Strategic Plan on How to Grow Porsche over the Next Three Years - Case Study Example

Strategic plan on how to grow Porsche over the next three years Nicole Horgan BUS 402 Jeffery Turk November 15, Strategic plan on how to grow Porsche over the next three years Porsche’s history and its 4Ps (Product, Price, Place, and Promotion) Porsche is a company that was established in 1931 as an engineering services company, and only ventured into the full production of vehicles in 1934, after Adolf Hitler commissioned the company to produce the first peoples’ car (Henderson &Reavis, 2009). Thus, the company’s first car was VW Type 60 which ventured into the market in the 1930s, but it had to wait for over a decade later in order to produce the first branded car under the brand name Porsche, with Porsche 356 series which was released in 1948 being the first branded Porsche sports car. The company continued the production of sports car over the next few decades, only venturing outside the sports car market in the 21st century with Cayenne Porsche being released in 2003 and then Panamera Porsche being released in 2005 (Henderson &Reavis, 2009). Nevertheless, the early 1990s were not good business years for Porsche, which saw a slump both in its production and market, such that the company was only selling 14,000 during this period, having been able to sell over 50,000 units before. Regardless of the upheavals in the car product market, the engineering services market for Porsche remained stable, owing to the fact that the company was offering the engineering services to virtually all automobile makers in the market through its Porsche Engineering Group (PEG). It is out of this trading activity that Porsche was able to earn around 60% of its pre-tax profits, with the product market making up for the rest 40% of the company’s revenues (Leffingwell, 2011). Porsche’s move towards acquiring the Volkswagen Group started in 2005 when the company acquired a 20% stake in the company, which was then followed by an increase in the percentage of the shares acquired to 31.5% by 2007. However, the acquisition of Volkswagen by Porsche has remained a controversial issue, owing to the fear that the company’s products will degrade in value, while the customers for the Porsche’s engineering service might eventually quit their engagement with the company, due to its partnering with a large automaker, which produced and sold over 6 million vehicles in 2007 (Henderson &Reavis, 2009). It is this fear that poses the risk for Porsche’s possible loss of revenues, owing to the fact that the engineering services sold to the other automakers contributed the highest percentage of Porsche’s annual revenues, and thus the cutback in selling these services will affects the company’s financial position and profitability. The acquisition of Volkswagen also threatens to reduce Porsche’s car product market, owing to the fact that there is the fear of its products becoming low-quality. 4Ps Product Porsche is a company that has been offering two products in the market. The first product is tangible, in the form of manufactured automobiles, while the second product is an intangible one in the form of engineering services offered to the other automakers, through the Porsche Engineering Services (PES) (Henderson &Reavis, 2009). Under the tangible product category, Porsche has been offering several brands, starting with VW Type 60 released to the market in 1934, then followed by Porsche 356 series which was released in 1948, and then the Cayenne Porsche introduced into the market in 2003 and finally the Cayenne Panamera that was released to the market in 2005 (Leffingwell, 2011). On the other hand, the intangible product offered by Porsche comprised purely of trading its professional engineering services to different automakers, where Porsche’s team of 2300 engineers have been rotating their services between the different automakers, helping them to develop their automobile products at a fee (Diehlmann & Häcker, 2013). Price Porsche is a company that applies the premium pricing strategy, where by the company produces its products in low volume, manufactures them such that they are of the highest quality, and then sells them at a relatively higher price. Thus, Porsche sold its products at a price that ranged between $50,000 to more than $150,000, while maintaining its sales volume at an average of 100,000 units annually (Henderson& Reavis, 2009). This enabled Porsche to make a high profit margin per every unit of the car that the company sold compared to its competitors which sold their brands at relatively low prices. Thus, Porsche’s profitability margin per unit of a vehicle sold was $91,974, which eventually gave the company an overall profitability margin of 93.4% (Henderson& Reavis, 2009). However, the price at which the company sold its intangible product in the form of the engineering services to the other automakers has not been disclosed under the company’s books of accounts, but the sale of the engineering services accounted for 60% of the revenues that Porsche earned annually (Joseph, 2013). Place Porsche is a company that has its origin in Germany, but has been able to curve a niche market in the sport car market across the globe. While the company was established and headquartered in Germany, Porsche has ventured into the European, Asian and the North American market through selling both its car products and its engineering services product (Fangfang, 2013). In order for the company to be able to reach its markets effectively, it was involved in the production of its products in different locations, such that for example the Porsche Cayenne was produced in Slovakia, at the Volkswagen’s production factory (Henderson& Reavis, 2009). On the other hand, the production of the Porsche Panamera was undertaken in East Germany. Similarly, on the engineering services offering, the Porsche Engineering Group offered its engineering services to different automakers globally, but later was split to form an auxiliary company under the brand name of Porsche Engineering Inc., which was specifically meant to offer engineering services to the North American market (Henderson& Reavis, 2009). Promotion Promotion as an element of the marketing mix for Porsche has been achieved through using quality as