Ferrari Marketing Analysis

Jump to:  Ferrari’s Marketing Strategies | Product Life Cycle of Ferrari | SWOT Analysis of Ferrari | Porter’s 5 Forces

Introduction

Ferrari history

Ferrari is a manufacturer of Italian sports cars, and is based in Maranello, Italy. It was founded by Enzo Ferrari in 1929, and was originally named Scuderia Ferrari.

When Enzo was ten year old, his father had taken him and his brother to watch motor racing circuit. Enzo was completely motivated by this action. In 1918 Enzo works as a test driver for a small company in Turin. In 1919 Enzo works for C.M.N in Milan, Initially as a test driver and later on as a racing driver. In 1920 Enzo finishes second in the Targo Florio. This lead the gateway for a 20 year collaboration with marquee that saw Ferrari do test driving to racing, and finally appointed head of racing division for Alfa Corse. Ferrari opens Auto Avio Costruzioni on Viale Trento Trieste in Modena. On September 13th, at the same headquarters of the old Scuderia Ferrari, Fiat platform Auto Avio Costruzioni builds 2 versions of Ferrari 815 in the year 1940. The factory was bombed in the world war on November 4th 1944, but they managed to rebuilt it quickly.

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Ferrari had an ambitious plan to build a V12 engine, and thus started designing the first Ferrari in 1945. Scuderia Ferrari sponsored drivers and manufactured race cars, but in 1946, it moved into the production of street legal vehicles, as Ferrari. In 1956 Ferrari turns into a Limited Liability Company. The professional industry and artisanship training institute was built in Maranello, which provides the company with special technicians even till today. In 1965 Ferrari signs an agreement with Fiat Group giving 50% of its share in the company to Fiat group in order to grow into a powerful company.

Through the years, Ferrari has been celebrated for its unceasing contributions in the field of racing, specifically in Formula One, where it has been considerably successful. As on the writing of this assignment, Fiat owns 56% of Ferrari, Mediobanca owns 15%, Commerzbank AG owns 10%, Lehman Brothers Owns 7%, and Enzo’s son Piero Ferrari owns 10%.

Vision and Mission of Ferrari

Ferrari’s vision and mission has remained the same for years: To build unique sports cars that are suppose to bring out the excellence of Italian cars on the roads and on the racing circuits.

Market Orientation

Market orientation defines an organization that understands customer needs and their importance, focusing on providing products that are of high value to their customers, and marketing the products and services across all departments using a coordinated holistic program in marketing concept, taking into consideration “Customer is King.”

Market orientation mainly focuses on:

• Understanding customer’s needs
• Competitor’s abilities and continuously collecting information about them.
• Sharing of information across various departments.
• Creating customer value using above mentioned information.

The following table identifies and describes the marketing

orientations

Further approaches include Relationship marketing and Societal marketing

Customer’s needs keeps changing over time to time. Ferrari has persuaded their customers to buy their product because of its style, speed, luxury, and elegance. Then, as soon as a company brings out a car that is a better match for Ferrari, They might drop Ferrari in favour for that car. But interestingly Ferrari has always managed to develop car’s that reflects their customers’ needs and they may not switch so readily. And Ferrari has managed to do this for the past several decades, and till today. Ferrari has always focussed on their competitors and their customers by continues improvement in performance of their products and services.

Ferrari’s success can be scaled only with respect to product or brand value. It is not done based on sales and revenues. Neither is it done based in terms of market capitalization, because no initial public stock offering was done by Ferrari. It is said that the Ferrari brand is worth more than Google brand, the Apple brand, BMW, Mercedes, or any other brand in the world. Yet, Ferrari never spends any money in advertisement.

Marketing Concepts:

Ferrari is a Product oriented company

Ferrari produces excellent, well designed, quality products which are great value for money. Customers are sure to want our products. That’s the kind of approach Ferrari demands out of it customers.

Product orientation occurs where the focus is given to the product rather than to the needs and wants of a customer. In a company like Ferrari they need to concentrate on their products, because over the years Ferrari managed to satisfy its customers through its superiority in quality and performance by delivering speed, style, luxury in their products.

Relationship marketing of Ferrari

Ferrari has always managed to Build and keep good relationship with their customers, by providing value for the customer’s money. Ferrari’s focus is on the whole relationship between suppliers and customers. Ferrari’s aim is to provide the best possible attention, Customer services to their customers by providing quality and increased performance in their products and services, and therefore build customer loyalty.

