Why Ferrari is the World's Most Valuable Brand
(Photo Credit: DriveTribe)
In February 1898, a peasant is born in Modena, Italy. Over 90 years, in the same town he dies a king. This is the life of Enzo Ferrari, the founder of Ferrari. His pursuit of excellence, not only built the world's best racing team, but the world's most valuable brand.
The Beginning of Ferrari
The origins of Ferrari go back to 1947. It was in that year their first car was built, the Ferrari 125S. Only two were made, but the car won six of the 14 races it competed in that year. Originally, Ferrari was meant to be a racing brand. Its success on the track created a demand for its vehicles. They introduced their first road car model in 1949, the Ferrari 166 Inter.
The 166 Inter was the model that Ferrari would use to differentiate itself from the competition for years to come:
Limited production — only 20 166 Inters were built.
World-class design and engineering — built with a V12 engine, a high rate of RPMs, and a variety of top-notch automobile design firms.
Built for a certain clientele — the 166 Inter was built to satisfy the demand of wealthy race car fans.
The Ferrari Way
The model would evolve into the "Ferrari Way". The term coined by Harvard Business School professor, Stefan Thomke, is the unique process Ferrari uses to build and market its cars. The Ferrari Way focuses on three elements:
Driving Pleasure
Performance
Style
Ferrari's head of marketing once remarked, "We are not the fastest or most comfortable car on the market, but the best combination of the two, which makes us the most thrilling. Our concept of performance includes pleasure."
Bucking the Status Quo
Since the launch of their first car in 1966, Ferrari has spent zero dollars on advertising. Instead, their focus was on producing the best car on the racetrack. Every car is built by hand. Making sure that every detail of the car is perfected. Their success on the racetrack would, in turn, inspire people to buy Ferraris.
Their zero dollar advertising wasn't the only unusual marketing strategy. They would intentionally limit the production of their cars. Only 18,000 cars were produced of their most popular model, the 458 Italia. In marketing, this strategy is called, "shrink to grow".
Shrink to grow means slashing underperforming brands and doubling down on well-performing brands. Ferrari didn't want to be everything for everyone. Their car would be not just for wealthy clientele, but a specific type of wealthy clientele. In order to buy a Ferrari, you actually have to follow a set of rules:
Not allowed to sell a Ferrari in the first year of ownership (discourages flipping)
Can't tamper with the logo
Can't change the color of the car to pink
Ferrari has the right to buy back your car
Must go through a background check to prove you love the Ferrari brand
Be older than 40 (this isn't a hard and fast rule, but it's rare to get approval if under that age)
Stefan Thomke remarked:
"If anyone can walk into a dealership and get one, then it loses what makes it special ... for the model to work, you have to keep prices up.”
Exclusivity as a Marketing Strategy
Exclusivity as a marketing strategy has resulted in big money for the car brand. Ferrari went public in 2015 at a $9.8B valuation. The stock is up 254% since it's IPO trading around a $35B valuation. The company earned €3.76B in revenue in 2019.
This strategy brought other revenue streams that most car companies don’t have. The company earned nearly $1B in licensing revenue in 2018 — ranging from an amusement park in Abu Dhabi to a partnership with a beauty company (Coty).
The Power of Brand Differentiation
Ferrari is a case study on how to build a luxury brand. Brand Finance Global ranked it as the number one brand in the world over companies such as Google and Coca Cola. The brand is valued at nearly £7B. Why?
Avoiding brand dilution — Ferrari never compromised on its values. It stayed within its lane and adopted shrink to grow. Its advantage was its exclusivity.
Creating brand loyalty — Ferrari owners love Ferrari. It's not just about owning a car but joining a family. How many products do you own that have clubs and events for customers? Not many, if any. It also rewards its customers. Current Ferrari owners have a better chance of securing a new car than those without a Ferrari.
Putting their money where their mouth is — Ferrari is the best racing brand in the world. They've racked up 238 wins in Formula 1. 56 more wins than their nearest competitor, McLaren. Their success on the track demonstrates to consumers the strength of their cars.
The King Lives On
Enzo Ferrari died more than 30 years ago. Despite his death, his legacy lives on. When you think luxury, you think Ferrari. The brand's features are unparalleled — the red car, the purr of the engine, and the comfort of the car. Enzo knew that the best brands don't try to be everything for everyone. Thirty years after his death, people still desire the car that bears his name. If that isn't building a timeless brand, I don't know what is.