in the post war was not only in the production, from war production to civil one, but also in the management of the company. Giovanni Agnelli died in 1945 and the vice-chairman took his place, Vittorio Valletta.

Valletta had to face the over employment and the procurement of the raw material that was problematic due to the problem in the Italian transportation system that at that time could not be used.

The fundamental economic and monetary help came directly from the USA strategy of reconstruction of the European industrial power, thanks to the Marshall Plan, the Italian economy and FIAT got funding to restart the production and the exportations.

2.1.4 The Italian Economic Miracle

“Italy experiences a period of economic boom and the car industry is one of the main drivers of intense growth: one car for every 96 inhabitants in 1949 becomes one for every 28 inhabitants in 1958 and one for every 11 inhabitants in 1963.” (fcagroup.com, n.d.)

The evidence shown from the FIAT history is representative not only for the automotive industry but also for the Italian economy, the number of cars sold, as it was still considered a luxury good at that time, was increasing that means the economy was growing and the living conditions were improving.

“Relevant is the fact that between 1951 and 1963 the GDP growth on an average of 5,9% per year (reaching the peak of 8,3% in 1961)”. (Villa, 2013)

This season that lasted for almost 15 years was named by the experts “The Italian Economic Miracle”.

The period was characterized by the increase of the number of vehicles produced by FIAT per year that reached more than 230.000 items in 1955.

FIAT launched in these years the “New 500”, that was already a success but it was destined to be an icon in terms of design and usability.

In 1966 Gianni Agnelli, the grandson of the founder, became chairman.

2.1.5 The Gianni Agnelli Era

Gianni Agnelli, after years of international relations particularly with the USA, became chairman of his family company only in 1966 when Vittorio Valletta resigned from his position recommending Gianni Agnelli as his successor.

FIAT came to his hands just after the best period for successful growth in the company history.

The end of the 60s were characterized by the numerous worker strikers, especially from the employees that had just an operational function to control the production systems. The claim was about a better working condition, as the job was heavy in terms of type of work and working hours, and they were asking also a better salary, that was blocked from years before.

The social unrest and the long period of protest affected the production and the profitability of the company as the workers stopped the production for many hours and sometimes also for days.

Even though the period was not the best in FIAT history, the company continued to pursue its goal of growing and expanding, then FIAT acquired Lancia in 1969 with the aim of saving the successful Italian brand, known for elegance and high technologies.

In 1969 FIAT also signed the agreement with Enzo Ferrari, in which the founder of Scuderia Ferrari continued with the car competition while FIAT started the production of the vehicles with the famous brand from Maranello. The Ferrari brand was known worldwide for the luxury and for the performances of the cars, the brand was well-established and owning a Ferrari represented a dream for all the fans. Though, the company finances were not sustainable in the long-run and Enzo Ferrari had to leave the production to FIAT.

In 1974 a new CEO was hired by FIAT, Cesare Romiti started his work at FIAT and his main task was to improve the situation in which FIAT was operating and to solve all the issues that the company was facing.

It was the time for the change in the FIAT organization which was composed by 100 directors that were helping the CEO in his duties and decisions. Romiti proposed a new structure based on a holding company that manage and own the other holdings divided for their type of production, the most important were: Automobiles, Industrial Vehicles, Agricultural Tractors, Constructions Vehicles, Machine Tools, Components, Iron and Steel Sector, Rail sector.

All these so called sub-holdings were managed independently with their own budget and investment, while the head-holding, Fiat Spa, had few issues like setting the budget, checking the results and solving disputes within the company.

With the strategy adopted and the solution found with the labour unions, Romiti improved his position and the consideration of his work within the company.

With the legitimation of Romiti, Agnelli was able to dedicate more of his time to his hobbies and travels. He was known as a football expert, owning Juventus Football Club, one of the most important soccer club in Italy. He was also interested in car races, travelling with the Ferrari team during the Formula One season that became part of the FIAT holding.

Agnelli decided to buy one of the most important newspaper of the country “La Stampa”, that was part of his strategy to have a positive perception of himself and of the company within the Italian citizens.

Gianni Agnelli was elected as Lifetime Senator by the Italian Republic President in 1991, for his success and help given by him and his family to the State.

Going back to the activity of the holding, “Fiat Uno” and “Fiat Panda” were launched in the 80s becoming ones of the most sold car in the FIAT history and one of the most successful subcompact car in Europe.

