Introduction:

Porsche is leading manufacture of sports car and the brand name is know for it quality ,style ,

performance and its outmost technical skills. It continues to have immense competition from its

rivalry and manages to preserve its image as a manufacturer of great sports cars for more than

half a century. This case examines the most important entrepreneurial decisions made in the

history of Porsche, made in early 1998: to build a sport utility vehicle (SUV). After decades of

relying on one or two sports car models and nearly going bankrupt and losing its independence in

1993, Porsche had to diversify its product lines. Also examines the branding implications of the

internationalization of production.

Company History:

1900: Ferdinand Porsche displays the Lohner-Porsche Electric Car in Paris

1928: Ferdinand Porsche develops sports cars for Mercedes Benz

1931: Porsche Engineering Office opened in Stuttgart

1936-38: development of first Volkswagen (VW)

1947: Ferdinand Porsche Jr. designs first Grand Prix car

1948: first Porsche sports car: 356 Roadster

1963: Ferdinand Alexander Porsche designs the 911

1991 to 1993: Crisis, mainly caused by

1. recession

2. low Dollar exchange rate to the German D-Mark

3. high productions costs

4. retro design which was not as popular as today

1993: Wiedeking new CEO

1996: Second product line introduced: Boxster

1997 Porsche introduces its all-new, liquid-cooled 911 at the Frankfurt Motor Show.

1998 The company prepares to celebrate 50 years of building sports cars with the Porsche

name. Ferry Porsche, honorary president of the Porsche AG supervisory board since

1990, dies March 27 at the age of 88.

Type Strategies followed by the company:

Porsche employees followed lean production, which helped Porsche to reduce wastage in

production and production life cycle time.

Reduced the size of workforce

Made new structure across the company which made employees to float the ideas.

They used common parts for 911 , boxster , which resulted in higher production volume

at lower costs.

Designer’s engineers used computer simulations which reduced prototype development

time and reduction in costs.

As this firm has 50% shares is owned by piech and Porsche family he maintained good

relation ships with other company to avoid direct competition to the company.

Made design changes in new 911.

Core capabilities of the company :

They do mass production compare to competitors.

They are first sports car maker.

They follow the lean production technique.

Position of the company.

Porsche is already a luxury brand. Strong Brand.

High quality products.

Value chain.

There are mainly two issues in the case:

1. The company CEO wants to integrate a new member into the Porsche product line - a sport utility

vehicle (SUV), a model segment the company has never focused on

2. Porsche’s “Made in Germany” mantra is in danger of losing its strength and validity as a brand

association. Porsche’s German manufacturing plant is running at full capacity and cannot host the

implementation of a new product. How will the company enable the manufacturing of the brand

extension?

SWOT Analysis of Company:

Strengths:

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Porschue is luxury brand

Strong Brand image

Know for it high quality

Value chain

Opportunities:

They decide to enter in SUV market, though this implusive decision but SUV’s

demand is high in US market because they prefer large cars, which they can use for

work and personal use.

Weakness:

They targeted high end market, with high interiors which is uncommon for SUV.

Threats:

“Made in Germany” might be danger to company because already Germany plant

used more than its capacity, it cannot be used for new product.

Outsourcing of production might dissatisfy the customers.

Partnering with Volkswagen might create blur in customer’s minds.

Porter’s Five force analysis –Luxury SUV’s:

Competition:

There is high competition in SUV in US. Porsche is entering in delicate segmentation of

product to market Luxury SUV. There was competition between density of competitors.

Customer:

Porsche is already known brand in market for its quality and prestige. Porsche is planning to

provide a car high quality but not much bargaining power on price.

Supplier:

Unionized European labor has bargaining power. Smaller input suppliers and sub-contractors

have little bargaining power and are highly dependent on Porsche, well-working chain of

suppliers in place .Large suppliers (such as VW), which provide core components, could have

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great power. This is particularly relevant if Porsche considers joint entry with another German

manufacturer. Co-ownership of VW and Porsche reduces potential to exercise bargaining power.

Substitute products:

Product substitution is a threat to SUV, it might be with an increase trend of cost-effective small

cars which consumes less fuel. Also it comes in a green trend, coupled with expectations of a rise

in fuel prices.

Entry Barrier:

For existing car companies, it is not particularly hard to enter in Luxury SUV’s because it

already has brand image in the market.

Recommendation for product line SUV:

Form many decades Porsche is relying on one or two model of cars, this is time to increase it

sales, so the next step for Porsche is to enhance the future growth in sales and create a new

dimension for profits by entering in to SUV’s market. Its main competitors like BMW, Audi are

already in this luxury class SUV’s. The Mercedes M-class SUV has already in market with high

demand, which gave a initiative to Porsche to tap this market. SUV has 51% of market segments

in US, so Porsche is planning to capitalize it. According to the case Porsche has already

surveyed and targets, young women who wanted luxury SUV’s, and also stated building 20,000

SUV’s per year that will in turn boost their total sales by 50%.

