Ferrari Auto Marketing Analysis

Ferrari Auto Marketing Analysis

Introduction

Ferrari history

Ferrari is a manufacturer of Italian sports cars, and is based in Maranello, Italy. It was founded by Enzo Ferrari in 1929, and was originally named Scuderia Ferrari.

When Enzo was ten year old, his father had taken him and his brother to watch motor racing circuit. Enzo was completely motivated by this action. In 1918 Enzo works as a test driver for a small company in Turin. In 1919 Enzo works for C.M.N in Milan, Initially as a test driver and later on as a racing driver. In 1920 Enzo finishes second in the Targo Florio. This lead the gateway for a 20 year collaboration with marquee that saw Ferrari do test driving to racing, and finally appointed head of racing division for Alfa Corse. Ferrari opens Auto Avio Costruzioni on Viale Trento Trieste in Modena. On September 13th, at the same headquarters of the old Scuderia Ferrari, Fiat platform Auto Avio Costruzioni builds 2 versions of Ferrari 815 in the year 1940. The factory was bombed in the world war on November 4th 1944, but they managed to rebuilt it quickly.

Ferrari had an ambitious plan to build a V12 engine, and thus started designing the first Ferrari in 1945. Scuderia Ferrari sponsored drivers and manufactured race cars, but in 1946, it moved into the production of street legal vehicles, as Ferrari. In 1956 Ferrari turns into a Limited Liability Company. The professional industry and artisanship training institute was built in Maranello, which provides the company with special technicians even till today. In 1965 Ferrari signs an agreement with Fiat Group giving 50% of its share in the company to Fiat group in order to grow into a powerful company.

Through the years, Ferrari has been celebrated for its unceasing contributions in the field of racing, specifically in Formula One, where it has been considerably successful. As on the writing of this assignment, Fiat owns 56% of Ferrari, Mediobanca owns 15%, Commerzbank AG owns 10%, Lehman Brothers Owns 7%, and Enzo’s son Piero Ferrari owns 10%.

Vision and Mission of Ferrari

Ferrari’s vision and mission has remained the same for years: To build unique sports cars that are suppose to bring out the excellence of Italian cars on the roads and on the racing circuits.

Market Orientation

Market orientation defines an organization that understands customer needs and their importance, focusing on providing products that are of high value to their customers, and marketing the products and services across all departments using a coordinated holistic program in marketing concept, taking into consideration “Customer is King.”

Market orientation mainly focuses on:

• Understanding customer’s needs
• Competitor’s abilities and continuously collecting information about them.
• Sharing of information across various departments.
• Creating customer value using above mentioned information.

The following table identifies and describes the marketing

orientations

Orientation	Profit driven	Western European Timeframe	Characteristics
Production	Methods of production	Until the 1950s	The improving production and distribution, to achieve a reduction in cost and improved efficiency.
Product	Product quality	Until the 1960s	Products quality is paramount main Focus is on product not customers needs
Selling	Methods of selling	1950s and 1960s	Effective selling and promotion are the major drivers to success.
Marketing	Needs and wants of customers	1970s to present day	providing goods and services that are sure to satisfy the needs and wants of customers or end users.

Further approaches include Relationship marketing and Societal marketing

Relationship marketing	Building and keeping good customer relation	1980s to present day	Main focus is placed on the whole relationship between the suppliers and customers. The basic aim is to give good or best possible attention, customer services and build customer loyalty.
Societal marketing	Benefit to society	1990s to present day	It has similar characteristics as marketing orientation but with the added condition that there will be limitations on any harmful activities to society, in product, production, or selling methods and procedures.

Customer’s needs keeps changing over time to time. Ferrari has persuaded their customers to buy their product because of its style, speed, luxury, and elegance. Then, as soon as a company brings out a car that is a better match for Ferrari, They might drop Ferrari in favour for that car. But interestingly Ferrari has always managed to develop car’s that reflects their customers’ needs and they may not switch so readily. And Ferrari has managed to do this for the past several decades, and till today. Ferrari has always focussed on their competitors and their customers by continues improvement in performance of their products and services.