The strategy of FIAT was clear from the beginning, the company wanted to be the leader of the Italian market, and to pursue their goal, FIAT decided to buy Alfa Romeo, the last automotive industry that was not part of the FIAT portfolio. Alfa Romeo, owned previously by a State company due to reasons of financial difficulties, was manufacturing middle size cars that were excelling in performances but it never sold well enough to be sustainable in the market.

Buying the shares of Alfa Romeo in 1986 and controlling it, FIAT started his monopoly over the Italian market as all the car industries were owned by the Agnelli family.

2.1.6 The crisis of the 90s

In the 90s FIAT suffered a strong crisis and the company was really close to bankruptcy, the crisis was prolonged to the first years of the new Millennium but the causes came from a huge mistake in strategies that have been taken in the previous years.

Nevertheless, other automotive companies suffered the crisis of the 90s but were able to react quickly to the new situation and the new competition.

Volkswagen suffered the same situation as Fiat, but the German company was able to solve the internal problems and to improve its market share and its brand awareness in the car industry.

The main objective of Fiat and of its CEO was to diversify the financial risk that the company could incur in case of a deep crisis in the automotive market, not seen stable nor profitable enough in the future from the Fiat Spa management. Therefore, Romiti decided not only to diversify the risk, acquiring shares of companies in different productive sectors, but also to outsource the most important part of the car production, including the outsourcing of the new vehicles design. This strategy was seen as a lack of  quality of the cars, as the FIAT cars were always designed in Italy by Italian engineers and as a representation of “made in Italy”. Doing so the brand lost its credibility and the image that it built in the previous year. Customers perceived the brand as not reliable enough that is crucial for selling cars.

FIAT had to face also the increasing costs of production and the excessive workforce, thus the management cut or replaced part of the employees by hiring workers benefiting by state subsidies.

Other two causes of the crisis were the changes in the market competition and in the feature of the cars.

The main change in the market competition was due to the extension of the borders between EEC members which enabled the free importation and exportation of goods between the State associate, thus it meant that all the companies based in one of these countries participating in the EEC agreement can export its goods in all the other countries without any type of fee or customs duties. The new market rule was not beneficial for FIAT as its business was based mostly on the Italian market and with the new agreement the German and the French companies could get part of the market share in the automotive industry also in Italy. The free market within the EEC members increased the competition in the automotive market decreasing the Fiat Spa customers and the number of the vehicles sold.

Regarding the changes in the feature of the cars, FIAT decided that huge investments were not needed even though the other car companies were changing them, especially regarding the innovations in the sector such as the use of the car electronics and the “ECU” (Electronic Control Unit). It was perceived as a lack in the quality of the car and in a stagnation of the composition of it.

To sum up all the causes of the Fiat Spa crisis in the 90s, partly stated by Vladimiro Giacchè (2002) in his article, the company had to deal with:

• The management preference in diversification instead of increasing the investment in the car industry, in innovations and in Research and Development, symptom of lack of foresight;
• The overall crisis within the country due to its high public debt and the activities that have been taken by the state in order to reach the requirements stated in the Maastricht Treaty;
• The decision of outsourcing of the design and sometimes also the manufacture of the vehicles, without taking care of the quality of the cars;
• The changes in the composition of the market and of its rules, through the entrance of new companies in the Italian market that previously were dissuaded by entry barriers that were held before the EU agreement.

All those causes decreased the value and the perception of the FIAT brand, as it was considered not in line with the competitors, producing cars that were not reliable enough to compete in the European market.

In 1998 Cesare Romiti resigned, and Paolo Fresco took his place.

2.1.6 The Fiat-GM Agreement

The main objective of the new CEO was settled by the chairman, he had to set a contract regarding the selling of part or the entire company due to the enormous debt that Fiat contracted in the period of the crisis. Agnelli had to take this decision grudgingly especially for the willingness of the founder, his grandfather, that was to maintain the company always within his family assets.

In March 2000, Paolo Fresco signed the alliance with GM, it was composed by 2 fundamental parts, an exchange of shares and the building of a joint venture.

“On the financial side, GM will buy a 20% share in Fiat Auto, while Fiat SpA will receive in exchange 5.1% of GM’s shares (though there will be no exchange of board representatives). The Fiat group will become GM’s second- largest shareholder (the majority of the shares are in the hands of a US investment fund) and its leading industrial partner. The financial agreement provides also for the option, though not the obligation, of Fiat SpA offering – not sooner than three and half years, and not later than nine years from the signature of the agreement – the remaining 80% of its shares to GM, which will have a first option to purchase them.

