Ford Motor CompanyFord Motor Company

Design and Governance of the End User InterfaceSpring 2000BA 266: 2000-3

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Ford Decisions & Ford Decisions & GeneralizationsGeneralizations

• 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

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EUI Design OptionsEUI 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

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EUI V-A Trade-offEUI 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

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The Evolving Auto Channel?The Evolving Auto Channel?

End-users

Supplier

S&S Dlr. S&S Dlr. S&S Dlr.

End-users

Supplier

S&S Dlr. S&S Dlr.

S&S = Sales and Service

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Pooled EUI Product MixPooled 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

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EU Service NeedsEU 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?

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End-users

Supplier

S&S Dlr. S&S Dlr. S&S Dlr.

Warehouse

End-users

Supplier

Service

S&S Dlr.

Service

Two Alternate EUI DesignsTwo Alternate EUI Designs

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Competition Among EUICompetition 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

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• 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

Some Governance OptionsSome Governance Options

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Governance ConstraintsGovernance 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

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Applying PressureApplying 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

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Pooled Service & SalesPooled 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

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Warehouse Channel InventoriesWarehouse 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

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Ford’s Perception of the Ford’s Perception of the Service-Sales LinkageService-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)