Ferrari’s success can be scaled only with respect to product or brand value. It is not done based on sales and revenues. Neither is it done based in terms of market capitalization, because no initial public stock offering was done by Ferrari. It is said that the Ferrari brand is worth more than Google brand, the Apple brand, BMW, Mercedes, or any other brand in the world. Yet, Ferrari never spends any money in advertisement.

Marketing Concepts:

Ferrari is a Product oriented company

Ferrari produces excellent, well designed, quality products which are great value for money. Customers are sure to want our products. That’s the kind of approach Ferrari demands out of it customers.

Product orientation occurs where the focus is given to the product rather than to the needs and wants of a customer. In a company like Ferrari they need to concentrate on their products, because over the years Ferrari managed to satisfy its customers through its superiority in quality and performance by delivering speed, style, luxury in their products.

Relationship marketing of Ferrari

Ferrari has always managed to Build and keep good relationship with their customers, by providing value for the customer’s money. Ferrari’s focus is on the whole relationship between suppliers and customers. Ferrari’s aim is to provide the best possible attention, Customer services to their customers by providing quality and increased performance in their products and services, and therefore build customer loyalty.

Societal marketing of Ferrari

This concept is based on social responsibility or society’s long term interests. It explains an organisations task is not only to provide customers with quality products, but also to do that in a way that preserves, protects, and improves the society’s well-being. In the 21st century, people are more aware of the sensitive issues than the earlier generation, such as health issues, global warming, shortage of resources etc. Ferrari has adopted this marketing philosophy to get the attention of the customers, The organisation understood the need for bringing out a new car that is eco friendly, thus they introduced the new electric hybrid Ferrari 599, which has a maximum speed of 200mph. The main aim of this car is to cut fuel consumption and pollution with the motive of breathtaking acceleration and performance.

Marketing Strategy of Ferrari

The success behind the marketing strategy of Ferrari is done by the review of Ferrari and its development through the ages. Enzo Ferrari never went to college or high school, he was just a mechanic at Alfa Romeo, not an engineer either, but his strong passion for racing, speed and engine, made him have his own ideas on engines and cars. Passion has always been the “drive” of Ferrari. And it’s the only marketing tool of Ferrari till today.

Competitive Advantage

Impact of the Organisation’s Marketing Mix

Marketing mix can be defined as the use and specification of the 4p’s (place, promotion, price and product) to describe the strategic position of an organisation in a market place. Other 4p’s could be included as people, public relations, physical evidence and packaging (Kotler, Philip, lane and Keller: 2005) “Marketing management Prentice hall

The mix represents the “variety of integrated decisions” which is taken by a company in order to assure the success of the marketing department. Usually, decisions are made in four areas represented by the 4Ps used in marketing mix: product, price, place and promotion. The 4Ps involve issues like brand name, product type, pricing, advertising, retailing and distribution (Business and Management Dictionary 2007).

These fundamentals have to be managed effectively by the marketers to top customers needs enhanced than competition this means that decisions concerning the marketing mix forms a major aspect of marketing concept implementation (Jobber 2007), the combination of these elements also helps in influencing the demand and supply of the products and service presented to customers by the company.

• Product: This is regarded as a very vital element of the marketing mix. It is whatever thing that can be offered to a market which can be noticed, acquired, used or consumed that might gratify a want or need .Physical objects, services, ideas, organizations, person’s places may be part. (Kotler et.al. 2005). It also involves the decision of what goods or services that should be offered to a collection of customers (Jobber 2007). The decision for product involves branding, quality, packaging, guarantees.
• Price: This is the only element of the marketing mix that generates revenue. “Price is the sum of all values that consumers exchange for the benefits of having or using the product or service.” (Kotler et.al. 2005).
• Promotion: It involves all the forms of communications used by the marketer at the market place about benefits, added features etc of a product. These are the major components of the promotional mix Advertising, Personal selling, Direct marketing, Internet promotion, Sales Promotion and publicity.
• Place: It is the mechanism through which goods or services are moved from the manufacturer/service provider to the end user/consumers. The accessibility of a company’s product or service at the right quantities in the right (convenient) locations at the times when the customers want to buy them that is the distribution channels to be used and their management (Jobber 2007)

According to Ivy (2008) tangible products uses the traditional 4Ps model while the intangible product or services sector on the other hand uses a 7P approach in order to satisfy the needs of the service provided to customers: product, price, place, promotion, people, physical facilities and processes.

