The Ford Motor Company Case

Is Revenue Management only applicable to service industries?: The Ford Motor Company case  

While it is true that Revenue Management is usually applied to service industries, other sectors, such as the automotive industry, comprise a profitable field to employ this type of tactics. In this way, although very few models have been developed in this industry, this sector has the appropriate characteristics and a low profit margin to make it a promising application area for price-based Revenue Management. Furthermore, since pre-owned cars are individual and durable goods, a different approach is required with dynamic pricing as the main control strategy. It is worth mentioning that it is possible to identify a similar opportunity in the real estate sector.

Beyond that, it is relevant to mention the case of Ford Motor Company, which was the first automobile manufacturer to adopt Revenue Management in its industrial sector. In late 2001, pricing specialist Lloyd E. Hansen was promoted to VP of The Ford Motor Company, who at the time was the only industry professional heading a Revenue Management unit. He announced a Revenue Managementstrategy as a vital part of the company’s recovery plans after Ford hold $ 25 billion in unfunded pensions and health care liabilities and generated economic losses of US $ 6.4 billion in two years due to quality issues, productivity problems and an outdated model portfolio.

In this case, Hansen introduced a Revenue Management system that consists of three technological tools. First, he applied a marketing response tool that analyzed transaction prices per vehicle taking into account the range of different incentive programs offered. Because of this, the company and its retailers were able to project the effect of different incentive programs on sales, determining the best program in each market. Second, he introduced a package optimizer that was able to determine the car with the best selection of features and the most likely to appeal to consumers in a particular market. Finally, Ford adopted a new auto dealership ordering system that optimizes inventory based on profit margins, customer preferences and customer willingness to pay.

In conclusion, this complex Revenue Management system applied to the automotive industry represents a milestone for this discipline, as it shows that, although still incipient, it is possible to apply the principles of this discipline to companies that do not offer services.

About the author

With over 16 years of leadership experience driving strategic growth, pricing innovation, and transformational change across multiple industries, Daniela León is driven to contribute to the Community by sharing her experience through this blog. 

Her passion for data-driven insights and cross-functional collaboration, positions her to deliver valuable insights for business transformation.