CaseStudy - Ford: Racing to the Internet


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CaseStudy - Ford: Racing to the Internet

  1. 1. Marketing Management BUSS576 Case Study Presentation Ford: Racing to the Internet Presented by Team 2 27 September 2002
  2. 2. Group Member Name Student No Cheng Pui Ting, Ting 02428884G Lee Siu Ka, Sarah 02708427G Lau Wai Kei, Patrick 02438750G Wong Yun Wah, Wallace 02409600G Chan Tak Kuen, Benedick 02716359G
  3. 3. Agenda <ul><li>Background of Ford Motor Company and </li></ul><ul><li>Autos Industry Development in USA </li></ul><ul><li>New Distribution Model </li></ul><ul><li>Competitive Advantage Study </li></ul><ul><li>Conclusion </li></ul>
  4. 4. Background of Ford Motor Company <ul><li>Founder: Henry Ford </li></ul><ul><li>Year Founded: 1903 </li></ul><ul><li>Headquarter: </li></ul><ul><li> 1 American Rd., Dearborn, Michigan 48121-1721, USA </li></ul><ul><li>Sales Revenue: $162.4 billion as at December 21, 2002 </li></ul><ul><ul><li>Ford Automotive Operations: $131.5 billion </li></ul></ul><ul><ul><li>Ford Financial Services: 30.9 billion </li></ul></ul><ul><li>Management: </li></ul><ul><ul><li>William Clay Ford, Jr., Chairman & CEO </li></ul></ul><ul><ul><li>Nick Scheele, COO </li></ul></ul><ul><ul><li>Carl Reichardt, Vice Chairman </li></ul></ul><ul><li>The world’s second largest automotive company </li></ul>
  5. 5. Ford’s Business <ul><li>Manufacturing </li></ul><ul><ul><li>Design and manufacture of automobiles and trucks </li></ul></ul><ul><li>Services </li></ul><ul><ul><li>Sale and service of cars and trucks, renting and leasing of cars and trucks and renting industrial and construction equipment. </li></ul></ul><ul><li>Finance </li></ul><ul><ul><li>Vehicle-related financing, leasing, and insurance </li></ul></ul>
  6. 6. Introduction of <ul><li>Launched in 1998 </li></ul><ul><li>Umbrella Website: </li></ul><ul><ul><li>US website: </li></ul></ul><ul><ul><li>Links: Brands under Ford Motor Company, USA </li></ul></ul><ul><ul><ul><li>Lincoln – </li></ul></ul></ul><ul><ul><ul><li>Mercury – </li></ul></ul></ul><ul><ul><ul><li>Mazda – </li></ul></ul></ul><ul><ul><ul><li>Volvo – </li></ul></ul></ul><ul><ul><ul><li>Jaguar – </li></ul></ul></ul><ul><ul><ul><li>LandRover – </li></ul></ul></ul><ul><ul><ul><li>Aston Martin – </li></ul></ul></ul>
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  8. 8. Sales and Revenues (in millions / US$): 162,412 170,058 162,558 144,416 Total 30,884 (19%) 28,828 (17%) 25,585 (15.7%) 25,333 (17.6%) Financial Service 131,528 (81%) 141,230 (83%) 136,973 (84.3%) 119,083 (82.4%) Automotive 2001 2000 1999 1998
  9. 9. Autos Industry in USA <ul><li>1900 – 1950 </li></ul><ul><ul><li>Automakers developed the Franchise System </li></ul></ul><ul><ul><li>The Agreements gave automakers power over the dealer through the control of product supply, as well as the right to grant and revoke franchises </li></ul></ul><ul><ul><li>Automakers used this powers to force dealers to hold bloated inventories of cars and parts, and contribute to national advertising funds that did little for local sales </li></ul></ul>
  10. 10. Autos Industry in USA .. <ul><li>1950 -1960 </li></ul><ul><ul><li>The Courts shifted power to dealers </li></ul></ul><ul><ul><li>The Automobile Dealer’s Day in Court Act of 1956 was passed </li></ul></ul><ul><ul><li>Automakers in the US are not allowed to sell their vehicles directly to end users. </li></ul></ul><ul><ul><li>Sales has to be channeled through dealers </li></ul></ul>
  11. 11. Autos Industry in USA .. <ul><li>1960 – 1990 </li></ul><ul><ul><li>The industry matures </li></ul></ul><ul><ul><li>The automotive distribution did not change </li></ul></ul>
