98 Porsche on nichemanship
Porsche's Niche Market
Porsche is the epitome of a niche marketer, appealing to a narrow segment of financially successful individuals.
Customers share a common denominator worldwide, setting extraordinarily high personal and professional goals and pursuing them without compromise.
They appear to be risk-takers, but closer examination reveals they've done their homework.
To appeal to such customers, Porsche must meet their high expectations.
Customers may not care about everyday things but have high expectations for hobbies, clothes, restaurants, or cars.
Porsche strives to be like its customers, setting very high goals and pursuing them without compromise.
Entrepreneurs appear to take great risks but reduce them by knowing their territory well.
Customers include professional athletes, entertainers, small businesspeople, and stockbrokers.
Even customers working in large organizations see themselves as entrepreneurs with a mission.
Slogan: "If I were going to be a car, I'd be a Porsche."
Porsche cars have no chrome or Star Wars instrument panels because that's not who their customers are.
Customers respect competence and thoroughness, abhorring phoniness.
Porsche is more like clothing or furniture, something the owner wears and is seen in.
Many Porsche owners don't need a car for transportation; they enjoy driving.
The car is an expression of themselves.
Driving a rear-engine, air-cooled 911 differs greatly from a front-engine, water-cooled 928, like playing the same tune on a piano or clarinet.
Peter Schutz asked Professor Porsche about the origin of the Porsche 356.
No market research, sales forecasts, or ROI calculations were made; he simply built his dream car, assuming others would share that dream.
Professor Porsche had a market in mind: people who shared his dream.
Porsche management has maintained close contact with customers, avoiding many mistakes.
Schutz spends 25% of his time with customers, listening to them.
Many customers are not automobile enthusiasts.
A lady who drove a 928 said she picked up her daughter from high school with five youngsters in the car, with they wouldn't be seen with any other car.
Professor Porsche had previous experience in designing cars and gauging consumer tastes.
He actualized his dream, which automatically appealed to others like him.
He emphasized the importance of racing from a marketing perspective.
The Role of Racing
Racing is promoted for three reasons:
It's the most effective way to do advertising and public relations, getting free space in auto enthusiasts' magazines.
It contributes to technical development; solving problems on a race car occurs on an accelerated schedule.
Electronic fuel injection, electronic ignition, and carbon fiber brakes were developed in the heat of competition.
It makes a substantial contribution to technical expertise.
Racing contributes to corporate culture.
Racing is highly visible which means:
Work must be ready on time, developing a critical path and planning material flow.
Work continues until the job is done, not until quitting time.
The racing team never goes home if there's a race the next day, transferring this attitude to other areas of the company.
Racing demonstrates competence and the state of technology used to build the automobile.
Children are excited to get in the car because of the racing link.
Company Image
The company and its customers have been remarkably constant, despite industry turbulence.
The 911's external form hasn't changed substantially in 21 years.
Successful models tend to be relatively timeless.
The automobile industry consists of utility vehicles (for work, delivering kids, shopping) and nonutility vehicles (Porsches, BMWs, Mercedes).
Utility vehicles are determined by environmental factors like fuel cost, emission levels, and family size, leading to changes from large to small cars.
Non-utility vehicles are built to be enjoyed, with appeal determined by feelings, which change differently from facts and the environment.
There's no surer way to sell a Porsche than to make it burn less fuel and be more efficient.
Example: A Porsche owner can say their car burns less fuel than a Volkswagen, citing electronic ignition, and mentioning a 928 that goes from 0 to 60 in six seconds and gets 22 1/2 miles per gallon.
This efficiency reflects what owners like to see in themselves and their businesses.
Advertising focused on the company's engineers and cars, appealing to people who didn't already know Porsche and highlighting how they run their business.
Production and Exclusivity
Porsche is trying to increase production modestly, being cautious not to lose exclusivity.
Production can only increase by adding more models.
Growth is not a prime objective for the Porsche family, who hold all the voting shares.
Building the image and reputation of the company is more important than sales and profits.
The company wants to remain independent and become more of what it is, but there's a limit to how much and how fast they can grow without changing what they are.
Example: Developing an airplane engine fits better than an economy sedan because many Porsche drivers are also pilots.
They've taken the engine out of their favorite car and are making an airplane engine to sell to builders of private aircraft.
Financial Results
Financial results have been satisfactory.
