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309-296-1                                                                      Ford’s Bumpy Market Share: A Marketing Make...
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309-296-1                                                              Ford’s Bumpy Market Share: A Marketing Makeover?   ...
309-296-1                                                                  Ford’s Bumpy Market Share: A Marketing Makeover...
309-296-1                                                                 Ford’s Bumpy Market Share: A Marketing Makeover?...
309-296-1                                                         Ford’s Bumpy Market Share: A Marketing Makeover?    Ford...
309-296-1                                                                                  Ford’s Bumpy Market Share: A Ma...
309-296-1                                                                Ford’s Bumpy Market Share: A Marketing Makeover? ...
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  1. 1. www.ibscdc.org 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Ford’s Bumpy Market Share: A Marketing Makeover? “You must have mindshare before you can have market share.”1 – Christopher M. Knight “If you’re trying to persuade people to do something, or buy something, it seems to me you should use their language, the language in which they think.”2 – David Ogilvy “Ford Motor Company tallied the financial impact on Thursday (July 24th 2008) of falling sales ofits big pickups and sport utility vehicles (SUVs), which contributed to the worst quarterly loss in its105-year history,”3 reported The New York Times. Ford reported a historic loss of $8.5 billion in thesecond quarter of 2008. This underpins the rapidly changing customer demand from gas-guzzlingSUVs and trucks to small efficient models, which the US automakers found difficult to meet. Over the years, the ‘Big Three’ were certain that demand for Sports Utility Vehicles (SUVs) andtrucks in the US would never end.4 But, after 2006, with gas prices hovering around $4 per gallon,consumers became more at ease with fuel-efficient cars. Ford spent billions of dollars on advertisingto promote what they can offer to customers, but that has not proved fruitful as the company’sofferings could not match consumers’ expectations. Gone are the days, when Henry Ford believed“‘to hell with the customer’, who can have any colour as long as it’s black.”5 Since its inception,1 http://www.powerhousenow.com/Licensing.html2 http://www.brainyquote.com/quotes/authors/d/david_ogilvy.html3 Vlasic Bill and Bunkley Nick, “At Ford, End of a Big-Vehicle Era Takes a Toll”, http://www.nytimes.com/2008/07/25/business/25ford.html, July 25th 20084 “That shrinking feeling”, http://www.economist.com/business/displaystory.cfm?story_id=11670623, July 3 rd 20085 Iacocca Lee, “Builders and Titans Henry Ford”, http://www.time.com/time/time100/builder/profile/ford3.html, December 7th 1998This case study was written by C.V. Chiranjeevi, under the guidance of Saradhi Kumar G., IBSCDC. It is intended to be used as the basisfor class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case wascompiled from published sources.© 2009, IBSCDC.No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoeverwithout the permission of the copyright owner. Background Reading: Chapter 1, “Marketing in the Twenty-First Century”, Topic 4, “How Business and Marketing are Changing”, Marketing Management (Philip Kotler) www.ibscdc.org1 Distributed by ecch, UK and USA North America Rest of the world www.ecch.com t +1 781 239 5884 t +44 (0)1234 750903ecch the case for learning All rights reserved Printed in UK and USA f +1 781 239 5885 e ecchusa@ecch.com f +44 (0)1234 751125 e ecch@ecch.com
  2. 2. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover?Ford’s marketing strategies, mostly never focussed on customer needs. With fuel prices soaring highand fluctuating periodically, how are Ford’s marketing strategies going to compete with the Japanesefuel-efficient automobiles?Ford’s Marketing: From 1920–1980 Automobiles have greatly influenced all walks of American life in the early 20th century, as theybecame instruments of social change. With the advent of mechanically reliable transportation, peopleof the US – women in particular, especially those living in rural areas – escaped from homeboundexistence and took advantage of new employment opportunities, without foregoing their traditionaldomestic responsibilities. With these advantages over horse-drawn carriages, people demanded carswithout intended marketing efforts from the manufacturers. Further, automobile became more popular and generated its own market with road races, reliabilityruns and cross-country tours in the early 20th century. Races such as Vanderbilt Cup road races of1904–1916; reliability runs like Glidden Tours6 held between 1905 and 1913, successful cross-country trips beginning in 1903 with Dr. H. Nelson Jackson, stirred interest among customers andhelped to establish the reliability of the automobile as well as promoted its superiority in many respectsto horse-drawn carts. Besides, automobile was viewed to be environmental friendly during that period.In New York City, where 2.5 million pounds of horse manure had to be removed daily, citizens hailedthe modern transport, which seemingly left nothing but a little evaporating smoke in its wake. Thisdemand led to the rise of several hundred auto manufacturers. Among them, Henry Ford succeededin leaving a lasting impression by bringing revolutionary changes in the manufacturing process ofautomobile. Henry Ford’s greatest strength was the manufacturing process – not invention.7 His ‘movingassembly-line’ along with scientific management techniques during early 20th century revolutionisedmanufacturing in the automobile industry, and other industries of the time as well, by paving way tomass production. “The hallmark of mass production was standardisation – standardised components,standardised manufacturing process, and a simple easy to manufacture (and repair) standard product.”8Ford said, “We want the man who buys one of our products never to have to buy another. We nevermake an improvement that renders any previous model obsolete. You can take a car of ten years agoand, buying to-day’s parts, make it with very little expense into a car of to-day.”9 The central idea ofFord’s marketing strategy was to outrun the competition by reducing the manufacturing costs andsteadily lowering prices.6 Charles J. Glidden, a millionaire automobile enthusiast, conducted the first Glidden tour in July 1905, which took eleven days and covered an 870-mile route through New York City and New England, to demonstrate the reliability of the various motor cars on the market.7 Saccullo and Hughes, “The Time 100”, http://yourhistorysite.com/2007%20documents/Case%20Study%20Henry%20Ford.pdf8 Jayne Mark, “Cities and Consumption”, http://books.google.co.in/ books?id=qCXYz4Gfis8C&pg=PA36&lpg=PA36&dq=The+hallmark+of+mass+production+was+standardisation+ %E2%80%93+standardised+components,+standardised+manufacturing+process,+and+as+a+result+a+standard+product.&source=web&ots=GoRKvN8tmG&sig=TuaqZpmgqiSU- RPV_XEDVxr-JkQ&hl=en&sa=X&oi=book_result&resnum=1&ct=result#PPA36,M1, page 369 Ford Henry, “My Life and Work”, http://www.gutenberg.org/catalog/world/readfile?fk_files=22786&pageno=1, page 149 www.ibscdc.org2