  12. 12. Traditional Purchase Experience <ul><li>Traditionally, customers can only purchase new car from the dealer near their locations under the legislation </li></ul><ul><li>Customers need to contact different dealers if they want to compare the price of the same car model </li></ul><ul><li>Customers need to contact different parties on car purchasing and financing </li></ul><ul><li>Customer usually make purchase from existing stock since lead times on custom orders ranged from many weeks to several months, depending on the make and model </li></ul>
  13. 13. Disadvantage of the Practice <ul><li>Inefficiency of the mechanism leads to: </li></ul><ul><ul><li>High cost of finished goods cached in dealer lots across the country </li></ul></ul><ul><ul><li>Frequent mismatch of individual customers desire with locally available inventory options </li></ul></ul><ul><ul><li>Frequent discounting required to clear the dealer lots of model with unwanted configurations </li></ul></ul><ul><ul><li>The total cost of distribution system was high (nearly 30% of vehicle price) because the supply chain inventory was usually for a few days’s worth </li></ul></ul>
  14. 14. Disadvantage of the Practice … <ul><li>Inefficiency of the mechanism leads to: </li></ul><ul><ul><li>Customers have no say on the design of the car. </li></ul></ul><ul><ul><li>Different parties on car purchasing and financing </li></ul></ul><ul><ul><li>Lack of comprehensive information </li></ul></ul>
  15. 15. Opportunities for New Distribution Model <ul><li>State franchise laws and manufacturer relationship inhibit automakers from dealing in the new car market </li></ul><ul><li>Widespread dissatisfaction with the vehicle purchase process </li></ul><ul><li>eBusiness appeared </li></ul>
  16. 16. New Business Concept <ul><li>CarMax </li></ul><ul><ul><li>Dealer </li></ul></ul><ul><ul><li>Opened in Richmond, Virginia, in 1993 </li></ul></ul><ul><ul><li>Offered a wider selection, and employed a no-haggle pricing strategy </li></ul></ul><ul><ul><li>Sales representatives received a salary and a bonus based on unit sales and customer satisfaction, not dealer margin </li></ul></ul>
  17. 17. Online Auto Retailing Business <ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul>
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  24. 24. Auto Manufacturers on the Web <ul><li>First Mover </li></ul><ul><ul><li>General Motors </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><li>Second Movers </li></ul><ul><ul><li>Ford Company Limited </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><ul><li>DaimlerChrysler Corporation </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul><ul><ul><li>Toyota </li></ul></ul><ul><ul><ul><li> </li></ul></ul></ul>
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  28. 28. Second Mover – Target Audience - I <ul><li>Generation Y-ers </li></ul><ul><ul><li>are born between 1977 and 1995 </li></ul></ul><ul><ul><li>are aged 7 to 25 in 2002 </li></ul></ul><ul><ul><li>number 60 million and make up 21% of the population </li></ul></ul><ul><ul><li>The percentage of Generation Y-ers in the total population are expected to increase at twice the rate of population until 2010, and by 2020 this percentage will have reached 32% </li></ul></ul><ul><ul><li>impact on e-commerce will be $1.3 billion in 2002 </li></ul></ul>
  29. 29. Second Mover – Target Audience – I … <ul><li>Generation Y-ers </li></ul><ul><ul><li>Attributes </li></ul></ul><ul><ul><ul><li>Optimistic </li></ul></ul></ul><ul><ul><ul><li>Idealistic </li></ul></ul></ul><ul><ul><ul><li>Ambitious </li></ul></ul></ul><ul><ul><ul><li>Committed </li></ul></ul></ul><ul><ul><ul><li>Confident </li></ul></ul></ul><ul><ul><ul><li>Traditional </li></ul></ul></ul><ul><ul><ul><li>Passionate </li></ul></ul></ul><ul><ul><ul><li>Empowered </li></ul></ul></ul>