The year Peter Schutz joined, the company planned to earn 8 million deutsche marks after tax on sales of around 900 million deutsche marks.
The company had previously earned around 20 or 21 million after tax.
Last year, ending July 31, 1985, sales were more than 3 billion marks, with earnings of more than 92 million after tax.
3\frac{1}{2}\% earnings as a percentage of sales is respectable for a German company.
This year, they expect 3\frac{1}{2} billion in revenue and about 3.4\% profit after tax.
The company has no debt and finances everything out of continuing operations.
They've invested three-quarters of a billion deutsche marks in the last three years and are in the middle of a three-year period investing a billion deutsche marks.
The company puts what could be higher profits into research, development, and improving facilities.
Technical Competitiveness
Porsche stays competitive technically through outside engineering.
This makes money and balances the cyclicality of the automobile business.
As a small company doing progressive engineering, they require committed support from suppliers.
Outside engineering helps them get support from suppliers who want to be part of the development for subsequent opportunities.
Example: When Ford wants to convert an engine from carburetor to fuel injection, Bosch works with Porsche.
Porsche has relationships with suppliers that far transcend their quantities.
Outside engineering is the only way they get help developing pistons and other components for race cars.
They attract and hold the best and most innovative engineers with a broad range of technical projects.
They work on styling the interior of the Airbus cockpit, designing, building, and supporting a Formula 1 racing engine, improving engine performance, brakes, or transmissions, and designing whole automobiles.
They had a long project with Russia to design a small economy car like a Volkswagen Rabbit.
Engineers have a large variety of technical experience, working with different cultures and companies.
This provides a varied environment, making the job interesting and creating a multilingual and experienced establishment.
The History
In 1929, Ferdinand Porsche left Daimler-Benz and established his design company in Stuttgart, gaining a reputation for luxury and racing cars.
He also designed the Volkswagen.
During World War II, he designed military vehicles for the German army and became a confidant of Adolf Hitler.
In 1948, his son, Ferry, started Porsche AG in Stuttgart to manufacture family-designed sports cars.
Porsche carved out a niche as a producer of classically designed, high-performance sports cars.
In the 1950s, 65% of its cars were sold in the United States, which remains its largest market, absorbing more than half the 50,000 autos produced annually.
The company has built its reputation as a premier maker of sports cars, with its racing cars regularly winning European and American championships.
Ferry Porsche still contributes, but Peter Schutz, an American, became chief executive in 1981.
Schutz fled Germany with his parents in 1939 due to Nazi persecution of his Jewish father.
Growth has been steady, from less than 5,000 employees and 28,000 cars shipped in 1981 to 7,600 employees and 50,000 cars shipped in 1985.
Of the company's annual 1 billion in revenues, about 80% comes from autos and the rest from engineering contracts and spare parts.
The high-priced, two-seat sports car is the mainstay.
Three basic models are produced: the 944 at about $22,000, the 911 at $32,000, and the 928 at $50,000.
Competition
Competition comes from sailboats, summer homes, and airplanes, discretionary purchases, but Porsche has an advantage because these objects require a lot of time.
The 944 competes with Corvettes, Japanese cars, and Pontiac Fieros.
The 911 is unique in its driving and sound.
The 928 competes with Jaguars, Ferraris, big Mercedes coupes, and the Cadillac.
The Japanese are seen as threatening.
As long as Porsche watches the quality of what they build, they have a leg up on building a good car.
The Japanese excel at building many similar cars with flawless quality and a good price, which doesn't appeal to Porsche customers.
Porsche cars offer a unique driving experience.
The difference is in the driving, not just speed.
It's not something you can describe quantitatively because it has to do with so many subtle things.
Marketing a Premium Product
Marketing a Porsche is similar to marketing truck engines at Cummins Engine because both involve a personal relationship with the customer related to the way it sounds, the way it vibrates, the way it feels.
Customers of a premium product are less price-sensitive in the long run, because resale after 10 years might be the same as the original purchase price.
Buyers are thoughtful and don't throw their money around.
Value is ensured with the used market, protecting the price of a used Porsche, with long-term product support.
Porsches are made of zinc-plated steel and don't rust, with a seven-year (now ten-year) rust guarantee.
If you drive a Porsche for five years and take decent care of it, it's going to be just as good as new.
