Company History
Porsche was started in the early 1930s as a small company and gradually built the reputation of innovative designs. Its first success was in 1934, when the company has obtained an order from Adolf Hitler to work on the concept of the ‘Volkswagen,’ or people’s car. This resulted in the creation of the Volkswagen Beetle, one of the iconic cars of the century. However, the company has quickly shifted the focus towards racing cars. By the end of the 30s, the company has built three racing prototypes (Porsche AG History, n.d.), but the progress in the field was for some time hampered by the World War II. Starting from 1946, the company has resumed development of high-performance designs. Simultaneously, Ferry Porsche, Jr., son of the firm’s founder, has conducted a market research aimed to determine whether there is a niche for expensive sports cars. This has determined the approach exercised by the company for several decades to come. By the early 50s Porsche has relocated to Stuttgart which allowed the production growth. In 1951, the production has passed the mark of 1000 units. At this point, the production still relied heavily on the manual labor, but the firm has already had the reputation for being the car of choice among the elite customers (Porsche AG History, n.d.).
By 1956, 70% of the cars were exported overseas. The growing demand has triggered the expansion of the production capabilities and the introduction of the new services, such as car delivery and service, spare parts shops, and the sales department.
In 1964, Porsche 911, an entirely new design, was introduced. Both the design and the quality of parts indicated the shift towards the luxurious and expensive look and feel. Major investments into sophisticated research were also seen during this period. Finally, in 1973 the firm became a joint stock company and was renamed Porsche AG (Porsche AG History, n.d.).
The 80s marked the most prolific era for the company, with the steadily growing revenues up to 1986. However, starting from the early nineties, the market rapidly declined. Some reasons include the overall decline of the US economy and the constantly growing prices of the cars (Porsche AG History, n.d.). To amend the situation, the company hired Wendelin Wiedeking as a new CEO, who immediately improved the cost-efficiency of the process and emphasized the affordability by introducing a comparatively inexpensive model, Boxter. This was a major turn in the company’s policies and proved to be a success. Another notable change occurred in 1998, when the firm announced a joint venture with Volkswagen and the addition of SUV to the lineup (Porsche AG History, n.d.), which was the first move away from the sports car focus.
4Ps
As can be clearly seen throughout the company’s history, the product Porsche has introduced to the market is the high-performance vehicles. While initially the focus was on the sports cars, which was reinforced by the strong engineering department (Henderson & Reavis, 2009) and the participation in various sporting events, it soon has shifted to SUVs and sedans. Nevertheless, the high quality and high performance has remained a central trait of their cars. Because of this, the price was also high: before the introduction of Boxter, the first relatively inexpensive model, the average price of the Porsche cars was $100,000. Currently the price of the cars of premium segment can cost as much as $845,000 (Zoeller, 2016), and the average prices are still placing the company in the elite segment. The place of the brand is currently embracing the values and expectations of the American customer base, such as the luxurious yet comfortable interior, sophisticated automation and navigation systems, and hi-end communication systems. Finally, the promotion currently focuses on a broad audience without leaving out the emphasis on the premium status. As the age of the audience have increased over the years, the marketing campaign “Engineered for magic, every day” has been specifically aimed at younger populace (by using Maria Sharapova as a spokesperson) and female audience (including a young mother in one of the commercials). Thus, the set of profiles which previously consisted on individuals interested in power and success was expanded to include one describing the customers who enjoy sports cars for everyday use. Besides television commercials, the promotion includes direct mail and print materials.
Major Competitors
Prior to the shift which occurred in the late nineties, Porsche was among the leading manufacturers of the elitist sports cars, and its competitors were similar companies such as Ferrari, Bugatti, and Lamborghini, alter joined by Jaguar. However, with the introduction of the SUVs the company has entered another market, already densely populated with firmly established and competitive rivals such as Acura, LandRover, Volkswagen, and Volvo (Henderson & Reavis, 2009). At the same time, the marketing to the younger and more diverse audience has also put Porsche in line with Audi, BMW, Mercedes, Infiniti and Lexus, who offer similar products. Another major area the company has entered in the 2000s is the outsourcing of engineering services (Henderson & Reavis, 2009). At the time when Porsche entered this market, it was already by such companies as Stola, Hawtal Whiting, MSX International Inc., and Modern Engineering Inc. In addition, Lotus Engineering, one of the companies previously seen as a major competitor of Porsche in the automotive industry, has entered the outsourcing market around the same time.
While the long-standing reputation of the manufacturer of high-performance cars still allows the company to stay among the best recognized brands in the field, it loses in popularity to its rivals in the newly introduced fields. For example, the surveys show that the customers prefer other brands when it comes to everyday usage of the high-performance cars (Brinley, 2015).
