Building the brand: The power of Ferrari

EDGAR investigates how Ferrari became one of the world’s most powerful brands.

April 19, 2015

Ferrari. Say the name and it rolls around on the tongue like a particularly fine Cognac yet, in certain parts of Italy, it’s as common a surname as Smith is in the UK.

For many it’s the ultimate expression of wealth and extravagance; for others it represents the pinnacle of race-bred engineering. But Ferrari is, first and foremost, a moneymaking colossus and one which many simply can't get their heads around. Just how does a company that produces and sells fewer than 8,000 cars a year, and engages at the top level of Formula One – the most expensive sport known to mankind – make a single dime, never mind the AED 980 million profit it managed to clear in 2014?

Ferrari, according to the company’s official accounts reports, has AED 5.2 billion cash at hand and zero debt. And credit for this situation has to go, in large part, to Ferrari’s recently departed president, Luca di Montezemolo – a most stylish gentleman who has kept his powder dry since the acrimonious fallout last year with the current helmsman, Sergio Marchionne.Enzo Ferrari Eugenio Dragoni in 1962.Di Montezemelo’s influence over Ferrari’s meteoric rise cannot be overstated. He was appointed president in November 1991, and immediately rolled up his immaculate sleeves to return this company to glory on both road and track. Knowing full well that the then range of road cars (just the awful 348 and the ageing Testarossa) weren’t good enough, he spearheaded a revival the likes of which are rarely seen in any industry. With every new product launched under di Montezemelo’s guidance, Ferrari’s battered reputation for unreliability and outdated design and engineering seemed to disappear further into its rearview mirror.

The same thing happened in motorsport. Di Montezemelo had been Enzo Ferrari’s right hand man in the early 1970s and was given the job of running the Scuderia (Ferrari’s race team) in 1974. During his tenure, Ferrari enjoyed some of its most spectacular wins, taking the World Championship titles with Niki Lauda in 1975 and 1977. Unsurprisingly, di Montezemelo was soon promoted through the ranks by Ferrari’s parent company, Fiat, and the loss of his determination and drive in the running of the racing side of the business was palpable.

When he returned to Ferrari in ’91, he made it a personal goal to once again win the Constructors’ World Championship and set about recruiting Niki Lauda as a racing and technical consultant. He promoted the right people and changed the team’s tactics, never once giving up on his mission. His word came good in 1999, when Ferrari won the Championship for the first time since 1983 and, a year later, it won the Drivers’ Championship for the first time since 1979. Luca di MontezemeloAll of this success received worldwide exposure at exactly the right time. The early ‘noughties’ were boom years the likes of which the world might never again experience and money was spent like it was water by people all around the planet with a lust for the high life. Naturally, Ferrari’s road car business flourished and sales increased year-on-year – as did their build quality and desirability. Ferrari, though, never got greedy.

“You should always build one less car than the market demands” – that was Enzo Ferrari’s sales philosophy and it’s one that has served the company well over the decades, helping to maintain the brand’s inestimable mystique. Prices for used Ferraris often outstrip those of brand new models and the values of classics, even those that until recently were languishing at the rough end of the classifieds, have risen with alarming speed in the past couple of years, all testament to the global allure that goes with the Prancing Horse.

Enzo Ferrari’s other famous marketing strategy was to build road cars for wealthy clients simply to raise money to go racing. That’s no longer the case but the two activities are more closely linked than with any other manufacturer. Technology bred for the racetrack doesn’t take long to make its way into Ferrari’s road cars and the company was one of the first to offer clutch-less manual transmissions and carbon ceramic brakes – things that guaranteed bragging rights at the dinner parties of the great and the good and guaranteed hefty income streams once they were offered as extras on its showrooms’ option lists. Ferrari factory Maranello, Italy.And, while all this was going on at Ferrari, Luca di Montezemelo – with two other entrepreneurs – still found time to reinvent and turn around the fortunes of Italian fragrance house, Acqua di Parma, surely an experience which hammered home the growing importance of luxury goods and merchandise. And even though Ferrari has been universally mocked by critics over recent years for ‘selling out’, with everything from branded socks, teddy bears, mugs, laptop computers – you name it – sold in department stores and its own branded shops in major cities all over the world, there’s no denying the positive influence these things have had on the company’s balance sheets.

