Marketing ManagementMarketing ManagementBUSS576 BUSS576

Case Study Presentation Case Study Presentation

Ford: Racing to the InternetFord: Racing to the Internet

PresentedPresented by Team 2by Team 2

27 September 200227 September 2002

Group MemberGroup Member

NameName Student NoStudent No

Cheng Pui Ting, TingCheng Pui Ting, Ting 02428884G

Lee Siu Ka, Sarah 02708427G

Lau Wai Kei, Patrick 02438750G

Wong Yun Wah, Wallace 02409600G

Chan Tak Kuen, Benedick 02716359G

AgendaAgenda

Background of Ford Motor Company and Ford.com Autos Industry Development in USA New Distribution Model Competitive Advantage Study Conclusion

Background of Ford Motor Background of Ford Motor CompanyCompany

Founder: Henry Ford Year Founded: 1903 Headquarter:

1 American Rd., Dearborn, Michigan 48121-1721, USA Sales Revenue: $162.4 billion as at December 21, 2002

Ford Automotive Operations: $131.5 billion Ford Financial Services: 30.9 billion

Management: William Clay Ford, Jr., Chairman & CEO Nick Scheele, COO Carl Reichardt, Vice Chairman

The world’s second largest automotive company

Ford’s BusinessFord’s Business

Manufacturing Design and manufacture of automobiles and trucks

Services Sale and service of cars and trucks, renting and leasing of

cars and trucks and renting industrial and construction equipment.

Finance Vehicle-related financing, leasing, and insurance

Introduction of Ford.comIntroduction of Ford.com

Launched in 1998 Umbrella Website:

US website: Fordvehicles.com Links: Brands under Ford Motor Company, USA

Lincoln – lincolnvehicles.com Mercury – mercuryvehicles.com Mazda – mazda.com Volvo – volvocars.com Jaguar – jaguar.com LandRover – landrover.com Aston Martin – astonmartin.com

Fordvehicles.comFordvehicles.com

Sales and Revenues(in millions / US$):

19981998 19991999 20002000 20012001

AutomotiveAutomotive 119,083 (82.4%)

136,973 (84.3%)

141,230 141,230 (83%)(83%)

131,528 131,528 (81%)(81%)

Financial Financial ServiceService

25,333 25,333 (17.6%)(17.6%)

25,585 25,585 (15.7%)(15.7%)

28,828 28,828 (17%)(17%)

30,884 30,884 (19%)(19%)

TotalTotal 144,416144,416 162,558162,558 170,058170,058 162,412162,412

Autos Industry in USAAutos Industry in USA

1900 – 19501900 – 1950 Automakers developed the Franchise System The Agreements gave automakers power over the dealer

through the control of product supply, as well as the right to grant and revoke franchises

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

Autos Industry in USA ..Autos Industry in USA ..

1950 -19601950 -1960 The Courts shifted power to dealersThe Courts shifted power to dealers The Automobile Dealer’s Day in Court Act of 1956 was The Automobile Dealer’s Day in Court Act of 1956 was

passedpassed Automakers in the US are not allowed to sell their vehicles Automakers in the US are not allowed to sell their vehicles

directly to end users.directly to end users. Sales has to be channeled through dealersSales has to be channeled through dealers

Autos Industry in USA ..Autos Industry in USA ..

1960 – 19901960 – 1990 The industry maturesThe industry matures The automotive distribution did not changeThe automotive distribution did not change

Traditional Purchase Traditional Purchase ExperienceExperience

Traditionally, customers can only purchase new car from the dealer near their locations under the legislation

Customers need to contact different dealers if they want to compare the price of the same car model

Customers need to contact different parties on car purchasing and financing

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

Disadvantage of the Practice

Inefficiency of the mechanism leads to: High cost of finished goods cached in dealer lots across the

country Frequent mismatch of individual customers desire with

locally available inventory options Frequent discounting required to clear the dealer lots of

model with unwanted configurations 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

Disadvantage of the Practice …

Inefficiency of the mechanism leads to: Customers have no say on the design of the car. Different parties on car purchasing and financing Lack of comprehensive information

Opportunities for New Opportunities for New Distribution ModelDistribution Model

State franchise laws and manufacturer relationship inhibit automakers from dealing in the new car market