  3. 3. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? On the marketing front, Ford formulated dealer-franchise networks to sell and service cars. By1910, there were about 7,000 Ford dealers across the country. Ford was the first to promote a ‘pushmarketing’ strategy with increased production volumes using automatic conveyor belt that couldchurn out acar every 93 minutes. ‘ Fordist’ production needed alargesupply of low-skilled labourers.10Ford transformed the production patterns into easily learned, executed and supervised to impose rigidcontrol over the manufacturing process. A Ford employee in 1926 spoke, ‘My work was to put onbolt no. 46.’Often it would take only 15 or 20 minutes to learn how to perform his little job efficiently.”11With mass production techniques, Ford captured more than half of the automobile market share tillmid-1920s. Mass production of automobiles narrowed down the gap between the demand and supplyand by 1930s supply exceeded the demand. During most of the 20th century, marketing played a supplementary role to manufacturing bycreating sales reports and sales forecasts, as there was a great demand for automobile. Ford usedyearly sales estimates that were used to guide production volumes. “Thirty-day production scheduleswere set at the beginning of the month and then modified based on sales reports received from dealersevery 10 days.”12 The need for a reliable and convenient mode of transportation enabled smooth andeasier marketing function during that period. Marketers used radio as an advertising tool and employment of large sales forces to reach prospectivecustomers. By 1940s, introduction of television enabled marketers to expand sales efforts even further.In order to outreach the vast geographical area Ford effectively utilised dealerships and to increase thevisibility of Model ‘T’s it used print media. From the very beginning, Ford’s advertising existed on two fronts. Dealers assumed much of thefront-line sales promotion through local newspapers and at the corporate level advertising, the companyhired two advertising agencies – the Charles H. Fuller Agency and O.J Mulford Advertising Co.During the first year of business, it spent about $13,500 through its agencies and the fiscal year 1905saw ad spending reach $39,513.13 Slogans became a part of auto advertising and some tags continuedfor decades. ‘Watch the Fords go by’ became a famous slogan during 1910s and remained into theTV era, as part of Ford advertising as well as an American cultural reference. Ford’s ad campaign alsoincluded famous slogans such as, ‘Ford has a better idea’ and ‘At Ford quality is job one’.14 Ford’sprint ads carried its reliability and low prices as unique selling propositions in magazines like AutomobileTrade Journal, Life and Ford’s own magazines (Exhibit I).10 Rubenstein M. James,”Making and Selling Cars”, http://books.google.co.in/books?id=2SpJDgcgoMQC&pg=PA3&lpg=PA3&dq= Books+on+Fordist+production&source= web&ots=5omss2hzno&sig=Jy61pwul3FItJLn8yJ0SFVzng5Y&hl=en&ei= xFaNSZyHBpzm6QPx4uCsCg&sa=X&oi=book_result&resnum=4&ct=result#PPA119,M1, page 12011 Ibid.12 O’Brien Anthony Patrick, “How to Succeed in Business: Lessons from the Struggle Between Ford and General Motors during the 1920s and 1930s”, www.h-net.org/~business/bhcweb/publications/BEHprint/v018/p0079-p0087.pdf13 “The Brand that Changed America: Ford’s century- long history has paralleled the growth of American manufacturing and marketing”, http://goliath.ecnext.com/coms2/gi_0199-2709733/The-brand-that-changed-America.html14 Ibid. www.ibscdc.org3
  4. 4. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Exhibit I Ford’s Print Ads (1908–1927) 1908 1912 Life magazine Automobile Trade Journal 1924 1927 F.B.M 68 Dealer ad from Troy, Albama Source: “The Showroom ofAutomobile History”, http://www.hfmgv.org/exhibits/showroom/featured.html www.ibscdc.org4
  5. 5. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Ford’s marketing efforts focused on reduced prices with high volume of production that helped itto gobble higher market share when the industry was in infant stage. From the marketing point ofview, the Tin Lizzie, as the Model ‘T’ was affectionately called, was cheap – an affordable car at$850 in the first year (1908) and became cheaper as the years passed, eventually reaching to $290.Many observers of that time opined that Model ‘T’ needed no advertising. Its visibility itself wasenough. Between 1917 and 1923 Model ‘T’ was so successful that Ford did not even have to spendany amount on advertising, and in 1918 half of the cars in US were Model ‘T’s. Ford boasted, “Everytime I lower the price a dollar, we gain a thousand new buyers.”15 Mass production made such pricespossible that compelled competitors to follow Fordism to gain market share. The severity of 1920–1921 economic downturn, took most of the businesses in the country bysurprise. During mid-1920s fortunes of automakers were tied to their abilities to design and marketproducts than to their ability to adopt the latest techniques for controlling production costs. During1920s General Motors (GM) and Ford held about two-third of the automobile market share withFord leading with more than half of the market share at the beginning of the decade. Ford sales hita peak of 61% in 1921. Unable to undersell Model ‘T’, Alfred P. Sloan Jr. of GM introduced aseries of calculated innovations to grab the market share. GM launched an array of cars at variousselected price segments and differentiated the market into the luxury, semi-luxury, mid-range andlower mid-range buyers and it also introduced annual model changes in car designs. To attract buyers, GM offered and popularised the instalment or time payment mode through itsGeneral Motors Acceptance Corporation (GMAC) subsidiary, thus widening the scope of market andintroducing a new source of revenue for the manufacturer through interest from loans. GM emergedas a potential competitor to Ford, with Chevrolet positioned in the low-priced segment. “At the peakof its success in 1924, more than six times as many Model ‘T’s were sold as Chevrolets, its leadingcompetitor among low-priced cars.”16 After about two decades of Model ‘T’s inception, it ceased toappeal and draw customers. Despite suggestions from executives, Henry Ford was reluctant to diversifythe product line. He insisted on sticking on a single model for far too long. Despite several marketingefforts, Ford was forced to abandon the production of Model ‘T’ in 1927. With the end of the famousModel ‘T’ production in 1927, its market share fell to 17% and rebounded to 41% in 1930, declinedto 20% in the 1940s and recovered to 25% during 1950s where it remained for the rest of the 20thcentury17 (Exhibit II).15 “Automobile History Part 1 Early Years”, http://www.greatachievements.org/?id=3871, 200916 “How to Succeed in Business: Lessons from the struggle between Ford and General Motors between 1920s and 1930s”, op.cit.17 “Making and Selling Cars”, op.cit. www.ibscdc.org5