Product

The product is one of the main building blocks of the marketing mix. It is known as the merchandise which provides the consumer with the basic functional requirements. Jobber describes a product as anything that is capable of satisfying customer needs. A product has to be appealing to its customers; therefore, producers need to ensure that their product would meet consumer satisfaction.

This section will look at the product strategy of Ferrari Company and analyse a sector of their products using the product life cycle. A Ferrari principal automobile product group includes, 360 spider, 456M GT, 550 Maranello, 550 Barchetta Pininfanna, super -america salon, F430 spider.

“The core element in the marketing mix is the company’s product because this provides the functional requirements sought by customers”(Jobber,2007 p326).A well thought out product will provide the company with a good external image as well as customer loyalty which are essential for a company’s competitive advantage.(Brassington&Petitt, 2006:288) further defined a product as “a physical good idea, person or place that is capable of offering tangible attributes that individuals or organisations regard as so necessary, worthwhile or satisfying that they are prepared to exchange money, patronage or some other unit of value in order to acquire it”. This above definition gives the idea that a product can be classified into tangible or intangible products. The tangible products are the physical goods whilst the intangible are the services that offered for example the Porsche car by Ferrari is the tangible product while the FI car race competition, after sales services are all intangible product to Ferrari.

3. DIAGRAM

Product is classified into the following three categories namely the core product, the actual product and the augmented product.

The product when benefited, is made valuable by the core product. For example, the core products in the Ferrari automobile is the speed attribute that comes with every Ferrari brand of automobile. This is one of the reasons why people that love fast cars will always prefer a Ferrari brand to any other brand of vehicle. Also Ferrari shows off this benefit to the prospective customers by organizing the car racing competition and also in their various advertising mediums.

The tangible physical product is the actual product. This includes the physical automobile itself that comes in every different shapes and sizes. The physical attribute or component of the automobile itself is what is called the actual products. For example the Ferrari automobile F430 spider is an actual product for Ferrari.

The non-physical part of the product is the augmented product. For example, warranty and customer service support. This shows the other services or component that comes with the buying of the automobile itself. The replacement part is an example of the augmented products.

4.1.2. Ansoff Matrix

Planning for Growth

The Ansoff matrix is a tool that helps businesses to strategize on their product and make necessary decisions for their market growth. With the Ansoff matrix, Ferrari would be able to know how the F430 spider automobile is doing in the market place and decide whether or not there is an advantage of entering the market place.

The Ansoff matrix is a tool used to generate direction for strategic development for companies. It gives a sense of scope for the companies with regards to marketing of its products, whether to diversify, or to further develop more of its markets.

Market penetration: According to Johnson, Scholes &Whitington (2008:258) this is the process by which the organisation takes increased share of its existing markets with its existing product range. This will in turn lead to higher bargaining power of the supplier as Ferrari will have a larger market share. Johnson; Scholes&Whitington (2008:258) also explain that “in terms of the five forces increasing market penetration is likely to exacerbate industry rivalry as other competitors in the market defend their share”. For example Jaguar cannot let Ferrari continue to have growth in market share while it sits behind. Ferrari has a % in speed car market while Jaguar has a % in market share in luxury car market.

Product development: is where organisations deliver modified or new products to existing markets. Here product development implies greater degrees of innovation. Johnson, Scholes&Whitington (2008:261).With the car manufacturing industry there is a continuous need to develop products so as to make sure customers’ needs are effectively met. For example Ferrari has even committed itself to sponsoring the formula one racing competition yearly to showcase new technology and improvement in diverse innovation.

Market development – involves offering existing products to new markets. Johnson; Scholes&Whitington (2008:261). Ferrari moved over to other international markets like Canada, Mexico and USA. Market development might take three forms, new segments, new users and new geographical location.

