I would agree with those who are concerned that the sale of Volvo will create challenges with quality, availability, and price, as below.

First, the research clearly shows that a merger or acquisition rarely builds value for the customer. Rather, it is likely to benefit a select few and senior share holders. Corporate pratfalls are rife with examples of well-intentioned acquisitions that fail miserably, to the detriment of all involved. Examples include Rubbermaid/Newell, ITT, AOL Time Warner. Remember when Macey’s bought a discount retailer? The outcome was a disaster. Mixing compensation schedules, distribution networks, and marketing approaches rarely speaks to an understanding of the customer value proposition.

Second, Economies of Scale often lead new owners of an enterprise to fix something that is not broken. Here, a buyer is likely to use existing and known manufacturing channels to offset the acquisition cost by reducing costs. Marginal cost savings too often spread over entire product and parts lines leads to dramatic quality reduction, and an erosion of the entire supply chain, which in the example of Volvo, could be catastrophic.

Third, Commoditization often follows when a buyer fails to clearly understand the complexity of a given customer group, what drives each to purchase parts, service, and vehicles. In this example, early market entrants can charge higher prices for better quality products. If maintained, this supports the quality of a vehicle, and the parts and services that maintain it, such as the example of Lexus or Acura.

Yet in other examples of mature companies, failing to understand this may lead to attempts to increase sales by lowering quality as well as price. Here, they train the customer to value based on price rather than quality. Examples may be the hard drive industry, where hard drive size at a given price point is now how the average consumer ranks a purchase, blithely unaware that the quality to deliver this size has, by many standards, fatally affected quality. One excellent study of this was done by Harvard Professor Clayton Christensen. If the new purchaser fails to maintain price and quality much like a currency that fluctuates with markets, it is likely that Volvo will founder.

Fourth, The Value Proposition, which speaks to many of the above issues, is the relationship between price and quality. It affects absolutely every aspect of a car company from sales, to manufacturing, service, distribution, to parts. In this example the new owner of Volvo must understand the price thresholds of the client base. They must also understand the Feature, Advantage, Benefit relationship of each part of the Volvo base, and the relationship between them. For example, Mercedes charges very high prices for pats and service, the customer believes these to be of higher quality, and supports this assumption by buying these parts and service. By contrast, many other parts are poorly made, and have a price to match. Here, the consumer does not value or indeed understand the quality differences. While many would recoil at a muffler not made of a galvanized steel, it is for many outside the value proposition that they understand and live in.

So here the challenge for a new buyer will be to develop and maintain a genetic understanding of the price/quality value proposition of each part of the Volvo supply and the value customer chain. Yet the idea of Value Proposition is a moving target that must change with economic, political, and social events, both regional, national, and international. As a Volvo owner I sincerely hope that this will be the case. However, automotive history is littered with examples of poor timing and too little knowledge and understanding of the customer and markets. We, here on the Brickboard are likely to see the results before others.

960 Brickster - HBA, MBA