the fundamental selling basis of both the automobiles and the engineering services offered by the company. The company’s vehicles were selling at a higher price due to being categorized as high-quality brands, while the professionalism of the 2,300 engineers under the Porsche Engineering Group was sought, due to their proficiency in offering automobile skills to the other automakers (Diehlmann & Häcker, 2013). Current situation of the organization in the market The current situation of Porsche organization is a mixture of both opportunities and challenges, owing to the fact that with the reverse acquisition of Porsche by Volkswagen in 2008, Porsche has now gained an access to a wider market than initially held by the company (Leffingwell, 2011). The historical market for Porsche has been a small niche market in the premium sports car segment, where the company sells in low volumes but compensates the same with a high price charging (Fangfang, 2013). This strategy has enabled the company to take hold and retain a strong presence in the prestige cars market niche, and the advantage associated with this is that; there is a growing market for the prestige cars especially in countries such as India, Latin America and notably China, where the growing economies are becoming more prosperous to allow the ascension of a high percentage of the population to the high class of the society, which is associated with the high demand of Porsche brands (Leffingwell, 2011). Additionally, the product position of the company is under a high demand, allowing for the increased growth of the demand of Porsche’s product by 48.7% for the period running 2009 to 2010 (Diehlmann & Häcker, 2013). Further, the market for Porsche has been expanding after its reverse acquisition by Volkswagen in 2008, owing to the fact that this acquisition has allowed the company to access more expanded markets that initially belonged to the Volkswagen brand such that it has grown its market share in China by 72% from 2009 to 2010 (Fangfang, 2013). The brand Porsche has also continued to rank the best both in technology and engineering skills, such that the company’s brands ranked as number 1 in the list of the "Most Reliable Car in the World" according to the 2010 Consumer Report, giving Porsche company and its brand the clout it requires to continue dominating the market for prestige and high-class sports car globally (Joseph, 2013). Nevertheless, the downside associated with Porsche current situation in the market and in the industry is that; cynicism is a major factor that is causing the consumers to be precautionary while purchasing the Porsche brands, owing that the high-quality tag that the company permanently carried before its acquisition by Volkswagen is slightly waning (Leffingwell, 2011). Further, the regulatory environment has been emerging such that it no longer favors the Porsche Company and its brand strategy, owing to the fact that the company produces high-class cars that consume large fuel volumes, yet the regulation environment is changing towards the adoption of less-fuel consumption vehicles globally. For example, the CAFE regulations that were revamped in the USA in 2011 have seen the reduction in the demand of the Porsche brands in a country where the Porsche Company had penetrated its brands such that the USA was the largest market for the company’s products (Fangfang, 2013). Such regulations might force the company to change its strategies or to move out of its core market altogether. The economic climate is also becoming a challenge for Porsche brands, owing to the fact that the company targets the high income earners, such that when the economy is shrinking and the high class becoming sensitive to the high prices of the Porsche brands, the company is likely to lose its sales to the more price competitive brands such as BMW and Mercedes (Joseph, 2013). Additionally, the economic slump that has been experienced globally since 2008 through to 2012 has made the consumers weary of the fuel prices, in which case such consumers opt to purchase the less-fuel consuming brands of cars that might see Porsche decrease its sales even further (Diehlmann & Häcker, 2013). The financial performance and condition of Porsche The financial performance of Porsche is good, and the company look forward to bettering its performance in the future, considering the fact that the company’s future strategies is to grow and expand to more markets, most especially outside America and Europe. The profitability of the company has been historically high, owing to the fact that the company made a profit of $9.4 billion in 2007, out of a total revenue of $10.06 billion, which is an indication that the profitability of the company for the year 2007 was 93.4% (Henderson& Reavis, 2009). Further, the profitability of the company increased markedly for the four-year period 2002 to 2006, where the company’s operating profit after tax hiked from €1,204 million to €1,832 million, which represents a growth of profitability of the company by 51.2% during this period (Porsche, 2013). Previously, the company had increased its profitability by a 74.8% between 2005 and 2006, with an increased net profit of €1,368 million (Porsche, 2013). The asset of Porsche stood at €24,560 million, which is an indication that the company has grown is assets by 8% since the close of the previous financial year (Porsche, 2013). The cash flow of the company also increased €2,692 million to from €2,917 million in 2013, while the revenue of the company increased to 14,326 million in 2013 from €13,865 million in 2012 (Porsche, 2013). The net profit of the company also increased from €1,833 million in 2012 to €1,939 million in 2013, which is high profitability growth (Porsche, 2013). SWOT analysis Strengths The major strength of Porsche and its brand is the brand reputation and loyalty, which has seen the company produce and sell 98% of its annual production, owing to the high rate of repeat purchase from its customers, who have enjoyed the Porsche brands since its inception (Leffingwell, 2011). The brand Porsche has consistently ranked among the top brands in quality consistency, which makes its customers always ready to purchase from the company. The high level of specialized engineering skills is another strength that the