Ford Motor Company: Business Strategies and Interventions Case Study

This case study examines Ford Motor Company's business strategies between the 1960s and 1990s, a period marked by internal and external challenges. The analysis reveals that high operational costs related to repair and warranty policies led to significant working capital depression. The report explores alternative strategies such as product diversification, premium pricing, and corporate social responsibility (CSR) to improve Ford's market position and profitability. It recommends implementing a premium pricing strategy to enhance customer loyalty and reduce turnover, suggesting a verification process and direct communication channels to ensure customer satisfaction and prevent dealer-related issues. The study concludes that a well-executed premium pricing strategy, combined with customer monitoring, could effectively boost Ford's profitability and market presence.

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Executive Summary
The purpose of this report is to explore and examine the business strategies of Ford in a
particular time of their industrial growth and to suggest appropriate business interventions for
them. This study is focused on a particular business era of 1960’s to 1990’s, when the
company Ford had faced multiple internal and external turbulences. From the data analysis
and discussion it has been found that due to high operational cost for repairing and warranty
policy Ford Motors experienced a huge depression of working capital.

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Table of Content
Introduction:...............................................................................................................................3
Situation Analysis......................................................................................................................3
Problem Definition.....................................................................................................................4
Analysis of Alternatives.............................................................................................................5
Recommendation........................................................................................................................6
Conclusion:................................................................................................................................7
References:.................................................................................................................................8

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Introduction:
Ford Motors was found by Henry Ford in 1903 in Dearborn, Michigan. From the very
beginning the company was very successful and was rapidly expanding over American
continent and the western part of the Europe (México, 2013). The North American
Automotive Operation was devoted for developing automotives for Canada and US, whereas
the IAO or International Automotive Operation for international market. This study is
focused on a particular business era of 1960’s to 1990’s, when the company Ford had faced
multiple internal and external turbulences. In this report the situation analysis will be done to
define the problem of the business strategies. Apart from that, the alternative or optional
strategies will be also discussed while finding appropriate recommendation. The purpose of
this paper is to explore and examine the business strategies of Ford in a particular time of
their industrial growth and to suggest appropriate business interventions for them.
Situation Analysis
Any business enterprise needs to consider their internal as well as external situation
while taking and decision. However, within 1975 to 1990 the market situation faced by Ford
Motor Company was totally external. As per the case study, the major changes of distortion
of automotive market of United States occurred due to the national economic changes and the
alteration of consumer preference (Menezes, 1988). Because of the oil shock of 1970 the
economic recession weakened the automotive market of US significantly. This situation is
mainly economy drive where there were other external situations such as emerging car
market of Japan, increasing number of domestic competition made the situation more
challenging for Ford. As a result the sales unit dropped at enormous rate causing huge
amount of loss. However, at the beginning of 1800 the sale of automobile industry has
increased causing considerable amount of profit for Ford as well as other competitor. With

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the imported foreign brands, the increasing sales margin of all competitors also increased the
competition level (McCormack & Johnson, 2016).
The average consumer loyalty was also dropping from its earlier position. To have
competitive and increasing sales margin Ford offered an aggressive customer attraction
policy by providing highly beneficial warranty period for customers. Ford had made direct
contracts with ground level care repair shop regarding their exchange procedure of faulty
parts. However, due to corruption and personal preference in local car repair shops and
dealers 35% warranty expense was going to vain (Menezes, 1988). While generating
adequate increase in sales, Ford Motors experienced a huge depression due to low working
capital. It caused by the high operational cost for repairing and warranty policy. Even after
changing the advancing the generalize warranty system to more profitable and complex
warranty policy For Was still not getting enough profit for their policy where the market
competitors were generating in adequate amount.
Problem Definition
Providing warranty is a customer accusation strategy that directly influences the Cost
of Customer Accusation. The high investment for customer accusation was causing high level
of COCA (Cost of Consumer Accusation). The larger amount of COCA was influencing the
total operational cost of Ford very dangerously. From the market research it was also found
that the consumer life span was also dropped from 4.5 year to 3.2 years (Ahmad, 2015).
Therefore, in spite of having comparatively high gross margin, the collective Consumer
Lifetime Value was reduced. CLV or Consumer Lifetime Value is a measurement technique
of any business operation that gauges the value that each customer contributes to the gross
profit margin of the organization considering the consumer turnover and loyalty. Therefore,