Johnson, Scholes&Whitington describe diversification as a strategy that strictly takes the organisation away from both its existing markets and its existing products, it tends to imply unrelated or conglomerate diversification. Johnson further gives the reason for diversification saying that “efficiency gains can be made by applying the organisations existing resources or capabilities to new market and product or service”. This in turn will increase market power leading high entry barriers for new entrants.

4.1.3. The Product Life Cycle

Every product must have a limited life span. The product life cycle tool allows a company to evaluate its product based on four stages. These stages include the introduction, the growth, the maturity and then the decline. All products must go through these four basic stages; therefore to maintain a good competitive advantage all companies ought to have the product life cycle tool as a basis of analyzing a product as it changes over time and also to be able to know what stage their product falls under a particular time.

Price

All products and services have a price, just as they have a value. According to Armstrong and Kotler, “Price is simply the amount of money charged for a product or service”. In a broader context, price is said to be the sum of all the values that consumers exchange for the benefits of having or using the product or service. Price is also one of the most flexible elements of the marketing mix in the sense that pricing decisions can be implemented relatively quickly, a tool used by companies to achieve their marketing objectives as well as the only element in the marketing mix that produces revenue. (Armstrong and Kotler, 2006)

Price is one of the most significant essentials of the marketing mix because it is a unit source of what the company receives for the product or service that is being sold. Furthermore, Price is the only aspect of marketing mix that creates returns or produces profits. Price can also be defined as the perceived value derived by consumers of a product or service from the purchase of it or the sum of the value that consumers exchange for the benefits of having or using the product or service (Kotler and Keller 2006). Furthermore, price is a crucial product-positioning fact or that defines the products market, competition and design. The intended price determines what product features can be offered and what production cost can be incurred.

There are different strategies that can be used by companies to price various products based on different reasons. Setting prices too high could amount to an abrupt reduction in sales, while setting prices too low could also cause a reduction in profits. The most appropriate strategy depends on how the product is positioned. A product could be positioned as being of premium value with a high price adding to the way it is perceived, individual products could be positioned high or low with consistent pricing across a product range, different strategies could also be appropriate at different stages in the life cycle of a product and charging a fixed price across a range of products could also be an a appropriate strategy. Charging fixed prices makes it easier for a company to predict its income. (www.is4profit.com)

Pricing of a product can be determined in different ways, the company must however have decided on its own strategy for the product and this is however a direct function of its target market and market positioning that is past decisions on its market position. The diagram below illustrates the pricing strategies matrix.

• Price Skimming: This strategy is where a high price is charged because of substantial competitive advantage, the price is firstly made high, which offers an excellent initial cash flow to make up for high development expenses. If its a new product, with a competitive advantage, then consumers would definitely pay a premium to obtain the product offering excellent quality.(Adcock, Dennis 2001:267 ) .According to Kotler (1996), “the skimming price strategy is a high price which provides a strong margin but risks a depressed sales level”. The Ferrari price skimming strategy is because of its core benefit and to have a niche for itself in the market place.
• Premium Pricing: A ‘premium strategy’ uses a high cost, but offers superior product/service in return. (Adcock, Dennis 2001:264)This is used when a significant competitive advantage is present and high price is set because of the exclusivity of the product or service. The exclusivity of the fastest car model by Ferrari contributes to its premium pricing strategy.
• Economy Pricing: This is also known as no-frills, it is a low price approach where costs of production and promotion costs are kept to the lowest, that is the product or service would be set at its cheapest price. Economy pricing is a deliberate strategy for low costs. However, prior to the product launch, it is vital to decide the position/market share of such product. That position of the product is how it is distinguished in the market. A product that is solely dependent on price is likely to be helpless and prone to that compete purely on price is helpless and prone to attack from more established products. (Adcock, et.al. Dennis 2001:2006). According to our research, Ferrari automobile does not use this pricing strategy.
• Penetration Pricing: This is when the price for a product or service is firstly set low in other to have a price advantage to gain a large market share for penetration of the market. Once a deep access to the market share is attained, the prices would raise. According to our research, Ferrari automobile does not use this pricing strategy.
• Versioning/Price discrimination: This strategy charges customers different prices for the same product/service .The company (sellers) segments its customers based on their different attributes and charges each group a different price. This contributes to the various models of automobile designed by Ferrari in order to satisfy the quest of every vrsion of the customer need. (www.AINI.com 2008).
• Bundle Pricing: This is where the seller combines several of its products and offers the bundle at a reduced price(Kotler.et.al 2006)
• Geographical Pricing: This strategy is applicable where diverse prices are charged according to locations either different parts of the country or different parts of the world. It involves the modification of the main price list based on the geographical location of the buyer. It usually takes into consideration the transportation costs to different locations.