  30. 30. Target Audience - II <ul><li>Women aged 25 to 49 </li></ul><ul><ul><li>Control 85% of all personal and household goods spending </li></ul></ul><ul><ul><li>Consumer more media than men per day (8.8 hours versus 8.2 hours) </li></ul></ul><ul><ul><li>Solve real problems actively </li></ul></ul><ul><ul><li>77% of women go online primarily to explore information and 86% of them find information that helps them get through their daily lives </li></ul></ul><ul><ul><li>Average household income is $55,000 </li></ul></ul><ul><ul><li>Married </li></ul></ul><ul><ul><li>Employed full-time </li></ul></ul><ul><ul><li>Have attended college </li></ul></ul>
  31. 31. Target Audience - III <ul><li>Internet Users </li></ul><ul><ul><li>Estimated to reach approximately 320 million by the end of 2002 </li></ul></ul><ul><ul><li>Worldwide commerce revenue on the Internet is expected to increase to more than $425 billion in 2002 </li></ul></ul>
  32. 32. Target Market <ul><li>Market Size: 120 million </li></ul><ul><ul><li>Age: 20 -54 </li></ul></ul><ul><ul><li>Median Household Income: $41,994 </li></ul></ul><ul><ul><li>Mean Earning: $56,604 </li></ul></ul><ul><ul><li>Internet Users </li></ul></ul><ul><ul><li>Early Adopter </li></ul></ul>
  33. 33. Strategic Alliance <ul><li>Digital Entertainment Network </li></ul><ul><ul><li>Creates original entertainment programming for Generation Y </li></ul></ul><ul><li> </li></ul><ul><ul><li>Website for woman </li></ul></ul><ul><li>CarPoint </li></ul><ul><ul><li>Dealer website </li></ul></ul>
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  39. 39. Competitive Advantages of Ford Business Strategy by <ul><li>Four Criteria of Competitive Advantages </li></ul><ul><ul><li>Valuable </li></ul></ul><ul><ul><li>Rare </li></ul></ul><ul><ul><li>Costly to Imitate </li></ul></ul><ul><ul><li>Non Substitutable </li></ul></ul><ul><li>Strategic Intent of Ford Motor Company </li></ul><ul><ul><li>“ to become the world’s leading consumer company for automotive products and services” </li></ul></ul><ul><li>One of Strategic Actions </li></ul><ul><ul><li>Deliver automotive products and service to end users with cooperation of dealers via </li></ul></ul>
  40. 40. Intensive Growth Strategies Matrix Market Penetration Product Development Market Development Diversification Product Present New Present New Market
  41. 41. Market Development Strategy <ul><li>Increasing sales of current products in new markets. </li></ul><ul><ul><li>Generation Y </li></ul></ul><ul><ul><ul><li>Via Strategic Alliance: Digital Entertainment (DEN) and MSN to compete in youth market </li></ul></ul></ul><ul><ul><li>Women </li></ul></ul><ul><ul><ul><li>Strategic Partner: </li></ul></ul></ul>
  42. 42. Product Development Strategy <ul><li>Increasing sales by improving present products or development new products for current markets. </li></ul><ul><ul><li>Custom-ordered Autos </li></ul></ul><ul><ul><li>TH!NK Neighbor: with hill-climbing abilities and can be used in patrolling large campuses or industrial complexes. </li></ul></ul><ul><ul><li>TH!NK City: an electric car with rechargeable battery. It has two seats, designed to be used in and around cities. </li></ul></ul>
  43. 43. Diversification Growth Strategy <ul><li>New products are developed to be sold in new market </li></ul><ul><ul><li>Horizontal diversification strategy by Ford Motor Company, not </li></ul></ul><ul><ul><ul><li>E.g. Car Financing, Care insurance </li></ul></ul></ul><ul><ul><li>Integrated diversification </li></ul></ul><ul><ul><ul><li>Special Buying Program </li></ul></ul></ul><ul><ul><li>Conglomerate diversification </li></ul></ul><ul><ul><ul><li>E.g. T-shirt, Ford Money Market Account , </li></ul></ul></ul>
  44. 44. Ways of Achieving Competitive Advantages <ul><li>Building more products to order than its competition </li></ul><ul><li>By developing products suited to the tastes of specific target markets </li></ul><ul><li>By reducing time it takes to build & deliver a custom-ordered car to customer </li></ul>
