CASE STUDY PORSCHE

Porsche: Guarding the Old While Bringing in the New

Porsche (pronounced Porsh-uh) is a unique company. It has al-ways been a niche brand that makes cars for a small and distinctive segment of automobile buyers. Last year, Porsche sold only 29,023 cars in the ve models it sells in the United States. Honda sold about ve times that many Accords alone. But Porsche owners are as rare as their vehicles. For that reason, top managers at Porsche spend a great deal of time thinking about customers. They want to know who their customers are, what they think, and how they feel. They want to know why they buy a Porsche rather than a Jaguar, or a Ferrari, or a big Mercedes coupe. These are challenging questionseven Porsche owners themselves dont know exactly what motivates their buying. But given Porsches low volume and the increasingly fragmented auto market, it is imperative that management understand its customers and what gets their motors running.

Prole of a Porsche Owner

Porsche was founded in 1931 by Ferdinand Porsche, the man credited with designing the original Volkswagen Beetle, Adolf Hitlers peoples car and one of the most successful car designs of all time. For most of the rst two decades, the company built Volkswagen Beetles for German citizens and tanks and Beetles for the military. As Porsche AG began to sell cars under its own nameplate in the 1950s and 1960s, a few constants developed. The company sold very few models, creating an image of exclusivity. Those early models had a rounded, bubble shape that had its roots in the original Beetle, but design evolved into something more Porsche-like with the world famous 356 and 911 models. Finally, Porsches automobiles featured air-cooled four- and six-cylinder boxer motors (cylinders in an opposed conguration) in the rear of the car. This gave the cars a unique and often dangerous characteristica tendency for the rear-end to swing out when cornering hard. Thats one of the reasons that Porsche owners were drawn to them. They were challenging to drive and that kept most people away, making the car even more exclusive. Since its early days, Porsche has appealed to a very narrow segment of nancially successful people. These are achievers who see themselves as entrepreneurial, even if they work for a corporation. They set very high goals for themselves and then work doggedly to meet them. And they expect no less from the clothes they wear, the restaurants they go to, or the cars they drive. These individuals see themselves not as a part of the regular world, but as exceptions to it. They buy Porsches because the car mirrors their self-imageit stands for the things owners like to see in themselves and in their lives. Most of us buy what Porsche executives call utility vehicles. That is, we buy cars to go to work, to deliver the kids, and to run errands. Because we have to use our cars to accomplish these daily tasks, we base buying decisions on features such as price, size, fuel economy, and other practical considerations. But a Porsche is more than a utility car. Its owners see it as a car to be enjoyed, not just used. Most Porsche buyers are not moved by information, but by feelings.

A Porsche is like a piece of clothing, something the owner wears and is seen in. They develop a personal relationship with their cars, one that has more to do with the way the car sounds, vibrates, and feels than with how many cup holders it has or how much cargo it can tote. They admire their Porsches as machines that perform without being ashy or phony. People buy Porsches because they enjoy driving. If all they needed was something to get them from point A to point B, they could nd something much less expensive. And whereas many Porsche owners are car enthusiasts, some of them are not. One successful businesswoman and owner of a high-end Porsche said, When I drive this car to the high school to pick up my daughter, I end up with ve youngsters in the car. If I drive any other car, I cant even nd her; she doesnt want to come home.

From Niche to Numerous

For the rst few decades, Porsche AG lived by the philosophy of Ferry Porsche, Ferdinands son. Ferry created the Porsche 356 because no one else made a car like the one he wanted. We did not do market research, we had no sales forecasts, no return-on-investment calculations. None of that. I very simply built my dream car and gured that there would be other people who share that dream. So really, Porsche AG from the beginning was very much like its customers: an achiever that set out to make the very best. But as the years rolled on, Porsche management became concerned with a signicant issue: Were there enough Porsche buyers to keep the company aoat? Granted, the company never had illusions of churning out the numbers of Chevrolet or Toyota. But to fund innovation, even a niche manufacturer has to grow a little. And Porsche began to worry that the quirky nature of the people who buy Porsches might just run out on them. This led Porsche to extend its brand outside the box. In the early 1970s, Porsche introduced the 914, a square-ish, mid- engine two-seater that was much cheaper than the 911. This meant that a different class of people could afford a Porsche. It was no surprise that the 914 became Porsches top-selling model. By the late 1970s, Porsche replaced the 914 with a hatchback coupe that had something no other regular Porsche model had ever had: an engine in the front. At less than $20,000, more than $10,000 less than the 911, the 924 and later 944 models were once again Porsches pitch to affordability.

