Case Study #30: The Prancing Horse Named Ferrari Gallops Hard In 2008 and 2009

In downtown Chicago, the daily rumblings of heavy-to-mid range diesel engines in commercial trucks, off-highway equipment and transit buses are an expected part of the city’s urban stimulus. On rare occasions, these daily rumblings are pleasantly disrupted by the contained growl of a V8 engine that is housed in a super-premium sports car. Heads turn. People whisper: “What’s THAT car doing in MY neighborhood.” They trip over their own two feet. Okay fine - I TRIP over my own two feet. The contained growl of the V8 is drowned out by the rumblings of work being done in Chicago as the super-premium sports car quickly disappears into the urban landscape.

The Ferrari 458 Italia is an absolutely beautiful car. Ferrari’s GT models, which consist of the 458 Italia, F430 Spider, 430 Scuderia, Scuderia Spider 16M, Ferrari 599 GTB, 612 Scaglietti and Ferrari California, will most likely have a production volume of 5,800 to 6,300 units this year. According to The Auto Channel, Ferrari reports 2009 3Q revenues of 396 million euro, 54 million euros lower than 2008 3Q. It delivers 1,454 cars to clients in 2009 3Q, 4.3% less than 2008 3Q. Overall, revenues for the first nine months of 2009 total 1,287 million euro compared to 1,419million euro in the same period in 2008, while 4,680 cars were delivered to end clients, 6.9% lower than the first nine months of 2008.

Ferrari is not as recession-proof as it is perceived, but the 2009 year-to-date performance is being compared to a year that represents “results unprecedented in the entire history of the Company” (Borroz, Tony. “Ferrari Thrives, Even As Automakers Suffer” Wired, February 11, 2009). Some highlights include: production efficiencies, “One-to-One Personalization Program” for its 12-cylinder models and a 28% increase in licensing, retail and e-commerce activities.

The company dedicates tremendous resources to research and development. The return on sales reaches 17.6% in 2008, up from 15.7% in 2007. Having unprecedented business results during a recessionary period is impressive; Single digit declines in revenue and product deliveries are commendable for a super-premium brand operating in a global recession.

Product-driven brands do not need to exclusively improve the design or mechanical technicalities of existing products or build new ones to generate revenue. Both imperatives are high in cost and can be replicated by competitors. Recently, Ferrari launches the Ferrari California so it can offset sales attrition in more premium-level models in core and emerging markets, but the front-end development costs are most likely realized before the recession assuming it takes more than three years to distribute a super-premium sports car. In this case, the Ferrari California is a competent, high-performance substitute for an existing model, not a flanker model to boost incremental sales volume.

Product-driven brands are also built by integrated experiences that people have outside of the product: Ferrari markets its sports cars to an exclusive customer base, but the company’s Formula One presence creates a broad audience of fans. “Ferrari only sells approximately 7,000 vehicles a year. However, we have millions of fans following our racing activities,” says Dany Bahar, Global Sales and Brand Director at Ferrari. Race fans, though unlikely Ferrari buyers, will be a passionate audience whose participation is essential to the company’s efforts to promote its brand (Italian Car Maker Forms Stronger Customer, Fan Connection with Top-Performing Web Site – Microsoft Case Studies). The company transitions its Java-based Web site to Microsoft® Office SharePoint® Server 2007 and sees improvement in content management, enhanced user experience and higher site traffic. As racing fans interact with the Ferrari site, there are several data points that can be mined about their online behavior. Average time on different properties of the site, ranging from content views to video interaction, can yield assumptions about customer engagement. Not only do these data points help optimize interactive brand touchpoints, but they can also strengthen the brand through non-product building activities. Some of the data may even help with product-building activities. As the brand is invigorated by a large group of fans, it therefore enables the company to maintain demand and delivery levels to buying customers, regardless of economic conditions. If Ferrari doesn’t capture the feedback of its racing fans and only focuses on its micro-segment of very affluent clients, the company will have limited retention marketing tools to maintain demand and delivery levels. New customer acquisition in emerging markets, such as United Arab Emirates and China, is helpful for Ferrari’s growth outside of its core markets. Overall, a non-product driven, organic interactive strategy will help Ferrari maintain its position in core markets. A product-driven, push strategy will help Ferrari grow its position in emerging markets. For example, the touchpoint below represents the racing experience that Ferrari wants to build in its fans (organic, pull-focused) that can also be translated for its clientele (inorganic, push-focused):



Ferrari is also a good example of sustainable growth within its addressable competitive space. Most of that is stemmed from the fact that a minority of people can afford cars that are more than $100,000. Also, the limited functionality and utility in super-premium sports cars aren't mass market selling propositions. The temptation to translate the loved Ferrari brand into flanker models that are affordable to global automotive enthusiasts is resisted. The cost to long-term brand dilution and customer attrition will outweigh the short-term, low-margin sales gains in sales. In developed, yet sluggish growth economies, Ferrari's brand image can be maintained through the integrated experiences that rotate around the product. In developing, high growth economies, Ferrari's brand can be built through a product push strategy.

Equilibrium in Ferrari’s business performance will soon return – Like the contained growl of its V8 engine.