  6. 6. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Exhibit II Ford’s Share in the US automobile market % Passenger Vehicles 45 40 35 30 25 War Years 20 15 10 5 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 0 Source: Hounshell A. David, ”FordAutomates: Technology and Organisation in Practice”, www.h-net.msu.edu/~business/ bhcweb/publications/BEHprint/v024n1/p0059-p0071.pdf Edsel Ford, who succeeded Henry Ford (in 1919), strived during late 1920s, to expand the marketand push Ford’s offerings, when there was a high demand for stylish and elegant looking models.Sloanism became a predominant feature by late 1920s that replaced Fordism. Ford expanded its reachinto the luxury segment through its acquisition of the Lincoln Motor Company. During 1927, Fordmostly stayed out of production, while Model ‘A’ was being manufactured and GM surpassed Ford insales for the first time. But, Model ‘A’ became a sensation and recovered the lead in 1928. HenryFord did not like the new approach of GM’s annual model changes in car design, but had to follow thesame strategy in the subsequent years. Ford expanded to the international markets and the BritishFord Co., was formed the same year and shortly thereafter the German Ford Co., was founded. But,in the US auto sales dropped in 1929 indicating the upcoming Depression. The loss of market share since late 1920s was due to lack of flexibility in manufacturing process.Henry Ford believed that Model ‘T’ would last forever and majority of customers would alwaysprefer cheaper and basic products. Though Henry Ford was a genius of process manufacturing, hefailed to understand that products need to be upgraded and diversification is an essential element ofmarketing strategy when its life cycle changes. Had Henry Ford displayed the vision in understandingthe changes in product life cycle strategy, the company would have never given an opportunity to GMto surpass. Henry Ford did not bring out a new design until the Model ‘A’ in 1927, and by then GMwas gaining. Henry Ford, in a sense, was trapped as a prisoner of his own success. In the early 1930s, due to Great Depression, auto output fell by 37% and the auto industry fellfrom first place to fourth place, in terms of revenue generation, creating ripple effect throughout the www.ibscdc.org6
  7. 7. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover?nation’s economic infrastructure. However, the auto industry was the first to recover from the GreatDepression years, GM surpassed Ford in sales in 1931 and Ford never regained the lead. As most ofthe small players during 1930s went bankrupt, only three companies accounted for 85% of themarket with Chrysler joining GM and Ford to form the ‘Big Three’. “In 1933 Chrysler Corporationalso passed Ford in Sales. The sales race was on.”18 GM redefined the market by assessing eachdealer’s performance relative to the potential to sell cars in the respective territory. GM by 1936,posted profits equivalent to pre-depression years. Ford overlooked the changing marketing trends andrelied heavily on ‘the more dealers automatically meant more sales’ approach. This resulted intocompetition among dealers and often inventories accumulated at weak dealerships. Ford had finallymodified its approach in 1938 by educating and organising the dealerships with regular supervision. During the Second World War, in 1942, the federal government ordered automakers to convertpassenger car production to wartime production, following the bombing of Pearl Harbour. Thusautomobile production halted with auto companies producing war equipment like shells, bombs,fuses, bombers, etc. Ford supported the war cause by manufacturing B-24 Liberator Bombers andWar Planes. After World War II in 1948, the ‘Big Three’s hold on US market had become so securedthat they struck a deal with United Auto Workers (UAW) that added a new component to the automobilebusiness; high wages, generous healthcare and pension benefits. Automobile design entered into anew era by 1949 from the shadow of World War II. The ‘Big Three’ during mid-20th century designed automobiles using jet-and rocket-inspired featuressuch as twin-toning, the use of light and bright colours, wrap around windscreens in imitation of theglass-domed airplane cockpit that displayed highly powered and masculine image for the automobiles.“The car-making business had become a tight oligopoly, with investment barriers for entry so highthat no domestic firm could afford to join the club.”19 The post war period witnessed tremendousgrowth in disposable income throughout the nation and a jump in births popularly known as ‘babyboomers’. The growth in population and income level caused huge pent-up demand for automobiles,which the automakers found difficult to meet. The ‘Big Three’s all time high market share was 94%in 1955, 1956 and 1959. To meet the pent-up demand for stylish and powered for automobiles, Ford engineers revampedthe structure of its product line by eliminating problems like loosey-goosey structure and thin framesof previous models. Its line-up of new models included four-door sedans, business coupes, convertiblesand station wagons. Though Ford did not advertise in any noticeable way, its brands were about $200more expensive than its rivals. The number of dealerships reached its peak and by 1953, there wereover 47,184 franchised automobile dealers in US. “How could over 47,000 dealers survive in 1953when we had one hundred million less people and sold seven million fewer vehicles?”2018 Wright A. Richard, “ABrief History of The First 100 Years of the Automobile Industry in the United States: Chapter 6 – Mr. Sloan, Harley Earl and dynamicobsolescence”, http://www.theautochannel.com/mania/industry.orig/history/chap6.html, 199619 Womack James, “Detroit’s Dilemma”, www.leaninstituut.nl/publications/Detroitsdilemma.pdf, December 11th 200520 Edwards Larry, “ The American Automobile Industry – 100 Years of doing it the same way”, www.edwardsconsult.com/ chapteronesneakpeek.pdf, page 2 www.ibscdc.org7
  8. 8. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Ford Thunderbird, introduced in 1954 won the hearts of millions of people who appreciatedinnovative styling and design. Impressed by the design, the then newly elected President John F.Kennedy in 1961 showed his passion for the car by including 50 of them in his inaugural procession.Despite creating a lot of interest by dealer networks, the model Edsel Ford which was introduced in1957 performed disastrous and marketing professors termed it as ‘the titanic of automobiles’.21 In1957, Ford unveiled a nuclear powered automobile – the concept car– Ford Nucleon, which had asleek futuristic look, emitted no harmful vapours and offered incredible fuel mileage far beyond thatof the most efficient gasoline cars ever built. The production of Ford Nucleon, did not materialise asit never went into production, but it remained as an icon of the atomic age of the 1950s. Ford’s Mustang a ‘muscle car’ introduced in 1964 at the New York’s World’s Fair drew throngs toshowrooms across the country. Lee Iacocca, the then general manager of Ford Division personallyconvinced Henry Ford II and a sceptical financial division of the company to approve the plan ofrelatively inexpensive sports car concept targeted to win younger customers. The initial start-up costswere a mere $75 million due to the incorporation of the existing Falcon engine, transmission and axlewhich expected to give a high return on investment. Before the launch of Mustang, a huge amount ofmarket research had been carried out examining the mood of the buyer and the pay-off for thisattentiveness to market trends was an all-time sales record. The car had a price tag of $2,320 abouthalf the price of Chevrolet Corvette and was offered in six colours. Mustang featured in several JamesBond thriller movies like Goldfinger (1964), Thunderball (1965) and Diamonds are Forever (1971).In its 35 years of history, more than 6.9 million Mustangs were sold in the US. US automobile industry, in particular Sloanism consciously steered the automobile design, productionand marketing strategies from core product to augment level, optimally utilising the economical andcultural changes of US society. Ford found no alternative but to follow the market leader since late1920s. US automakers augmented automobiles with features like added power, electric starters, air-conditioners, power steering, V8 engines, and so on. The price of gasoline was so affordable thatcustomers cheered powered and stylistic automobiles. High profitability and huge pent-up demand forautomobiles during mid- 20th century attracted European and Asian automakers to enter the USmarket. Responding to the new breed of compact cars imported by foreign automakers, in particularthe Japanese automakers, the ‘Big Three’ quickly changed their designs. In retaliation to Japanese small efficient cars, Ford along with GM and Chrysler launched compactsas ‘60s models – Ford Falcon, Plymouth Valiant and Chevrolet Corvair’. But the quality and reliabilityproblems (Exhibit III) of the ‘Big Three’ compacts were so severe that it resulted in a consumerbacklash embodied by Ralph Nader’s book, Unsafe at any Speed. Despite the growing concern forsmall efficient automobiles, the ‘Big Three’ were convinced that Americans would always love bigand powered vehicles. Though the scale of operation was limited, the sales growth rate of Honda,Toyota and Nissan surpassed the ‘Big Three’.21 Haig Matt, “Brand Failures The Truth about the 100 Biggest Branding Mistakes of All Time”, http://books.google.co.in/ books?id=6o7SrLdgx8gC&pg=PA16&lpg=PA16&dq=Ford+ Edsel+The+Titanic+of+automobiles&source=bl&ots=tcRjat7VtK&sig= PDh_AsTj2xHYkuKtGHy7SV_AABc&hl=en&sa=X&oi=book_result&resnum=1&ct=result#PPP1,M1, page 16 www.ibscdc.org8
  9. 9. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Exhibit III Market Data of Automakers (1975–1989) Company name Average Annual Unit Sales Unit Sales Growth Rate Average Predicted Reliability* GM 1,505,671 0.029 1.81 Ford 1,063,240 0.006 2.54 Chrysler 684,969 0.048 2.63 Toyota 500,984 0.081 4.97 Nissan 397,092 0.061 4.28 Honda 429,848 0.242 4.63 Average 763,634 0.078 3.48 * 5 – Much better than average, 4 – Better than average, 3 – Average, 2 – Worse than average, 1 – Much worse than average Source: Yang Ling, “The US Passenger car Industry in the 1980s”, http://smartech.gatech.edu/handle/1853/22665, page 6 “In the 1970s, as the oil price quadrupled, the industry found itself under attack fromenvironmentalists outraged by its products’ gas-guzzling habits.”22 The aftermath of gulf crisis during1970s pushed Americans into buying cars based on fuel efficiency rather than social class appeal. Asthe oil crisis ended, demand pattern witnessed a swift change and it was the Japanese automakerswho were best positioned to take advantage of the need for smaller cars, because of their quality andfuel-efficiency. The need for small, efficient cars compelled US automakers to quicklyre-tool their strategies in order to meet new demand. Ford, which had a 19.6% of world market sharein 1965 declined to 12.4% in 1975 (Exhibit IV). Exhibit IV Market Shares in the World Automotive Industry (%) Producer 1965 1975 1979 General Motors 30.9 19.0 21.8 Ford 19.6 12.4 12.4 Chrysler 9.6 7.8 3.4 Volkswagen 7.3 4.5 5.3 Renault 3.0 5.3 4.6 Peugeot 1.4 3.0 8.3 Fiat 5.3 4.6 4.2 Toyota 2.5 7.3 7.4 Nissan 1.3 6.7 5.7 Source: “The Competitive Status of the US Auto Industry: A Study of the Influences of Technology in Determining International Industrial Competitive Advantage”, http:// books. google.co. in/books?id=3WUdrhW664UC&dq=The+Competitive+Status+o f+the+US+Auto+Indust ry:+A+ Study+of+the+Influences+of+Technology+in+Determining+International+Industrial+ Competitive+Advantage&printsec=frontcover&source=bl&ots=UFiNsLDecP &sig=PIuQRsFQaouJs4SwriT9xaFfR8g&hl=en&ei=UO-wSb_cEM-_kAX9_Z29BA&sa=X&oi=book_result&resnum=1&ct=result#PPR1,M122 Glauser C. Earnest, “The Toyota Phenomenon”, www.deming.ch/downloads/E_Toyota.pdf www.ibscdc.org9
  10. 10. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Poor quality and safety concerns clubbed with two disastrous oil shocks changed the perceptionsand buying patterns of US customers during late 1970s and Americans started avoiding big and heavycars. “When the gas lines reappeared, and Americans shifted to small cars, Ford was still offering itsdecade-old Pinto.”23 The need to retain market share compelled Ford to study Japanese methods ofindustrial management and worked close with Toyo Kogyo, the Japanese manufacturer of Mazdaautomobiles. Ford acquired 25% stake in Mazda Motors in 1979. It imported Mazda cars as a smallcar division of Ford until it manufactured Escort to succeed Pinto. During 1970s and 1980s, US automakers had to face a double blow on their marketing andproduction. The squeeze of market share by imports was troubling on one hand, and on the otherhand they were increasingly encumbered by government regulations with regard to vehicle emissions,fuel efficiency and safety norms. The Corporate Average Fuel Efficiency (CAFE) doubled fuel economybetween 1974 and 1990 to 27.5 miles per gallon (mpg). Safety regulations enforced automakers inincluding seatbelts, airbags, antilock brakes, bumpers, and other parts. Thus, the automakers neededto redesign the models with improved parts and components or sometimes the whole systems. Findingit difficult to compete with Japanese fuel-efficient models, US automakers increasingly lobbied federalgovernment to impose restrictions on imports. To help the US automobile industry, federal government imposed restrictions on imports to 2.1million per year, which was further lowered to 1.6 million as the Japanese began producing largevolumes of vehicles in American plants. However, the import restrictions proved of little help, “Themost successful businesses will be those that respond to market forces most quickly, not those thatuse legal barriers to turn themselves into dinosaurs.”24 Automobile industry witnessed a swift changein customer perception and domestic models were perceived to be poor and inferior to Japanesebrands in terms of design, quality, reliability and fuel-economy.US Automobile Industry: Rapid Changes and Ford’s Restlessness (1980s–2007) The wave of information revolution of 1980s changed the face of traditional marketing habits ofdealers and manufacturers. With improvements taking place in quality, safety, and reliability ofautomobiles, quality and performance surveys by reporting agencies supported the marketing effortsof automobile manufacturers. JD Power’s automobile quality surveys provided one of the firstindependent systems for ranking vehicles’ quality and reliability. Marketing channels found moreavenues to reach customers through company’s own web sites. As demand for Japanese brandsposed a serious threat to domestic automakers, the total supply exceeded demand. Inventories piledup at dealer networks and dealers competed with the same brands and makes in a specified geographicarea. Another reason for the failure of Ford’s marketing efforts during 1980s was high showroom ageof models and poor planning and co-ordination between marketing and manufacturing divisions.23 “Ford’s Touch of Chrysler’s Flu”, http://www.time.com/time/magazine/article/0,9171,916950-1,00.html, October 15th 197924 Singleton Solveig, “Will The Net Turn Car Dealers into Dinosaurs?: State Limits on Auto Sales Online”, http://www.cato.org/pubs/ briefs/html/bp58/bp5800001.html, January 25th 2000 www.ibscdc.org10
