The Book of 911

Brand loyalty = profits!

I was recently reading this article from an organization called TreeFarm Partners. The article describes a theory behind the success of Subaru and MINI in the current economic recession. The article rightly points out that both brands offer somewhat inexpensive and fuel-friendly vehicles. It goes on to point out that the key for both has been high brand loyalty figures, and that this loyalty was leading to profits in an otherwise difficult economic time.

And this got me thinking about Porsche. All things lead to Porsche for me, that much is true, but I have over the years been led to believe that Porsche has among the highest owner retention rates, which is what has allowed the same 911 model to thrive for 45 years now. So I decided to look at the numbers and find out if I have merely been drinking the kool-aid, or if Porsche is undeniably a leader in brand loyalty.

To gather the data, I went to this site: http://www.bizzia.com/brandcurve/brand-loyalty-in-the-car-industry-toyota-still-1/, an article about brand loyalty, published in 2007. The article references JD Power and Associates numbers, and to say the least those numbers raised eyebrows.

According to the report, Toyota had the highest brand loyalty numbers at 68.9%. How odd is it then that Toyota is now posting losses!? Guess who came in second? Hint: it wasn’t Porsche. It was GM, now on the verge of bankruptcy. GM’s retention rate was a whopping 64.7%. BMW was fourth at 56.9%. Subaru was only 6th at 51.2%. MINI wasn’t in the list, probably due to it’s being lumped in to the BMW figure or perhaps because the brand was still quite young in 2007. Porsche by the way was a paltry 41.6%, which put it in 11th place just behind Maserati!

So what of this analysis? How can we explain that some of the highest retaining brands are suffering the most while, Porsche at 11th place is doing “okay” in this recession? Actually, if you reference this 1996 article in the Cornell Chronicle by Margo Hittleman, you will note that new customers mean less profit for the automakers, while existing or retained customers mean a significantly higher profit. Of particular note, Porsche loyalists paid an extra US$4782 per car while Mercedes-Benz loyalists paid an extra US$7410 per car. Stunning results to say the least. So yeah, brand loyalty IS important, but it doesn’t mean financial success, particularly in an economic downturn. Corporate strategy wins the game.

Porsche has been increasing its stake in VW through a complex set of derivatives trades. This in turn has negatively affected hedge funds to the tune of $20billion (£12.6bn). Those hedge funds had been shorting the stock, and now it has bit them in the butt.

Jeremy Warner of The Independent explains.

Just about every automaker today is suffering from a poor economy. Most are wistful that they didn’t start producing small, fuel-efficient cars sooner, but the auto industry was caught off-guard before – anyone remember the late 1970s/early 1980s? Perhaps a read of Steve Miller’s The Turnaround Kid would be require reading for current auto industry execs. Granted most are not in as dire need to assistance as Chrysler was, but they could be if the downturn continues.

But this downturn could prove much more difficult than ever before because we see three issues at work. First, most consumers rely on financing and leasing to purchase vehicles. Even with a huge government investment, banks are using the money to cover themselves for past mistakes, rather than using the monies to start new auto loans. Second, the price of oil remains high and has effectively ended the “we love SUVs” craze. Spending $500 per month on petrol has certainly dried up that part of the auto industry. Third, and finally, government regulation is coupling with the second factor to require significant reduction in CO2 emission and greater gas efficiency. Some automakers have been successful in making changes to drive trains to comply to 130g/km regulations, but even Porsche, which makes among the most efficient sports cars is far from the target.

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