Why the Phaeton failed in the U.S. market

Columnist Al Ries has written some interesting analysis for Advertising Age on why the Volkswagen Phaeton failed in the U.S. market. What compelled a company known for small, relatively inexpensive cars to introduce a $70,000-$100,000 luxury sedan? Ries believes VW is feeling pressure to move up-market because the economy section is being dominated by Japanese (and soon Chinese) automakers. He likens VW's introduction of the Phaeton to what is also happening at Wal-Mart. "Management thinks, We're getting a reputation for selling nothing but cheap merchandise. So what is Wal-Mart doing? Advertising in Vogue magazine and selling diamond rings, some costing as much as $9,988." Business 2.0 recently pointed out that the Phaeton could be the best "the most compelling luxury vehicle currently sold," yet "the company can't give them away." Blame two minor faults, the magazine says: "a VW badge on the front grille, and another on the trunk." So what should VW do? "From a marketing point of view: Go back to what made the brand famous. Small, ugly, reliable cars," says Ries. "From a management point of view: Build "˜em in China." (In November, Volkswagen announced it would pull the Phaeton from the U.S. market).