4.2.1 Recommendations for the Pricing Mix

Because of the recent global recession, consumers are not willing to spend on luxury goods to be saturated as many consumers perceive the product as a premium product; Ferrari can therefore produce the different model of automobile that can suit different set of people and also at various ranges of prices for its to compete like other competitor like Toyota, Honda, Ford etc at the marketplace.

Place

Place can also be referred to as the distribution channel which is used by producer or service provider to reach the indented target market. There is need for producer to make its products available in adequate quantities, in convenient locations and at times when customers want to buy them. It is important that producer need to consider not only the needs of their ultimate customers but also the requirement of channel intermediaries, that is those organizations or agents that facilitate the distribution of product to customers. Establishing an appropriate channel of distribution is critical for marketing success. (Jobber 2007:679).

To achieve a fully effective marketing mix the element of place is to be studied, this element can be referred to as distribution. Distribution channels are the links that connect marketing organizations together and are used to transfer products from distributor to end consumer or final markets.

DIAGRAM 6:DISTRIBUTION CHANNELS FOR CONSUMER PRODUCTS

(Jobber, 2007:682)

The different types of distribution channels are:

• Direct channels which link the producer directly to the consumer,
• Indirect channels which vary in length depending on the number of intermediaries, and
• Hybrid channels.

Direct Channels-

This form of links does not always happen in Ferrari sales of cars except when the car is to be built customised for the customer in question. This is a gives a direct relationship between Ferrari and the customer.

Intermediaries

These can vary from sales representative, agents, merchants, wholesalers, retailers, dealers, distributors and franchisee. Their basic roles involve reaching customers at a lower cost per unit than the supplier can achieve directly. Other responsibilities of intermediaries could include stockholding costs, transport and delivery to final customers, breaking bulk and consolidation of orders, and providing local services such as display or after-sales service. Producers must meet intermediary’s needs as well as the final customer’s needs, in some markets; intermediaries may lead the market and promotional effort. Producers put an effort to keep the end customers aware of their intermediary’s locations.

Disintermediation: The channel’s efficiency is improved and the cost is cut down by eliminating some layers of the distribution channel.

‘Among the decisions then to be taken is the important one of how products will reach customers. Unless the channels of distribution are appropriate for the type of product and are efficiently operated., even intrinsically good products can end up as failures . . . it is worth spending a considerable amount of time and effort in evaluating alternative ways of ensuring that the channel eventually selected will make its full contribution to the marketing mix.’ (Chisnall 1995)

Ferrari has been able to improve accessibility to their customer by using intermediaries to retail their products all over the world. This shortens the location and time gap between the actual company and its end users. Ferrari also provides some products that provide specialist services.

Intensive, selective and exclusive distribution channels

‘Digital technologies are changing the face of distribution.’ For example, the Internet has changed the distribution of music and video (downloads). And also ‘Mobile networks permit the distribution of such products as music, video and ringtones.’ In business-to-business markets customers can place orders, receive quotes and track deliveries over the Internet” (Jobber 2007).

Exclusive availability, a consumer characteristic that highlights the interest of the consumer to obtain the product individually with a sense of uniqueness is seen with the ability to customize different cars parts to the taste of the customer.

According to Adcock (2001) “any purchase decision made by a customer can be helped by making the products available where potential buyers can find them” (Adcock et al. 2001).

Products may be offered directly to the final customer or through a chain of distributor(s), this is also known as the channel choice.