The production and industrial alliance will take the form of two joint ventures (owned 50% by Fiat and 50% by GM): the first will conduct purchasing activities, while the second will produce engines and gear equipment. Cutting expenses will be the main policy as regards production.” (Eurofund, 2000)

The alliance between the two companies is the first attempt to become an internationally-recognized company that Fiat Spa always wanted to be but it was never successful in completing its dream. The alliance was signed due to financial problems that FIAT was suffering and in the beginning of the new millennium the best solution seemed to be the agreement with the largest auto maker in the world.

2.1.7 Sergio Marchionne

In 2003, Gianni Agnelli died and his brother, Umberto, took his position as chairman.

After a succession of 3 CEOs, Sergio Marchionne was hired in May 2004, he was already part of the Board of Directors of Fiat Group since 2003 but still he was not recognized as a figurehead or a leader with enough experience that was needed to improve the critical situation of the major Italian manufacturing company. Marchionne had his major experience abroad, he worked in Canada having also the citizenship there and in Switzerland, directing a multinational company that provides inspection services.

“Fiat receive 2$ billions that allows the company to look forward and it return all Italian based”. (Ilsole24ore.com, 2005)

Marchionne started his work by ending up the agreement with GM according with his strategy to solve the situation with the Fiat own forces. Marchionne retracted the alliance signed by Paolo Fresco, solving it with the payment done by GM of around 2$ billions and ending the joint-venture.

One of the main successful result during his administration was the restarting of the manufacturing of the “500” in 2007, that was an icon in the past years but it resulted the real help in strengthening the assets and in supporting the whole company over the recession period. The FIAT 500 represents the image and the brand FIAT in the last decades, symbol of beauty, fashion and low consumption. It marked also the first attempt in entering the US market after few years without any exportation in the country.

In 2009, Marchionne supported by the Agnelli family decided to offer to the US government an agreement regarding the saving of the Chrysler group after the filling of the Chapter 11 by the authorities. The President Obama agreed for the alliance, starting first with a FIAT participation in the shares of Chrysler that can be increased by reaching certain objectives.

“In January, 1st 2014 Fiat signed an agreement with VEBA and it bought the remaining shares of Chrysler” (Bogliari, 2012)

After a gradually increase in the shares, FIAT acquired the totality of Chrysler in 2014, and on October of the same year the new company was formed, formally called FCA N.V. as it is based in The Netherlands.

One of the main decision taken by Marchionne was the business plan signed in 2014 in which all the strategy for the following 5 years was formulated with the target for each brand and for the number of cars sold per year.

The strategy will be discussed in the following pages and in chapter 3.

2.2 The FCA brands

With the agreement signed in 2009 Fiat acquired part of Chrysler automotive company, becoming one of the biggest automotive company in the world, with 16 different brands, and different vehicles that allow the new company created, FCA N.V, to offer a wide range of cars according with the needs of each market and of each customer.

In the following sub-chapters the main brands will be described focusing on the history, the number of vehicles sold in 2016 of each brand and on the current line-ups. Only the automotive-related brands will be taken into consideration for a better understanding of the brand portfolio strategy of FCA, as the other brands, mainly components companies, are considered only subordinates.

The Italian department of FCA, known previously as Fiat Group or Fiat Automobiles, has its headquarters in Torino, Italy. Among the brands owned by the department, the FIAT brand remains the most important for number of vehicles sold and for the number of employees hired in the plants.

The brand portfolio of FCA Italy consists in: FIAT, Alfa Romeo, Lancia, Abarth, FIAT Professional and Maserati for the manufacture of vehicles. Moreover, it includes also less known brands that are related with the production of components: Teksid, Comau and Magneti Marelli.

The US department of FCA, known also as Chrysler Group or Chrysler Corporation, is based in Ann Arbor, Michigan.

The founder of the US department is the Chrysler company that represents also its main brand for the success that it had in the past and for becoming one of the big Three of Detroit, even though it is not the most representative brand in terms of car sold.

The brand portfolio is composed by: Jeep, Dodge, RAM, Chrysler and SRT. It also includes Mopar that produces parts and components for all the automotive plants.

BRAND	Market	N. vehicles sold in 2016	Brand values	Segment
FIAT	EU28 (ITALY)