In 2013, for instance, Ferrari made a AED 216 million profit from these product branding agreements and the retail of merchandise increases, on average, by 20 per cent every year. If you want to know how Ferrari can keep posting record profits when it keeps its annual sales of actual cars intentionally low, you don’t need to look far for your answer. If you, like most people in this world, cannot stretch to buying a new F12 Berlinetta, you can always have the branded cap, pencil or even the bed sheets. It’s been a fine balancing act but di Montezemelo’s stated desire to keep Ferrari as an exclusive brand in the same vein as Hermès and Patek Phillipe appears to have been pulled off despite the onslaught of red, white and yellow paraphernalia we see everywhere.Ferrari store DubaiGiulio Zauner has been in charge of Ferrari here in the Middle East since September 2012 and, when EDGAR joins him for lunch in Dubai, he adds his own personal take on why the company is enjoying such spectacular success and showing no signs of slowing down.

“No other company does what Ferrari does,” he says with some force. “Nobody. Can you think of a single manufacturer apart from Ferrari that makes everything?”

He’s absolutely right. In an age when the majority of luxury car manufacturers could be viewed simply as ‘luxury car assemblers’, Ferrari stands out as a breed apart. It has its own foundry, it designs and builds its own engines and it designs and builds its own bodies. Even Rolls-Royce, that other bastion of ultimate luxury, ‘assembles’ its cars from pieces shipped in from other countries in boxes and crates that bear the BMW roundel.

“Ferrari only makes cars in one country, in one factory,” Zauner reiterates. “And you have to see that as a major draw for people who demand exclusivity.”

Ferrari has been in the region for 27 years now, in which time it has advanced at the same sort of speed as the UAE – a country that shows a great deal of love and respect for the brand, even to the point of opening the first Ferrari World indoor theme park at Abu Dhabi’s Yas Marina. The loyalty to the company here is evident on practically every street corner, where you’re likely to hear first, then see, any number of 458 Italias screaming past. But Zauner thinks the appeal of Ferrari transcends the show-off tendencies of the wealthy and the young.Forumla Rossa Ferrari World.“We see plenty of Arabs in the showroom, of course,” he says smiling. “But we also do a huge amount of business with Westerners who have come here, made new lives for themselves and a lot of money. They understand the importance of the Ferrari heritage and, to be able to buy one of our cars, that’s one of the ultimate rewards for them. Everyone, though, recognises the power of the name and what it stands for.”

Even though the mention of his name is conspicuous only by its absence, you have to remember that Luca di Montezemelo has been the captain steering the ship through waters that have claimed the lives of many other car companies. Now, at the age of 67, he’s on the board at Alitalia and you can safely assume he’ll be instrumental in that company’s much-needed reversal of fortune. That Alitalia is now part owned by Abu Dhabi’s Etihad and the fact that di Montezemelo owns property in the UAE capital (he referred to it as his “second home” when Edgar sat down for a chat with him in 2014) might be a coincidence but, then again, it might not.

While Ferrari’s road cars have gone from strength-to-strength in recent years, the same cannot be said however for the Scuderia’s results on the world’s F1 circuits and there’s no doubt that di Montezemelo’s departure was hastened by its poor form. Last year was the first F1 season since 1993 that Ferrari failed to win a single race in, and that would never do. The tree badly needed shaking and, in November 2014, it was announced that Maurizio Arrivabene, formerly a senior executive at tobacco giant, Philip Morris, whose Malboro brand has been closely linked with Scuderia Ferrari for many years as sponsor, was taking over the running of the team.

“We decided to appoint Maurizio Arrivabene,” said Marchionne in a press release issued by Ferrari, “because, at this historic moment in time for the Scuderia and for Formula 1, we need a person with a thorough understanding not just of Ferrari but also of the governance mechanisms and requirements of the sport. Maurizio has a unique wealth of knowledge: he has been extremely close to the Scuderia for years and, as a member of the F1 Commission, is also keenly aware of the challenges we are facing.” Maurizio ArrivabeneWhether or not this appointment was at the insistence of Philip Morris (it’s Ferrari’s biggest sponsor, despite the ban on cigarette advertising in Formula 1 and will have been disappointed by the team’s poor results), the fact remains that Arrivabene has been intimately involved in F1 for years and he knows exactly how the sport functions. The coming few months will give us some indication of the new man’s effectiveness but it might be 2016 before his influence is properly felt.

How Ferrari will continue to develop – as a manufacturer of luxury goods and as a racing team – is open to a great deal of debate but, writing in Top Gear magazine recently, veteran motoring journalist, Paul Horrell, see only growth for Ferrari, even as a manufacturer for other car companies. “Remember Ferrari is a bigger engine maker than the number of cars it sells,” he pointed out. “It supplies Maserati with turbocharged V6s and V8s, which will soon amount to tens of thousands of engines a year.”

On the face of things, then, the long-term prognosis for Ferrari could not be better. The cash registers will continue to ring, the cars will likely become even more desirable and the fortunes of its F1 team may well yet be reversed. But one thing that’s a surefire certainty is that the Ferrari name will always be revered, no matter what happens on or off the track.