Markethaus Musings

Back in my 'salad' days not only did I have longer hair, but I also worked on Ford's electric and hybrid electric vehicle programs. I recall several papers we published that showed that if gasoline prices were comparable to Europe (at the time, between $4 and $5/gallon) that we could create a viable mass market EV/Hybrid market.

Watching gasoline prices rise to $3/gallon, and the waiting lines for Toyota hybrids lends credence to our "models" back then. In fact, we attempted to justify the serial and parallel hybrids with exactly that formula, as a world car. Needless to say, adherence to the CA ZEV mandate (must sell 2% of volume in CA as ZEV - zero emission vehicle) meant we couldn't focus on hybrids, although that was the better short term solution.

Interestingly, for those wondering, why are the domestics once again behind on hybrid technology? In 1992-96...we were ahead...we had several hybrids driving around CA and we'd been working with the DOE (Dept. of Energy) on a $122 million project to build viable hybrids. We used some of the DOE funds to conduct research that showed consumers would be willing to buy hybrids at a premium as long as it was a good commuter vehicle (2+2 seating, 0-60 acceleration of 10 seconds and no need to "plug in" to refuel, and 40-60 mpg).

Shortly after we finished that project, I distinctly remember wanting to leave EVs (and did leave to go build websites) because I knew EVs wouldn't work...hybrids, however...that was a different story. We had a nice vehicle on the drawing board at the time but the funding just wasn't there for a world car based on Hybrid propulsion (EV only for CA, NY and MA). Maybe $400-$600 million in investment, as I recall? It's been 10 years...

We were trying hard to live up to the mandate...instead of figuring out what the consumer might be willing to buy. But I must admit, it must be frustrating for people like John Wallace (the director of Alt Fuels) and Brad Bates (Ford Research Lab propulsion technologies) to see Toyota and Honda introduce their hybrids first and for Ford to have to license some aspects of the technology from Toyota, according to MixedPower.com.

I'm confused...how does reducing rebates make a customer want to buy a Ford, GM or DCX product? The whole reason we went down this road is because, "gasp," they couldn't sell cars at sticker price...

1. Product planners price cars relative to competition and try to build packages that make their vehicle more attractive ('we have more legroom for the same price,' 'for the same price...you get leather')
2. Added to that price is a nice amount of "pad" for marketing "cost." Otherwise known as incentives, holdback, spiff, yada yada
3. The amount of the pad is determined in a series of meetings in which sales, marketing and product guys argue about the intangible, unpredicatble future of the car..."I think we can sell 200,000 if we get x marketing dollars and y ad dollars."
4. Finance guys try to talk down the amount, marketing guys try to talk up the amount to ensure the "launch." "My god, man...you can't expect me to launch an all new name plate with only $100 million in advertising!!! Why...it's suicide!"
5. In the end, sausage is made...and tada...you have the quintissential product that can be sold in the market for $5,000 off and if it meets its volume requirement...help the corporation break even in year 2 or 3 of production (yes, it frequently takes that long to pay off long lead investment in an all new product...or, yikes...longer).
6. Also...in the end, most of the meetings and discussion were/are about advancing one's career in the boardroom...in my days, I saw little real discussion of what's actually going on in the market. I saw a lot of chinmusic about how "we" were going to beat the Japanese (insert volume market leader in any car market segment here) with the all new Krelman super charger (imaginary name).

What's most confusing about all of this is this...the domestics (if I include DCX) spend more ad dollars per unit than any of the imports...so I don't think the problem is exposure. One could argue it's the kind of exposure...that it's "deal" oriented. But frankly...the only reason an agency presents "deal" advertising is because the client is itchy and scratchy about dwindling sales. No one wants to launch a product with deals. We advertise deals because WE HAVE NO CHOICE!!!!

Changing prices to reflect lower incentives is not all bad...but the dealer better have room to negotiate because we've conditioned consumers to expect cash back and negotiating since the original 2.9% GM incentive launch (anyone remember that? Back in the 80's).

I go back to a basic tenet of long considered product marketing/advertising. The single most important influence in a long product purchase cycle is word of mouth. Followed by more word of mouth...and, you got it...more positive word of mouth.

So the question I have is...not, should we adjust pricing. The question I have is...how do you build positive word of mouth for domestic brands...because there is good news across the board. I don't think the domestics need to abandon "deal" advertising as much as they need a new formula for promoting their products. I've told several friends that I have yet to see the Iacocca ad. Why? I just don't watch TV. And, as I like to say...I especially don't watch car commercials if I'm not shopping. So...how do you build a brand? I really think people in Detroit believe you build a brand by advertising on television...or showing a car on a rain slick road in Oprah.