Introduction
Porsche Car manufacturing is headquartered in Stuttgart, Germany. It specializes in production of high-performance SUVs, sports cars, and sedans. The company is dedicated to producing quality cars through perfect cars, reliability, design, new technologies, supremacy, and qualified staff. Porsche targets global market, comprising Germany, North America, Europe, and China. The corporation’s revenue has grown from 2011 to 2021 financial years, from 10.93 billion euros in 2011 and 30.29 billion euros in 2021 as illustrated in figure 1 below (“Porsche’s revenue,” 2022). The report presents a business economic analysis of Porsche Company, explaining the reasons for effective demand for its products evolving over the past five years.
Analysis of the Social Forces
Thorstein Veblen as an economist established the idea of conspicuous consumption for the sake of denoting social status. The theories of Veblen developed the idea of a Veblen good implying the product that demand increases when its prices rise, as customers regard it as an exclusive symbol of status (Chenavaz & Eynan, 2021). Customers buy high-priced products, whereas parallel low-priced substitutes are available in abnormal market, where demand increases, with increase in prices contrary to the law of demand. It is contributed to either by a belief that a higher priced product implies higher quality, or a desire for conspicuous consumption (Zuzanek, 2020). Veblen items are high-end, designer goods with a strong brand identity. They are not offered in regular stores and are extremely well-regarded. Because of their greater pricing, consumers view them as being more valuable. Consequently, the goods are used as a symbol of achievement and vast fortune (Currid-Halkett, Lee, & Painter, 2018). It suggests that since conscious consumers’ status can be perceived as less exclusive, a decrease in the product’s price will immediately result in a decrease in demand.
People have excessive consumption mainly to be acknowledged by their peers and accomplish a greater social status quo in society. With a reference to Thorstein Veblen’s work, which inspired Veblen products, Porsche sports cars cater to affluent people in order to uphold an exclusive social standing (“How to segment,”2022). The company manufactures luxury vehicles targeting those people in society who are accustomed to maintaining high social status due to their conspicuous consumption. Porsche specializes in manufacturing expensive sports cars that are marketed to be exclusive or communicate the appearance of wealth and success (Kurysheva & Vernikov, 2021). Owning a Porsche car puts people into a distinct social class because of its high price. The cars do not obey the law of demand as consumption increases with a price increase and decreases with a decline in the price (Stiefenhofer & Zhang, 2020). Despite its high price, Porsche cars are being sold out several years in advance, as the demand for one is high. It is contrary to what is anticipated according to the law of demand, although that is because a Porsche car is a Veblen good (“Veblen goods,” 2022). Hence, the main sign for Porsche sports cars as Veblen good is its appeal to high price.
Social position compels people to look for more expensive sports cars, while some go to extent of getting a bank loan to permit them to purchase an otherwise unaffordable car. The Porsche consumer brand is socially positioned as a premium car brand and its major benefits revolve around the pleasure of sheer driving. The company promises an exclusive driving experience comprising technological perfection, unbeatable performance, a unique design, and innovative solutions. It is worth noting that Porsche car brands have higher considered social value. Consumers want a new, high-class vehicle to show that they have attained a personal milestone. Thus, a hedonic motivation that focuses on self-promotion and elevation of consumers to a higher class on the social positioning in their society (Manoukian, 2022). Consumers purchase Porsche cars to maintain their social position in a society of wealth and success.
The planned obsolescence of Porsche cars is in line with fuel-guzzling as environmental organizations are championing the buying of new cars with low consumption of fuel or electric cars. The company perfectly integrates the basic trends and activities, for example, sustainability, digitalization, customer centricity, electrification, and omnichannel (Ruppert, 2020). Most consumers want cars with a high level of personalization and care to work accurately. Luxury consumers often want the creation of differentiated products for the qualities and requirements anticipated by the sports cars manufactured by Porsche (Ulrich, 2020). Hence, the company should aim to manufacture high-quality and unique products.
