F1: A Branding Exercise
BMI View : With Formula One (F1), the most prominent car racing event in the world, currently enjoying immense popularity, we see many brand benefits for both carmakers and countries wanting to associate themselves with it. However, BMI is more cautious on the medium-term outlook for the sport due to environmental and economic concerns.
Although F1 has been around since 1950, it has lately been attracting great commercial interest from carmakers, as well as emerging markets, leading to record revenues. Support from fans has been phenomenal with tickets for many races sold out in advance. Moreover, the number of countries in which races are taking place, as well as the number of teams participating, has been on a firm uptrend in the last few years. BMI believes there are many benefits for automakers to be associated with the F1 brand.
The Rise Of Asia
With sales being dismal in Europe, many European carmakers are looking to get greater brand exposure in Asia through F1. Although Mercedes-Benz's return to F1 has not resulted in major success on the track in the last few years (no top 3 finishes), there are other benefits on offer for car brands.
We see the shift in a greater number of races held outside Europe and the US as mirroring the rise of the emerging market consumer. As consumers in these countries become more affluent, it would be easier for them to afford a premium event like the F1.
|Lure Of Emerging Markets|
|Number Of F1 Races Outside Europe & US|
To be sure, Asia has many racing enthusiasts who constitute a big potential market for carmakers. With eight of the 20 F1 races scheduled in 2012 held in Asia, there is plenty of opportunity to reach this audience. Companies such as Mercedes which offer mid to high- end models are able to reach out to racing enthusiasts who want to own a piece of racing pedigree. In this way, new markets are created. Such indirect benefits might explain why many car brands continue participating in F1 despite enjoying limited success in the races themselves.
|Land Of The Rich|
|New Car Registrations In Singapore, January 2012- August 2012|
Delving deeper into Singapore, a cosmopolitan city and a gateway to Asia, we analysed the new car registrations from January 2012 to August 2012 of three luxury brands, BMW, Mercedes Benz and Audi. There were a total of 7,426 new car registrations of these three brands, accounting for a whopping 39% of the total new car registrations in the same period. This is line with the shift to premium brands in Asian countries such as Singapore where consumers with deep pockets are ready to shell out big amounts for cars which suit their tastes and preferences. Sporting events such as the F1 definitely provide a nice tailwind for luxury car sales as racing car enthusiasts in the region purchase more of the brands which take part in these events. For Singapore's case every new car needs to be registered with a certificate of entitlement (COE). The current high price of COEs is creating a great opportunity for premium carmakers to sell their high-end models as the marginal cost to a consumer of trading up decreases as COEs make up a huge chunk of the purchase price.
Benefits to Countries
Using Singapore as an example again, the nation just extended its deal to host the race for five more years until 2017. With India and South Korea some of the latest countries to jump on the bandwagon of hosting F1, Asia clearly wants to associate itself with the F1 brand.
The hosting of the F1 is an important part of the strategy used by the Singapore government to rebrand Singapore as a vibrant and exciting place to travel and do business. During the race weekend, sponsor clients as well as partners were flown in for networking events around the race. Tony Fernandes, CEO of Malaysian budget airline Air Asia, was quoted as saying that he inked substantial amounts of deals during networking sessions organised in the F1 period. Events such as these help the country achieve its tourist arrival targets, with 2012 figures estimated at some 14.5mn.
|Singapore- Tourist Arrivals, Persons|
To be sure, there are risks to the future of F1. Currently the sport is coming under pressure from environmental groups for having a large carbon footprint. This comes from its globetrotting race calendar as well as the teams' fuel-intensive engines. F1 is trying to counter this by making its engines more green and efficient. However, there is no guarantee that it will be successful in doing so, and this could raise concern among the public, hurting the image of the teams and their brands.
Furthermore, ongoing macroeconomic weakness in core EMs (China, Brazil, India) could dampen demand for racing and racing-related expenditure in the near term. Should an economic slowdown cause consumers to tighten their belts, interest in the sport may wane in the future. In such a scenario, participating teams as well as hosting nations will be locked into unfavourable long-term contracts.
In conclusion, we believe that there are many branding benefits of being associated with F1 for both carmakers as well as countries due to the immense popularity the sport currently enjoys. However, we urge caution on the long-term outlook of F1 due to environmental and economic concerns.