Societal marketing of Ferrari

This concept is based on social responsibility or society’s long term interests. It explains an organisations task is not only to provide customers with quality products, but also to do that in a way that preserves, protects, and improves the society’s well-being. In the 21st century, people are more aware of the sensitive issues than the earlier generation, such as health issues, global warming, shortage of resources etc. Ferrari has adopted this marketing philosophy to get the attention of the customers, The organisation understood the need for bringing out a new car that is eco friendly, thus they introduced the new electric hybrid Ferrari 599, which has a maximum speed of 200mph. The main aim of this car is to cut fuel consumption and pollution with the motive of breathtaking acceleration and performance.

Marketing Strategy of Ferrari

The success behind the marketing strategy of Ferrari is done by the review of Ferrari and its development through the ages. Enzo Ferrari never went to college or high school, he was just a mechanic at Alfa Romeo, not an engineer either, but his strong passion for racing, speed and engine, made him have his own ideas on engines and cars. Passion has always been the “drive” of Ferrari. And it’s the only marketing tool of Ferrari till today.

Competitive Advantage

Impact of the Organisation’s Marketing Mix

Marketing mix can be defined as the use and specification of the 4p’s (place, promotion, price and product) to describe the strategic position of an organisation in a market place. Other 4p’s could be included as people, public relations, physical evidence and packaging (Kotler, Philip, lane and Keller: 2005) “Marketing management Prentice hall

The mix represents the “variety of integrated decisions” which is taken by a company in order to assure the success of the marketing department. Usually, decisions are made in four areas represented by the 4Ps used in marketing mix: product, price, place and promotion. The 4Ps involve issues like brand name, product type, pricing, advertising, retailing and distribution (Business and Management Dictionary 2007).

These fundamentals have to be managed effectively by the marketers to top customers needs enhanced than competition this means that decisions concerning the marketing mix forms a major aspect of marketing concept implementation (Jobber 2007), the combination of these elements also helps in influencing the demand and supply of the products and service presented to customers by the company.

• Product: This is regarded as a very vital element of the marketing mix. It is whatever thing that can be offered to a market which can be noticed, acquired, used or consumed that might gratify a want or need .Physical objects, services, ideas, organizations, person’s places may be part. (Kotler et.al. 2005). It also involves the decision of what goods or services that should be offered to a collection of customers (Jobber 2007). The decision for product involves branding, quality, packaging, guarantees.
• Price: This is the only element of the marketing mix that generates revenue. “Price is the sum of all values that consumers exchange for the benefits of having or using the product or service.” (Kotler et.al. 2005).
• Promotion: It involves all the forms of communications used by the marketer at the market place about benefits, added features etc of a product. These are the major components of the promotional mix Advertising, Personal selling, Direct marketing, Internet promotion, Sales Promotion and publicity.
• Place: It is the mechanism through which goods or services are moved from the manufacturer/service provider to the end user/consumers. The accessibility of a company’s product or service at the right quantities in the right (convenient) locations at the times when the customers want to buy them that is the distribution channels to be used and their management (Jobber 2007)

According to Ivy (2008) tangible products uses the traditional 4Ps model while the intangible product or services sector on the other hand uses a 7P approach in order to satisfy the needs of the service provided to customers: product, price, place, promotion, people, physical facilities and processes.

Product

The product is one of the main building blocks of the marketing mix. It is known as the merchandise which provides the consumer with the basic functional requirements. Jobber describes a product as anything that is capable of satisfying customer needs. A product has to be appealing to its customers; therefore, producers need to ensure that their product would meet consumer satisfaction.

This section will look at the product strategy of Ferrari Company and analyse a sector of their products using the product life cycle. A Ferrari principal automobile product group includes, 360 spider, 456M GT, 550 Maranello, 550 Barchetta Pininfanna, super -america salon, F430 spider.

“The core element in the marketing mix is the company’s product because this provides the functional requirements sought by customers”(Jobber,2007 p326).A well thought out product will provide the company with a good external image as well as customer loyalty which are essential for a company’s competitive advantage.(Brassington&Petitt, 2006:288) further defined a product as “a physical good idea, person or place that is capable of offering tangible attributes that individuals or organisations regard as so necessary, worthwhile or satisfying that they are prepared to exchange money, patronage or some other unit of value in order to acquire it”. This above definition gives the idea that a product can be classified into tangible or intangible products. The tangible products are the physical goods whilst the intangible are the services that offered for example the Porsche car by Ferrari is the tangible product while the FI car race competition, after sales services are all intangible product to Ferrari.