Segmentation is relatively homogeneous.
In the 911 and 928 range, buyers can buy any car they want and focus on how the car satisfies their preferences and not how much the car costs.
There's a commonality and a lot of cultural difference in marketing within countries.
In America, there's more television advertising.
In Germany, there's no advertising on television or radio, with mostly newspapers and magazines being the medium.
A lot of the advertising is PR rather than ads, with reports about racing.
Porsche is written about in magazines, and having Porsche on the cover automatically sells more copies.
Porsche has control at the wholesale level in all major markets (Germany, England, France, and America), which make up 85% of the business.
Control of Wholesale
Until recently, Volkswagen of America was the importer, which was beneficial during the growth phase.
More say is needed, particularly in the environment ahead, requiring more intensive customer contact than a mass producer can afford to do.
Changes include order processing, allowing customers to order special items, paints, and seats.
The plant is structured to be responsive to customer requests within technical limits.
Porsches have tended to be sold like other automobiles, with the importer ordering specific colors and options.
A customer-driven order system is being created.
Customers would like to know when a car is going on the assembly line and when it's coming out.
In the future, customers might receive letters updating them on their car's progress.
A lot of special services would enhance the ability to communicate with customers and serve them.
The U.S. subsidiary has a tremendous amount of autonomy in terms of marketing, with local managers responsible for execution.
There are limits to what they can and cannot do because the image and reputation of the company are very important, with many practices acceptable in other brands being off-brand with the company's image.
Example: A dealer that is shouting form the rooftops they need to dump 500 Porsches by the end of the month.
Porsche would like to build one less Porsche than the demand.
If a dealer has cars it can't move, Porsche will take them and find a dealer that can move them.
The Company doesn't diversify into a four-seater or a sedan because there hasn't been a four-seater that looks like a Porsche.
Styling is very important because design dilution would be disastrous to the company's image.
The 928, as a departure from the 911, gave the company indigestion in the late 1970s.
Positioning and selling the 928 was a tough job, and 928 customers are not 911 customers.
Distribution Changes
Porsche ended its relationship with Volkswagen in the United States to make its distribution-marketing setup as good as the rest of its organization.
The goal is not to build more volume but to build stability into the organization and sales.
The objective is to build gradually until they're selling about 30,000 to 35,000 cars a year in the United States.
Controlling their own destiny is important because the U.S. is their largest market.
Many changes have been implemented to make life better for the customer.
A system of a weekly bulk order, which they prepaid to the dealer, and would add a fifth one any time during the month, which they would prepay directly to the dealer.
If they have a mistake and don't have the part in their warehouses in the U.S., which are devoted exclusively to Porsche, then they ship that part via airfreight directly to the dealer from Stuttgart, West Germany. It takes four days to do it.
They've invested in two, 100,000-square-foot parts warehouses-in Reno and in Charleston, South Carolina.
They've invested substantial amounts to ensure the car is right when it arrives, establishing two predelivery inspection centers, also in Reno and Charleston.
Their function is to check the cars from A to Z and make sure they are perfect so they can be shipped to the dealer and delivered to the customer.
Previously, it was done by outside services or the dealers themselves, potentially leading to inconsistencies.
Dealer Involvement
They want to get some new thinking into the organization of approximately 325 dealers.
Dealers should prioritize customer satisfaction.
Automobile dealers of all makes have given this industry a bad name, and some of those dealers are selling Porsches today.
The investment in upgrading the American operation includes two delivery centers (east and west), each worth about $7 million.
The total assets in the United States exceed $100 million.
Dealers each have an IBM PC XT connected to Porsche's Series 38 IBMs, allowing them to find cars from fellow dealers and check inventory.
Dealers can also process warranties and order parts using the computer link.
A competitor has been trying to implement a similar system for over two years with minimal success.
They intend to enhance the purchase or ownership experience further.
They've hired a special customer representative to work with prime prospects, such as celebrities, executives, and top athletes.
They'll help dealers develop this business by highlighting the fun of owning a Porsche and encouraging visits to Germany.
The tourist delivery program has been revamped, with increased production capacity making more cars available to Americans in Stuttgart.
Word-of-mouth advertising is more credible than advertising they pay for. The more high-profile Americans see how a Porsche is built, see the research-and-development facilities, and come home and talk to their friends about all of it at cocktail parties, the better it is for the company.