Decision Quality Assessment
Thus far, the company has made several major turns in its policies, all of which, while being different from the traditional approach, have proven successful in the long run. The first was moving away from the strict focus on sports cars and cutting the cost of production in the early nineties with the introduction of the new management. While some of the analysts had voiced concerns regarding the damage to the reputation made by this move, the subsequent years have shown that the decision was appropriate: the 1992 through 1994 were unsuccessful for the company, but starting from the 1995 the revenues started growing again and by 1996 the profit was regained (Porsche AG History, n.d.). A more recent introduction of the SUV segment may also be viewed as successful. According to the annual report, both the production and the deliveries of Cayenne have risen by approximately 20% and 9%, respectively (Key Performance Indicators, 2016). This result is especially impressive given the availability of other brands which already had an established lineup of similar products by the time Porsche entered the market segment. However, the most notable of the recent decisions made by the company is the implementation of its Strategy 2018. The strategy lists four main objectives:
- Increase customer enthusiasm by providing a unique purchase and ownership experience
- Be an excellent employer and business partner
- Generate greater than twenty-one percent return on capital and greater than fifteen percent return on sales
- Record sales of more than 200,000 cars at a typical Porsche price premium
It is already possible to assess the success of this strategy. First, according to the calculations based on surveys, the customer satisfaction has been rising steadily from 2007 onward, with the projected further increase (Winterkorn, 2012). Second, the employee opinion survey conducted from 2007 indicates the improvement in employee loyalty, with the improvement from 85 to 91 percent stating they are happy to work at the company. Third, increase of the total number of the units sold is consistent with the set goal of more than ten million. Finally, greater than fifteen percent return, while not showing the consistent improvement, still demonstrates significant improvement from 1.2 percent in 2009 to 11.9 in 2011, confirming the success of the chosen strategy (Winterkorn, 2012).
Current Situation on the Market
According to the classification used by the J.D. Power and Associates, the automotive market currently has 23 segments (Zoeller, 2016). Porsche, alongside its closest competitors such as BMW, Audi, Mercedes, Infiniti, and Lexus, all fall within the premium segment. Currently, the premium cars comprise 13% of the US market, which, given the high cost of individual vehicles, is a sufficient number to keep the elite-oriented manufacturer afloat. However, the Porsche brand occupies only a small share of the market, surpassed by BMW, Daimler, GM, Toyota, and Audi (Kallstrom, 2015). This, however, can not be attributed solely to the decline of popularity. The shift towards SUV segment started in 2003 has driven the revenues of Porsche since that year. The US market demonstrates the tendency towards sharp rise in popularity of the crossovers.
In 2013, 4.22 million units were sold, and while there is no data on the recent sales numbers, the most accurate estimations projected the sale of 5.45 million units in 2015 (Brinley, 2015). As Cayenne has already proven to be a popular and successful car, and the annual reports show the constant increase in production numbers for this model, it can be expected that Porsche gradually changes direction towards more lucrative segments. The recent introduction of the Porsche Macan, a compact crossover, further strengthens the brand’s position in the rapidly expanding market. The organization clearly demonstrates flexible marketing mix model, visible in the 4Ps assessed above, adjusted to appeal to the current market environment and utilizing the established sports car reputation. As a result, while being far from dominant position, it cleverly caters to the changing rules of the industry, such as the new emission regulations (Henderson & Reavis, 2009).
Financial Performance
Currently, the company demonstrates a somewhat uneven financial growth. The market growth rates vary greatly in different regions, with the most solidified and established ones like Western Europe and North America showing the least improvements of 11 and 27 percent, respectively, while developing markets of Eastern Europe and China growing by 56 and 65 percent, respectively, and India showing a 96 percent increase. While the latter can be attributed to the relatively unstable and unpredictable nature of the developing regions, the overall increase of 38 percent is considered a financial success. Another sign of formidable financial performance is the profitability rates, which were growing since 2007.
For the four consecutive years, from 2010 to 2014, the company has been setting new records both in revenue and profit, with the latest reported being 17.2 billion euros in fiscal year 2014, a 20% increase over 2013. The operating profit has also increased to 2.7 billion euros, which is about 5% more than the year before (Porsche achieves new records in revenue and profit, 2015). The delivery rates are similarly on the rise, growing by 17% in the same period. It is important to note, however, a decline which occurred in 2009, with 1.2 percent of group return on sales before tax (Winterkorn, 2012), which is a sharp contrast to the 5.8% in the previous year and 7.1% in the next one. However, aside from that, the company demonstrates a formidable overall financial performance.
