True Luxury is Never "Comfortable"

LUXURY MARKETING STRATEGY - Professor Aswath Damodaran is one of the greatest names in corporate finance, an absolute luminary in the field of financial valuation strategy.

Read more: True Luxury is Never "Comfortable"

He is active on the stages of the world's most prestigious university classrooms, and capable of single-handedly influencing the stock valuations of the largest multinationals.

In his numerous talks, Prof. Damodaran often cites the "Ferrari" case as one of the highest expressions of what Dr. Daniel Langer, a global authority in the luxury market and consultant for Ferrari among others, defines as ALV, Added Luxury Value – that nonlinear value creation ability that only luxury possesses.

Dr. Marco Gianni, representative of Dr. Langer for the Italian market, elaborates on the topic in this article with a cross-cutting view of the financial-business analysis approach expressed by Professor Damodaran, as presented in his talk at the CFA Association Switzerland.

The Ferrari brand stands out among all other automotive companies for a profitability that does not belong to the car market. 

Ferrari is not an automotive company

The explanation? Ferrari is not an automotive company and should not be valued as such. 

Words have tremendous power, rarely adequately considered, in constructing the proper mental framework to evaluate a company's economic development space. 

If one considers Uber as a car-sharing company, it will move and compete in a market worth about $100 billion, but if, instead, it is qualified as a "logistics" enterprise, the reference market will be worth $300 billion. 

Luxury marketing strategy and sacrifice by Marco Gianni: example Damodaran and Ferrari

The acquisition of new market share will have a different impact depending on whether it occurs in the former rather than the latter economic space. 

The purchase of a Ferrari offers none of the practicalities and functionalities of a normal car and surpasses the "discomfort" or driving difficulties of even other high-level sports brands like Porsche or Aston Martin. 

The purchase of a Ferrari is, as Damodaran says, the purchase of a ticket to a super-exclusive club, totally "impermeable" to any macroeconomic movement, well insulated from all those factors that affect or afflict ordinary mortals or even those not so common who can afford only a Maserati Ghibli. 

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Luxury: Ticket to a super-exclusive club

Luxury marketing strategy and sacrifice by Marco Gianni: example Damodaran and Ferrari

The quintessential luxury trait of a Ferrari is revealed by the longevity of the brand, understood as complete emancipation and prior renunciation even of that mode of use distinctive of every mechanical construct composed of 4 wheels and an engine: the act of driving. 

A Ferrari can simply exist for it own sake. The reason it exists is completely intrinsic and self-sufficient. 

No functionality is required except in a potentiality that may never materialize or may only happen once a year, thus trespassing into another realm, that of ritual, procession, and celebration. 

Never just simple "driving". 

So, the behavior of the Professor's neighbor who is "content" to drive around the block once a year and then leave his “red-one” well-guarded in a secure garage doesn't seem all that extravagant. 

Knowing that the Ferrari is parked in a hyper-security garage is all he needs to rationalize the expense. 

Paying for state-of-the-art electronic security or armed guards that protect it is not perceived as an additional cost but as a satisfaction-generating factor: it's like keeping the sacred flame of a modern vestal virgin alive. 

Luxury: A satisfaction-generating factor

The Professor's narrative captures the very essence, the differentiating value of a Ferrari, as an embodiment of the concept of luxury that, in my view, cannot rely "solely" on scarcity. 

The reference to the "Ghibli case," the accessible luxury model from Maserati, is perfectly centered as an inevitable trade-off between expanding market share and declining profitability. 

This is due to both increased production costs and the loss of brand value in terms of "exclusivity and uniqueness". 

Now, my assertion is that even if Maserati, or any other high-end sports car brand, were to limit and reduce the quantity of their production to imitate Ferrari, they would never achieve the net profitability of 18% attained by the prancing horse. 

Luxury marketing strategy and sacrifice by Marco Gianni: example Damodaran and Ferrari

The secret of the Ferrari brand lies at a deeper psychological level, well beyond the awareness of participating in one of the most exclusive clubs in the world. 