  11. 11. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover?Henry Ford II conceded poor planning at Ford. “Four years ago, he said no to arguments that Fordshould build a front-wheel-drive subcompact for the 1979 model year.”25 Ford, that withdrew nomodels before 1979, was compelled to drop eight of its compact car models during 1979–1984. Highshow room age of Ford models indicated poor R&D efforts, which resulted into high pressure sales atdealer networks. Ford’s average market life of compact car models longer than 10 years was 8 years,just below 9 years of GM (Exhibit V). Exhibit V Exit and Average Market Life of Compact Car Models Company Exited Exited Exited Changed No. of models Average market Exit and Name before between between to exited in or life longer than Average 1979 1979–1984 1985–1989 Midsize after 1989 10 years Market Life of models (% ) GM 3 4 13 5 24 9 37.50 Ford 0 8 3 2 15 8 53.33 Chrysler 2 3 6 2 22 6 27.27 Toyota 1 1 3 3 8 5 62.50 Nissan 2 1 2 2 8 4 50.00 Honda 0 0 2 2 5 4 80.00 Source: Yang Ling, “The US Passenger car Industry in the 1980s”, http://smartech.gatech.edu/bitstream/1853/22665/1/ yang_ling_200805_mast.pdf Ford encountered steady loss of market share in US after 1970s due to high costs incurred indevelopment of automobiles to meet federal standards and labour contracts. By October 1997 “Ford’sshare of the US auto market has dropped from 23.5% at the end of 1978 to 20.9%, its lowest in adecade.”26 Despite having an established European operation and, strong sales in truck division, itsmarket share in passenger cars fel to 17% and posted a loss of $1.54 billion in 1980 (Exhibit VI).Further, it posted a loss of $1.06 billion in 1981 and $658 million loss in 1982.27 With costs reducedin 1984, Ford launched Taurus, which resulted into a highly successful model and won a number ofawards for its design and safety.25 “Will The Net Turn Car Dealers into Dinosaurs?: State Limits on Auto Sales Online”, op.cit.26 “Ford’s Touch of Chrysler’s Flu”, op.cit.27 “Ford Motor Company | Introduction”, http://www.enotes.com/company-histories/ford-motor-company www.ibscdc.org11
  12. 12. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Exhibit VI Market Share of the ‘Big Three’ and Selected Foreign Automakers’ in the US (1970–2005) Manufacturer Year General Ford Chrysler Toyota Honda Motors (Domestic) Market Share of Cars (%) 1970 40 26 16 2 0 1975 44 23 11 3 1 1980 46 17 9 6 4 1985 43 19 11 5 5 1990 36 21 9 8 9 1995 31 21 9 9 9 2000 28 17 8 11 10 2005 22 13 9 16 11 MarketShareofLightTrucks(%)* 1970 38 38 9 1 0 1975 42 31 15 2 0 1980 39 33 11 6 0 1985 36 27 14 7 0 1990 35 30 14 6 0 1995 31 33 16 5 1 2000 28 28 15 8 3 2005 30 23 18 11 6 *Light trucks include SUVs, minivans, and pickups weighing over 6000 pounds.AMC/Jeep was acquired by Chrysler in 1987, but is not included in Chrysler’s share to maintain consistency over time. Source: Train E. Kenneth and Winston Clifford, “Vehicle Choice Behavior and the Declining Market Share of US Automakers”, http://elsa.berkeley.edu/~train/tw104.pdf, page 38 Ford’s marketing suffered severe set backs during 1980s due to relative changes in the most basicattributes such as price, size, power, operating cost, transmission type, reliability and body type. Theother reasons that affected are crippling pension costs, discount reliance, mismanagement etc. Japanesecompanies, in particular Toyota, were widely credited with introduction of lean and flexible productionmotivated by constraints in adopting US style of mass production. During the 1980s, Japanese movedon to upscale brands such as Lexus, Acura and Infiniti, which competed directly with establishedplayers of the US and European manufacturers. Ford acquired Aston Martin and Jaguar as its luxurybrands of its Premier Auto Group (PAG) brands. Aston Martin’s price in the US started at $110,000 www.ibscdc.org12
  13. 13. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover?and the top V12 Vanquish model reached $300,000 with various options. Ford introduced a marketingslogan ‘Quality is Job 1’ with a view to introduce new products and drive down the costs. Though theslogan helped in improving customer perceptions about Ford products in 1990s, its quality remainedfar behind Toyota and Honda. Despite making achievements, on the whole, US automakers sufferedfrom decline in passenger car sales due to strict government regulations. Finding loopholes in the CAFE standards, US automakers quickly popularised a new class ofvehicles called SUVs as a way to improve profits. US Congress established CAFE in 1975, largely inresponse to the oil embargo of 1973. Cars and light trucks during early 1970s were bulky andinefficient with cars averaging 13.5 mpg and trucks averaging 11.6 mpg. US Congress establishednew fuel economy standards that specified cars up to 27.5 mpg. Congress delegated the responsibilityof setting standards of light trucks to Department of Transportation (DOT). The fuel economy standardfor SUVs, minivans and pickups was set at 20.7 mpg. When the government passed the CAFE law, light trucks (primarily used as work vehicles) whichconstituted only 20% of the total vehicle market, were allowed to meet lower fuel economy standards.The inability of US automakers to enhance the fuel-efficient models resulted in manufacturing a newversion of huge cars called as SUVs with low mileage. Prof. Levitt Theodore in his article MarketingMyopia opined, “Detroit really never researched customer’s wants – It only researched their preferencesbetween the kind of things it had already decided to offer them. For Detroit is mainly productoriented, not customer oriented.”28 Though such an escape from improving engine efficiencies couldyield short-term benefits, the need to manufacture fuel-efficient vehicles became inescapable as gasolineprices fluctuated periodically and fuel-emissions became a standard of measuring engine quality. Guided by profitability, almost every automaker manufactured and sold SUVS, as they supportedthe existing manufacturing facilities of US automakers. Ford manufactured Bronco II which boostedthe company’s profits, selling about 760,000 in 7 years. However, Consumer Reports Study in 1989reported that the Bronco is so unstable that recommended against buying the vehicle. From 1983 to1999, 1,742 persons were killed in Bronco II rollovers, according to federal data analysed by Aliceand Randy Whitfield, consultants for plaintiff attorneys. Ford had settled 334 Bronco II rollover casesfor a total of $113,385,504.60.29 Ford marketing efforts focussed more on delivering products to life-style customers during 1990s.Ford Explorer was the first SUV of its kind, to offer comfort, versatility, affordability and style than astation wagon or minivan. For most of ‘90s, Explorer sales were more than 400,000 units per year. Asoil prices stabilised, customers viewed SUVs as safe, rugged, spacious and large. Advertising onSUVs increased nine fold from $172.5 million in 1990 to $1.5 billion in 2000. Advertising targeted‘baby boomers’ in re-launching the F-150s pickup in 1990s.30 Getting away from the traditionalapproach, the design team concentrated on styles, needs and values rather than the product features.Competition intensified and dealers along with manufacturers suffered poor profit margins on auto28 Levitt Theodore, “Marketing Myopia”, http://www.casadogalo.com/marketingmyopia.pdf, September–October 1975, page 729 Winerip Michael, “What’s Tab Turner Got Against Ford?”, http://query.nytimes.com/gst/ fullpage.html?res=9C05E7D7123FF934A25751C1A9669C8B63&sec= &spon=&pagewanted=1, December 17th 200030 “Profit-Driven Myths and Severe Public Damage: The Terrible Truth About SUVs”, www.citizen.org/documents/JC_SUV_testimony.pdf www.ibscdc.org13
