Introduction
The case study by Rebecca Henderson and Cate Reavis, entitled What’s Driving Porsche? Is an investigation into the current realities for the Porsche car company (Henderson and Reavis, 2009). Porsche has made some significant changes in recent years, ceding control and gaining control within certain parts of the automotive industry; the purpose of this report is to give a thorough discussion of the changes that are occurring in the automotive industry, particularly the luxury automotive industry, and examine how these events have affected Porsche as a company and as a brand. The transitory nature of the automotive industry branding tactics have led to an interesting evolution of changes for the Porsche auto company in recent years, and these changes suggest a forward-thinking focus for the company in years to come.
Luxury cars in the automotive industry have, contrarily, become more popular in recent years. This growing popularity is indicative of a number of important changes and evolutions that could potentially occur soon in the automotive industry, including a growing focus around the world on low-emissions automobiles. Porsche has always been a luxury and high-performance car manufacturer, meaning that the company has to take special steps to remain abreast of the current trends in automotive research and design, as well as automotive future trends (Hudson, 2015).
Background of Porsche
Porsche was founded in Stuttgart, Germany, in 1931, making it one of the forerunners of today’s automotive industry giants, alongside companies like Ford (Porsche North America, 2015). The company that is known today as “Porsche” in most circles was founded as “Dr. Ing h. c. F. Porsche GmbH,” by an Austrian engineer named Ferdinand Porsche (Porsche North America, 2015). Although the company did not begin as a car manufacturing company, it began to build cars like the Porsche 64 in 1939—during this time, Porsche was acting in direct competition with the other major German car manufacturer, Volkswagen (Porsche North America, 2015). During World War II, Porsche was involved with various wartime research and design projects, primarily focusing on tanks (Porsche North America, 2015). Despite the fact that Volkswagen and Porsche have long been competitors, they have also been allies for many years; there have been many collaborative projects that Porsche and Volkswagen have worked on together, which is partially what has made both companies such strong companies (Porsche North America, 2015).
In 2007, Porsche was restructured; the company underwent a number of changes and split into two major companies. The exact implications of this split and subsequent business decisions will be discussed in depth later in this report; however, the split renamed the old company and created two new brands, Porsche SE and Porsche AG (Porsche North America, 2015). These two businesses are now separate entities, and each performs an important purpose for the Porsche brand as a whole (Porsche North America, 2015).
Major Mergers, Acquisitions, and Structural Changes
The biggest split in recent, relevant history for Porsche was the restructure of the company in 2007. In 2007, the old business—Dr. Ing h. c. F. Porsche AG was renamed to be Porsche SE. The purpose of Porsche SE contains the old company and the portion of Volkswagen AG that Porsche owned previously (Porsche North America, 2015). The original name was retained, however, and used for the company’s car manufacturing side of the business (Porsche North America, 2015). Porsche SE and Volkswagen AG merged officially in 2011, after a number of years of being collaborative in an automotive R&D partnership (Porsche North America, 2015; Henderson and Reavis, 2009). Today, the companies remain merged, and Volkswagen AG and Porsche SE are currently carving out a new place in the luxury brand car market (Porsche North America, 2015). The cars have a reputation for excellence, although among car lovers, they are simultaneously adored by many and despised by many (Kane, 2015).
Luxury Branding
Luxury branding for the automotive industry is slightly different than that of the fashion industry, but by and large, the concept is the same. Luxury goods provide people with more than just quality, they provide the consumer with a feeling—that is one of the most important functions of luxury goods (Sukhdial and Chakraborty, 1995). It is important to note that Porsche did not set out to become a luxury brand, per se—the company generally focuses on high-performance cars (Porsche North America, 2015; Henderson and Reavis, 2009). The high price point for high-performance cars has forced Porsche into a hybrid role of luxury and high performance, which is arguably one of the reasons for the company’s continued success in a competitive industry (Porsche North America, 2015; Henderson and Reavis, 2009).
Luxury branding can occur in many different ways, and there have been a plethora of changes to the way Porsche chooses to market their high-performance cars in a luxury market; these changes indicate a nuanced understanding of market realities and customer preference (Sukhdial and Chakraborty, 1995; Porsche North America, 2015; Henderson and Reavis, 2009). Because luxury branding exists to sell customers more than just an object or product, this branding is often pervasive in luxury markets (Truong et al., 2008).