Widespread dissatisfaction with the vehicle purchase process

eBusiness appeared

New Business ConceptNew Business Concept

CarMax Dealer Opened in Richmond, Virginia, in 1993 Offered a wider selection, and employed a no-haggle

pricing strategy Sales representatives received a salary and a bonus based

on unit sales and customer satisfaction, not dealer margin margin

Online Auto Retailing Online Auto Retailing BusinessBusiness

Auto-By-Tel.com Autoweb.com Autovantage.com

Auto-By-Tel.comAuto-By-Tel.com

Auto-By-Tel.comAuto-By-Tel.com

Autoweb.comAutoweb.com

AutoVantage.comAutoVantage.com

AutoVantage.comAutoVantage.com

AutoVantage.comAutoVantage.com

Auto Manufacturers on the Auto Manufacturers on the WebWeb

First MoverFirst Mover General MotorsGeneral Motors

GMBuyPowers.comGMBuyPowers.com

Second MoversSecond Movers Ford Company LimitedFord Company Limited

Ford.comFord.com DaimlerChrysler CorporationDaimlerChrysler Corporation

Chrysler.comChrysler.com ToyotaToyota

Toyota.comToyota.com

GM.comGM.com

Chrysler.comChrysler.com

Toyota.comToyota.com

Second Mover – Ford.comSecond Mover – Ford.comTarget Audience - ITarget Audience - I

Generation Y-ers are born between 1977 and 1995 are aged 7 to 25 in 2002 number 60 million and make up 21% of the population 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%

impact on e-commerce will be $1.3 billion in 2002

Second Mover – Ford.comSecond Mover – Ford.comTarget Audience – I …Target Audience – I …

Generation Y-ers Attributes

Optimistic Idealistic Ambitious Committed Confident Traditional Passionate Empowered

Target Audience - IITarget Audience - II

Women aged 25 to 49 Control 85% of all personal and household goods spending Consumer more media than men per day (8.8 hours versus 8.2

hours) Solve real problems actively 77% of women go online primarily to explore information

and 86% of them find information that helps them get through their daily lives

Average household income is $55,000 Married Employed full-time Have attended college

Target Audience - IIITarget Audience - III

Internet UsersInternet Users Estimated to reach approximately 320 million by the end of Estimated to reach approximately 320 million by the end of

20022002 Worldwide commerce revenue on the Internet is expected tWorldwide commerce revenue on the Internet is expected t

o increase to more than $425 billion in 2002o increase to more than $425 billion in 2002

Target MarketTarget Market

Market Size: 120 million Age: 20 -54 Median Household Income: $41,994 Mean Earning: $56,604 Internet Users Early Adopter

Strategic AllianceStrategic Alliance

Digital Entertainment NetworkDigital Entertainment Network Creates original entertainment programming for Generation Creates original entertainment programming for Generation

YY iVillage.comiVillage.com

Website for womanWebsite for woman CarPointCarPoint

Dealer websiteDealer website

iVillage.comiVillage.com

iVillage.comiVillage.com

Carpoint.comCarpoint.com

Carpoint.comCarpoint.com

Carpoint.comCarpoint.com

Competitive Advantages of Competitive Advantages of Ford Business Strategy by Ford Business Strategy by

Ford.comFord.com Four Criteria of Competitive Advantages

Valuable Rare Costly to Imitate Non Substitutable

Strategic Intent of Ford Motor Company “to become the world’s leading consumer company for

automotive products and services” One of Strategic Actions

Deliver automotive products and service to end users with cooperation of dealers via Ford.com

Intensive Growth Strategies Intensive Growth Strategies MatrixMatrix

Market Penetration Product Development

Market Development Diversification

Product

Present New

Present

New

Mar

ket

Market Development Market Development StrategyStrategy

Increasing sales of current products in new markets.Increasing sales of current products in new markets. Generation YGeneration Y

Via Strategic Alliance: Digital Entertainment (DEN) and Via Strategic Alliance: Digital Entertainment (DEN) and MSN to compete in youth marketMSN to compete in youth market

WomenWomen Strategic Partner: iVillage.comStrategic Partner: iVillage.com

Product Development Product Development StrategyStrategy

Increasing sales by improving present products or Increasing sales by improving present products or development new products for current markets.development new products for current markets.

Custom-ordered AutosCustom-ordered Autos TH!NK Neighbor: with hill-climbing abilities and can be

used in patrolling large campuses or industrial complexes.

TH!NK City: an electric car with rechargeable battery. It has two seats, designed to be used in and around cities.

