lamborghiniLamborghini, the acclaimed Italian automobile manufacturer renowned for producing hand-crafted sports cars that customers compete to own, recently announced its plans to build a high-end SUV named “Urus” (Latin for wild ox). Currently, Lamborghini produces only two sports cars (Aventador and Huracan with an average starting price around $300K) in limited quantities (around 2,000 units per year). The production of Urus is expected to more than double the company’s annual output.

 

Lamborghini is trying to emulate the highly successful business strategy of Porsche, which entered the profitable SUV market for the first time in 2002. Global sales of premium SUVs rose from less than 400,000 in 2000 to 1.2 million last year (about 10% growth rate). However, very few brands compete in this high-end SUV market where the prices of SUVs range between $70K-$100K (e.g., Porsche, Land Rover, Mercedes Benz, BMW). Lamborgini is now tapping into this profitable sector but, by pricing its Urus over $200k, it is essentially entering a segment of the SUV market where it has absolutely no competitor.

 

Why this shift in business strategy? I believe the answer is tied to changes in the company’s organization structure and the race to find attractive profitable opportunities. Lamborghini as a family owned company was more conservative and content with its production of limited edition cars. However, once it became owned by a bigger public corporation, the conservative business model was bound to change. Automobili Lamborghini is owned by Audi, which is a unit of Volkswagon AG, which in turn is majority owned by Porsche!

http://www.economist.com/blogs/economist-explains/2015/06/economist-explains-2

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