FORD HYBRID Market strategy

Matthew Lam Alice Lin Dennis Jiang Sara Omar

kThe problem

01.

02.

Ford requires 10-year forecast in unit sales

of the total hybrid market in the U.S. to

assess Way Forward Plan - 250,000 cars

by 2010

Ford needs a short- and long-term strategy

to optimize position and effectively

respond to forecast

kFord hybrid situational analysis

Product Characteristics

- New product category

- Environmental Shift

- Conspicuous consumption

- Government regulations

- Strong Competitor Landscape

(Toyota, Honda, Lexus)

Environmental Analysis

- Combines diesel engine with

electric motor

- $3000 higher price point

- 15% improvement in gas

mileage

- Two models: Ford Mariner and

Ford Escape

7.98%1.26%

Honda Insight

Toyota Prius

Honda Civic

Honda Accord

Toyota Camry

Toyota Highlander

Lexus RX400h

Lexus GS450h

Ford Escape

Ford Mariner

Ford’s Total

Market Share9.84%

Toyota’s Total

Market Share67.21%

2006 TOTAL UNIT SALES: 252,636

Honda’s Total

Market Share14.87%

Lexus’ Total

Market Share8.69%

kFord hybrid MARKET SHARE

Why aren't people buying?

01.

02.

03.

04.

05.

06.

07.

New product category

High price point

Toyota Prius is the leader

Escape and Mariner

similar MPG EPA

Psychology: delay of

gratification

Tax incentive unsustained

and not valued

Fuel Prices

k

Pessimistic Scenario

SCENARIO 1 : ANTI -GREEN REVOLUTION

01.

02.

03.

Population shift into suburban

lifestyle

Low fuel prices

Green symbol viewed as low value

04.Competitors innovate faster than

Ford

k

Neutral Scenario

SCENARIO 2 : status quo

01.

02.

03.

No innovative developments

Eco-friendly hybrid remains luxury

good but with more mass adoption

No changes in fuel price

04. No additional government regulations

k

Optimistic Scenario

SCENARIO 3: hybrid heaven

01.

02.

03.

Aging population shift increases

hybrid market size

Fuel prices rise

Green revolution booms

04.Government regulations increase

hybrid demand

05.Ford innovative advances

increase competitive advantage

• Tool for forecasting time-path adoption of new products and new product categories within a target population

• Two modes: • Analogy

• Past Data

• Parameters: • p – “innovation” component

• q – “word-of-mouth” component

kBass model

kANALOGs used for bass model

01. 02. 03. 04.

Optimistic Scenario

Ford Hybrid Projected

Adoption Rate:

2010: 9.06%

2016: 17.46%

Electronic Fuel

InjectionSolar Energy

Realistic Scenario

Ford Hybrid Projected

Adoption Rate:

2010: 8.70%

2016: 12.07%

Anti-Lock

Braking System

Realistic Scenario

Ford Hybrid Projected

Adoption Rate:

2010: 2.10%

2016: 4.75%

Diesel Car

Pessimistic Scenario

Ford Hybrid Projected

Adoption Rate:

2010: 1.75%

2016: 5.58%

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

EFI Solar Diesel ABS

kFord hybrid analog comparisons

Acquired a range of forecasts

Pessimistic Scenario Realistic Scenario Optimistic Scenario

kScenario analysis

243822

1009615 1050960

783773

1991445

2880900

0

500000

1000000

1500000

2000000

2500000

3000000

Pessimistic Realistic Optimistic

2010 2016

Ford’s Problem:

• Ford’s projections

are unrealistic

• Current marketing

strategy not viable

kFord hybrid : The Problem

Current state

Consumer Profile:

- Medium income consumer (Affordable Escape)

- High income consumer (Premium Mariner)

Product:

- 6 years of brand presence

- Cannibalization

- Market share (Escape 8.0%; Mariner 1.25%)

Product:

- Differentiated product lines

- Stable product category

- Captivate – conspicuous consumption

- Target market share: (Escape: 20%; Mariner:

10%)

Consumer Profile:

- High income, educated, older consumer

- Innovative, luxury status

Ideal state

Achieving the Ideal State

0

10

20

30

40

50

60

70

0 20000 40000 60000 80000

Com

bin

ed E

PA

MP

G

Manufacturer Suggested Retail Price (USD)

Insight

Prius

Civic

Accord

Camry

Highlander

RX400h

GS450h

Escape

Mariner

• Short Term Strategy

• Marketing Mix for

Increasing Brand

Awareness and Adoption

• Cost Cutting

• Hedging

• Lobbying

• Long Term Strategy

• Increase capacity

• Invest in R&D

• Lobbying

kFord hybrid : The Problem

kFord hybrid Marketing mix strategy

PRODUCT PRICING

Ford Escape

Fuel Economy: ~30 mpg

Car Type: SUV

Horsepower: 153 hp

Mercury Mariner

Fuel Economy: ~30 mpg

Car Type: SUV

Horsepower: 200 hp

Ford Escape Pricing:

$18,000 – $20,000

“Affordable Hybrid”

The luxury SUV both in

appearance, functionality,

and efficiency – the

premium hybrid for the

educated consumer

Comfortable, large

interior space, durable,

great affordable SUV for

young starting families

Mercury Mariner Pricing:

$25,000 - $35,000

“Premium Hybrid”

WHERE?

• Target marketing efforts in states

where:

• Tax credits are available

• Utah, Illinois, Colorado

• Sales Tax Exemptions

• Connecticut and New

Mexico

• Tight environmental

regulations

• California (CARB)

HOW?