Out of pure curiosity, one notes that the most exclusive club in the world is that of combat jet pilots who have pressed the "eject" button of their supersonic aircraft. And that cannot just be a freak occurrence.

Luxury Marketing Strategy: the real cost

Every authentic luxury item entails a level of sacrifice that cannot be confined to the economic sphere. 

The rigorous criteria for purchasing and the willingness to submit to the "Ferrari House Code of Conduct" which does not shy away from expressing the most blatant "reprimands" for famous and wealthy clients like Justin Bieber, Floyd Mayweather, and even one of the untouchable Kardashians, are those "soft" factors that delineate a very clear and precise boundary between those who belong and those who do not. 

Accepting any form of limitation on the use of an asset of which exclusive ownership has been acquired is the greatest "marker" of the brand's value as an expression of a true cosmos of well-defined values. 

Luxury marketing strategy and sacrifice by Marco Gianni: example Damodaran and Ferrari

So, money alone is not enough. 

There is no defying the laws of financial gravity without a true and complete commitment to a code of values that all devotes abide by. 

Non-compliant behavior would be the greatest value destroyer. An unacceptable risk. 

But even this analysis does not provide the true "key" unlocking the “magic” of the brand. 

My assertion is that the day Ferrari starts producing efficient, flawless, reliable cars like Porsche, it will lose market share. It will just be another sports car. Fast, expensive, but still a car that falls within the realm of "usability," perhaps with excessive functionalities, but not nearly as exotic and “wild” as only a Ferrari can be. A Porsche, after all, is made to be driven, even for grocery shopping. 

The luxurious waste of Ferrari, on the other hand, lies in the fact that the car is not perfect! Because that's how it's intended! It's not perfect, stable, or reliable at all, given its price tag! 

And precisely this is a source of PRIDE! 

"…Hear, my lord," said Goneril. "Why do you need twenty, ten, or five people to look after you in a house where twice the number are ordered to serve you?" "Why do you need even one?" said Regan. "Oh, don't argue about necessity! Even our meanest beggars have things they can do without. If you don't give a man more than he needs, his life won't be any better than an animal's. You're a lady. If you dress only to keep warm, then there wouldn't be any need for the beautiful fashionable clothes you wear, which barely keep you warm. But true need..." 
Shakespeare (King Lear, Act II, Scene IV) has captured it perfectly. 

No true luxury exists without true excess, which guarantees complete emancipation from anything even remotely oriented towards functionality or subject even to the most imaginative and exaggerated attempts at rationalization. 

A Ferrari cannot be rationalized. It makes no sense from any logical perspective. The essence of Ferrari is to challenge logic in a very unique way, all its own. 

Marketing Strategy: challenge logic in a very unique way

To realize itself, to fulfill the buyer, a Ferrari cannot simply be purchased. It must be "mastered" to enter that club that is not comprised of "mere" Ferrari owners, but of true Ferraristas. 

The difference is as subtle as it is profound. The Ferrarista is knowledgeable about all things Ferrari. He converses with Ferrari mechanics at the dealership with familiarity, frowns down with satisfaction and inexplicable joy in the face of problems that should never arise. 

This is the quintessence of luxury: the ability to transform a flaw into an exclusive feature to be appreciated, understood, and confronted, only by those who are “in the know”. 

These are the distinguishing marks of exclusivity and membership, triggering a positive economic response for the brand by generating a desire that extends far beyond the initial level of admission – owning the car – to continuously progress with the need to increase and demonstrate one's status and position as a true Ferrarista through the purchase of more Ferraris, participation in events and competitions, and so on. This is the pinnacle of an unstoppable Customer Lifetime Value (CLV). 

Luxury and sacrifice by Marco Gianni: example Damodaran and Ferrari

To translate all this into an economic narrative that paves a smooth path to financial sustainability, Ferrari not only needs to avoid diluting its value through increased production but also must ensure the ongoing creation of true Ferraristas. 

