To begin, everything in this post is derived from the excellent BernsteinSG investment report, Global Luxury Goods and European Autos: Why Ferrari and Hermès are similar… and Sergio Marchionne was right, by Luca Solca, Stephen Reitman, Yi-Peng Khoo, James Hooper, Steve Pereira Fernandes, and Saul Coleman. I explicitly sought out the lead authors for their permission to excerpt from this report, but as always, errors of interpretation are entirely my own. I encourage those of you interested in this topic to get a copy of the note, which of course goes into much greater depth than this post will.
The dream of every mid- to upper-range OEM is to someday break into the ranks of the global premium or ultra-premium leaders1. Infiniti and Volvo would love to join BMW and Mercedes at the top of the premium segment, and Jaguar and Maserati would love to sit at the table with Lamborghini and Ferrari2.
This is very very hard to do. There are few success stories about moving auto brands significantly upward (in recent years maybe Audi globally and maybe Lexus in the US3), and they all consumed years of time and billions of dollars. (A current mover is Genesis, which looks to have a shot.)
But this post is not about getting to the table, it is about staying there, and BernsteinSG has written a great report about how Ferrari remains at the top. They do this by comparing the strategies of the Maranello firm and the Parisian luxury design house Hermès. Since I can’t tell a Birkin bag from a bag of gherkins, I’ll leave the French firm out of this, and focus on the Prancing Horse.
The successful strategies the companies share, according to the authors, are five:
1.Playing hard to get: Ferrari and Hermès sell less than the market would take.
2. Stretching the top of the offer: both maximize desirability through special and limited editions.
3.Fostering loyalty: the two companies reserve special products for their most loyal customers. “Both companies suffer from the risk of predatory resellers, and have responded by reserving access to their most desirable products only to the most loyal return customers.”
4. Creating a collector’s cult: Their products are seen as holding long-term value, as limited new supply supports pricing on the second-hand market, cementing their status as savvy investments. [ Mercer rephrasing: is a Ferrari really expensive if I buy it for $300,000 and sell it five years later for $400,000?4 ]
5. Maintaining pricing upside: “Both companies have historically raised prices at a slower pace than at other luxury brands. Pushing pricing less has created an even higher consumer desire — the growth in potential clients has outpaced that of supply, intensifying competition for the same products.”
I’ll pull just three charts from the report to illustrate just how well Ferrari has done all this. First, the order backlog is significant stable over time, demonstrating how precisely the firm manages the trade-off between “FOMO” on the one end (“I sure hope I get one!”) and discouragement at the other (“I am tired of waiting, and cancelling my order”5):
Amazing. Next, the firm maintains a balance between returning and new customers, again playing hard to get (but not too hard: selling only to current owners implies a downward spiral sooner or later):
(If I were in charge, I’d be a bit worried about that 2023 ratio being a bit too tilted towards existing clients, but the last time I checked my email Benedetto Vigna had not written to ask my advice. Smart man.)
And finally, we can see how all this supports the long-term value of (most of) the cars, reducing the implicit cost of belonging to the Ferrari owners’ club:
It’s an impressive story. But to take a less adulatory stance for a minute, of course all this success is driven by the rise (and rise) of the global 1%: as the authors themselves admit, “The rise of income and wealth inequality and globalization have created a perfect environment for luxury goods players to thrive. As two of the best luxury goods companies in the world, Ferrari and Hermès have greatly benefited from this.”
But that’s for a debate beyond the scope of this blog. There’s no grand message in this post, I’ll admit, but as Car People know6, any information about Ferrari is by definition fascinating7.
(As for fashion, well, the cult of Hermès’s Birkin bags looks just as crazy.)
Addendum: Courtesy of The Drive I saw just today another aspect of Ferrari’s careful protection of the brand: their very aggressive pursuit (and destruction) of fake Ferraris. Worth a read. Here’s one counterfeit that met its fate:
Realizing that there are many definitions of premium, luxury, exotic, ultra-premium, etc., and with little agreement as to what goes where. For the purposes of argument, I’ll define premium as including BMW, Mercedes, and Porsche, and ultra-premium as including Ferrari, Lamborghini, and Aston Martin. Feel free to rename and adjust as you see fit, the classifications won’t change the substance of this post.
The arguments that this sentence will spark will be endless….
Leaving aside the odd case of Land Rover, which moved up almost despite itself. As one car executive said to me: “The popularity of Jeep proves everyone wants to be a cowboy, and the popularity of Land Rover proves everyone wants to be Indiana Jones.”
I give this line of argument for free to spouses everywhere trying to persuade their partners that buying an SF90 Stradale is actually a Sensible Idea. Good luck!
“Hey, um, Elon, about my Roadster deposit… hello? Hello?“
And, apparently, now movie producers!
To prove my point, you can spend your life just collecting Ferrari postage stamps. There are apparently over 1,600 of them….