Diversification Growth Diversification Growth StrategyStrategy

New products are developed to be sold in new marketNew products are developed to be sold in new market Horizontal diversification strategy by Ford MotorHorizontal diversification strategy by Ford Motor

Company, not Ford.comCompany, not Ford.com E.g. Car Financing, Care insuranceE.g. Car Financing, Care insurance

Integrated diversificationIntegrated diversification Special Buying ProgramSpecial Buying Program

Conglomerate diversificationConglomerate diversification E.g. T-shirt, Ford Money Market AccountE.g. T-shirt, Ford Money Market Account,,

Ways of Achieving Ways of Achieving Competitive AdvantagesCompetitive Advantages

Building Building more productsmore products to order than its competition to order than its competition By developing products By developing products suited to the tastes of specific suited to the tastes of specific

target marketstarget markets By By reducing timereducing time it takes to it takes to build & deliverbuild & deliver a custom- a custom-

ordered car to customerordered car to customer

AchieveAchieve Sustainable Sustainable Competitive Competitive Advantages?Advantages?

AchieveAchieve Sustainable Sustainable Competitive Competitive Advantages?Advantages?

ReportReport Third-Party Auto Sites Vs Car Manufacturers’ Third-Party Auto Sites Vs Car Manufacturers’

SitesSites

A report from Jupiter Media Metrix in September 2001 showed that:

Car shoppers would use the Internet for research, spending an average of more than 10 minutes on automotive sites every month.

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.

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.

Report …Report … Third-Party Auto Sites Vs Car Manufacturers’ SitesThird-Party Auto Sites Vs Car Manufacturers’ Sites

Third party auto sites like Kbb.com, Carpoint.com, Third party auto sites like Kbb.com, Carpoint.com, Autotrader.com, Autovantage.com and Edmunds.com claimed Autotrader.com, Autovantage.com and Edmunds.com claimed the top 5 spots in the automotive category in terms of unique the top 5 spots in the automotive category in terms of unique visitors, while sites of car manufacturers such as Ford.com, visitors, while sites of car manufacturers such as Ford.com, Toyota.com and BMW.com ranked 11, 19 and 31, Toyota.com and BMW.com ranked 11, 19 and 31, respectively.respectively.

Implications for Implications for Ford on InternetFord on Internet

Industry Comparison (I)Industry Comparison (I)

Business concept is borrowed from Dell ComputerBusiness concept is borrowed from Dell Computer Mass Customization and Direct Sales to achieve product Mass Customization and Direct Sales to achieve product

differentiation and cost leadershipdifferentiation and cost leadership Attributes of PC IndustryAttributes of PC Industry

Short Lead TimeShort Lead Time Short development period and product life cycleShort development period and product life cycle PC comprised by highly standardized modulesPC comprised by highly standardized modules Efficiency in sales and supply chainEfficiency in sales and supply chain

Industry Comparison (II)Industry Comparison (II)

Product: AutomobileProduct: Automobile Long Lead TimeLong Lead Time Long development period and product life cycleLong development period and product life cycle Comprised by highly-integral productComprised by highly-integral product Franchised dealer with extensive legal right to Franchised dealer with extensive legal right to

exclusivity play a major role in car distributionexclusivity play a major role in car distribution..

Industry DifferencesIndustry Differences

Ford is much complexity for receiving specific order Ford is much complexity for receiving specific order by Internet than Dellby Internet than Dell

Long development periodLong development period Difficult to make the dream car for consumersDifficult to make the dream car for consumers Indirect sales channelIndirect sales channel

Impacts and ResultsImpacts and Results

Less than 1 percent of customers who buy new automobile through Internet. (From Salon Reader’s Guide Nov. 8, 1999)

Customers are not able to get the right price on internet Ford.com quotes average-level price only

Dealers are afraid of change Legacy systems are used by dealers Negotiation price margin is narrowed

Reduce incentive for sales representatives Earn less commission than before

Mission Statement of FordMission Statement of Ford

““We are a global family with a proud heritage, We are a global family with a proud heritage, passionately committed to providing personal passionately committed to providing personal mobility for people around the world. We anticipate mobility for people around the world. We anticipate consumer needs and deliver outstanding products consumer needs and deliver outstanding products and services that improve people’s livesand services that improve people’s lives””

Our Advised Mission Our Advised Mission StatementStatement

““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”

The End !!!!!The End !!!!!

Q & A SessionQ & A Session