Analysis of the Market Forces: Number of Competitors Analysis
Porsche competes with firms such as Ferrari, Lamborghini, McLaren, Audi, Jaguar, Bentley, Lexus, Maserati, and Aston Martin. Currently, Porsche is a Volkswagen branch, producing vehicles under the brand. Hence, Porsche has opted to introduce new luxury cars that may satisfy the transforming needs of various consumers (“Porsche SWOT analysis, competitors,” 2022). Further, the company is competing with corporations such as Mercedes Benz and BMW. These competitors have the possibility of dominating the luxury car market. For instance, Mercedes-Benz and BMW have numerous resources because they have manufacturing plants in various places across the world (Chou, Hung, & Lu, 2021). They dominate different markets globally and the companies have influential brand images. Porsche cars are impossible to imitate and have superior quality. In addition, Porsche cars are valuable because they are rare and unique. The company manufactures powerful cars utilizing cutting-edge technologies and is non-substitutable (“Top 10 sports car,” 2022). It also employs a dominant value chain analysis to accomplish its future objectives and goals in the luxury car market.
Availability of Substitutes and Nature of Complementary Products
Because there are fewer alternatives to luxury automobiles than Porsche, the threat of substitutes is lower. Because of the high cost and weak brand positioning of the alternatives, Porsche faces less of a risk of losing customers. Consumer loyalty is high because Porsche’s consumer segment is typically wealthy and successful people and they cannot switch brands easily (Zelkowski, et al., 2019). Porsche innovates with its product line to assist it attract and retain customers by offering premium, distinctive sport cars. The switch to the use of electricity in its sports cars has led to an increase in demand for electricity and a decline in the use of fuel-guzzling vehicles (“Porsche porter five forces,” 2022). Most luxury cars have adopted environmentally friendly products leading to their increased demand among the elites in society.
Market concentration
Porsche has focused on the sports car as its second largest segment after personal cars for leisure. The targeted market for the company is based on the demographic of its owner comprising college graduates, and disposable income of more than $100,000, with females at 15% and males at 85% (“How to segment,”2022). Generally, Porsche cars owner is close to 40 years old and the company targets a demographic of people aged 25 to 55 years (Shilbury, Westerbeek, Quick, Funk, & Karg, 2020). Hence, the firm concentrates on a slightly younger population with strive for social status quo.
Barriers to Entry and the Extent of Product Differentiation
The number of new entrants is low because of swift product development and demanding capital requirements, and product differentiation approaches of existing industry players. Porsche can reduce costs, making it cost-competitive to new entrants because of the benefits of economies of scale on the supply and demand sides. Porsche has developed a robust distribution network, made significant investments in R&D, and implemented innovative technologies that increase product differentiation and make it difficult for competitors to copy (“Porsche porter five forces,” 2022). Porsche has specialized in producing cars with unique designs and superior quality together with personalization to depict consumers’ needs and demands.
Price Elasticity of Demand for Porsche Cars
In addition to the barriers to entry and product differentiation strategies that Porsche has in place, the company also must consider the price elasticity of demand for their cars. As mentioned, the high proportion of income that a Porsche car represents can make the demand for the product relatively elastic, meaning that if the price of a Porsche car increases, demand for the product may decrease. However, Porsche’s brand and reputation as a luxury sports car manufacturer may also mean that some customers are willing to pay a higher price for the product, regardless of the price elasticity of demand (“What is price elasticity,” 2022). Additionally, Porsche’s differentiation from competitors such as Audi and Jaguar, as well as their focus on unique designs and superior quality, helps them to maintain demand for their products despite changes in price.
Analysis of the Macroeconomic Forces: The Importance of Power
Power is a significant aspect of automobile manufacturing because cars need it and fuel to move. The decline in the reserves for oil and gas that are used to propel vehicles is compelling many manufacturers to shift to the use of electric power which is deemed to be the future due to its eco-friendliness as opposed to fuel. Electric vehicles are more dynamic, use fewer resources, and need less maintenance (“Revolution in the automotive,” n.d). However, until now, the lack of reasonably priced and powerful batteries has inhibited electric cars from accomplishing a key breakthrough.
