Why Ford's focus is best in the business
Alan Mulally turns 65 this week. You might not know the name, but you surely know the company he leads. Mulally is the CEO of Ford. That might sound a pretty unpleasant role with all the challenges of declining sales, government bail-outs and union action. But Ford is different. And it’s different because of Alan Mulally.
While General Motors and Chrysler were heading blindly over the edge of the cliff during the global financial crisis, Mulally steered his company in a very different direction. Almost as soon as he took over at Ford he went out and raised funds using the company as collateral.
Many onlookers questioned why Ford needed $26bn but the money, raised while credit was cheap and available, allowed Mulally the chance to totally restructure Ford and the way it made vehicles. It also enabled Ford to survive without the government bail-outs that both GM and Chrysler would later depend upon to stay afloat.
But it is what Mulally has been doing with his war chest that is really impressive. Marketers looking to learn about the new rules of brand management would do well to study his actions over the past three years. He started, as all good marketers should, with the knife. Ford had grown fat and unfocused in the early years of the 21st century. In 2007, barely a year into his tenure, Mulally sold off Land Rover, Jaguar and Aston Martin. This week Ford will complete its divestments with the announcement that Volvo, a brand it acquired in 1999 for $6.5bn, has been sold to Chinese car manufacturer Geely for $1.8bn.
Why sell off such an array of wonderful brands? Take Volvo, it’s a fabulous company with a strong brand equity linked to safety and performance. It’s also very popular - Volvo has sold more than 200,000 vehicles worldwide since the start of 2010. And it has done so profitably. Up to June Volvo made pre-tax profits of $53m. So why sell the company now for a fraction of the price you paid for it ten years earlier?
The answer lies in focus and it is one of the most difficult lessons about brand management. Yes the likes of Volvo, Aston Martin and Jaguar are superb brands and, yes, they can make Ford money. But Mulally realised his wide portfolio of different brands with different models and different target markets would be less successful than a company that focused on its strengths.
To put it simply, Mulally is betting that focusing all his people and investments and resources on Ford will deliver a better ultimate return than if he spreads those resources across a portfolio of five or six brands. Or to put it even more simply, in the game of global branding, less is usually more. This new found focus has even been extended into the Ford brand itself under a new strategy that Mulally calls “OneFord”. Having compared notes across multiple markets, Ford recognised that consumers from Stockholm to Stoke to San Diego were all looking for the same thing. So Ford’s new models, such as the 2011 Fiesta, will be produced in five different plants around the world and made available in five continents - but the car itself will be the same. One brand. One model. One focus.
Before you start managing brands consider cutting most of them
One of the major benefits of producing fewer cars is that the ones you make are usually better. When Ford was spreading itself thinly across Land Rover, Jaguar and Aston Martin, as well as its own models, the quality and attractiveness of the cars often suffered. Now, thanks to a singular brand focus and a much more parsimonious production list of sub-brands, Ford is producing cars that critics and consumers are raving about. The new Fiesta has met with a tremendous reception in America, for example.
Focus does not just guarantee better cars. Crucially, it also means better profits too. Under the OneFord approach many analysts expect Ford to double its operating profit margin of 7% to deliver a further $7bn a year in profits from about the same number of cars sold. Managing multiple brands might garner increased sales, but profit is the lifeblood of any business. By focusing on a single brand with a limited number of modelsFord is enjoying a new found profitability - one that has completely surprised the investment markets in recent months.
For marketers, Mulally and Ford provide an essential lesson in brand management. Before you start managing brands, consider cutting most of them. Too many of the companies I work with have too many brands. But unfortunately most of the marketers that manage them are too attached - or too short sighted - to see the advantages of removing brands from the portfolio and focusing on only the very best.
Ford is going to enjoy a remarkable five-year period of success thanks to its inspirational CEO and his ability to focus on the brand that counts.
The lesson should be clear. Ford’s Focus is not just a very attractive small vehicle, it’s also a crucial lesson in brand management.
Mark Ritson is an associate professor of marketing, an award-winning columnist and a consultant to some of the world’s biggest brands
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