The Internet Dynasty

The elements limitations have changed with the introduction of the internet market place, the ability to reach customers on a global scale are what multinational firms aim for, putting all their resources and capabilities to ensure that consumers all over the world are able to get their hands on their products. Though the internet has many negative attributes in the minds of many consumers, it still accounts for a large share of Ferrari product enquiries and sales magnitude. Customers are able to receive the same quality of service and even the additional advantages from the comfort of their home.

Promotion

Promotion could be defined as a way of communicating or passing across of information about a particular product to the public. The major goal of promotion is to notify the public about the product, the benefit of the product and the use of the product (Jobber 2007).

Promotion could be classified into 2 categories:

Technical promotion: It involves the use of technical presentation of data on the product or service to attract and persuade the potential customer of its merit by using magazines, researched papers, trade conferences, exhibitions, online adverts e.t.c

Consumer promotion: It involves devices that promote the product with developing any fundamental relationship but may be effective where customer loyalty is low or especially when a new product is being introduced (Richard lynch 2006: 174)

The main task and challenges of an organisation is to combine both technical and consumer promotions to attract and satisfy customer needs and want respectively (Keller and Kotler 2006: 383).

The various modes of promotion include the following;

Advertising – Ferrari will hold a successful position on both magazine and television advertisements and will focus on:

• The target market (teenagers, young adults, car racers, young and rich customers etc)
• The frequency of the target market exposed to the advertisement
• Time to attain the target market

On achieving these, it adds value to their product. This is done by alteration of the consumer perceptions.

Below-the-line Promotions – Car exhibition shows are availed free to make the customers purchase the product. This is the direct method used by Ferrari. This will allow the individual and prospective customer to have a firsthand feel and knowledge about the products.

Television-this is a means of communicating to the public through the use of cable television, that is different television stations. This particular medium composes the majority of the media mix.

Internet-the high rate of the internet user around the globe has made Ferrari to use the internet as a means of their advertising. Ferrari has launched a website, developed by AKQA, featuring a virtual test drive of its new California model, which will be launched publicly on 2 October 2009 at the Paris Motor Show. Users can watch videos from last week’s industry launch in Maranello, as well as embark on a virtual test drive using footage from Sony PlayStation game Gran Turismo. Hear, See and Feel areas allow visitors to experience the look and sound of the car (source: www.ferarri.it)

Magazines-this is another means of advertising been used by Ferrari, this medium is been used to target a particular class of the public because of its high production quality.

Outdoor – this medium been used by Ferrari is good for simplicity messages with a very strong imagery that will attract the public and will describe the benefits of the product to the public

Competitive Analysis

SWOT Analysis

A SWOT analysis deals with the identification of the company’s strengths, weaknesses, opportunities and threats in the planning process.

Professor Kenneth Andrews of Harvard Business School defined the SWOT analysis “as a reasonable method of analyzing and reviewing an organization present position. He has also proved how vital it is for an organization to communicate its operation objectives with its strategic activities” (netmba.com).

Currently companies have adopted the SWOT analysis as a tool to detect their company’s position. Hence highlight on their internal competences based on strengths, weaknesses, and their external evaluation such as opportunities and threat.

SWOT ANALYSIS FOR FERRARI

Ferrari is engaged in the manufacturing and distribution of automobiles with greater expertise with fast moving vehicles, in addition to components for those products.

Ferrari has a diversified product portfolio. Business diversification shields Ferrari against demand

fluctuations in certain product categories and also enables it to benefit from opportunities available in various divisions. However, recession in global economy would harm Ferrari’s business by adversely affecting its revenues, results of operations, cash flows and financial condition.

TABULAR SWOT ANALYSIS FOR FERRARI

Strengths	Weaknesses
Business diversification Strategic acquisition Innovative products	Lack of scale compared to peers Weak performance of business divisions Poor performance of Fiat in major markets
Opportunities	Threats
Growing economy in India and China	Forecasted global recession in 2009 Weakening of global automotive industry Competitive pressure

