How Ferrari creates a cult and milks them like cows

TLDR:

In 2014, deadmau5 purchased one of the 15,000 Ferrari 458s in existence.

He wrapped it with a Nyan Cat wrap, swapped the Ferrari logo with a cat logo, and nicknamed the car "Purrari."

This was all fun and games to him and his fans, but to Ferrari, this was a serious offense. Ferrari's lawyers hit deadmau5 with a cease and desist order, calling the Purrari trademark infringement.

deadmau5 reversed the wrapping on the 458, but he was pissed.

He posted on social media.

On top of that, he also bought a Lamborghini Huracan, wrapped the car with the same exact Nyan cat wrappings, and called it: Purracan.

And Lamborghini had no problem with it. Because normally, when you purchase something, it becomes your property. You can do what you want with it.

Not with a Ferrari, though.

Ferraris come with a code of conduct.

Break the code of conduct, and you get sued.

In fact, Ferrari has a long list of people who can never buy a Ferrari again. This list includes big names like Mike Tyson, Justin Bieber, Kim Kardashian, and many more. These are all people who broke the code of conduct.

But why?

Why does Ferrari sue the very people paying hundreds of thousands, if not millions, of dollars for their cars?

The Ferrari brand has been built around joining an elite class of incredibly successful refined individuals who are into high-speed motorsports and appreciate artisanship.

And Ferrari isn't just a high-end car brand; it's a lifestyle club.

The people who purchase Ferraris are flag-bearers of the Ferrari lifestyle.

For these flag bearers, A Ferrari represents the pinnacle of motorsport, quality, aesthetics, and signaling to others that you’re super rich. You don’t need to change anything with a Ferrari, it's perfect as it is. Wrapping your car is like saying you don’t appreciate the artisanship that went into making that Ferrari. You don’t value Ferrari, you’ve no longer put them on the pedestal that they deserve to be on.

But it's not just about modifying your car after you buy it, Ferrari goes to great lengths to make sure that the people who are buying their cars in the first place have a sense of reverence and respect for the Ferrari brand.

Let's say you suddenly inherited $10 million and it's been your lifelong dream to own a Ferrari. So you get in your 2004 Camry and drive to the Ferrari dealership. You tell the salesman you want the new Ferrari suv, the Purosangue.

Bad news, the Purosangue is sold out for the next two years. And it hasn’t even officially hit the market yet.

So what are your options now?

More bad news. You can forget about any limited edition models and any new cars for that matter.

You see, since you’re a new customer, they have to vet you. They have to make sure you’re committed to the brand. With your first Ferrari, you won’t be able to buy a new model, but you can get a used Ferrari.

Once you prove your worth by owning a Ferrari, following all the rules associated with the Ferrari, and showing up to any events you get invited to, then maybe, just maybe you might get access to new models. Keep playing this game for years, and if you make the right connections, you might have a shot at a limited-edition car.

But why would Ferrari go through all that? Wouldn’t you want to make the buying process easy so more people will buy?

Not exactly. Like any good status symbol, the value is actually driven up by how hard it is to get said status symbol. For example, Harvard has an acceptance rate of 4%. Getting into Harvard signals to the world that you’re part of that exclusive 4% that was smart enough - or had rich enough parents - to get into Harvard. That's why people who went to Harvard can’t seem to stop letting everyone know they went to Harvard.

Ferrari is trying to create that same sense of exclusivity around their brand. What this does is it allows Ferrari to charge a higher premium on their products than the competition, but also increases demand for their products because people want what they can’t have.

And all this is not just something that they do at the dealer level. This is something Ferrari is very intentional about all the way up to the top.

In Ferrari’s 2022 Annual Report the phrase “brand image” is mentioned 12 times.

Guess how many times BMW, Mercedes, Bentley, and Co. were worried about the brand image in their reports?

Never.

This just shows how differently Ferrari is thinking about what associations people are making with the Ferrari brand.

Enzo Ferrari, the founder of Ferrari said: "The Ferrari is a dream - people dream of owning this special vehicle, and for most people, it will remain a dream apart from those lucky few."

Aside from constricting supply and making the purchasing process a pain, there are a couple of interesting things that Ferrari does to keep this brand image of the Ferrari dream alive.

Just think about it yourself, If you associate fast, red, and the owners being stuck-up rich people with Ferrari, then what they’re doing is working.

With all these unconventional business practices, you must be wondering, "Does this actually work from a business point of view? Do they actually make good money?"

Let’s do some basic math to try and answer this question at the surface level.

In 2021, Ferrari sold 11,155 vehicles compared to Lamborghini’s 8,405 vehicles. Ferrari reported an Operating Profit of €1075 million, while Lamborghini's operating profit was €393 million. Now if we divide the operating profit by the amount of cars they sold, Ferrari makes almost 97k (96369) operating profit per car sold vs. Lamborghini’s $46,758

Now, this isn’t an apples-to-apples comparison given Lamborghini comes under the Volkswagen and a lot of their data is clumped together, but at a high level Ferrari makes double the profit for each car they sell.

So does the strategy work? Yes, definitely.

We already know Ferrari is more profitable than the more mainstream brands, but for the sake of it, let's take a look at how much more profitable.

In 2021, Ford, GM, and Stellantis reported operating margins of 7.3%, 8.5%, and 11.8%, respectively, and Ferrari? A whopping 25.2%.

Basically, Ferrari makes more money per car, at a higher profit margin than the rest of the industry.

At the end of the day, suing your customers may seem like you’re willfully destroying your business, but for Ferrari suing your customers is actually pretty profitable.