The Product or Service Strategy of Porsche - Essay Example

Evaluate the product service strategy of a company of your choice Porsche Evaluation of Porsche Product Strategy According to an investment analyst, “brand recognition and customer loyalty erect an especially robust barrier to entry in the luxury sports cars segment. However what sets aside Porsche from its other competitors is its usability. While other luxury sport cars are bought to sit in a garage, you can drive a Porsche to work. (1)” Brief History Porsche applied a niche marketing strategy during the early 1980s and was successful in making “it difficult for either giant car companies or tiny specialists to challenge it. (2)” However, during the early 1990’s the company made record deficits in its financial statements. The main reason for the losses was the introduction of the 928 which was made to replace the 911. It was not accepted by customers because of the front engine, rear drive design, a slight deviation from its predecessors. One of Porsche’s unique selling points is its engine design and care should have been taken in this regard. Need for Portfolio Planning Given the heavy losses the company suffered as a result of the introduction of the 928 model, there was a need for a new product strategy. The BCG Matrix was an effective tool for this situation. This portfolio planning method recognizes the need to reposition products in the portfolio to achieve cash flow and profitability. Besides the implementation of Just in Time inventory system and the application of quality management principles, Porsche discontinued the production of the 928 making the 911 model its sole vehicle. Fig 1 - The Boston Consulting Group Box ("BCG Box") According to the Boston Consulting Group, 928 would have been regarded as a dog because of its low growth rate and low market share. Although 928 may generate enough cash, possibly to break even, it’s simple not worth the investment. Therefore Porsche’s strategy to divest the 928 model and to pump more money in a more promising investment say the 911, was a very sound approach. How long would the 911 Last? “Porsche purists are wary every time a new incarnation of 911 is unveiled. Will there be a change of look, feel, and sound? Porsche’s 911 is going to be made forever, or possibly longer. This is because the company does not know how to end it, only how to make a new one every few years (3)” Fig 2: Current 911 Models - Source www.porsche.com Rear-engine, 3.8 liters, 6 cyl. 355 hp (SAE) @ 6,600 rpm 295 lb.-ft. @ 4,250 rpm Performance 0-60 mph: 4.6 sec. Top Track Speed: 182 mph MSRP $ 82,600.00 Rear-engine, 3.6 liters, 6 cyl. 325 hp (SAE) @ 6,800 rpm 273 lb.-ft. @ 4,250 rpm Performance 0-60 mph The 911 model has existed since 1963. The company was unable to replace this model with the 928. However, in its bid to improve profitability, the company employed successful extension strategies. Porsche and the Product life Cycle The use of the product life cycle would have been of interest to the luxury sports car company when deciding its advertising and extension strategies. The 911 model existed at the maturity stage and the failure for the 928 to pick up sales forced the company to reposition and redesign the 911 model over a period of time. According to Porsche executive, “this shape (911 model) has been known for over 40 years, and it’s almost its own brand. I think it would be a huge mistake to replace the 911. Why would we? (4)” So far these strategies were successful, however an important point which Porsche should be aware of is that extension strategies are short term measures and not permanent in nature. In spite of this fact, each product life cycle for each car model is different and therefore its usefulness as a forecasting tool for Porsche may be limited. The following graph (fig 3) shows the product life cycle and the stages which each of Porsche luxury sports cars are at presently. Fig 3 Product Life Cycle INTRODUCTION GROWTH MATURITY DECLINE Panamera Cayman Cayenne 911 Boxster roadster Carrera GT supercar Porsche wants to Grow The Porsche brand developed over the years. There is the belief, however, that the introduction of recent brands such as Boxer and Cayenne can assure the company’s survival. The company seems to be very aware that it needs some “stars” in its portfolio. According to Wiedeking “After three comes four…Porsche wants to grow and the question is what are the means to grow (5)” Ansoff developed a matrix which can assist Porsche to decide the appropriate growth strategy for the organization. Fig 4 Ansoff Matrix There are two strategies which may be of interest to Porsche management. The first being market development. Market development growth strategy was employed during the 1990’s because the company recognized that the majority of its sale came from North America. Since then to now, Porsche has markets all over the world and has since then developed its: 1) Packaging and design 2) Distribution channels 3) Different pricing policies to attract different customers Secondly, Porsche would be interested in the product development. Recently the company sought to employ this strategy by introducing new products such as Boxster roadster, Cayman, Cayenne and Panamera (for 2007) into existing markets. This strategy may require the development of new competencies which Porsche may need to modified existing models in order for them to appeal to the current market. Market Profitability of Porsche Profit Impact of Market Strategies (PIMS) curve shows the relationship between Porsche return of investments and its market share of the total industry. Porsche applies a niche marketing strategy which means that its market share would be relatively low. Fig 5 P.I.M.S. Curve Return on Investments Market Share of Total Industry However, Porsche has the highest profitability per car in the car industry and has spent considerable amounts in development cost. This high profitability, low market share would be reflected on the top left hand side of the PIMS curve. According to the PIMS curve theory Porsche have low volume, high unit cost, high quality and product flexibility (differentiation). This is a good position for a company applying a niche marketing strategy. The truth is that customers may perceive that Porsche product offering is of high quality therefore they may be prepared to pay more for it. This will translate into higher profits. Conclusion “For Porsche, exclusivity applies in many aspects. Particularly in the fact that for a long time the company has drawn on traditional models. Money alone cannot produce inventiveness. It is far more the pressure of having to prove oneself against the competition again and again. Porsche relishes its role as David amongst the Goliaths in this world. (6)” There is no doubt that a company like Porsche given the potential of the Product Portfolio would be successful. Its usability and other distinctive competences give Porsche a competitive advantage in luxury sports cars over its rivals. The hope, however, is that the new luxury car designs would bring about a positive customers’ response and not a negative one as it did 15 years ago. Read More