According to me, Porsche has to enter new market segments because the sport car market was

getting smaller and the financial independence and stability of the company was in crisis.

Porsche should also capture new international markets outside of the US and Europe to expand

the brand. The Porsche brand strategy has not been a radical innovation, but rather evolutionary.

It started as an exceptional racecar and evolved into an accessible luxury sports car and now has

the ability to transition into SUV and in turn results in brand extension.

2): Porsche’s “Made in Germany” mantra is in danger of losing its strength and validity as a

brand association. Porsche’s German manufacturing plant is running at full capacity and cannot

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host the implementation of a new product. How will the company enable the manufacturing of

the brand extension?

Different option for this issue are the following:

Option 1: Outsource manufacturing of brand extension to a third party assembler

Threat: Outsource the production, which leads on hand on external people, which have high

chances of customer dissatisfaction. So this leads to negative image on brand.

Pros: This will continue to build a brand image of “made in Germany”, which already it has.

Cons: As the manufacturing process is subcontracted it becomes the responsibility of an external

individual who does not hold the same value to the essence of a Porsche sports utility vehicle.

The ‘essence’ of a Porsche vehicle is a brand building feeling. A Porsche driver is experiencing something

special in his adventure. The driving experience is enhanced by the essence of the pristine leather interior.

Option 2: Build a manufacturing plant in East Germany

Threat: Germany’s social market economy makes it undesirable to invest in a domestic Porsche manufacturing

plant. Essentially, the operational cost to manufacture a Porsche SUV would equal the price of the car to the

consumer

Pros: this will create news jobs in local market, which give goodwill to the brand.

Cons: As the operation costs are high , which might cause brand equity, this might create risks in financial stability

of the company.

Option 3: Partner with Volkswagen to build a new manufacturing plant

Threat: both the brands partnership might create blur in customers mind. They both have different leadership

which concrete on individual mission of the company but this makes to combine visions of the companies, which

will erase the focus on it, which might resulting loosing their brand advantage,

Pros: Gain visibility in mainstream markets. As a luxury brand, Porsche is a desired brand by many but owned by

few. The exclusivity serves a two-fold purpose. It builds brand equity through consumer self respect and social

approval. Simultaneously, because the exclusivity element can only be afforded by few, the demand for the brand

has correlated to the sales of their vehicles. The brand has not yet transcended the product but exposing it to a wider

audience will generate brand recognition.-

Cons: Since the Porsche SUV is a new product the brand has to avoid association with its manufacturing

counterpart. Because Volkswagen is a mass production maker, Porsche’s business o business relationship is

enough to cheapen the image of the new SUV

Option 4: Build a manufacturing plant in North America

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Threat: As Porsche is German brand , it relies on German manufacturing , which is know for it high quality

engineering, high quality , high performance automobiles. If the SUV is manufactured in the United States or any

other country, for that matter, it will be losing one of its most favorable brand associations.

Pros: A brand extension strategy is possible. Playing a pun on the “Made in Germany,” mantra the brand will use

“Made in America with an Exotic Touch.” The facility will be managed and supervised by experienced German

assemblers and product engineers from the efficient Zuffenhausen plant.

Cons: No matter what good marketing strategies are implemented, an American-made German car loses the

exclusivity appeal it heavily relies on as a novelty brand.

My recommendations:

According to me the feeling of exclusive might enhance competitive advantage of the company. The Porsche

organization was founded by an individual with “a spirit of fierce independence.” The company has not subjected

itself to acquisition branding itself as a strong independent force. This attribute translates from the personality of

the company founder onto the brand image, and lastly, onto the driver of the vehicle. The first step is how the new

product to be taken in market, which should incorporate all the beloved elements of the brand.

As Porsche its associated to “made in Germany “ mantra , deviation might create diminishing integrity of the

brand. If Porsche takes its manufacturing process outside of Germany, it’s brand credibility stands to be

questioned as it loses substance in the “highly engineered, high performance, high quality” responses the brand

engenders in the mentalities of consumers. Worst of all, if Porsche automobiles are not to be made in Germany,

the Porsche brand, as a whole, is distorted. The Porsche brand, it and of itself, is in extricably linked to the

authenticity of German lineage. “Brand image is consumer perceptions of a brand . To solve this problem my

suggestion can be company can build manufacturing factory in the city of Leipzig in eastern Germany

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