Is Porsche Killing the Golden Goose?

  Question 1 

The meaning of the famous fable about the farmer and the golden goose is that businesses get benefits from a product. However, it is good to attempt to get maximum benefits from the product but the business should not extract too much from the product. The farmer attempted to take too much from the goose to improve his income and ended up killing his golden goose. A similar scenario is occurring at Porsche. Its initial success was attributed to the Porsche 911 model (Mini Case Study 11, 2018). The company risks killing its golden goose because they are losing focus on the product that led to their success. Their goal of increasing their unit sales appears to have compromised their focus on quality and it caused the recall of about 11 million cars due to emissions cheating. The company was known for their sports and racing car but their focus also shifted to SUVs and sedans to boost their unit sales. Most customers are now questioning the company’s positioning and whether they are still the best performance car manufacturers. The sports cars were Porsche’s golden goose but their focus on increasing unit sales through SUVs and sedans may end up killing their ‘golden goose.’ 

Question 2 

The inherent risk of the company’s new strategic positioning is that they may risk alienating or losing their old customer base who were fascinated by the 911 model and loved it. They risk losing their brand recognition due to the unclear positioning (Rugman & Verbeke, 2017). The business used to focus on their niche market: Sports car market. Nevertheless, when Porsche decided not just to produce the sports cars but also trucks, SUVs, and sedans, it affected how some clients related with the company. The car manufacturing industry is quite competitive and there are companies that specialize in producing particular vehicles. For instance, GMC specialized in producing trucks and if Porsche intends to compete directly with GMC, they will be forced to spread their resources and lose focus on their main product. However, the differentiation strategy has achieved various benefits such as a growing customer base internationally and record sales. Currently, Porsche has been remarkably successful in creating or carving out a new strategic position. Its position as a broad differentiator is successful according to the record sales (Mini Case Study 11, 2018). However, critics may argue that it may dilute the image and brand of Porsche but it all depends on the strategic goals of the company. 

Question 3 

Regardless of the fact that the company appears to have lost its focus by diversifying into the SUV market, the diversification strategy in the geographic and related areas appears to have been successful for the company so far. In 2013, the Cayenne sold about 84000 units. Also, about 66% of the 40000 units sold in China belonged to the Cayenne. Due to the continuous success of the Cayenne, Porsche released a new SUV to the industry in their current line of vehicles. Within a year, the Macan became the main product in the company after the Cayenne. In 2014, the company sold over 166000 units which were a 550% increase from the initial 30000 unit sales in 2002 (Mini Case Study 11, 2018). The diversification strategy caused record sales in the company and there is huge potential for growth in the global market. 

Question 4 

Volkswagen is focusing on horizontal diversification. The corporate strategy will allow the company to offer products for different customers and different markets. The main benefit of the strategy is that by appealing to middle-class clients who can purchase the Seat and Skoda and high income earning clients who can purchase luxury cars such as the Porsche, the company will achieve higher net income, sales volumes, and a bigger market share. Moreover, Volkswagen can reduce competition in the market through market diversification so that its own brands do not compete against themselves (Hubbard, Rice, & Galvin, 2014). However, the corporate strategy has various disadvantages. Volkswagen risks losing focus of each brand in their product portfolio, they may face increased risks and a reduction in company flexibility. Volkswagen’s product portfolio covers different markets; it is highly likely they will face increased risks for each market. Furthermore, because of the wide product portfolio, it may be difficult to change and getting rid of the unprofitable brands may be difficult due to the large costs of exit (Rugman & Verbeke, 2017). Volkswagen has a wide product portfolio comprised of different strategies and it may be difficult to figure out the overall strategy of the company. For instance, focusing on sales volume for a luxury brand such as Porsche may not be appropriate because such a luxury brand should focus on quality development. 

Question 5 

Some of the possible challenges that Volkswagen is highly likely to face as they attempt to become a market leader in sales volume is the loss of customers and potential customers due to recalls and malfunctions in addition to complacency. Furthermore, with the company at the top of the supply chain, they would be forced to spend extra income when enforcing additional strict quality checks on their vehicles to avoid future defects (Hubbard, Rice, & Galvin, 2014). Quality is one of the most essential requirements of the vehicle industry because it not only affects the company’s financial base but also the lives of its customers (Rugman & Verbeke, 2017). Also, the company should never sacrifice quality and profit to earn increased unit sales. For Volkswagen to retain their market leadership, they must be profitable. Moreover, they should focus on their strengths by not sacrificing their golden goose. 

References 

Hubbard, G., Rice, J., & Galvin, P. (2014). Strategic management: Thinking, analysis, action . Pearson. 

Mini Case Study 11. (2018). Strategic Management (4) 451-500. 

Rugman, A., & Verbeke, A. (2017). Global corporate strategy and trade policy : Routledge.