3. DIAGRAM

Product is classified into the following three categories namely the core product, the actual product and the augmented product.

The product when benefited, is made valuable by the core product. For example, the core products in the Ferrari automobile is the speed attribute that comes with every Ferrari brand of automobile. This is one of the reasons why people that love fast cars will always prefer a Ferrari brand to any other brand of vehicle. Also Ferrari shows off this benefit to the prospective customers by organizing the car racing competition and also in their various advertising mediums.

The tangible physical product is the actual product. This includes the physical automobile itself that comes in every different shapes and sizes. The physical attribute or component of the automobile itself is what is called the actual products. For example the Ferrari automobile F430 spider is an actual product for Ferrari.

The non-physical part of the product is the augmented product. For example, warranty and customer service support. This shows the other services or component that comes with the buying of the automobile itself. The replacement part is an example of the augmented products.

4.1.2. Ansoff Matrix

Planning for Growth

The Ansoff matrix is a tool that helps businesses to strategize on their product and make necessary decisions for their market growth. With the Ansoff matrix, Ferrari would be able to know how the F430 spider automobile is doing in the market place and decide whether or not there is an advantage of entering the market place.

The Ansoff matrix is a tool used to generate direction for strategic development for companies. It gives a sense of scope for the companies with regards to marketing of its products, whether to diversify, or to further develop more of its markets.

Market penetration: According to Johnson, Scholes &Whitington (2008:258) this is the process by which the organisation takes increased share of its existing markets with its existing product range. This will in turn lead to higher bargaining power of the supplier as Ferrari will have a larger market share. Johnson; Scholes&Whitington (2008:258) also explain that “in terms of the five forces increasing market penetration is likely to exacerbate industry rivalry as other competitors in the market defend their share”. For example Jaguar cannot let Ferrari continue to have growth in market share while it sits behind. Ferrari has a % in speed car market while Jaguar has a % in market share in luxury car market.

Product development: is where organisations deliver modified or new products to existing markets. Here product development implies greater degrees of innovation. Johnson, Scholes&Whitington (2008:261).With the car manufacturing industry there is a continuous need to develop products so as to make sure customers’ needs are effectively met. For example Ferrari has even committed itself to sponsoring the formula one racing competition yearly to showcase new technology and improvement in diverse innovation.

Market development – involves offering existing products to new markets. Johnson; Scholes&Whitington (2008:261). Ferrari moved over to other international markets like Canada, Mexico and USA. Market development might take three forms, new segments, new users and new geographical location.

Johnson, Scholes&Whitington describe diversification as a strategy that strictly takes the organisation away from both its existing markets and its existing products, it tends to imply unrelated or conglomerate diversification. Johnson further gives the reason for diversification saying that “efficiency gains can be made by applying the organisations existing resources or capabilities to new market and product or service”. This in turn will increase market power leading high entry barriers for new entrants.

4.1.3. The Product Life Cycle

Every product must have a limited life span. The product life cycle tool allows a company to evaluate its product based on four stages. These stages include the introduction, the growth, the maturity and then the decline. All products must go through these four basic stages; therefore to maintain a good competitive advantage all companies ought to have the product life cycle tool as a basis of analyzing a product as it changes over time and also to be able to know what stage their product falls under a particular time.

Price

All products and services have a price, just as they have a value. According to Armstrong and Kotler, “Price is simply the amount of money charged for a product or service”. In a broader context, price is said to be the sum of all the values that consumers exchange for the benefits of having or using the product or service. Price is also one of the most flexible elements of the marketing mix in the sense that pricing decisions can be implemented relatively quickly, a tool used by companies to achieve their marketing objectives as well as the only element in the marketing mix that produces revenue. (Armstrong and Kotler, 2006)

Price is one of the most significant essentials of the marketing mix because it is a unit source of what the company receives for the product or service that is being sold. Furthermore, Price is the only aspect of marketing mix that creates returns or produces profits. Price can also be defined as the perceived value derived by consumers of a product or service from the purchase of it or the sum of the value that consumers exchange for the benefits of having or using the product or service (Kotler and Keller 2006). Furthermore, price is a crucial product-positioning fact or that defines the products market, competition and design. The intended price determines what product features can be offered and what production cost can be incurred.