Purpose and Function of Luxury Branding
Luxury branding exists to sell people beliefs rather than goods (Truong et al., 2008). This type of branding encourages the individual to believe that purchasing a type of product or good will allow them to lead a high-class lifestyle; it is this lifestyle that is being sold through cars when looking at a company like Porsche (Henderson and Reavis, 2009; Vickers, and Renand, 2003). Luxury branding does not exist to meet a need that an individual consumer has—it exists to fulfill consumers’ wants, desires, and even their dreams (Truong et al., 2008). The luxury brand, according to Truong et al. (2008), must offer something unique to the consumer, whether it is a unique experience or a special feeling; arguably, in the automotive industry, wealth and power combine in the luxury car market (Brenkers and Verboven, 2006).
Luxury Branding in the Automotive Industry
Luxury cars exist in a relatively fickle market—because they are so expensive compared to other luxury goods and they are not goods that customers necessarily buy on a whim, they are extremely subject to market forces (Stock, 2015). Stock (2015) writes, “Things have grown ever more extraordinary for the one percent on four wheels. The fancy cars seem to be multiplying and taking unexpected shapes. Bentley moved to build a sport utility vehicle in 2013, a decision matched by Rolls last week. Ferrari brought out a 963-horsepower supercar with an electric motor, which has since been joined by an $840,000 Porsche with two electric motors. Orders and eager deposits have been pouring in” (Stock, 2015). This economic change bodes well for the future of the Porsche brand—and for the economy as a whole. Economic downturns are often extremely difficult on automotive manufacturers, especially those that make luxury cars; luxury branding has to walk a fine line between encouraging customers to continue to engage in the brand and focusing on quality (Stock, 2015).
There is something ephemeral about the idea of “cool” in luxury branding—the idea of “cool” may change from year to year, but it is important for luxury brands to remain relevant as names in their industry, regardless of the changes in trends that occur over time (Truong et al., 2008). Luxury brands and companies like Porsche expect tastes to change, and they must continue to walk the like between adaptability as a brand and tradition as an entrenched name in the industry (Truong et al., 2008; Han, Nunes, and Drèze, 2010). Porsche is experiencing an aging product line in a number of ways, and they will have to develop new concepts to remain at the forefront of the luxury automobile industry as well as the high-performance car industry (Stock, 2015).
Porsche as a Luxury Brand
Porsche, as a luxury brand, has faced trying times in the last decade or so, as have many luxury automobile brands (Stock, 2015). Despite economic hardships, Porsche has been excelling in the automotive industry in recent years, especially since the merger with Volkswagen (Flak, 2015). There are very few cars that fulfill the same niche that Porsche fills, and as a result, there is very little direct competition for the types of cars produced by Porsche; in addition, Porsche has built a very strong name brand for itself over the years, forcing through an image of efficiency and beauty (Flak, 2015; Han, Nunes, and Drèze, 2010). Porsche has excellent name recognition, which means that when people think of luxury cars, “Porsche” is often the first name, which comes to mind—this is an incredibly powerful tool for marketing the Porsche brand to individuals of means (Flak, 2015). Porsche has the added benefit of appearing to be a company that is willing to evolve and innovate—a powerful image in the luxury automotive sector (Flak, 2015; Stock, 2015). Porsche presents its image as a high-quality, high-price exclusive brand; it is a club that others want to join, and the brand promotes awareness through its exclusivity (Flak, 2015; Stock, 2015).
Engineering and the Porsche Brand
One of the most important things that Porsche has built its name on is the quality of its engineering (Porsche North America, 2015; Henderson and Reavis, 2009). Porsche has always had a unique understanding of the importance of development in engineering; because Porsche is not only a luxury automotive company but also a high performance car company, Porsche focuses on strategies in the engineering department that will translate into real-world benefits for their automobiles (Henderson and Reavis, 2009).
Regarding the nature of engineering at Porsche on a historical and current basis, Henderson and Reavis (2009) write, “Providing outside engineering services for carmakers had always been an important part of Porsche’s business model. While clients owned the research that Porsche conducted on their behalf, Porsche reserved the right to use the research if the client chose not to, with the understanding that it would not be sold to anyone else. Porsche could test or develop ideas that the company would not have been able to fund on its ownOf significant help to PEG engineers was a pool of nearly 600 graduate student interns who worked alongside Porsche’s staff engineers” (Henderson and Reavis, 2009). These unique strategies are part of the engineering concepts developed and perfected by the Porsche company; Porsche utilizes these strategies to remain abreast of the most cutting-edge R&D in the automotive industry (Henderson and Reavis, 2009).