brand Porsche holds, due to the fact that the company has been able to develop its engineering skills to the best level in the world, thus boosting the confidence of the customers on the company’s brand quality. Finally, innovation is a major strength that Porsche has been able to count on, owing to the fact that the company has committed a high percentage of its resources to the tune of 12% for R&D, which in turn has paid off with the rise of novel ideas that has seen the company manage to remain as a top brand among the premium car customers (Joseph, 2013). Weakness Limited market is a major weakness that Porsche faces, owing to the fact that most of its customers are the premium car category customers, who forms a limited market share of the whole automobile industry market globally (Diehlmann & Häcker, 2013). Further, the cynicism that has developed around the acquisition of Porsche by Volkswagen has resulted in the slowed growth of the market for the Porsche brand, owing to the fact that there is a fear of quality degradation. The sports car production is yet a major weakness of the company, since such cars consume fuel at a high rate, which is a disadvantage to the price-sensitive customers as well as many government and environmental institutions, which are seeking to lower the fuel consumption rates for effective global warming control (Fangfang, 2013). Threats The legal regulations form a major threat currently facing Porsche, owing to the fact that the many countries are establishing restrictive legislations, for example the CAFE policy of the USA, which limits the fuel consumption rates for the cars in its market, limiting the sale of Porsche brands in the market and thus threatening to push the company out of its largest market in history (Joseph, 2013). The economic recession is another threat to Porsche, since the recession makes the premium car market customers price-sensitive, which then threatens to lower the demand for Porsche brands (Joseph, 2013). Opportunities The major opportunity for Porsche is the extended market accessibility after the reverse acquisition by Volkswagen, which means that the company is now in a position to push its brands to a wider market already charted by Volkswagen throughout its history (Diehlmann & Häcker, 2013). Porsche has an opportunity to use the vast Volkswagen resources, facilities and technologies to produce more price-friendly brands, thus capturing the middle market of the automobile industry, as opposed to only specializing in the high-class car markets (Fangfang, 2013). Areas from SWOT analysis that is essential to Porsche’s strategic plan Innovation: Innovation is an important area of the strategic plan, owing to the fact that it is through innovation that the company has managed to stay ahead of the rest of the global automakers (Leffingwell, 2011). Therefore, innovation is an essential area for Porsche’s strategic growth, since it will ensure to maintain the company’s essence as a leading innovator in the automobile industry, thus preserve its market share. Specialized labor force development: The high specialized engineering skills forms a fundamental key success factor for the brand Porsche, since it is through the highly specialized skills that the company’s engineers possess, that has enabled it to lend engineering services to their automakers, while learning essential competitive strategies from the automakers, which are then employed into the Porsche design to produce highly specialized auto-designs that are popular among the premium car customers (Fangfang, 2013). Exploitation of the Volkswagen’s production resources: The major impediment to Porsches high volume production has been the lack of accessibility to production facilities, especially the electronics segment which is a high investment area of the automobile production industry (Joseph, 2013). However, with the reverse acquisition of Porsche by Volkswagen, it is now possible for Porsche to access and utilize the facilities owned by Volkswagen, which will lower the cost of production, enabling the company to increase its profit margin. Recommended organizational structure The recommended organizational structure for Porsche is a separate management board from that of Volkswagen, so that the company can retain its core distinction as a highly specialized automaker with the history of consistently producing the best quality automobiles globally (Fangfang, 2013). The separation of the management board of Porsche from that of Volkswagen will be fundamental to ensure that the company does not lose its identity. Additionally, Porsche’s organizational structure should consist of a lean workforce that the company has held historically (Joseph, 2013). The essence of maintaining a lean workforce is that the company can be able to develop highly specialized skills, which is the basic historical differentiation strategy for Porsche. Plan to measure the success of the strategic plan The success of the strategic plan will be measured through using growth in market share as the key indicator for the continued success of the strategies of the company. Additionally, the growth in the revenues and profitability of the company from the current profit margins and overall net profitability will be measured, as a key indicator of the strategic plans of the company. Finally, the brand quality ratings and continued acceptance is another success indicator that will be applied to measure the success of the R&D, innovation and high skilled proficiency of the company’s commitment to remain the best quality brand in the global automobile industry. Reference Diehlmann, J., & Häcker, J. (2013). Automotive management. München: Oldenbourg. Fangfang, L. (2013, April 25). Porsches future bright in worlds top market. China Daily. Retrieved November 15, 2014. From < http://usa.chinadaily.com.cn/epaper/2013-04/25/content_16449012.htm> Henderson, R. &Reavis, C. (August 25, 2009).What’s Driving Porsche?MITS Loan Management. Joseph, U. A. (2013). Made in Germany Champion Brands: Nation Branding, Innovation and World Export Leadership. Farnham: Gower. Leffingwell, R. (2011). The complete book of Porsche 911: Every model since 1964. Minneapolis, MN: Motorbooks. Porsche. (2013). Annual Financial Report Porsche AG 2013: Porsche-moving emotion, 1-132. Read More