These are the individuals who don't fret over the fact that the technology on the car dashboard hasn't improved a bit in the last ten years. It's like using an iPhone 6. A leap back in time. 

So, how can new Ferraristas be cultivated and not become scarce? Ferrari must invest deeply in areas beyond the automotive/racing/engine world. This is part of the luxury marketing strategy.

The foray into fashion is a clear sign of this awareness. Gaming must also be incorporated on a grand scale, with extended and immersive reality, placements in films, possibly art fairs, sponsorship of a female Ferrari racing team, and any other endeavor that will oversee Ferrari's social relevance as a creator of meaning outside its characteristic industrial perimeter. 

Luxury must be permeated by a so distinct and unique a "meaning" that today can no longer be guaranteed by the past or by ordinary and "discounted" efforts like racing or the construction of a new Ferrari Park or a necessary renovation of the Ferrari Museum in Modena. 

"In a world of physical abundance, it's a lack of meaning that can kill you."
(V. Frankl, Man's Search for Meaning). 

The Ferrarista knows they can go from 0 to 100 in 4 seconds if they wished; the exceptional is within reach; the Ferrarista is the pilot who can eject the seat from a supersonic plane. 

Luxury: The exceptional is within reach

It will all revolve around the continuous creation of meaning that can give even an inert Ferrari in your garage a sense. It's about keeping the flame alive, never letting it extinguish under the threat of capital punishment. 

This is not just about a simple community but about true "communion," one that makes you adhere to the norm even when "no one is watching." 

It's the belief that forgives imperfection because true value is much higher. This is the challenge, and it's by no means a small undertaking, not even for Ferrari. 

Dr. Marco Gianni, Esq., Luxury Marketing Strategy Specialist

The digital transformation process for businesses

DIGITAL TRANSFORMATION - The future is approaching but also the present needs innovation. For companies, digital transformation has become a requirement that can no longer be ignored. The consequences of its implementation are manifold, as are the problems it can bring. So how does a company deal with digital transformation?

Digital transformation

We have been talking about digital transformation for more than twenty years now, but do we really know what that means? Initially with this term it was intended to indicate all those processes related to digitization and digital archiving of documentation. Even today this meaning is present within the definition of digital transformation but the concept has been substantially expanded.

Digital transformation indicates a set of predominantly technological, cultural, organizational, social, creative and managerial changes associated with digital technology applications. Acting in an organic and combined way on these elements digital transformation goes beyond the simple adoption of new technologies and allows to provide services, to provide goods, to live experiences, find, process and make accessible large amounts of content regardless of the real availability of resources (human, material, intellectual and economic, etc.), creating pervasively new connections between people, places and things. This process is enabled by the development of new technologies, but it is not limited to their adoption. In fact, it aims to integrate and involve the entire technological ecosystem, encouraging transparency, the sharing and inclusion of all participants.

The point of view of companies

From a technological point of view, the tools in favor of companies are Immersive Reality, Virtual, Cyber-Economy, Neuroscience and Neurolink, Blockchain, Artificial Intelligence and much more. All these tools are then integrated with concepts that at first glance have less to do with digital, such as anthropology, emotional intelligence, social sciences.

Those listed are just some of the solutions available to a company, but it is not said that all are suitable. In fact it is necessary that every enterprise before deciding which road it wants to undertake does a research on itself in order to understand own needs. Only in this way can a functional digital transformation be put into practice. Otherwise there is a very high risk of finding oneself in the situation explained by some Italian companies and collected from the research of the Insight Intelligent Technology Index. The data of Italian companies for 2019 show that:

Sustainability and digital transformation

In the process of digital transformation, however, we must not forget another important aspect: sustainability. Another frequent mistake should also be avoided, namely limiting the term sustainability to the only aspect related to attention to the environment. Wrong, because sustainability also means everything that is aimed at improving the human condition. This also implies its position in the workplace.