International Trade
The automobile industry, including luxury sports car manufacturers like Porsche, plays a significant role in international trade. Cars are among the most widely traded products globally, with significant markets for vehicles, including China, Japan, the United States, Mexico, Europe, Africa, and India (“Business performance,” n.d.). Countries known for their iconic car brands, such as Germany, the United Kingdom, the United States, Japan, South Korea, Italy, India, and Sweden, play a significant role in the international trade of cars. In 2021, the United States emerged as the major export destination for cars from the European Union, ahead of the UK, Switzerland, China, Turkey, and Japan (“International trade in cars,” 2022). Porsche, a German luxury sports car manufacturer, is well-positioned to participate in this global trade and can leverage its reputation for producing high-quality luxury vehicles to expand its market reach and increase its exports to key markets worldwide.
Macroeconomic Conditions
During periods of economic expansion, consumer confidence and spending tend to be higher, which can lead to an increase in demand for luxury products like Porsche’s cars (Zain, Abd Rahim, Mohamed Thaheer, & Samsudin, 2020). As disposable income increases and unemployment rates decrease, consumers may be more likely to make large purchases like a luxury car. Additionally, during economic expansions, interest rates are typically lower, making it easier for consumers to finance the purchase of a Porsche car.
Unemployment Rate
Trends of luxury car sales and gross domestic product (GDP) per capita rate of employment have a positive relationship with sales of cars in the long term. Additionally, unemployment is one of the main symptoms of Porsche automobile sales, thus there is a significant inverse relationship between the two (Zain, Abd Rahim, Mohamed Thaheer, & Samsudin, 2020). The number of Porsche cars sold decreases as the unemployment rate rises.
Inflationary Pressures
A Consumer Price Index (CPI) determines the alterations in the prices of the basket of consumer services and goods bought by households. The CPI also functions as an economic indicator and measures inflation. Sales of automobiles are negatively correlated with inflation rates; for instance, if the inflation rate increases by 1%, sales of cars will fall by 3% (Bhateja, 2019). Furthermore, for instance, household purchases of sports cars in Iceland take close to 8% of CPI (Naz & Siddiqui, 2020). However, the inflation rate is seen as a weak aspect in explaining the sale of cars.
Exchange Rate Vitality
The theoretical framework decomposes movements in an exchange rate into expected and unexpected elements. Unexpected currency fluctuations assist to measure aggregate demand through imports, exports, and demand for local currency and aggregate supply via the cost of imported intermediate products. It is noted that an escalation exchange rate risk minimizes car export output (Zain, Abd Rahim, Mohamed Thaheer, & Samsudin, 2020). Porsche utilizes both financial and natural hedge tools to control the exchange rate exposure.
Government Policies
The main concept of genuine quality and uniqueness, Porsche cars are valued, as they are costly. It proposes that a tax that makes them costly and escalate their value to owners by the tax amount added to it. An increase in the tax will make automobiles more attractive to purchase and own. Thus, the welfare of sports car owners would increase. Like other products, luxury car demand decreases as price decreases (Maddock, 2022). Therefore, it is justifiable for the government to continue increasing taxation on luxury products.
Conclusion
Porsche car has constantly supported its consumers’ needs and such an approach created it easier for the firm to compete in the sports car sector. The company has competitive advantages due to their high-performance sports cars. It should strive to reduce its carbon footprint by 2030 across its value chain through embracing pure electric cars production. The organization should focus on in-depth market penetration, diversification, market development, and product development to continuously maintain its competitive edge in the industry. The company should work on its future of work in the industry as per the macroeconomic multi-regional input and output framework to improve the net employment in the automotive sector.
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