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with the decreasing level of LTV the number of total consumers was unable to change the
profit margin.
To define the problem more correctly the ratio of Lifetime Value and Cost of
Customer Accusation needs to be consider. To develop proper investment plan the lifetime
value should be three times of the COCA. Otherwise, the projected investment on promotion
should be considered as over expense. In this case the LTV and COCA ratio was high than
3:1 that implies that the problem was in the investment style of Ford (Zaefarian, Henneberg
& Naudé, 2013). The problem is, due to high operational cost for repairing and warranty
policy Ford Motors experienced a huge depression of working capital. Ford offered an
intangible warranty policy, which could not be profitable even after several amendments.
The warranty policy should be aligned with the potential sales margin. Therefore, in simple
words the expense plan for warranty policy was not aligned with the potential sales margin.
Analysis of Alternatives
There are many alternative business strategies that can increase the brand recognition
and market reputation of any business. Differentiating the product through innovative
presentation process in market is the key for all alternative marketing and publicity policies.
These are the 3 major marketing and consumer attraction policies, which are suitable for any
automotive company. These strategies could also reduce the total operational cost and
increase the return on investment.
One of the major strategies that can increase the attraction of the product is
advancement of facilities without compromising the cost too much. For automobile business
these mechanical advancement requires strong research and development. However, before
making any changes in production life cycle market research to analyze the consumer

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preference and behavioral drivers are crucial (Markides, 2013). Altering an old product as per
the customer preference can make huge change in sales margin. This process is also called
diversification and differentiation strategy.
Premium pricing is another strategy that increases the customer loyalty and reduce
customer turnover. Through premium pricing a business can provide exclusive price
deduction offer to the loyal customer. For an car manufacturing company the price of a
particular new model for an old customer could be reduced along with reducing the charge
for additional servicing and repairing. Through this not only the existing customers will be
preserved, but also the number of new customer will also increase to avail those facilities in
future. Though this premium pricing strategy is mainly used is retail business, in famous
automotive business like Ford this strategy could be very effective.
Participation in special events can also increase the brand recognition of any
company. CSR or corporate social Responsibility is a major part of this type of action. An
automobile company can participate in different car shows rally events and even can sponsor
an special culturally valuable day to attract a large number of customer (Keränen & Jalkala,
2014). Participation and CSR activity increases the exposure of any company. With the
increased exposure the brands could make themselves more recognizable. Eventually, it will
increase the number of potential customers.
Recommendation
From the alternative strategies of business handling and profit making not only any
particular business policy could change the profitability of Ford, but also combination of
multiple strategies could be also used to get the optimum benefits out of it. Premium pricing
is very effective strategy that could increase the customer loyalty and reduce customer

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turnover. Through premium pricing Ford Motors Company could provide exclusive price
deduction offer to the loyal customer. For an car manufacturing company like Ford Motors,
the price of a particular new model for an old customer could be reduced along with reducing
the charge for additional servicing and repairing. Using this strategy could Ford could resist
the existing customers to buy products from other companies while also encouraging new
customers to purchase from Ford in order in order to avail those facilities in future.
In order to implement this premium price strategy ford needed to apply a new
verification process for customers. Apart from that Ford should also sign an agreement with
the local car dealers, which enable the company to restrict the car dealer to commit any
customer of Ford without taking the authentication from Ford Motors. Customer monitoring
and direct customer communication is equally important factor in this strategy, which allows
the customers to convey their opinion about their experience.
Conclusion:
From the above discussion it can be said that from the very beginning Ford Motors
was very successful and was rapidly expanding over American continent and the western part
of the Europe. However, due to multiple internal and external turbulences the company
experienced many unexpected loss and reduction of sales margin. From the feasibility
analysis it has been found that the aggressive warranty based marketing was a very wrong
decision taken by the management of Ford Motors Company. It has been found that due to
high operational cost for repairing and warranty policy Ford Motors experienced a huge
depression of working capital. On the contrary, many other business strategies are available
to mitigate this situation namely product diversification, premium pricing and CSR. It can be
concluded that Premium pricing is very effective strategy for Ford that could increase the
customer loyalty and reduce customer turnover.

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References:
Ahmad, Y. (2015). Business strategies and resources for Small and Medium Enterprises
(SMEs): a case of auto parts manufacturing industry (Doctoral dissertation,
University of Engineering & Technology Taxila, Pakistan).
Keränen, J., & Jalkala, A. (2014). Three strategies for customer value assessment in business
markets. Management Decision, 52(1), 79-100.
Markides, C. C. (2013). Business model innovation: What can the ambidexterity literature
teach us?. Academy of Management Perspectives, 27(4), 313-323.
McCormack, K. P., & Johnson, W. C. (2016). Supply chain networks and business process
orientation: advanced strategies and best practices. CRC Press.
Menezes, M. A. (1988). Ford Motor Company: The Product Warranty Program. A, 9, 589-
001.
México, P. (2013). Doing business in Mexico. Automotive Industry. May. Electronic access:
http://www. pwc. com/mx/doing-business-automotive.
Zaefarian, G., Henneberg, S. C., & Naudé, P. (2013). Assessing the strategic fit between
business strategies and business relationships in knowledge-intensive business
services. Industrial Marketing Management, 42(2), 260-272.