  14. 14. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover?sales. To stay profitable, dealers resorted to ‘filler businesses’ like spares, services and used car sales.In order to increase the dealer profitability and allow more attention to service and help boost brandimage, Ford and GM reduced the number of dealerships. The number of total dealerships, whichtotalled almost 50,000 in late 1940s shrunk to 24,825 in 1990, which further fell to 20,770 by 2007. During the late 20th century, Ford relied heavily on price hikes with new model launches. Toattract customers and push inventories, it offered cut prices along with rebates, cut-rate loans anddiscounted leases. Passenger cars, in 1998, reached most affordable level in 18 years. The averagevehicle priced about $20,000 and big luxury SUVs priced at $30,000–$40,000. “It took 24.6 weeksof median pre-tax family income to buy an average-priced new vehicle in 1998, compared with 25.5weeks a year earlier.”31 Consumer’s bargaining power increased four fold as plenty of models wereavailable with various options.Automobile competition had intensified due to high production capacitiesof automakers. “In North America, there is 25% more production capacity than demand warrants,Merrill Lynch &Co. Estimates.”32 Overproduction increased competition and compelled automakersto reduce prices. For instance, when Toyota lowered the price of Camry by $1,600 in 1997, Fordlowered its Taurus LX sedan by $1,000 to about $18,000 in 1999. The decline in sales compelledautomakers to find new ways to improve marketing strategies. With vehicle quality increasing amongall brands brand loyalty started diminishing. Pricing became a major factor that separated the winnersand losers where maintaining market share was an important factor. Ford reported a record profit of$7.2 billion in 1999 with a market share of 24.8%. Since 1999 its market share declined steadily from20.5% in 2003 to 15.6% in 2007 (Exhibit VII). Exhibit VII Ford’s Falling Market Share (1999–2005) Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 Market share % 24.8 24.2 23.1 21.5 20.5 19.3 18.2 17.1 15.6 Note: Excludes Ford’s foreign models, such as Volvo, Jaguar, Land Rover andAston Martin. Complied by the author from Jerry Flint, “Ford: Over-haul TimeAgain”, http://www.forbes.com/columnists/2006/01/23/ford- restructuring-autos-cz_jf_0123flint.html, and Form 10 K: of Ford Motor’s for 2007, http://www.sec.gov/Archives/edgar/data/ 37996/000114036108005181/form10k.htm Ford’s central marketing theme mostly revolved around the key issue of sales management ratherthan identifying the importance of marketing management. Prof. Theodore Levitt stated, “The differencebetween selling and marketing is more than semantic. A truly marketing minded firm tries to createvalue satisfying goods and services, which the consumers will want to buy. What is offered for sale isdetermined not by the seller but by the buyers. The seller takes his cues from the buyer and the31 “Autos More Affordable, Bank Says”, http://query.nytimes.com/gst/fullpage.html?res=9B06E6DE163DF93AA25751C0A96F958260 February 19th 199932 Nauss W. Donald, “Brake on Prices Has Car Buying at 1980 Level”, http://articles.latimes.com/1998/aug/13/news/mn-12852, August 13 th 1998 www.ibscdc.org14
  15. 15. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover?product becomes the consequence of the marketing effort, not vice versa.”33 Ford had mostly beenproduct-oriented rather than customer-oriented. The successor of Bronco II, named as Explorercaused ripple effect due to fatal accidents in Venezuela, Gulf and several parts of the world. Explorerwith Firestone tyres had been linked to about 200 deaths and more than 700 injuries.34 Ford’s CEOJacques Nasser (Nasser) announced, “Ford would replace an additional 13 million Firestone tyres onits pickups and sport-utility vehicles. The cost: a staggering $3 billion.”35 Due to the recall of Firestonetyres on its vehicles, the company lost $5.5 billion in 2001. During the same period, a survey by JD Power & Associates stated, “Ford ranked worst of the topseven global auto companies in quality and suffered from 162 problems per 100 vehicles, comparedwith just 115 for Toyota.”36 Many of its models were recalled due to various quality problems. Forexample, Focus that made its debut in 1999 had six recalls, Escape, a small SUV had five recalls andeven the re-launched 2002 Explorer was recalled twice. In another humiliating marketing blunder,Ford was forced to cancel the entire 2000-year model Mustang Cobra brand because of its inability togenerate 320 horsepower as advertised. It took one complete year to resolve the problem and get thevehicle back to dealer showrooms. Poor quality resulted in higher warranty costs. Deutsche Bankestimates “Ford’s average warranty cost per vehicle at $650 versus $550 at GM and only $400 forToyota.”37 Nasser transformed Ford into a dynamic and Web-savvy consumer-marketing firm by makingstriking alliances throughout the high-tech world. It teamed up with Internet media company Yahoo!Inc, through its Yahoo! Autos (http://autos.yahoo.com). According to a survey by JD Power, out of27,000 new vehicle buyers, 60% used internet while shopping, 88% visited automobile websitesbefore arriving at a dealership for a test drive. Ford formed FordDirect and launched its first 15dealers in New Jersey in August 2000, and subsequently expanded to more than 4,200 dealers.FordDirect generates more than 150,000 Internet referrals every month for new vehicles with a webpresence that exceeds over 15 million Internet shoppers. Dealers who had an antagonistic relationshipwith the company resisted to establish direct relationships with customers. But Nasser wanted tocreate a system that responded to what customers wanted to buy. To distinguish luxury brands ofFord, Nasser formed Premier Auto Group (PAG) by including Lincoln, Jaguar, Aston Martin, LandRover and Volvo into it, but Lincoln brand was withdrawn in 2002. William Clay Ford succeeded Nasser and he initiated measures to re-establish the credibility of thebrand. Critics pointed out that Ford has high environmental pollution and the lowest average fueleconomy of any full-line automaker. To improve the brand image, Ford launched a turnaround planto make sure that it is producing products that people want to buy. Its turnaround plan included33 “Examining Concepts of Marketing Management: Selling to Social Marketing Concept”, www.rocw.raifoundation.org/management/ mba/mba_marketing/lecture-notes/Lesson-04.pdf34 Oppel A. Richard Jr., “Bridgestone Agrees to Pay $7.5 Million in Explorer Crash”, http://query.nytimes.com/gst/ fullpage.html?res=980CE3DA1031 F936A1575BC0A9679C8B63&sec=&spon=&pagewanted=all,August 25th 200135 Muller Joann, et al., “Ford: Why It’s Worse Than You Think”, http://www.businessweek.com/magazine/content/01_26/b3738001.htm, June 25th 200136 Ibid.37 Ibid. www.ibscdc.org15
