Commentary: Better times for Ford or just table stakes

In his July 21^st post in Business Week, David Kiley describes how Ford Motor finally beat the competition. In a survey conducted by RDA Group that looks at the number of problems among auto manufacturers. Ford came out on top even besting Toyota. In addition, in J.D. Power’s Initial Quality Study, which sets the industry standard Ford was in a “statistical dead heat” with Toyota in Things Gone Wrong (TGW) in the first three months of ownership.

Quoting from the article Business Week cites an internal memo describing how it feels to be on top. “We’ve been tied with Toyota before, but it sure feels better to be on the top!” wrote Bennie Fowler, Ford’s global head of quality, in a memo to employees.

This is no small accomplishment and Ford should be congratulated. Now, Ford must determine if these improvements will result in improved competitive position. If so, Ford will reap the rewards of its determined efforts. If not, and IMP doesn’t help increase Ford’s visibility in the market or isn’t an important factor in the customers decision process the company’s accomplishment may only be a table stake to keep Ford in the game.

How can Ford determine the potential impact of these changes? One of our firm’s analytical approaches is Relative Perceived Quality (RPQ) that quantifies customer needs and perceptions of competitive offerings. Using this framework we can determine whether Ford derives a meaningful benefit in the eyes of customers when making purchase decisions. As a simplified example, let’s look at a set of five decision factors and three competitors for the family sedan market. The five factors are Initial Manufacturing Problems (IMP), Design, Features, Miles-per-gallon (MPG), and comfort.

 

In Exhibit 1 we compare two examples (A and B) of how customers might weigh five decision factors. Initial Manufacturing Problems (IMP) has a weight of 5 in Example A, the least important factor, and a weight of 30 in Example B, the most important factor. The other factors are Design, Features, MPG, and Comfort. In the Example A, customers are unlikely to base their car buying decision on IMP because it is much less important than the other factors. In Example B customers will likely base some of their buying decision on IMP because it is so important.

We can extent the analysis to add the competitive ratings (Exhibit 2) of Ford and two competitors using a 0 – 100 scale with 100 representing perfect performance and 0 poor performance. Drawing from the studies cited above, the scores indicate Ford has little advantage on IMP despite its number one ranking and in fact the company is about even with two leading competitors. If IMP is the only factor in the purchase decision Ford has a nominal advantage and regardless of its importance is unlikely to gain or lose market share based this factor alone. Management might argue that its efforts have reduced its costs or that longer-term the improvement in IMP will bolster its ratings on the other factors. A counter argument is IMP is a table stake that allows Ford to be in the consideration set rather than a decision factor.

Purchasing an automobile is a complicated process involving both price and non-price factors. In these examples we have simplified the automotive purchase decision process; however, simple or complex managers must insure they measure what is meaningful for their market to drive their success. Ford’s ratings on the other factors may vary from better than to worse than competitors. A more comprehensive analysis will consider multiple factors and provide a clearer picture of Ford and its competitors and their position relative to each other.