Strengths

• Business diversification

Ferrari has a diversified product portfolio. The company operates through different business divisions including: Ferrari group automobiles, Magneti Marelli, Ferrari and Ferrari Powertrain Technologies(FPT), and others. Ferrari group’s automobile division designs, produces

and sells vehicles under the Ferrari, Alfa Romeo, Lancia and Abarth brands. The Ferrari group automobiles division accounted to 44.9% of total revenues in FY2008.The CNH division of the group accounted to 21.4% of total revenues in FY2008. Magneti Marelli division designs and produces cutting-edge technology systems and components for vehicles. It also operates in the distribution of spare-parts in the independent market.This division accounted to 5.5% of total revenues of Ferrari. Ferrari offers luxury cars and it accounted to 3.1% of

total revenues of the group. This division accounted to 1.2% of total revenues. Maserati produces luxury sports cars. Ferrari’s Maserati division accounted to 1.2% of total revenues in FY2008.Teksid manufactures different ranges of engine blocks, suspensions and aluminum cylinder heads. Teksid accounted to 0.9% of total revenues. The other operating divisions of the group include the publishing and communications operations advertising space inprint, television and internet media operations. The other operating division of the group accounted to 1.2% of total revenues. Business diversification shields Ferrari against demand fluctuations in certain product categories and also enables it to benefit from opportunities available in various divisions.

• Strategic acquisition

Ferrari has focused on strategic acquisition to expand its business. FPT Powertrain Technologies fully acquired Tritec Motors from Chrysler and decided to give is a new name which is FPT Powertrain do Brasil – Industria e Comercio de Motores. The purchase includes the facilities, the manufacturing unit, the production lines and the license to produce the current range of products. The group completed the purchase accounting for this acquisition in the second quarter of FY2008. This acquisition enables Ferrari to reach two main strategic goals, first, to attract an even larger number of non-captive customers for this product. Secondly, to widen its product portfolio, offering modern and competitive product range. Therefore, this acquisition enhanced Ferrari’s product range and it went out globally by expanding its customer base.

• Innovative products

Despite challenging market conditions in 2008, Ferrari added several products to its existing product range. Innovation continued with a focus on both product and methodology. Product innovation was centered on six key elements: new generation vehicles, best-in-class fuel efficiency, high perceived quality of cabin environment, cost-effective solutions for frames, excellence in preventive security, and evolution of telematic systems.

Weaknesses

• Lack of scale compared to peers

Ferrari lacks the scale to compete with large players in the markets in which it operates. Many of its competitors such as General Motors, Ford Motor and Daimler are larger in size. General Motors, for instance, recorded revenues of $148,979 million and employees of 235,000 in 2008, while Ford Motor recorded revenues of $146,277 million and employees of 213,000 during the same period. Daimler recorded revenues of E95,873 million ($141,061.8 million) and employees of 273,216 during FY2008. The revenues of Ferrari is E59,380 million ($87,368.2 million) and employees of 198,348 in FY2008, much lesser than that of its competitors.. Weak performance of business divisions In FY2008, Ferrari witnessed decline in its sales in major business divisions, including Iveco, FPT, Teksid and others. Iveco accounted to 17.9% of the total revenues during FY2008. Therefore, sluggish performance of major operating divisions will eventually affect Ferrari’s financial position and puts pressure on other profit making divisions of the company.

• Poor performance of Ferrari in major markets

Ferrari’s sales witnessed poor performance in some of its key geographic segments. Italy, which is thel argest geographic market for Ferrari, accounted for 24.1% of the total revenues in FY2008.

Revenues from Italy reached E14,316 million ($21,063.7 million) in FY2008, a decline of 9.7% compared to 2007. The decrease in revenue contribution from Italy, the US, Germany, the UK, Spain, and Turkey and other countries has offset the increase in revenues witnessed by Brazil, France, Poland and other regions.Therefore,poor performance of Ferrari in major markets may eventually affect the group’s financial performance.

Opportunities

• Growing economy in India and China

Developing economies in Asia are spending heavily on luxury material. Therefore, growth in infrastructure and standard of living of the citizen of this highly developing nations will also increase the sale of Ferrari car in such location.es.