• TV Advertisements

• Viral power of celebrities

(Mariner)

• Print Advertising

• Forbes, Time, Motor-Trend

• “Rental” test drives

• Interactive advertising

• Blogger Advertising

• Consumer Education Campaigns

kFord hybrid Marketing mix strategy

kShort-term strategy

Hedging01

S- Investing in Flexible

Manufacturing

- Invest in other

Renewables

- Lean/Six-sigma

production

- Overhead Cost

Reduction

- Tax Credits in more

States

- Emission standards

- Fuel Economy

Standards

02 Cost-Cutting 03 Lobbying

kLong -term strategy

- Purchasing more

production facilities

- Increasing production

efficiency

- Tax Credits in more

States

- Emission standards

- Fuel Economy

Standards

- Push for more optimal

positioning (increase

MPG through R&D)

01 Enhancing Position Enhancing Capacity02 03 Lobbying

kFord hybrid monitoring outcomes

Tracking Success – Key Performance Indicators

01.

02.

03.

04.

Ford’s Market Share in Hybrid Market

Overall Hybrid Market Growth year over year

Market Research on Consumer Perception

Unit Sales per State

k

kFord hybrid value proposition

For the conscientious consumer, Ford Hybrid vehicles are the

future of personal cars, offering you the freedom to go the

distance you want without worrying about the mileage. Ford

will take care of transportation peace of mind, so you can focus

on the more important things to your life.

“

”

FORD HYBRID

QUESTIONS?

APPENDIXCar Model Base MSRP

(USD)

Honda Insight $19,330

Toyota Prius $21,725

Honda Civic Hybrid $22,150

Honda Accord Hybrid $30,990

Toyota Camry Hybrid $26,200

Toyota Highlander Hybrid

$33,030

Lexus RX400H $44,660

Lexus GS450H $54,900

Ford Escape Hybrid $26,900

Ford Mercury Mariner Hybrid

$29,225

Base MSRP of various hybrid vehicles (2006) from AutoTrader.com

APPENDIXDemographic •traditional, environmentally friendly consumers

•high level of education

•more likely female

•average age: 50

•average income $100,000/yr (vs $85,00 for average buyer)

•long-term investment in vehicle (not buyers who frequently switch vehicles; psychographic:

invest now, save later)

•increased road traffic - data in case = 800M used worldwide/240M in US -> 1B worldwide in

2020

•hybrid customers less price-sensitive to environmentally-friendly products

•more pessimistic of future fuel prices than average customer

Economic •Manufacturing costs of hybrid vehicle relatively high compared to gasoline-only vehicles

•success of hybrid dependent on increasing oil prices - middle/east situation & depleting oil

reserves/new reserves

•Oil prices between 2000-2006 (find data), what’s the trend?

•price range of hybrid products vs average car price

•“@$2.50 price per gallon of gas, breakeven point btwn hybrid and regular gasoline car can occur

after 50,000 miles of driving’ (p4)

•high initial cost; consumer barrier

APPENDIXEcological •want to reduce vehicle pollution

• in particular, US was single largest polluter in the world in 1999 (25% of

worldwide emissions)

•overall drive fewer miles on average

•counterintuitive: potential environmental issues wrt disposal of rechargeable batteries in

hybrid cars

•Competition: clean fuels for non-hybrid cars

Political/Legal •Tax incentives for ‘cleaner’ transportation vs incentives to use public transportation

•CAFE regulation (increased min mpg)

•Federal government begins legislating for emissions control (greater incentive to

purchase hybrid) - v

•Greater dependence on foreign oil (increase from 8% - 52%) = higher oil prices

•California Air Resources Board mandate - 10% of vehicles for sale in California must be

zero-emission vehicles

•Locations to charge hybrid cars

•(EPACT) energy policy act of 2005 - consumers and businesses get federal tax credits (in

effect 2007); between $400-$2500 per vehicle

•Solo use of high occupancy lanes (Georgia, florida, arizona)

•tax credits (utah, illinois colorado)

•exemption from sales tax on car purchase (connecticut, new mexico)

APPENDIXSocial •word-of-mouth phenomenon

•conspicuous consumption

•social perception of hybrid cars: form, function, luxury, status, intelligence

•lack of awareness on how to take advantage of hybrid cars (improved gas mileage only if driver

has good habits)

•unclear whether consumers were as committed as the state and federal government in terms of

reducing gasoline consumption

•Consumers ranked functionality, safety, and price over gas mileage (check sources for this one)

Technological •how long do hybrid cars last? (product life cycle) vs. average vehicle

•convenience of maintenance and replacement (parts)

•improved oil extraction methods

•decision to make 100% gas-electric hybrid vs fully electric, type of fuel used eg hydrogen

•advantage of hybrid cars:

• high mileage if utilized properly = cost-effective

• practical for long trips

•disadvantage:

• slower than diesel-only cars

• less efficient internal combustion engine

APPENDIXStrengths (internal)

•Way Forward Plan - restructuring operations to

reduce fixed costs and optimize profits

Weaknesses (Internal)

•Not very differentiated from competitors in

terms of average mpg and average price

therefore losing market share

Opportunities (external)

•Rising fuel prices is making hybrid vehicles

more appealing to the consumer

•CAFE regulations raises mileage requirements

over 35 mpg

Threats (external)

•Hybrid market highly dominated by Toyota

Prius and Honda

•Environmentally friendly products appeal to

high-income consumers but the hype dies

quickly. Hybrid cars are $3,000 more expensive

than regular cars.

Upcoming Competitors:

1.Gas electric hybrid

2.pure electric cars

3.fuel cell cars

4.E85, Clean diesel, natural gas (clean fuels for

non-hybrid cars)

SWOT ANALYSIS