SWOT Analysis
Given the available information, the following SWOT can be outlined:
Strengths
- Strong historically established reputation
- An emphasis on quality achieved through strong customer service base and quality materials
- High performance guaranteed by exceptional engineering department and constant improvement in the field of racing sports
- Readiness to adapt to the changing environments
- Diversified model lineup: SUV and crossover segment (Cayenne, Macan), four-door sedan (Panamera)
- Strong resource base
- Recognizable brand
- Constantly improving customer satisfaction and loyalty
- Employment policies resulting in skilled and competent staff
- Flexible and widely appealing marketing campaign
Weaknesses
- The slow pace of change implementation
- Relatively small size of the production lines despite the acquisition by the Volkswagen
- Vulnerable to external financial forces (as demonstrated by the profits decline in 2009)
- The engineering outsourcing policy, which has proven to be a drawback rather than an improvement
- The change of target group focus which, despite creating additional opportunities, have diluted the initial “elitist” reputation and repelled some of the customers seeking an exclusive product
- Dependence on the Volkswagen management which exhibits a somewhat different approach to marketing
- Emphasis on export instead of acquisition and seeking of international partnerships
Opportunities
- Strong economic support in the Western European market
- Expansion to developing markets such as India, Eastern Europe, and China
- Capitalizing on the SUV market currently on the rise in the US
- The introduction of the unified global policies instead of disparate strategies for each region
- The approach of integrating the sports car concept to create new hybrid classes which may produce new models
Threats
- The environmental regulations which affect primarily the high-performance cars and SUVs
- Recession and possible future economic crises
- Currency fluctuations in the external markets hampering export sales
- Sufficient competition on the newly penetrated markets
- Decline of the premium class segment
Essential Areas
One of the most essential areas presented above is the exploitation of the hybritization concept listed under opportunities section. While the premium segment is currently stable enough, it still relies on some values which may become its weaknesses in the future. In particular, it currently favors reputation over innovation (Fisk, 2009). At the same time, according to the current understanding, “to be successful, the company must continually become a stronger competitor and constantly seek new opportunities, because the world is changing rapidly” (Abraham, 2012). In other words, at least some flexibility needs to be introduced to warrant the improvement. The introduction of Cayenne and, to a somewhat lesser degree, Panamera, have been one of the key points which allow the company to succeed in recent decade. A similar approach needs to be exercised to create new marginal models which would take advantage of the benefits of the sports cars but cater to other market segments.
Another area that requires the utmost attention is the emergence of environmental regulations, such as Corporate Average Fuel Economy (CAFE) standards in the United States. High-performance vehicles have been historically exhibiting the low fuel economy rates and are currently associated with the threat to the environment. The SUV segment, despite making sufficient progress in complying with the strict regulations, still falls under some restrictions and penalties. Besides, the consumer decisions are at least partially determined by the environmentally-friendly image of the car, so this threat should be addressed without delay.
Finally, the creation of global marketing strategies which would unify the policies of the disparate markets across the world is of utmost importance. Currently, the trend of globalization has already shown the benefits of international business (Ali & Kaynak, 2012). Admittedly, such transformation requires many resources, but the acquisition by Volkswagen provides the means of acquiring them. While the short-term benefits this area are not apparent, the growing body of evidence supports the notion of its necessity (Ali & Kaynak, 2012).
Recommended Organizational Structure
Porsche currently utilizes the divisional business structure (Daft, Murphy, & Willmont, 2010). Admittedly, it satisfies the managerial needs of the company. However, in case the company decides to take a global direction, several amendments need to be made. The global hierarchy currently located in Europe should be left in place as it does not contradict the following plan. However, an emphasis needs to be made on the geographic divisions corresponding to the prioritized regional markets. Such move would allow for a better local management practices and provide additional opportunities for the product improvement. The regional managers would still be required to report to the European headquarters, but granting a certain degree of freedom is advised to allow for better flexibility and responsiveness of techniques (Daft, Murphy, & Willmont, 2010).
Measurements of the Plan’s Success
To comprehensively assess the success of the outlined strategies, three major components need to be measured. First, the financial data need to be processed to display the revenues and profit. This is a traditional approach and the means for it are already in place in the company, so no additional effort is required here. Second, the employee loyalty needs to be constantly monitored. While the surveys assessing the employee satisfaction occasionally take place within the company, the installment of the geographic divisions will require a more concise and timely measurements, as the expatriates (a crucial component of such structure) are extremely sensitive to the techniques facilitating loyalty and define the success of the regional divisions (Adekola & Sergi, 2016), so a complex monitoring tool need to be introduced. Finally, the customer satisfaction should be assessed. Again, with the worldwide expansion it is recommended to include cultural competencies to accurately measure the customer reaction and timely address the issues should they arise.
References
Abraham, S. (2012). Strategic management for organizations. San Diego, CA: Bridgepoint Education
Adekola, A., & Sergi, B. (2016). Global business management: a cross-cultural perspective. New York, NY: Routledge.
Ali, A., & Kaynak, E. (2012). Globalization of business: practice and theory. New York, NY: Routledge.
Brinley, S. (2015). In 2016, Premium vehicles and utilities will continue to drive u.s. light-vehicle sales growth. Web.
Daft, R, Murphy, J, & Willmont, H. (2010). Organization theory and design. Hampshire, UK: Cengage Learning.
Fisk, P. (2009). Marketing genius. New York, NY: John Wiley & Sons.
Henderson, R., & Reavis, C. (2009). What’s Driving Porsche? Web.
Kallstrom, H. (2015). Daimler and BMW dominate the luxury car segment. Web.
Key Performance Indicators. (2016). Web.
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Porsche AG history. (n.d.). Web.
Winterkorn, J. (2012). Part III – Presentation Prof. Dr. Winterkorn. Web.
Zoeller, S. (2016). How to segment your target market: Porsche case study. Web.