There are different strategies that can be used by companies to price various products based on different reasons. Setting prices too high could amount to an abrupt reduction in sales, while setting prices too low could also cause a reduction in profits. The most appropriate strategy depends on how the product is positioned. A product could be positioned as being of premium value with a high price adding to the way it is perceived, individual products could be positioned high or low with consistent pricing across a product range, different strategies could also be appropriate at different stages in the life cycle of a product and charging a fixed price across a range of products could also be an a appropriate strategy. Charging fixed prices makes it easier for a company to predict its income. (www.is4profit.com)

Pricing of a product can be determined in different ways, the company must however have decided on its own strategy for the product and this is however a direct function of its target market and market positioning that is past decisions on its market position. The diagram below illustrates the pricing strategies matrix.

• Price Skimming: This strategy is where a high price is charged because of substantial competitive advantage, the price is firstly made high, which offers an excellent initial cash flow to make up for high development expenses. If its a new product, with a competitive advantage, then consumers would definitely pay a premium to obtain the product offering excellent quality.(Adcock, Dennis 2001:267 ) .According to Kotler (1996), “the skimming price strategy is a high price which provides a strong margin but risks a depressed sales level”. The Ferrari price skimming strategy is because of its core benefit and to have a niche for itself in the market place.
• Premium Pricing: A ‘premium strategy’ uses a high cost, but offers superior product/service in return. (Adcock, Dennis 2001:264)This is used when a significant competitive advantage is present and high price is set because of the exclusivity of the product or service. The exclusivity of the fastest car model by Ferrari contributes to its premium pricing strategy.
• Economy Pricing: This is also known as no-frills, it is a low price approach where costs of production and promotion costs are kept to the lowest, that is the product or service would be set at its cheapest price. Economy pricing is a deliberate strategy for low costs. However, prior to the product launch, it is vital to decide the position/market share of such product. That position of the product is how it is distinguished in the market. A product that is solely dependent on price is likely to be helpless and prone to that compete purely on price is helpless and prone to attack from more established products. (Adcock, et.al. Dennis 2001:2006). According to our research, Ferrari automobile does not use this pricing strategy.
• Penetration Pricing: This is when the price for a product or service is firstly set low in other to have a price advantage to gain a large market share for penetration of the market. Once a deep access to the market share is attained, the prices would raise. According to our research, Ferrari automobile does not use this pricing strategy.
• Versioning/Price discrimination: This strategy charges customers different prices for the same product/service .The company (sellers) segments its customers based on their different attributes and charges each group a different price. This contributes to the various models of automobile designed by Ferrari in order to satisfy the quest of every vrsion of the customer need. (www.AINI.com 2008).
• Bundle Pricing: This is where the seller combines several of its products and offers the bundle at a reduced price(Kotler.et.al 2006)
• Geographical Pricing: This strategy is applicable where diverse prices are charged according to locations either different parts of the country or different parts of the world. It involves the modification of the main price list based on the geographical location of the buyer. It usually takes into consideration the transportation costs to different locations.

4.2.1 Recommendations for the Pricing Mix

Because of the recent global recession, consumers are not willing to spend on luxury goods to be saturated as many consumers perceive the product as a premium product; Ferrari can therefore produce the different model of automobile that can suit different set of people and also at various ranges of prices for its to compete like other competitor like Toyota, Honda, Ford etc at the marketplace.

Place

Place can also be referred to as the distribution channel which is used by producer or service provider to reach the indented target market. There is need for producer to make its products available in adequate quantities, in convenient locations and at times when customers want to buy them. It is important that producer need to consider not only the needs of their ultimate customers but also the requirement of channel intermediaries, that is those organizations or agents that facilitate the distribution of product to customers. Establishing an appropriate channel of distribution is critical for marketing success. (Jobber 2007:679).

To achieve a fully effective marketing mix the element of place is to be studied, this element can be referred to as distribution. Distribution channels are the links that connect marketing organizations together and are used to transfer products from distributor to end consumer or final markets.

DIAGRAM 6:DISTRIBUTION CHANNELS FOR CONSUMER PRODUCTS

(Jobber, 2007:682)

The different types of distribution channels are:

• Direct channels which link the producer directly to the consumer,
• Indirect channels which vary in length depending on the number of intermediaries, and
• Hybrid channels.

Direct Channels-

This form of links does not always happen in Ferrari sales of cars except when the car is to be built customised for the customer in question. This is a gives a direct relationship between Ferrari and the customer.

