Ferrari's Luxury Brand Success: Five Keys Revealed

• For the first time, Ferrari surpassed Hermès as the most valuable luxury company in the world based on stock multiple, which measures growth and profit prospects.
• Ferrari's market value is more than $75 billion, which is approximately 1.5 times the market capitalization of Ford or General Motors, both of which manufacture millions of cars annually.
• Benedetto Vigna, Ferrari's CEO, was interviewed by CNBC at the company's headquarters in Maranello, Italy, to gain insight into what makes Ferrari a luxury brand.

In the world of luxury, Hermès is arguably the gold standard.

Despite other luxury companies experiencing declines or slower growth, Hermès is experiencing double-digit sales growth. Wealthy customers can purchase a Birkin 25 for about $11,000 and flip it the same day for more than $23,000. Analysts predict that Hermès could surpass Louis Vuitton as the world's largest luxury brand within the next three years.

While the stock has risen by 13% this year, the shares have remained unchanged, and the stock price has fallen by 18%.

Ferrari has surpassed Hermès in growth and brand recognition.

For the first time, Ferrari surpassed Hermès as the most valuable luxury company in the world based on stock multiple, with a trading price of 50 times earnings, compared to 48 for Hermès and 23 for LVMH.

In 1947, Enzo Ferrari founded the storied automaker as a means to fund his race team. The company debuted on the New York Stock Exchange in 2015 at $60 a share and now trades at $410 a share.

Ferrari's market cap is valued at more than $75 billion, which is roughly 1½ times the market cap of companies that produce millions of cars each year, such as General Motors and Ford.

Ferrari is not a typical luxury brand, as it produces cars, operates a race team, owns a merchandise company, and runs a car-restoration business, all of which differ significantly from a company that sells $1,300 scarves and $800 sandals.

In a recent research report, Luca Solca, a luxury analyst, argues that Ferrari and Hermès are similar because they both occupy the top of their respective pricing pyramids and are well-positioned to benefit from the increase in global wealth.

Benedetto Vigna, Ferrari's CEO, was interviewed by CNBC at the company's headquarters in Maranello, Italy, to gain insight into what makes Ferrari a luxury brand.

Vigna, despite being considered an unlikely luxury king, spent most of his career at Geneva-based semiconductor maker STMicroelectronics, where he led the micro-electromechanical systems and sensors group. He played a crucial role in developing the screen sensor technology used in iPhones.

In 2021, his appointment to the top job at Ferrari signaled that technology would be central to the supercar maker's growth and the future of luxury.

In an interview at the company's $200 million E-Building, Vigna discussed the upcoming electric Ferrari, the company's dedication to sustainability, and the current global demand for Ferraris.

The primary focus of the discussion was on what sets Ferrari apart as a luxury brand and what other companies and executives serving affluent clients can learn from its success. Here are five key takeaways:

1. Play hard to get

According to Solca's research note, Ferrari and Hermès both "sell significantly less than the market would demand."

Ferrari could sell two or three times its current production based on orders, according to analysts. The allure of Ferrari was constructed on scarcity and exclusivity.

Securing an order for a Ferrari, even though it's within your budget of $380,000, is nearly impossible.

The wait time for Ferrari's pseudo-SUV, Purosangue, and other popular models has increased to three years, which is the longest it has ever been. If you ask any Ferrari dealer about their biggest issue, they will say it's not having enough cars and dealing with frustrated clients.

But CEO Vigna said the scarcity is part of Ferrari's brand promise.

"Our strategy, as established by our founders, is to consistently sell one car fewer than the market demands."

He aims to increase profits by increasing the revenue per car, rather than increasing the number of cars produced.

He stated that the goal is to consistently prioritize revenue quality over quantity.

Ferrari's production has not kept pace with the growth of wealthy potential buyers. In 2010, it produced 6,573 cars, which means over the past 14 years, production has doubled. However, the global population of billionaires has more than tripled (and so has the population of those worth $30 million+ and $100 million+) during the same period.