  16. 16. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover?closure of five production plants, 12,000 hourly and 5,000 salaried job layoffs, discontinuing low-profit models, reducing material costs and getting rid of non-automotive businesses. Due to weakening of US dollar and poor performance of the Jaguar brand, Europe based PAGperformed badly in 2004. PAG reported a pre-tax loss of $740 million – down from 2003’s pre-taxprofit of $171 million.38 Despite this, Ford reported a net income of $495 million, $3.5 billion and $2billion in 2003, 2004 and 2005 respectively. Its performance in automotive sector fell steadily, butsustained due to profits resulted by its financing arm. Ford reported a historic loss of $12.7 billion inits 103-year history in 2006. Ford’s new CEO Alan Mulally, who succeeded William Clay Ford in October 2006, initiatedaggressive measures in 2006 in restructuring automotive business, naming it as ‘The Way Forward’ tooperate profitably at lower volumes with a product mix that reflects consumer demand for smallerand more fuel-efficient vehicles. Ford in 2007, fell behind Toyota in total sales from its long retainedfortress of second position to occupy third place. It continued to transform into a lean, globallyintegrated and customer-driven automaker.Alan Mulally brought Toyota’s Jim Farley as chief marketingofficer and programmed a new ‘Drive One’ campaign to aggressively compete with Japanese brands,in particular Toyota. After a comprehensive analysis of consumer attitudes and values of US automarket, Ford’s president of Americas, Mark Field remarked, “One of the most important findingsfrom this research is that Americans really do want to buy American brands, as long as they arecompetitive with the imports.”39Ford’s Market Share Loss: Marketing Makeover Marketing consumer durables, such as automobiles and other expensive items can result intowonders only when it is supported by the key strategies of identification of customer needs, selectionof appropriate production patterns, pricing strategies, promotional methods and availability of theproduct. Neglecting or overlooking any of these elements of marketing strategy nose-lands the productsales. Buying an automobile is not buying a beer or cereal. It is a second major investment of acommon buyer during his life time and involves an extensive decision process. For most of the 20thcentury, Ford along with other US automakers concentrated on what they could offer to customersrather than what actually customers wanted. Even after two disastrous oil shocks, Detroit automakersfailed to realise the need of fuel-efficient automobiles as Ford along with other two companies incurredhigh labour costs and lost market share. Eventually Ford suffered from poor customer perceptionmostly due to catastrophic performance of Bronco II and Explorer causalities during the late 20thcentury. Realising the importance of improving performance with quality and safety, Ford initiated severalmeasures to narrow down the parameters that Japanese automakers possessed. Despite several efforts,Ford still lags behind Japanese automakers in improving fuel-efficiency. For example Ford Escape, ahybrid SUV, launched in 2004, has a fuel economy estimates of 29 mpg city/31 mpg on highway,while the leader in hybrid models is Toyota Prius with fuel economy estimates of 48 mpg city/45 mpghighway (Exhibit VIII).38 Mayne Eric, “Ford profits jump to $3.5 billion”, http://www.detnews.com/2005/autosinsider/0501/21/autos-65497.htm, January 20th 2005 www.ibscdc.org16
  17. 17. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Exhibit VIII Hybrids 2008 – Fuel Economy Fuel Economy (in mpg) Brand Model Segment City Highway Toyota Prius Compact Car 48 45 Toyota Camry Midsize Sedan 33 34 Honda Civic Compact Car 40 45 Nissan Altima Midsize car 35 33 Ford Escape Small SUV 29 31 Mercury Mariner Entry level luxury 34 30 Saturn Aura Midsize Sedan 24 32 Chevrolet Malibu Compact car 24 32 Chevrolet Tahoe SUV 21 22 Source: Compiled by the author from “Hybrids 2008 – More Choices than Ever”, http://www.jdpower.com/autos/articles/ Hybrids-2008%E2%80%94More-Choices-Than-Ever Ford’s major marketing problem is poor brand perception compared with Asian automakers. TheAuto Pulse Survey conducted by the Consumer Reports National Research Centre, in January 2008,reported that Toyota and Honda ranked first and second respectively by a dominant margin overothers. The survey focussed on how consumers perceive and rank car brands in seven crucial parametersincluding safety, quality, value, performance, environmental friendliness, design and technologicalinnovation (Exhibits IX (a) and (b)). Exhibit IX (a) Overall Brand Perception – Top Five BEST WORST Brand Score Brand Score Toyota 189 Buick 25 Honda 146 Mercury 22 Ford 112 Mitsubishi 21 Chevrolet 110 Audi 14 GMC 102 Acura 8 Note: To learn about consumers’ car brand perceptions, the Consumer Reports National Research Centre conducted a random, nationwide telephone survey from December 6th–10th 2007, contacting 2,037 adults. The survey data was collected from the 1,720 adults whose households own at least one car. Source: “Toyota and Honda top automotive brands in consumer perception”, http://www.consumerreports.org/cro/cars/ new-cars/news/2008/01/brand-perceptions/overview/brand-perceptions-top-5.htm, January 2008 www.ibscdc.org17
  18. 18. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Exhibit IX (b) Top Five in Brand Perception by Category Safety Quality Value Performance Environmentally Design/Style Technology/ Friendly/ Innovation Green Brand % Brand % Brand % Brand % Brand % Brand % Brand % Volvo 77 Toyota 33 Honda 30 BMW 28 Toyota 49 M-Benz 24 Toyota 30 Toyota 21 Honda 24 Saturn 24 Porsche 25 Honda 26 Lexus 24 Lexus 29 Subaru 18 Lexus 23 Toyota 24 Chevrolet 21 Ford 16 Cadillac 23 Honda 20 Ford 17 M-Benz 19 Kia 23 Toyota 20 Chevrolet 11 BMW 20 Cadillac 18 Honda 17 Chevrolet 17 Ford 20 Honda 20 GMC 11 Jaguar 18 BMW 17 Source: “Top five in brand perception by category”, http://www.consumerreports.org/cro/cars/new-cars/news/2008/01/ brand-perceptions/top-five-in-brand-perception/brand-perceptions-top-5.htm, January 2008 According to an exclusive study for The Detroit News, JD Power &Associates remarked, “Concernsabout quality and reliability are the prime reasons that consumers avoid vehicles built by GeneralMotors Corp., Ford Motor Co., and the Chrysler Group of DaimlerChrysler AG,”40 Ford’s primarytask is changing the minds and perceptions of US customers about its quality gains and safety concerns.Understanding consumer perception in automobile marketing is an essential feature as perceptionmakes or breaks the entire brand image. “Customers also have a sophisticated understanding ofproduct cost. They recognise that vehicles differ not only in their initial purchase price, but also intheir expected maintenance and operating costs, as well as their ultimate resale value.”41 Consumersform perceptions through their accumulated experience with product, both firsthand and indirect.They use several objective sources of information to supplement their own product experience suchas word of mouth, published safety ratings, product reviews and articles. Thus, perception-formingprocess is long and very difficult to manipulate through advertising.42 Automobiles are durable goodsand while consumers make purchase