At one point, Porsche increased its sales goal by nearly 50 percent to 60,000 cars a year. Although these cars were in many respects sales successes, the Porsche faithful cried foul. They considered these entry-level models to be cheap and underperforming. Most loyalists never really accepted these models as real Porsches. In fact, they were not at all happy that they had to share their brand with a customer who didnt t the Porsche-owner prole. They were turned off by what they saw as a corporate strategy that had focused on mass over class marketing. This tarnished image was compounded by the fact that Nissan, Toyota, BMW, and other car makers had ramped up high-end sports car offerings, creating some erce competition. In fact, both the Datsun 280-ZX and the Toyota Supra were not only cheaper than Porsches 944, they were faster. A struggling economy threw more sand in Porsches tank. By 1990, Porsche sales had plummeted and the company irted with bankruptcy.

Return to Its Roots?

But Porsche wasnt going down without a ght. It quickly recognized the error of its ways and halted production of the entry-level models. It rebuilt its damaged image by revamping its higher-end model lines with more race-bred technology. In an effort to regain rapport with customers, Porsche once again targeted the high end of the market in both price and performance. It set modest sales goals and decided that moderate growth with higher margins would be more protable in the long term. The company set out to make one less Porsche than the public demanded. According to one executive, Were not looking for volume, were searching for exclusivity.

Porsches efforts had the desired effect. By the late 1990s, the brand was once again favored by the same types of achievers who had so deeply loved the car for decades. The cars were once again exclusive. And the company was once again prot-able. But by the early 2000s, Porsche management was asking itself a familiar question: To have a sustainable future, could Porsche rely on only the Porsche faithful? According to then CEO Wendelin Wiedeking, For Porsche to remain independent, it cant be dependent on the most ckle segment in the market. We dont want to become just a marketing department of some giant. We have to make sure were protable enough to pay for future development ourselves.

So in 2002, Porsche did the unthinkable. It became one of the last car companies to jump into the insatiable SUV market. At roughly 5,000 pounds, the Porsche Cayenne was heavier than anything that Porsche had ever made with the exception of some prototype military tanks it made during WWII. Once again, the new model featured an engine up front. And it was the rst Porsche to ever be equipped with seat belts for ve. As news spread about the cars development, howls of distress could be heard from Porsches customer base. But this time, Porsche did not seem too concerned that the loyalists would be put off. Could it be that the company had already forgotten what happened the last time it deviated from the mold?

Apparently not. After driving one of the rst Cayennes off the assembly line, one journalist stated, A day at the wheel of the 444 horsepower Cayenne Turbo leaves two overwhelming impressions. First, the Cayenne doesnt behave or feel like an SUV, and second, it drives like a Porsche. This was no entry-level car. Porsche had created a two-and-a-half ton beast that could accelerate to 60 miles per hour in just over ve seconds, corner like it was on rails, and hit 165 miles per hour, all while coddling ve adults in sumptuous leather seats with almost no wind noise from the outside world. On top of that, it could keep up with a Land Rover when the pavement ended. Indeed, Porsche had created the Porsche of SUVs.

Recently, Porsche upped the ante one more time. It unveiled another large vehicle. But this time, it was a low-slung, ve-door luxury sedan. The Porsche faithful and the automotive press again gasped in disbelief. But by the time the Panamera hit the pavement, Porsche had proven once again that Porsche customers could have their cake and eat it too. The Panamera is almost as big as the Cayenne but can move four adults down the road at speeds of up to 190 miles per hour, accelerate from a standstill to 60 miles per hour in 3.6 seconds, and still wring 23 miles out of a gallon of gasoline.

Although some Porsche traditionalists would never be caught dead driving a front-engine Porsche that has more than two doors, Porsche insists that two trends will sustain these new models. First, a category of Porsche buyers has moved into life stages that have them facing inescapable needsthey need to haul more people and stuff. This not only applies to certain regular Porsche buyers, but Porsche is again seeing buyers enter its dealerships who otherwise wouldnt have. Only this time, the price points of the new vehicles are drawing only the well-heeled, allowing Porsche to maintain its exclusivity. These buyers also seem to t the achiever prole of regular Porsche buyers. The second trend is the growth of emerging economies. Whereas the United States has long been the worlds biggest consumer of Porsches, the company expects China to become its biggest customer before long. Twenty years ago, the United States accounted for about 50 percent of Porsches worldwide sales. Now, it accounts for less than 25 percent. In China, many people who can afford to buy a car as expensive as a Porsche also hire a chauffeur. The Cayenne and the Panamera are perfect for those who want to be driven around in style but who may also want to make a quick getaway if necessary. The most recent economic downturn brought down the sales of just about every maker of premium automobiles. When times are tough, buying a car like a Porsche is the ultimate postponable purchase. But as this downturn turns back up, Porsche is better positioned than ever to meet the needs of its customer base. In fact, its global unit sales are up by 21 percent to a company record 118,867 vehicles. Porsche is also in better shape than ever to maintain its brand image with the Porsche faithful, and with others as well. Understanding Porsche buyers is still a difcult task. But one former chief executive of Porsche summed it up this way: If you really want to understand our customers, you have to under-stand the phrase, If I were going to be a car, Id be a Porsche.

Given the profile of Porsches traditionalist consumers and the original brand positioning of Porsche, assess its mass over class marketing strategy and its impact on the brand. (25marks)