Threats

• Forecasted global recession in 2009

The global economy is presently in a massive financial instability thereby causing an acute loss of confidence. According to the world economy outlook of the IMF, global economies will decrease sharply in 2009 and in 2010.. Also, the GDP growth rate of Eurozone is forecasted to decline from 0.9% in 2008 to -4.2% in 2009.These economic factors initially affected consumer demand for less fuel efficient vehicles, particularly full-size pick-up trucks and sport utility vehicles. In addition, consumer demand for automobiles has decreased due to a decline in the availability of financing and a significant contraction in consumer spending based on the continued recession in the US, resulting in automobile sales at their lowest levels in 16 years. Therefore, further recession in global economy would harm Ferrari’s business by adversely affecting its revenues.

• Downturn of global automotive industry

The present global economy downturn is also affecting the automotive industry from the year 2008. The total sales in the number of cars sold decreased compared to the former year.

A continuation of this trend in the future would slowdown the demand for the group’s products and may eventually affect its revenues.

• Competitive pressure

The global automotive industry is highly competitive. Ferrari is subject to intense competition in all of it’s substantially product area. Some of its competitors are, Daimler, Ford Motor, General Motors, Honda Motor, Nissan Motor, PSA Peugeot Citroen, Renault, Volkswagen. Ferrari is also subjected to increase in price pressure. Therefore, working in such a competitive environment with various operations was faced with extra pressures. This intense competition results in price discounting and margin pressures throughout the industry and adversely affects Ferrari’s ability to increase or maintain vehicle prices.

Porter’s Five Forces Analysis

Michael Porters five forces theory came into existence based on 5 forces that determines the dynamics of any industry –

• Power of the Buyer
• Power of the Supplier
• Entry Threats
• Substitutional Threats
• Rivalry

This helps to develop a broad perspective for a sophisticated analysis which could be used for various purposes. It could be used to form strategies or create plans or to make decisions on investments and finance and also to know the position of the industry with respect to global markets and its competition. With respect to Ferrari, the Porter’s Five Forces analysis is made by the identification of the 5 fundamental competitive forces.

1. Power of the Buyer

The ability and power to bargain by the buyers has a great impact on the supplier. And it also shows the weakness of the supplier but various other factors are also taken into consideration from the buyer’s point of view. The strength of the buyer depends on the amount of knowledge they hold more than that of the suppliers and the volume of the order being given by the customer. Also the buyer has a higher advantage when they have a good brand name and when they have their products priced at higher rates, then, they could also demand on lower prices from the supplier. Likewise, the customer could also demand incentives when they have stronger reputation and brand name.

2. Power of the Supplier

The supplier power arises when Ferrari proves its customers that it will always be able to sell its cars at higher rates than the nominal rates of other cars in the market, as they have always challenged themselves to the best of quality and luxury. The existence of a large number of its suppliers itself represents its strength over other car manufacturers. The supplier becomes powerful again when it is able to avail the product which the customer perceives as different.

3. Entry Threats

The threat of any new entrant in the relative market is to be taken into serious consideration when Ferrari has invested on a large capital. But usually due to a high risk of start up failure, most companies make a tough decision before the competition is faced. Ferrari has a market share that is very significant and this makes it very predominant in its own field of car manufacturing. But an entry of another potential manufacturer could prove a big threat for Ferrari.

4. Substitutional Threats

Ferrari has lots of competitors. And its close level of competition in the racing track is usually with McLaren-Mercedes and Mercedes Benz GP Ltd. Any tilt in the position of Ferrari could make a big difference for the company and would give way for its competitors to come up forward in the market. Hence steps are taken up on a timely basis to avoid future threats from the existing companies.

5. Rivalry

Most companies have a disciplined act with other companies. When this level of discipline is broken down by another company and when it tries to come up in the competitive market to prove its worthiness, then there is the problem between companies or manufacturers. Here is the start for the rivalry. And when counter response is exhibited by other companies, then the rivalry intensifies and it can be classified as cut throat, intense, moderate or weak.

RECOMMENDATION

Based on the SWOT analysis done in respect to Ferrari operations, it will be suggested that Ferrari focuses more on it opportunities and strength in the area of business diversification and innovative products which can make it realize more revenue and patronage and also work on it’s weaknesses and threats in the area of global economic instability and competitive pressure from other manufacturers of automobile industry.

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