  45. 45. <ul><li>Achieve </li></ul><ul><li>Sustainable </li></ul><ul><li>Competitive </li></ul><ul><li>Advantages? </li></ul>
  46. 46. <ul><li>Achieve </li></ul><ul><li>Sustainable </li></ul><ul><li>Competitive </li></ul><ul><li>Advantages? </li></ul>
  47. 47. Report Third-Party Auto Sites Vs Car Manufacturers’ Sites <ul><li>A report from Jupiter Media Metrix in September 2001 showed that: </li></ul><ul><li>Car shoppers would use the Internet for research, spending an average of more than 10 minutes on automotive sites every month. </li></ul><ul><li>The traffic to third party auto sites were 20 million while that of car manufacturers’ sites were only 8.2 million in the previous year. </li></ul><ul><li>Consumers tended to visit third-party auto sites which were thought to be more impartial and innovative, offering tools, chat rooms and various links to services. </li></ul>
  48. 48. Report … Third-Party Auto Sites Vs Car Manufacturers’ Sites <ul><li>Third party auto sites like,,, and claimed the top 5 spots in the automotive category in terms of unique visitors, while sites of car manufacturers such as, and ranked 11, 19 and 31, respectively. </li></ul>
  49. 49. Implications for Ford on Internet
  50. 50. Industry Comparison (I) <ul><li>Business concept is borrowed from Dell Computer </li></ul><ul><ul><li>Mass Customization and Direct Sales to achieve product differentiation and cost leadership </li></ul></ul><ul><ul><ul><li>Attributes of PC Industry </li></ul></ul></ul><ul><ul><ul><ul><li>Short Lead Time </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Short development period and product life cycle </li></ul></ul></ul></ul><ul><ul><ul><ul><li>PC comprised by highly standardized modules </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Efficiency in sales and supply chain </li></ul></ul></ul></ul>
  51. 51. Industry Comparison (II) <ul><li>Product: Automobile </li></ul><ul><li>Long Lead Time </li></ul><ul><li>Long development period and product life cycle </li></ul><ul><li>Comprised by highly-integral product </li></ul><ul><li>Franchised dealer with extensive legal right to exclusivity play a major role in car distribution . </li></ul>
  52. 52. Industry Differences <ul><li>Ford is much complexity for receiving specific order by Internet than Dell </li></ul><ul><li>Long development period </li></ul><ul><li>Difficult to make the dream car for consumers </li></ul><ul><li>Indirect sales channel </li></ul>
  53. 53. Impacts and Results <ul><li>Less than 1 percent of customers who buy new automobile through Internet. (From Salon Reader’s Guide Nov. 8, 1999) </li></ul><ul><li>Customers are not able to get the right price on internet </li></ul><ul><ul><li> quotes average-level price only </li></ul></ul><ul><li>Dealers are afraid of change </li></ul><ul><ul><li>Legacy systems are used by dealers </li></ul></ul><ul><ul><li>Negotiation price margin is narrowed </li></ul></ul><ul><li>Reduce incentive for sales representatives </li></ul><ul><ul><li>Earn less commission than before </li></ul></ul>
  54. 54. Mission Statement of Ford “ We are a global family with a proud heritage, passionately committed to providing personal mobility for people around the world. We anticipate consumer needs and deliver outstanding products and services that improve people’s lives ”
  55. 55. Our Advised Mission Statement “ Ford Company Limited aims to be the premier consumer company for automotive products and services. Ford is dedicated to building long-term relationships with customers, business partners and stakeholders through quality products, services, supports and training, and to being known as the industry leader in the worldwide market. The goal is steady expansion, achieving a superior return on equity for stockholders”
  56. 56. <ul><li>The End !!!!! </li></ul><ul><li>Q & A Session </li></ul>