The Volkswagen-Porsche Relationship
Porsche has long had a strategic alliance with Volkswagen that has led to a number of important developments for both companies (Henderson and Reavis, 2009). Although Porsche had the problem of an aging product line leading up to the early 2000s, the partnership with Volkswagen allowed Porsche to continue making developments in the automotive industry (Henderson and Reavis, 2009; Flak, 2015). This strategic alliance eventually allowed for the development of the SUV as a form of recreational vehicle and a successful commercial venture; without the strategic alliance between Porsche and Volkswagen and the openness of the Porsche engineering structure, the development of this concept would have been much slower to come to fruition (Henderson and Reavis, 2009; Trudell and Horie, 2015).
Contributions to Automotive Engineering
Porsche has been able to present a number of engineering successes that make their cars suitable for the everyday user and for the performance-invested user—everything about Porsche is maximized for efficiency and openness, and their profit margin reflects the care they take in their engineering (Henderson and Reavis, 2015). They are developing a number of luxury plug-in hybrid concepts and automobiles—indeed, one of the first luxury plug-ins was recently introduced into the market by Porsche AG (Trudell and Horie, 2015). This automobile won a number of awards for its success as a high-quality plug in with high performance ratings an excellent luxury perks (Trudell and Horie, 2015; Kane, 2015).
Current Automotive Market Strategies
Currently, Porsche focuses its attention on a few important segments of the market. There are buyers who are everyday users—these are people who buy Porsche automobiles and drive them daily—there are also collectors and individuals who are interested in high-performance cars for racing or show (Henderson and Reavis, 2009). The Porsche target market currently focuses on a number of specific segments of the population, but all of them are individuals that are wealthy and view a Porsche as a symbol in various ways (Henderson and Reavis, 2009; Hudson, 2015). The focus on performance is something that continues to set Porsche apart in the luxury car market, although Flak (2015) suggests that the high-performance focus may be reducing Porsche’s market share in minor ways.
Realities of a Post-Economic Downturn Automotive Market
It was difficult for luxury car producers to develop new strategies during the economic downturn that began in 2008, but the current market has allowed for a resurgence of the automotive industry (Zhang, 2015). Porsche has been expanding since the beginning of the recovery, moving from the belt-tightening of 2007-2009 to the current expansionist viewpoint of 2014-2015 (Zhang, 2015). New technologies were developed while the economy was suffering, and now Porsche is releasing them to the market—their new plug in hybrid cars are looking extremely promising insofar as fuel-efficient vehicles are concerned (Stock, 2015).
Porsche Successes in the Current Market
Porsche’s name continues to be one of the main reasons for its success in the current market (Flak, 2015). There is some disconnect between advertised features and the features that the American public generally find appealing in cars, and this is one of the reasons the partnership with Volkswagen is so powerful for Porsche (Flak, 2015). Although Porsche creates luxury vehicles, all the vehicles are couched in terms that describe their high performance value; American customers tend to desire other features in their luxury cars, such as navigation systems and Bluetooth technologies (Flak, 2015; Stock, 2015).
Competition and the Luxury Automotive Market
Porsche has a number of major competitors—indeed, the automotive industry as a whole is full of competitors—but there are few that fill the same niche as Porsche (Henderson and Reavis, 2009). The performance-based model that Porsche utilizes is offset by the merger that occurred with Volkswagen in 2005 and then again in 2011 (Henderson and Reavis, 2009; Flak, 2015; Stock, 2015). Porsche presents an image that is hard to match, although other companies have adapted their own strategies to compete in the same market as Porsche; where Porsche has a lot of competitors is in the everyday user market (Henderson and Reavis, 2009).
Potential Futures for the Porsche Brand
Porsche has a number of potential avenues that must be explored in the near future. They can continue their focus on high-performance vehicles—indeed, it seems inevitable that this will continue to be a focus for the company—but there also seems to be more of a focus on filling consumer needs than there ever has before for Porsche (Stock, 2015). There is also more of a focus on the American market than ever before—Porsche has even built a new headquarters in Atlanta, Georgia (Hudson, 2015).