Ferrari's rarity and value appreciation make it a unique position in the auto world.

If clients have to wait for one, it's even better for Vigna.

"Waiting is part of the experience," he said.

A Ferrari customer in his 70s or 80s took delivery of a new maroon 812 Superfast during CNBC's visit to the factory. His face lit up and he transformed into a 10-year-old on Christmas morning when he saw the car and posed with it under the storied Ferrari entrance gates.

Ferraris are special, because they are still special.

2. Make emotion the driver

What makes a Ferrari a Ferrari? Ask any Ferrari fan or owner and they might mention the design, the engine sound, the handling, the power, the braking, or the 100 years of racing history behind that bright yellow badge.

A true luxury product, according to Vigna, is characterized by one key element: emotion.

"Ferrari is a luxury company because it delivers a unique product that connects with people's emotional side through technology, innovation, storytelling, heritage, and everything else with the ultimate goal of feeding that emotional side we all have."

Vigna said Ferrari will never produce vehicles that people simply need for transportation.

If I receive invitations to speak at conferences and hear the words "utility" or "mobility," I won't attend because our product is not practical, but rather emotional, as stated by him to CNBC.

To make a product truly desirable, it must not only be of high quality, expensive, or feature-rich, but it must also evoke an emotional response.

3. The art of pricing

It seems that Ferrari's high prices are driven by profit-driven demands and Wall Street's fixation on increasing margins.

Vigna revealed that the base price for each model is set a month before its launch in an unusual process.

"We define the price of our cars by driving them on the track for a day or a day and a half before the unveil, with fresh emotions in our bodies. The CMO, CFO, and I share this experience and define the price together."

The entry-level Ferrari, the Roma, now starts at $273,000, which is 40% more than the cheapest Ferrari in 2012, the California, with a manufacturer's suggested retail price of $195,000.

Limited-edition and special-edition cars from Ferrari are priced significantly higher, with the SF90 XX Stradale starting at $900,000 and the SP3 Daytona priced at $2.3 million. Both models were sold out when they were unveiled.

Customization is a significant factor in boosting profits for Ferrari buyers. Today, customers are increasingly demanding personalized features such as custom paint colors, leather, fabrics, stitching, exposed carbon-fiber, and other unique details. These personal touches can significantly increase the sale price, ranging from $100,000 to $500,000.

Ferrari can increase profits in the double digits with only slight increases in car production, according to Vigna's "value over volume" strategy.

4. The road to VIP status

Dealers will reveal that customers must progress through a costly commercial hierarchy to obtain new Ferraris, particularly limited editions, although Ferrari would never admit it.

To obtain a new Daytona, Rolex buyers must follow a specific path, while Hermès customers must navigate a particular journey to acquire a Birkin.

To become eligible for more expensive and limited-edition Ferrari models, first purchase a basic model, then progress to more desirable ones. Attend Ferrari events, show support for the brand, and join a racing program to increase your chances of owning these exclusive vehicles.

Ferraris are mostly sold to existing customers, making it challenging to begin at the bottom.

"Solca stated that Ferrari and Hermès offer their most exclusive products to their most devoted customers, effectively combining access and increasing desirability."

5. Happy employees means happier customers

Well-respected employees in luxury companies work tirelessly to produce products they can't afford or experience themselves.

Vigna has sought to bridge those two worlds.

After becoming CEO, he discovered that many Ferrari employees had never driven in a Ferrari. To address this, the company organized a trip to the test track to give employees a first-hand appreciation of the significance of their work.

He introduced an employee stock ownership program last year, allowing each worker to become a shareholder of Ferrari with a one-time grant of up to 2,065 euros ($2,229) in shares.

Silicon Valley experience taught Vigna to value employee stock plans and the significance of sharing benefits with employees, which is less common in Europe.

"The team's proposal was approved immediately by me and the board," he stated. "The success of a company lies in the motivation of its people. By offering shares, employees feel like they are part of the company, like owners. While all companies have people, only a select few are truly built around them."

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