Saturday, September 8, 2007

End to Detroit's versioning strategies?

While my own research is about open source, open standards and open innovation, once a year I’m reminded of other aspects of innovation strategies when I teach my MBA tech strategy class. As Thursday’s posting suggested, price discrimination (or versioning) as the sort practiced by Hal Varian is top of mind for a few weeks and then will be forgotten for another 50 weeks until I teach it again.

And so, flipping stations this morning en route to work, the idea of price discrimination was frontmost in my mind when a Fresno radio station show talked about the long sad decline of the Mercury car brand.

Established in 1938, Mercury (with dealers that also sell Lincolns) is one of the two Ford Motor divisions. The numbers they put up were stark: 450,000 cars/year in the early 1990s versus a projected 160,000/year in 2007. Most Mercury dealers sell something else.

The car talk guys (not the Car Talk guys) were reporting speculation that Mercury will eventually die, and debating whether Ford should do a phase-out (as GM did with Oldsmobile and Chrysler with Plymouth) — giving people a chance to shift their investments but also setting up several years of selling orphan cars — or maybe should just pull the plug quickly and move on. (Would this mean Lincolns move to Ford lots?)

But this calls to mind the good ol’ days when I was a kid, and Americans bought cars that were as American as apple pie and the red-white-and-blue (to quote a Chevy marketing campaign). Ford had Ford, Lincoln and Mercury; Chrysler had Dodge, Chrysler, and Plymouth (before they bought AMC which had bought Jeep); GM had Buick, Caddie, Chevy, Pontiac and Olds. (I think GMC came later as a 2nd brand for the Chevy trucks, and of course Saturn was a creature of the 80s).

Of course, the collapse of market share by the American companies (plus, as I was reminded this morning, the lengthening of the replacement cycle in the 1980s as cars got more reliable) means that GM and Ford aren’t selling as many cars and thus don’t need as many dealers and brands.

Still, what was the proposition?

  • Chevrolet: basic entry level car, nothing fancy (Corvette excepted)
  • Pontiac: performance, cars like the GTO (my neighbor’s treasured 60s muscle car) and the Firebird (a Chevy Camaro with sharper corners) and Trans Am ( think Knight Rider)
  • Oldsmobile: at one point a performance car (think Rocket 88) but later a slightly upscale sedan
  • Buick: a near-Cadillac for the middle class that can’t afford a Caddy
  • Cadillac: a word synonymous with luxury, the “Cadillac” of brands
Of course, after GM went for modular platforms and manufacturing efficiencies, the Buick and Olds became indistinguishable and the Olds was killed in 2004 a few months shy of its 107th birthday.

My dad favored Fords (although we had also owned at various times Rambler wagon, a Fiat 128 and a Chrysler 300). Of the Ford purchases, we had one Mercury Maquis, three1963 Lincolns, a 1972 Lincoln and then the rest Fords. As teenagers, my sister and I between us drove a Pinto wagon, a Pinto hatchback (the 4-wheel molotov cocktail) and a Mustang II. My wife & I have bought two Fords and a Mazda since we got married.

What was the difference between a Mercury and a Ford? I guess the word analogy is Buick is to Chevy as Merc is to Ford. But other than a different grille and a different set of dealers (the Ford dealer in Carlsbad used to be really really bad) there wasn’t and isn’t much difference between the two. Being small volume, Mercury tends to get products later than Ford, including the Mercury Mariner (a rebadged Ford Escape or Mazda Tribute) and the Mariner hybrid. (Mercury seems to be dying despite the able services of Jill Wagner.)

How could GM or Ford manage it differently? One way is the old Detroit way, of different drivetrains and perhaps even chassis for each product family. But apparently (given manufacturing or R&D scale economies) that’s no longer cost effective. On the other hand, the move to a common platform for GM (and Ford) saved costs but has eliminated differentiation for decades. Even loyal GM customers wonder if GM can make it with so many brands despite its impassioned defense.

Toyota seems to make it work, as a V-6 Camry has an MSRP of $24K vs. $34K for the comparable Lexus ES 350. I think the problem is that no one wants to pay a premium for a souped up Ford or Chevy. I think that’s as much a problem with the base product line (and its innovation, quality, reliability, fuel efficiency, etc.) as it is with the bells and whistles being added to the “premium” brands.

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