Changes in Marketing Strategy
Recently, Porsche has become more focused on providing consumers with a fuel-efficient vehicle that meets their high standards (Hudson, 2015). This indicates a subtle shift in marketing strategy away from solely focusing on wealthy buyers with excess cash and those interested in high-performance vehicles; in the future, it seems likely that Porsche will need to target buyers that are interested in the luxury aspect of the cars, and provide them with incentives to remain loyal to the company over time (Porsche North America, 2015). Maintaining high standards and constantly innovating is the focus of the marketing strategy moving forward—the company is likely to continue its open policy in regards to research and development, however (Henderson and Reavis, 2009).
Discussion and Conclusions
Porsche has built an extremely strong empire in the luxury car market through the development of a number of key strategies over the years. The open nature of the engineering process and the reliance on intern ability and intelligence is something that is almost unique to the company; it is a strategy that has been incredibly useful and lucrative over the years. It seems likely that the trend for Porsche will shift in the direction of production of luxury fuel-efficient cars in conjunction with their traditional high-performance vehicles.
References
Brenkers, R., & Verboven, F. (2006). Liberalizing a distribution system: the European car market. Journal of the European Economic Association, 216-251.
Flak, A. (2015). Porsche's success looms over Maserati sales push. [online] Reuters. Available at: http://www.reuters.com/article/2014/04/14/us-maserati-porsche-idUSBREA3D14Q20140414 [Accessed 8 Jul. 2015].
Han, Y., Nunes, J. and Drèze, X. (2010). Signaling Status with Luxury Goods: The Role of Brand Prominence. Journal of Marketing, 74(4), pp.15-30.
Henderson, R. and Reavis, C. (2009). What’s Driving Porsche?. Boston: MITSloan Management.
Hudson, P. (2015). Porsche opens U.S. headquarters in Atlanta. [online] Atlanta Business Chronicle. Available at: http://www.bizjournals.com/atlanta/news/2015/05/07/porsche-opens-u-s-headquarters-in-atlanta.html [Accessed 8 Jul. 2015].
Hutton, R. (2007). Porsche set to take the wheel at VW. [online] Thesundaytimes.co.uk. Available at: http://www.thesundaytimes.co.uk/sto/business/article73398.ece [Accessed 8 Jul. 2015].
Kane, F. (2015). Aston Martin’s ‘launch control’ prepares to burn off opposition in UAE | The National. [online] Thenational.ae. Available at: http://www.thenational.ae/business/retail/aston-martins-launch-control-prepares-to-burn-off-opposition-in-uae [Accessed 8 Jul. 2015].
Kley, F., Lerch, C. and Dallinger, D. (2011). New business models for electric cars—A holistic approach. Energy Policy, 39(6), pp.3392-3403.
Okeson, B. (2001). Engineering is Porsche's secret weapon. Automotive News, 75(5912).
Porsche North America, (2015). Porsche Cars North America - Porsche Cars North America. [online] Available at: http://www.porsche.com/usa/aboutporsche/pressreleases/pcna/ [Accessed 8 Jul. 2015].
Stock, K. (2015). Hyper-Luxury Cars Are Now Selling Faster Than Normal Ones. [online] Bloomberg.com. Available at: http://www.bloomberg.com/news/articles/2015-02-25/hyper-luxury-cars-are-now-selling-faster-than-normal-ones [Accessed 8 Jul. 2015].
Sukhdial, A. S., Chakraborty, G., & Steger, E. K. (1995). Measuring values can sharpen segmentation in the luxury auto market. Journal of Advertising Research, 35, 9-9.
Trudell, C. and Horie, M. (2015). Surging Luxury Car Demand Vaults Mercedes-Benz Past VW in Japan. [online] Bloomberg.com. Available at: http://www.bloomberg.com/news/articles/2015-07-06/surging-luxury-car-demand-vaults-mercedes-benz-past-vw-in-japan [Accessed 8 Jul. 2015].
Truong, Y., Simmons, G., McColl, R. and Kitchen, P. (2008). Status and Conspicuousness – Are They Related? Strategic Marketing Implications for Luxury Brands. Journal of Strategic Marketing, 16(3), pp.189-203.
Verboven, F. (1996). International price discrimination in the European car market. The RAND Journal of Economics, 240-268.
Vickers, J. S., & Renand, F. (2003). The marketing of luxury goods: An exploratory study–three conceptual dimensions. The Marketing Review, 3(4), 459-478.
Zhang, B. (2015). Porsche's incredible $100 million US headquarters is an amusement park for adults. [online] Business Insider. Available at: http://www.businessinsider.com/porsche-atlanta-us-headquarters-2015-5 [Accessed 8 Jul. 2015].
