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Ferrari 'nothing to do with the rest of the schmucks'

2016-01-11 17:36

FERRARI STOCK: Italian prime minister Matteo Renzi (left) and President of Ferrari, Sergio Marchionne, hold an F1 car model at the stock exchange as the Ferrari made its Milan stock market debut, in Italy. Image: AP / Daniel Dal Zennaro

Detroit - Newly spun off from Fiat Chrysler, Ferrari has touted its growth potential in luxury goods, yet branding experts warn expanding beyond cars could be a long and difficult slog.

Ferrari Chairman Sergio Marchionne has argued that Ferrari should be seen as "a unique expression of art and technology," more like Hermes or Prada than an automaker.

Marchionne said Ferrari "is not really a car. It has nothing to do with the rest of the schmucks."

Shares drop

But shares of Ferrari, long associated with its iconic prancing horse logo, have fallen 21% since its initial public offering in New York in October. Ferrari last week added a second listing in Milan, also under the "RACE" ticker.

Ferrari's cars certainly do sell for otherworldly prices compared with the industry as a whole.

In 2014, Ferrari garnered 2.3 billion euros for selling just 7300 cars with an operating profit margin of 14%. Its market capitalization of eight billion euros is only slightly less than that of Peugeot Citroen, which sells 430 times as many cars per year.

Ferraris boast a starting price of about 200 000 euros. Ferrari enthusiasts have likened the vehicles to dancing works of art.

Robert Haigh, marketing and communications director if Brand Finance, a consultancy said: "Ferrari is one of the strongest brands in the world, regardless of sectors, not just within the auto industry.

"It inspires an almost religious devotion, an incredibly powerful, emotional pull. They have that in common with a very few brands."

Yet elements of Ferrari's growth strategy have begun to look less solid of late.

Ferrari has discussed increasing annual vehicle production from 7700 to 9000 around 2019.

The boost is to serve growing markets in China and the Middle East, two regions wracked of late by slowing growth and, in the case of the Middle East, much lower oil prices.

A Ferrari toaster?

Marchionne has also discussed additional efforts to cash in on the Ferrari brand by expanding its non-car offerings, an idea that raises worries with some branding experts.

Bruce Clark, an associate professor of marketing at Northeastern University in Boston, said: "You can get overexposure, that for Ferrari that may be a particular issue, since it stresses exclusivity so much in its branding." 

"If there's a Ferrari logo on each other item that you see, people start saying: 'Well how really exclusive is this brand?'"

Marchionne has acknowledged this fear, vowing to be "very, very careful" with new ventures.

"The most important thing is not to do anything big and stupid," Marchionne said last week.

"If you put Ferrari on a toaster, it doesn't go faster.... You can not stick it everywhere, otherwise it loses it value."

Watches, clothing, leather goods...

Ferrari currently garners about 10-20% of its revenues from items such as watches, clothing and leather goods.

Especially lucrative has been custom-painting, an offering that can bring in 10000-15000 euros per car and gives a personal touch that is popular with the well-heeled, who are also invited to drive the cars around Ferrari racetracks.

Ian Fletcher, an automotive analyst at consultancy IHS said: "The bespoke tailoring of vehicles has proven to be massively profitable for (Ferrari)."

Ferrari also plans to open a second amusement park in Spain following the first such venture in Abu Dhabi.

But Jacqueline Kacen, a marketing professor at the University of Houston, said Ferrari must be careful before it takes on too many different concepts.

She said: "Services are a lot harder to execute than products in some regards, to maintain that high quality and that sense of luxury and exclusivity.

"As you're expanding into a luxury brand, you can't alienate your core customers."

What does Ferrari stand for?

Marketing professor Clark said Ferrari also must not lose site of its core product.

"What does Ferrari stand for? Speed, luxury, exhilaration, passion, performance, success," he said.

The cars need to stay great and to "win races," he said. "If they have trouble with that, that starts eroding over time."

Read more on:    fiat  |  ferrari  |  chrysler  |  sergio marchionne  |  cars

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