Comments on: Ford rides a trend

By: Grant

Grant — Thu, 23 Jun 2005 13:07:11 +0000

Steve, great post, thanks, but surely my dream is already a reality, which is to say Ford is making some guesses about the future. All I am asking for is better guesses, or at least guesses good enough that they would have the courage not to leave value on the table. As to a distributed intelligence system, that means everyone knows what trends are coming…is this not precisely the way most competitive situations are decided, who is better at doing the same things. Thanks! Gant

By: steve

steve — Wed, 22 Jun 2005 18:24:37 +0000

Ford had a Scarlett O’Hara moment in the early ’80s when their excess capacity (across all lines) during a recession almost forced the company into Chapter 11. They swore to never go hungry again, and following a painful rationalization of capacity adopted a policy of 1) maintaining a large cash cushion and 2) of erring on the side of low capacity. They would rather miss some of the upside than get clobbered on the downside.

Is this good for shareholders? You’d need a quantitative investigation of the probability distribution of returns under different capacity policies, which in turn requires a kind of statistical knowledge about demand. You’d also have to account for the discontinuously large impact of bankruptcy on shareholder value so as to give credit for not getting near it very often.

I wonder if Grant’s dream of a marketing discipline that can predict firm or model-level sales in advance is consistent with competition in reasonably efficient markets. If such a technology existed and were publically available, then all firms would act ahead of trends, creating enough competition for rising categories like muscle cars to wipe out the profits (and the certainty of sales) in those categories.

By: steve

steve — Wed, 22 Jun 2005 18:24:36 +0000

By: Grant

Grant — Tue, 21 Jun 2005 14:33:35 +0000

Davison, thanks for this cogent observation. I agree entirely about the capital question. And there was no way for an outsider like me to calculate the upside, the downside and the risk in any detailed way. But we know this much: Detroit is doing badly and Ford has done especially poorly with the Fairlane (I think it is). This leaves me to wonder whether they can afford to pass up the gift that muscle cars represent. The muscle trend is now at least 7 years old. Ford has had plenty of time to position themselves to take advantage of it. Thanks again. Grant

By: Davison W. Grant

Davison W. Grant — Tue, 21 Jun 2005 14:16:42 +0000

I think the critcism of Ford’s managment may not be entirely fair for other reasons. Stepping up production of Mustangs most likely would entail a rather substantial new capital investment to be recovered over a number of years. The question then becomes: If Ford installs the additional capacity, will Ford capture sufficient additional sales of Mustangs to recover the incremental capital investment and produce a profit? On the other hand, if the demand remains high, Ford might sell a sufficient number of Mustangs over the next three to five years, without incurring the additional investment, to actually make more money for their stockholders than trying to chase the immediate demand. While, under that strategy, it is true that Ford’s sales and profits might be lower in 2005 than would be the case if the immediate demand were pursued, I would hope that in the post-Enron economy, stockholders understand the benefit of a longer-term strategy than simply playing for the next quarter’s or six month’s earnings. Cars are not flash-in-the-pan enthusiasms, like Beany Babies. The demand for a given make of car can continue for several years, and adopting a more measured, longer-term strategy may be in the investors’ interests, as compared to risking their capital in increasing capacity which might not produce materially greater profits over time.

By: Grant

Grant — Tue, 21 Jun 2005 10:10:36 +0000

Matt, a little bit of scarcity goes a long way and can indeed encourage consumer interest. (scarcity makes the heart grow fonder.) But too much scarcity creates the opposite of interest: frustration. It is also a marketing failure. Thanks, Grant

By: Grant

Grant — Tue, 21 Jun 2005 10:08:46 +0000

By: PSFK

PSFK — Tue, 21 Jun 2005 09:00:50 +0000

Ford Rides A Trend

Over at ‘This Blog Sits At’ Grant McCracken offers some advice to Ford executives who seem to be hesitant about increasing supply of the popular Mustang.

By: Matt

Matt — Tue, 21 Jun 2005 01:59:00 +0000

Eh. You’re not wrong about ethnography. But, given how much of the buzz specifically about the new Mustangs has been driven by the difficulty in obtaining one, there’s something also to be said for erring on the side of supplying too little. Because the day after they have ten sitting unsold on dealer lots, they could very easily have a thousand.

But as long as every Mustang they make has an owner waiting to pick it up straight off the truck, they can maintain that self-reinforcing mystique.

By: Ed Batista

Ed Batista — Mon, 20 Jun 2005 22:11:45 +0000

On Humility

Grant McCracken has a great line in a recent post on marketing–he’s advising Ford execs that if they really want to understand this new muscle-car trend to eschew