Sustainability is not just a theme of "fashion" at the moment, but a real need that customers, users of our services, want. The attention to this aspect is always higher and deeper. Consumers are not only attentive to the raw materials used and the exclusive sustainability of the final product, but also ensure that the entire production cycle respects the rules. Important is the whole phase of life of the goods, from the ideation up to the arrival in the houses of the buyers.

The digital transformation for this factor is important, because it must be able to adapt at the same time to the needs of the company, the worker and the customer. And these are very often difficult to match. A meticulously studied digital transformation can, however, greatly simplify things. Unfortunately, however, we are far behind on this aspect, as the research conducted by the Centro Studi Tagliacarne shows that only 6% of the activities have succeeded in carrying out the ecological and digital transformation or is very close to us. All the others are either still far from the final transaction or have yet to begin the transition.

The future of technology

Technology is now a regular player in our present and is about to be the protagonist of our future. Economic activities want to make use of it because it allows them to have access to instruments capable of responding to the needs of flexibility and complementarity. However, to keep up with the pace of digital transformation, staff need to be flexible and able to keep up with change. The investment of digital transformation must also be able to foresee this.

Know your client: Hamid-Reza Khoyi introduces the topic

KNOW YOUR CLIENT HAMID-REZA KHOYI - Investing is not so easy, as it is not easy for those who manage the client portfolio to be aware of the person’s history and his money. In order to do their job properly, advisors need to know as much as possible about investors in order to make the most of their money. To do so they have a number of tools including the "Know your client, let’s discover it together with Hamid-Reza Khoyi.

Know your Client: what is it?

The Know your Client is a tool used to verify the identity of a customer and assess potential risks or illegal intentions in the relationship with the customer. Investment advisors, for example, use it to ascertain the financial situation of their clients and that this is not included in the "black list" or otherwise. This tool is also useful for auditors for whom it is called "Understand your Business". In general, the fields of application are many.

There are three steps in the KYC procedure:

At this stage, all the basic information of the assisted person is collected through the compilation of the primary documents. It therefore requires all the user’s personal data and occurs through the use of credentials such as name, date of birth, address, or other documents. At this stage, the modern screening tools of the customer made available by the modern Fintech are also available.

At this point the customer’s identity is verified and the risk profile is evaluated using the user’s credentials collected. The legal nature of the client, the activity mainly carried out, the geographical area of residence are thus verified.

Performing KYC only in the client’s cognitive phase is not enough. There must be continuous monitoring over time to verify that the information collected initially continues to be valid and that the user behaves correctly over time.

Know your client: Hamid-Reza Khoyi tells you who you are interested in and how to use it

The Know your Client is a freely usable tool in the business world, but there are figures who have the obligation to implement it. These are banks, financial intermediaries, trustee, and industry professionals.

These figures have at their disposal many management technologies to do it at their best. There are directives that require you to prove that you have the software for testing KYC, but everyone is free to adopt the most appropriate degree of depth. Of course, the more you think the customer is a potential risk, the more convenient it is to do a more in-depth analysis.

Important tool to support anti-money laundering

As we have seen, it is a very versatile tool that affects several fields of application, but the first purpose for which it is designed is to support the battles of money laundering. The necessary practices to ensure that illegally obtained money can be used legally, such as insurance fraud, are unfortunately difficult to detect, but the Know your Client, as Hamid-Reza Khoyi says, is an excellent ally.

Now that most operations can easily take place online, adopting KYC becomes more and more fundamental.

Know your customer, the prospects for the future projected by Hamid-Reza Khoyi

The market offers numerous KYC implementation solutions including a wide range of artificial intelligence algorithms that can implement research processes and speed them up without losing efficiency and safety. The future that is slowly showing us technology allows us to look very far ahead.

"Maybe one day the technology will amaze us so much that even the Blockchain can be a useful tool for the Know your Client" - says Hamid-Reza Khoyi.