How the Boxster saved Porsche: moving down from luxury to premium without losing exclusivity

Premium or luxury? A brand can do both

In this chapter of the Luxury Masterclass, in the module on building a high-end brand, we start again from a recap. The market has three segments: the mass market, which doesn't interest us, the premium market and, at the top, the luxury market. Premium and luxury together make up the high end. Brands can specialise in luxury or in premium, and the fundamental question is: can a brand position itself in both? History says yes, and my argument, backed by analysis, is that it can be done, but you have to follow certain rules.

Let's look at two success stories: one moving down, from luxury to premium, which is Porsche, and one moving up, from premium to luxury. Both involve difficulties, mistakes to avoid and things to do.

The Porsche crisis

Between the late 1980s and the early 1990s Porsche went through a very serious crisis: it was essentially on the brink of bankruptcy, with sales in free fall from over 50,000 units in 1985 to just over 12,000. For a brand like Porsche that is very little. For comparison, in 2023 Porsche registered 280,880 cars worldwide. From 12,000 to 280,000.

It all began with a first step: Wendelin Wiedeking, appointed CEO in 1992, who would become a leader on a par with the greats of the world car industry. His story didn't have a happy ending, because at the height of Porsche's success he tried to acquire the whole Volkswagen group, with Audi, Seat and Skoda; he failed because of a financial manoeuvre and the exact opposite happened: Volkswagen acquired Porsche and he was politely paid off. But before that ending Wiedeking was a genius who took Porsche from the brink of bankruptcy to being the most profitable car maker in the world.

The first thing he did was restructure the company: he hired a team of Toyota lean production specialists, cut the inventory and started working just in time. Ambitious but humble: ambitious because he wanted to attack new segments and turn the company around, humble because he realised that the way Porsche produced was no longer sustainable and asked the Japanese at Toyota for help, at the time the masters of build-to-order production. It wasn't easy for the German workforce and middle managers to accept advice from the Japanese.

Two roads: the 989 or the 986

Then there was the need to put a new product alongside the 911, and Wiedeking faced a choice between two options: move up towards luxury with a very expensive, low-volume model, or move down towards premium with a medium-volume product priced below the 911. The two cars proposed were the 989, the upward option, a four-door saloon more expensive than the 911 and not very much in line with Porsche's image at the time, with even lower volumes; and the type 986, today's Boxster, a lower-cost sports car with components shared with the 911, offered at a lower price and in higher volumes. After much thought Porsche decided to make the Boxster, and it was a real turnaround of the income statement.

The reasoning was clear: we have to nurture the 911 because it is the backbone of our business, in full respect of the brand's heritage, and at the same time develop an entry-level car priced below $40,000, because that segment is six times bigger than the one the 911 competes in. A market and competitor analysis, which we will see in module 3. The promise Wiedeking made to the board to get the green light: as soon as the new entry-level Porsche is in the showroom, our production will double to more than 30,000 vehicles a year.

What it costs: $39,980

Wiedeking chose to make a two-seater mid-engined sports car, positioned below the 911, with a list price for the American market of $39,980. The amusing thing is that it isn't only digital product marketers who set a just-under price: Porsche too was $20 short of 40,000 and preferred to take them off. Exactly half the list price of the 911. A price made possible by Toyota's advice, which introduced the concept of economies of scale: the new 911, the 996, born after the 986, shared many mechanical components with the Boxster. Production costs came down and a car at half the price of the 911 joined the range.

The real challenge was to stop the new Boxster from cannibalising the brand's image in the minds of those who had always dreamed of a Porsche. That was the risk. The operation succeeded for two reasons.

First reason: heritage

Porsche's heritage was fully respected. Porsche has always had a history of sports cars, and the TV and print advertising referred back to the original model, a historic two-seater Porsche with a mid-mounted engine and spider body, reproduced in exactly the same colours: silver outside, red leather inside. They shot an advert in which a man, waking from a coma after decades, goes back to driving his vintage Porsche and meets the new Porsche on the road, updated for the 1990s but with the same philosophy. It is one of the reasons for the product's success.