Intermediaries

These can vary from sales representative, agents, merchants, wholesalers, retailers, dealers, distributors and franchisee. Their basic roles involve reaching customers at a lower cost per unit than the supplier can achieve directly. Other responsibilities of intermediaries could include stockholding costs, transport and delivery to final customers, breaking bulk and consolidation of orders, and providing local services such as display or after-sales service. Producers must meet intermediary’s needs as well as the final customer’s needs, in some markets; intermediaries may lead the market and promotional effort. Producers put an effort to keep the end customers aware of their intermediary’s locations.

Disintermediation: The channel’s efficiency is improved and the cost is cut down by eliminating some layers of the distribution channel.

‘Among the decisions then to be taken is the important one of how products will reach customers. Unless the channels of distribution are appropriate for the type of product and are efficiently operated., even intrinsically good products can end up as failures . . . it is worth spending a considerable amount of time and effort in evaluating alternative ways of ensuring that the channel eventually selected will make its full contribution to the marketing mix.’ (Chisnall 1995)

Ferrari has been able to improve accessibility to their customer by using intermediaries to retail their products all over the world. This shortens the location and time gap between the actual company and its end users. Ferrari also provides some products that provide specialist services.

Intensive, selective and exclusive distribution channels

‘Digital technologies are changing the face of distribution.’ For example, the Internet has changed the distribution of music and video (downloads). And also ‘Mobile networks permit the distribution of such products as music, video and ringtones.’ In business-to-business markets customers can place orders, receive quotes and track deliveries over the Internet” (Jobber 2007).

Exclusive availability, a consumer characteristic that highlights the interest of the consumer to obtain the product individually with a sense of uniqueness is seen with the ability to customize different cars parts to the taste of the customer.

According to Adcock (2001) “any purchase decision made by a customer can be helped by making the products available where potential buyers can find them” (Adcock et al. 2001).

Products may be offered directly to the final customer or through a chain of distributor(s), this is also known as the channel choice.

The Internet Dynasty

The elements limitations have changed with the introduction of the internet market place, the ability to reach customers on a global scale are what multinational firms aim for, putting all their resources and capabilities to ensure that consumers all over the world are able to get their hands on their products. Though the internet has many negative attributes in the minds of many consumers, it still accounts for a large share of Ferrari product enquiries and sales magnitude. Customers are able to receive the same quality of service and even the additional advantages from the comfort of their home.

Promotion

Promotion could be defined as a way of communicating or passing across of information about a particular product to the public. The major goal of promotion is to notify the public about the product, the benefit of the product and the use of the product (Jobber 2007).

Promotion could be classified into 2 categories:

Technical promotion: It involves the use of technical presentation of data on the product or service to attract and persuade the potential customer of its merit by using magazines, researched papers, trade conferences, exhibitions, online adverts e.t.c

Consumer promotion: It involves devices that promote the product with developing any fundamental relationship but may be effective where customer loyalty is low or especially when a new product is being introduced (Richard lynch 2006: 174)

The main task and challenges of an organisation is to combine both technical and consumer promotions to attract and satisfy customer needs and want respectively (Keller and Kotler 2006: 383).

The various modes of promotion include the following;

Advertising – Ferrari will hold a successful position on both magazine and television advertisements and will focus on:

• The target market (teenagers, young adults, car racers, young and rich customers etc)
• The frequency of the target market exposed to the advertisement
• Time to attain the target market

On achieving these, it adds value to their product. This is done by alteration of the consumer perceptions.

Below-the-line Promotions – Car exhibition shows are availed free to make the customers purchase the product. This is the direct method used by Ferrari. This will allow the individual and prospective customer to have a firsthand feel and knowledge about the products.

Television-this is a means of communicating to the public through the use of cable television, that is different television stations. This particular medium composes the majority of the media mix.

Internet-the high rate of the internet user around the globe has made Ferrari to use the internet as a means of their advertising. Ferrari has launched a website, developed by AKQA, featuring a virtual test drive of its new California model, which will be launched publicly on 2 October 2009 at the Paris Motor Show. Users can watch videos from last week’s industry launch in Maranello, as well as embark on a virtual test drive using footage from Sony PlayStation game Gran Turismo. Hear, See and Feel areas allow visitors to experience the look and sound of the car (source: www.ferarri.it)

Magazines-this is another means of advertising been used by Ferrari, this medium is been used to target a particular class of the public b