Reference no: EM132206662
Subject is STRATEGIC MARKETING MANAGEMENT
FORD CARS GO IN FOR A SERVICE
To many people, cars come pretty close to the goods dominant extreme of a goods–services continuum. They are produced in factories from the combination of thousands of components, and to most people the physical properties of a car can readily be assessed. But recent experience from the car sector suggests that car manufacturers may be rather more enthusiastic to describe themselves as serviceoriented companies.
The days are long gone when a car manufacturer would sell a car on the strength of its design features, and then forget about the customer until the time came to replace the car three years later. Car manufacturers have realized that car buyers seek more than the tangible offering—important though that is. Over time, they have moved increasingly into services in an attempt to gain a larger share of car buyers' wallets.
In the UK, Ford has led the way in many aspects of this increasing service orientation. It saw an opportunity in the 1970s with the liberalization of consumer credit regulations to offer car buyers loan facilities with which to make their car purchase. Not only did this make it easier for middleincome groups to buy its cars, it also allowed Ford to retain the margins which would otherwise have gone to banks who were the main alternative source of car loan finance. Ford Motor Credit has become a licensed credit broker and a major profit centre within the company.
The next major attempt to gain a greater share of car buyers' wallets came through offering extended warranties on the cars it sold. Traditionally, new cars had come with just twelve months warranty, but Ford realized that many buyers wanted to buy peace of mind that they were not going to face unexpected repair bills after their initial warranty had expired. Increased competition from Japanese importers, and the improving reliability of its new cars encouraged this development.
By the mid1990s, Ford came round to the view that many of its customers were buying mobility services, rather than a car per se. So it came up with schemes where customers paid a small deposit, followed by a fixed amount per month, in return for which they received comprehensive finance and warranty facilities. In addition, it promised that the company would take back the car after three years and replace it with a new one. Marketed under the ‘Options' brand name, Ford was soon selling nearly half of its new cars to private buyers using this method. Over time the scheme was developed to include facilities for maintaining and insuring the car.
Repairs and maintenance have always been important in the car sector, but manufacturers tended to lose out on much of the benefits of this because of a fragmented dealership network. Separate customer databases for maintenance and new car sales often did not meet and Ford found that it had very little direct communication with the people who had bought its cars. By the 1990s, the dealership network was becoming more closely integrated with Ford's operations and new opportunities were seized for keeping new car buyers within the Ford dealership system. Recent buyers could be alerted to new services available at local dealers, using a database managed centrally by Ford. Numerous initiatives were launched, such as Ford's own mobile phone service. Ford sought to make it easy for customers to get back on the road when their own car was taken in for servicing, so the provision of car hire facilities contributed to the service ethos. In 1996 the company linked up with Barclaycard to offer a Ford branded credit card, so Ford found itself providing a service to its customers which was quite removed from the tangible cars that it sold (although points accrued using the card could be used to reduce the price of a new Ford car).
By 2000, volume car manufacturers had ceased to make big profits in the UK. In 2002, Ford, with 18 per cent of the market made just £8 millions in profits on its European operations. Falling profit margins on selling new cars were partly offset by profits made on servicebased activities. In the same year, the company made £1.38 billions worldwide from its credit arm, which arranged finance for about 40 per cent of all new cars that it sold. But adding services is not a guaranteed route to increased profitability. Ford's acquisition of the KwikFit tyre fitting chain failed to be a success and it was later sold back to its founder at a price well below what Ford had paid for it. Could this have been a warning that Ford's core competencies lie in engineering and design, rather than running labor intensive service operations?
CASE STUDY REVIEW QUESTIONS
1. Given the evidence of Ford, is it still appropriate to talk about the goods and services sectors being quite distinctive?
2. What business is Ford in? What business should it be in?
3. Discuss the view that Ford should do what it is good at—designing cars—and leave services to other companies.
STRATEGIC MARKETING MANAGEMENT CASE STUDY