Second reason: the price gap over premium competitors

The Boxster respected the rule of the price gap over premium competitors. As I said earlier, a luxury product doesn't have to cost a lot: a Porsche isn't luxury because it costs $100,000 or more, it can also cost 40,000, provided that within its segment there is a significant price gap over the premium competition. At the time BMW offered the Z3 roadster and Mercedes the SLK, with a base price of $27,000 for the BMW and $31,000 for the Mercedes: a median price of around $29,000. The Boxster at 40,000 had a 45% gap over the market average. What counts is the relative value of the price. If the Boxster had cost $29,000 or $26,000 it would have eroded the brand's image, would probably have dented sales of the 911 and would have been a flop.

By respecting the heritage, so a two-seater sports car and not a saloon, and the price gap over premium competitors, the exclusivity of the Porsche brand was preserved even with a product at half the price of the 911.

Production: volumes quadrupled in 4 years

What happened next? The Zuffenhausen plant, near Stuttgart, was working at full capacity in the very first weeks after the launch, with 450 workers hired on fixed-term contracts. The impact on the accounts was positive from the start, and 4 years after the debut Porsche's volume had quadrupled to 56,000 units. The Boxster saved Porsche at a delicate moment in its history and did not cannibalise sales of the 911. It proves that a luxury brand can move down towards premium by doing the right things and following the two fundamental rules: the brand's heritage and the price gap over the main competitors, so as not to cannibalise the top product and not to erode the brand's image.

Behind it all is an important line from Wiedeking: every product has to make money, otherwise you are simply pursuing a hobby. It is what I said at the start of the course, in the Covid situation: stop creating products that make a loss or only break even. Every product has to bring margin to the company's income statement.

The upward case: from premium to luxury

The upward case, from premium to luxury, is that of RiFRA, my company, which turned 50 this year. At the start it was a small company making moulds for third parties. In the 1980s, bathroom furniture, roomy but already with refined design. In the 1990s, the approach to colour and then to design, with the creative direction of the architect Castiglia, who was our Walter de Silva and created very successful products for the Italian market. From 2000, in-house creative direction, leading up to today's products and the arrival of kitchens alongside the bathroom collection.

It is the story of a brand that went from premium to luxury: contract manufacturing, premium brand, premium luxury brand. RiFRA was never known as a mid-quality or low-price company; it has always been a high-quality company priced above the competition, because, not having ultra-sophisticated marketing, the philosophy has always been to make beautiful things, and beautiful things cost money. That was also our good fortune.

The stages. Standard premium bathroom furniture with the traditional marketing tools of a small or medium-sized Italian company: catalogue, samples, trade fairs, distribution to dealers visited by agents. Then premium bathroom furniture, with a more sophisticated brand image, sets built specially by a creative director to communicate a high-end image, advertising in trade magazines, the first showcase websites and the collection of client data, to whom I sent a catalogue at home. Then the move into the luxury world with new collections, which we will see in the next module, and with a new sales channel: contract, the big dealers and the large property developments in New York or Switzerland, where the developer needs bathrooms and kitchens for dozens of apartments. I specialised personally in this channel in the United States.

The turning point came in 2014, with the presentation at the Salone del Mobile of four kitchen collections with the same design and materials as the bathroom collection. That is where today's positioning was born: kitchen plus bathroom in the premium luxury segment. At first the kitchens were sold through the contract channel, then presented again at the Salone in 2016, with innovation in marketing and distribution: from simple tools to integrated ones, catalogue, samples, trade fairs, the book, the magazine, a proprietary CRM software; advertising moved entirely from offline to online with an integrated marketing system; and alongside the dealers and contract, the direct single-brand showrooms in Milan and Rome. A journey that isn't over yet.

The important thing is that in premium luxury there is never a day when you are premium and the next day you are luxury. It is a journey that can take months or years, but if you don't start, it will never end. And you need a great ability to manage it over time, especially when you start raising the prices of your products.