decisions on what brand or model to buy, they rely more ontheir financial condition and be less influenced by advertisements. Though marketing communicationsplay a vital role in changing consumer perceptions, the only way to improve brand perception is byensuring consistent changes in the underlying product experience and significantly improving theentire product range faster than competitors. As a measure to improve the entire product range, Ford plans to bring six models to the US fromEurope, including the Ford Fiesta, a fuel-efficient subcompact. Ford plans to rollout a seven-seat, car-based SUV, Flex, to woo the dissatisfied owners of gas-thirsty Ford Explorers and minivans. Toimprove struggling sales,Alan Mulally with chief marketing officer, Jim Farley launched a new global39 “Ford Fights back”, http://media.ford.com/article_display.cfm?article_id=2238240 Vlasic Bill, “Changing minds: What Detroit can do to win back car buyers”, http://www.detroitnews.com/apps/pbcs.dll/article?AID=/ 20070103/AUTO01/701030382/1148, January3rd 200741 Evan Hirsh, et al., “Reality is perception: The Truth about Car Brands”, http://www.strategy-business.com/press/16635507/0330242 Ibid. www.ibscdc.org18
  19. 19. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover?campaign ‘Drive One’ in April 2008. “Ford announced the biggest quarterly loss in its 105-yearhistory – a gag-inducing $8.7 billion – as well as plans to turbocharge its move away from gas-guzzling SUVs.”43 Farley is tasked to alter consumer perception about Ford’s new products, particularlyits Flex SUV, in order to support and boost sales. Ford spends about $1.5 billion each year on advertising in the US and dealers control 75% of theentire budget. Farley strongly believes that dealer networks are vital to auto business, and no relationshipis more important in auto industry than the one between the company making the cars and the peopleselling them. Earlier dealers had little role with company’s advertising and creative process. During thedealer network meeting, only two-thirds of Ford’s dealers participated in ‘Bold Moves’ a short-livedcampaign that was launched in 2006. To build close coordination with dealer networks, Farley invited agroup of 30 influential dealers to a marketing meeting in January 2008 to finalise new marketing strategies. Ford’s marketing division is working overtime to generate huge hype in the market to its new FlexSUV. Ford’s marketing focussed on creating four new applications for iPhone, Xbox, Dish andYahoo! Its marketing executive of US operations, Usha Raghavachary with ‘Team Detroit’ created aFlex Brand Book. Ford believes that the book spells out every attribute of the Flex, Scion and Minibrands. The book instructs dealers and ad makers about the precautions to be taken while advertisingFlex brand to create an impact on customers. Ford is aware of its weakness that it still relies heavilyon SUV sales. “There is one thing Farley can’t change: the vehicles Ford is rolling out now.”44 Ford’s marketing failures are largely due to lack of understanding or ignoring consumer demand.“Marketing’s ultimate assignment is to serve customers’ real needs and communicate the substance ofthe company – not to introduce the kinds of cosmetics that used to typify the auto industry’s annualmodel changes.”45 According to a national opinion survey commissioned by Consumer Federation ofAmerica (CFA) and undertaken by Opinion Research Corporation (ORC) in July 2007, public concernabout fuel economy is very high. In response to the question, “‘Thinking about the next 5 years, howconcerned, personally, are you about gasoline prices, US dependency on Mid-Eastern oil, and globalwarming?’ large majorities expressed concern — 82% for prices, 74% for oil import dependency, and61% for global warming.”46 About 91% of US moderate-income citizens with income level between$25,000 and $35,000 expressed their greatest concern about soaring gas prices, about 83% olderAmericans,especially those aged between 55 and 64, expressed their greatest concern about oil dependency and76% youngAmericans aged 18–24 expressed their greatest concern for global warming.47 Ford’s problemsare mostly product related rather than marketing related. Its eight of 14 plants in US, manufacturetrucks, SUVs and full sized vans, while there is a growing demand for compact cars.43 Kiley David, “Ford: A Toyota Vet to the Rescue”, http://www.businessweek.com/magazine/content/08_32/ b4095040365207.htm?chan=search, July 31st 200844 “Ford: A Toyota Vet to the Rescue”, op.cit.45 Sviokla J. J., Shapiro Benson P., “Keeping Customers”, http://books.google.co.in/ b o o k s ? i d = V c N 4 J 2 W v 9 M 4 C & p g = PA 1 4 1 & l p g = PA 1 4 1 & d q = P e r c e p t i o n + i s + t h e + k e y &source=web&ots=uIIbrghJr7&sig=kVOwrhRp2tnlepmSbxCxMiLWYCA&hl=en&sa=X&oi=book_result&resnum=2&ct=result#PPA25,M1, page 2546 “U.S. Automakers Still Lag in Fuel Economy”, http://www.consumeraffairs.com/news04/2007/07/cfa_mpg.html, July 18th 200747 Ibid. www.ibscdc.org19
  20. 20. 309-296-1 Ford’s Bumpy Market Share: A Marketing Makeover? Faced with continuous decline in market share, CEO Alan Mulally is trying to reduce Ford’sdependence on pick-up trucks, SUVs and vans that made up of 63% of its first-half of US sales in2008. Reacting to the growing demand for compact cars, the company in July 2008 announced itsplans to convert the Michigan Truck Plant in Wayne, which produces Lincoln Navigator and FordExpedition SUVs to small cars by 2010. During the first half of 2008, Ford Focus retail sales increasedto 64%, while industry wide retail sales of small cars increased by 10%. Ford plans to meet thegrowing demand for small cars by rapidly moving away from trucks and SUVs with gas priceshovering around $4 per gallon. Automakers are reluctant to produce small cars, as they cannot offerbig profits. As SUV sales are a major source of revenue, Ford, along with GM and Chrysler intend topublicise the sporty and Americanness of SUVs to restrain customers to shifting to small cars. Despite spending huge amounts on advertising each year, its marketing efforts are failing to convinceonce-loyal customers of Ford. Advertising is near to saturation and the amount spent beyond thesaturation point is not likely to generate any benefits. Though Ford narrowed down the aspects ofquality, safety and performance with Japanese brands, its sales are declining due to its excessivedependence on its SUVs and trucks. The main reason for declining sales is lack of desire to adoptflexible manufacturing processes. Ford, along with other US automakers, displayed a historic abilityto quickly convert the manufacturing plants to wartime products during World War II. The future ofthe automobile industry lies with those automakers that are quick to understand the changes inconsumer demand and adopt lean and flexible manufacturing methods.Addressing a group of ExecutiveMBA Program students at Gleacher Centre, the then CEO of Ford Canada, Bill Osborne said, “Therereally is no basis for differentiation for product quality anymore. The life cycle of products in theindustry is shrinking. Product competition is based on innovation, features, styling and newness. Thefuture is going to belong to those who are fast and furious.”4848 Goddu Jenn Q., “Ford Canada CEO Says Auto Industry Needs to Become Flexible”, http://www.chicagogsb.edu/news/2006-11- 15_ford_canada.aspx www.ibscdc.org20