Ford Motor Company

1. Ford Motor Company Design and Governance of the End User Interface Spring 2000 BA 266: 2000-3

2. Ford Decisions & Generalizations • Channel Design Options • Determining EUI Value-Added Trade-offs • Pooling the EUI Product Assortment • Controlling Competition among EUI • Governance Options • Applying Pressure • Dismembering Channels and Conflict • Inventory Risk and Governance • Old Chinese Proverb

3. EUI Design Options • Return to smaller dealerships • Ignore service problem, continue shift to larger dealer/service centers • Separate, localized service locations • Operated by dealers • Third parties (sub-franchisees, contractors) • Operated by Ford • Warehouse channel to hold dealer inventory

4. EUI V-A Trade-off • Increasing the distance of the EUI to the end user diminishes the V-A provided, ceteris paribus • Closeness to the end user enhances access, but will reduce market size available to the EUI • Holding assortment constant, product turnover decline • Broader assortment V-A is more feasible as the EUI distance to EU increases • Corollary: There is a trade-off in the provision of assortment and access services by an EUI

5. The Evolving Auto Channel? Supplier Supplier S&S Dlr. S&S Dlr. S&S Dlr. S&S Dlr. S&S Dlr. End-users End-users S&S = Sales and Service

6. Pooled EUI Product Mix • The auto dealer provides a pooled mix of products (new & used cars) and repair services • For early dealers, there was a match in end user access requirements and mix components • With growth in supplier product line, TV advertising, there is a separation • Corollary: Maintenance of a product mix with different end user V-A needs damages the channel equilibrium for products and service

7. EU Service Needs • What benefits do end-users seek in their selection of an auto-service center? • Role of cost/price • Role of service quality (right the first time, fast) • Role of assortment, service capability (complexity) • Role of personal treatment by sales personnel • Role of distance • How effectively can these services needs be satisfied within a centralized facility?

8. Two Alternate EUI Designs Supplier Supplier Warehouse S&S Dlr. Service Service S&S Dlr. S&S Dlr. S&S Dlr. End-users End-users

9. Competition Among EUI • Increasing the distance between EUI and the end user reduces the number of dealers and reduces intra-channel price competition a la Saturn • Competition among EUI is an important factor driving channel price toward cost despite some EU dislike • Corollary: Higher EUI prices damage channel equilibrium, opening opportunities for new channels unless politically blocked and/or brand demand is powerful

10. Some Governance Options • Separate service operations from product sales and decentralize improve consumer access • Enhance dealer interest in service by increasing profitability • Increase pressure upon dealers by stronger enforcement of service quality standards • Buy out service operations from dealers and operate directly • Reduce pressure on dealers for volume; enhance product quality

11. Governance Constraints • What constraints limit supplier influence over dealer service quality • Limited power because of state legislation making dismissal difficult • Propensity of many consumers to bargain creates a unique transaction environment • Service is not seen as a strong profit center • Ford’s culture of strong sales orientation

12. Applying Pressure • Application of pressure for conformance: • generates conflict where dealers do not perceive requirements to be fair or just • Is difficult to enforce because legal and historical position of the dealer has reduced supplier power • Carrots continue to do better than sticks • Dealers must be shown that good service enhances their dealership, profits

13. Pooled Service & Sales • Is there benefit to a common or pooled operation of service and sales in the same establishment? • Is there benefit to a common ownership of service and sales, but not necessarily location? • To the new car dealer, end user, sale of used cars • Would independent service facilities generate conflict within the channel? • Change within a channel where power is closely balanced, benefits are unevenly distributed, and there is a lack of trust will generate chaos

14. Warehouse Channel Inventories • Who will be responsible for inventory control? • The individual dealer? • The supplier? • Both options create obstacles. • Dealers could not be individually responsible • If supplier were responsible, losses for cars not sold in timely fashion would generate losses • Inventory risk is best controlled by channel member that controls turnover

15. Ford’s Perception of the Service-Sales Linkage • Product characteristics are perceived to be increasingly less significant in determining end-user choice • What are the factors that determine dealer choice? • Model availability • Assortment • Price • Consultants are prone to lead clients down paths they want to travel (old Chinese proverb)