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Ford Motor Company. Design and Governance of the End User Interface Spring 2000 BA 266: 2000-3. Ford Decisions & Generalizations. Channel Design Options Determining EUI Value-Added Trade-offs Pooling the EUI Product Assortment Controlling Competition among EUI Governance Options

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ford motor company

Ford Motor Company

Design and Governance of the End User Interface

Spring 2000

BA 266: 2000-3

ford decisions generalizations
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
eui design options
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
eui v a trade off
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
slide5

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

pooled eui product mix
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
eu service needs
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?
slide8

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

competition among eui
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
slide10

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
governance constraints
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
applying pressure
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
pooled service sales
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
warehouse channel inventories
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
ford s perception of the service sales linkage
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)
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