FORD KA SEGMENTATION STRATEGY MEMO
Background Ford (and the auto industry as a whole) traditionally segmented customers customers in the small car market first on their income (purchasing power and financial means) and then more sub-categorized based on other traditional demographic demographic characteristics such such as gender, family size, and location. location. More specifically, For Ford d grouped consumers into the following four large buckets: 1) financially constrained constrained , 2) average income and family constrained , 3) average income/youthful expressive and high income, and 4) not family (root of all four is income) constrained (root Historically, consumers made their decisions to purchase cars based on affordability and meeting basic needs. As such, the traditional segmentation method made sense because these customer demands were easily understood. understood. More specifically: specifically: 1) Consumers wanted to buy small, affordable cars that allowed them to get from Point A to Point B and small car manufacturers were able to concentrate on price by lowering costs of production through high volume sales 2) Consumers had not yet developed the need for accessories and add-ons to vehicles largely because they did not exist. Due to little differentiation and the standardization of car models, there existed little incentive for a customer to buy from one brand over another as all met the consumer’s utility-based utility-based needs. As such, car manufacturers manufacturers did not need to segment segment base on differing customer demands. 3) Additionally, Ford’s entry into the European market (at that time) was to have a presence, but was not a major priority. Because there was no differentiation differentiation and no desire on Ford’s part to invest in R&D to capture only a fraction of the available market share, it made sense to adopt the standard methods of the European market.
Recommendation Recommendation for Ford KA Ford should adopt a similar segmentation approach approach that has allowed competitor Renault to succeed with the (recently launched) Twingo. Instead of focusing on income, income, gender, or family size, Renault targets a narrow narrow range of customers for whom the Twingo provides the most value. Renault’s focus on marketing characteristics of the Twingo to a specific customer segment is a departure from the generally adopted and used traditional demographic segmentation for the small car market in the EU. As a result of this different marketing approach, Renault has gained an 8.9% market share after only 12 months of production and sales. Ford faces the following obstacles with the Ka: 1) Ford does not have the advantage of national brand loyalty as other EU-based manufacturers do. As such, Ford will not be to able to gain market share in volume and therefore enjoy economies of scale by continuing to use a traditional demographic segmentation segmentation and marketing approach in a dense market segment.
TEAM 13 AFTAB MAO MUCKERMAN PAVIA ZHAO
FORD KA SEGMENTATION STRATEGY MEMO 2) Ford built the Ka without having a particular customer need to fulfill and therefore, is experiencing difficulty about how and and to whom to market the car. 3) Ford has also not been able to differentiate the Ka effectively in the EU market. Given these obstacles, Ford should consider using market research to identify characteristics of the Ka that relevant consumers find most appealing and then determine a customer group that attaches value to those favorable characteristics. This would allow Ford to market the Ka to those identified customer segments as a differentiated low-cost small car. Attitudinal segmentation, unlike the traditional demographic method, does not fragment customers on income and general utility needs, but rather according to life-styles and behavior. The approach has four main segments with the associated defining attributes: i. Freedom Lovers: Outgoing, social, and active ii.
Attention Seekers: innovators, opinion leaders, and flashy
iii.
Sensible Classics: responsible, risk-adverse, and traditionalists
iv.
No-nonsense Neutrals: brand wary, TV watchers, and unenthusiastic consumers
Using this approach, a stronger correlation can be made between the hypothesized customer segments and the favorable Ka characteristics identified in market research. Market research indicates that 45% of buyers interested in buying a small car identify the Ka as one of their top 3 choices. These individuals stated that they find the Ka to be flashy, sophisticated, fun to drive, and futuristic. Evidence suggest that the Freedom Lovers and Attention Seekers groups would most value the Ka. This conclusion is further supported by the large gap between users in these categories that find favorable characteristics of the Ka and those that focus on the Ka’s negative attributes (Case Exhibit 13).
Remarks regarding other segmentation strategies Gender segmentation would not be an optimistic customer segmentation approach due to conflicting opinions that both men and women had in regards to the Ka. For example, “men saw the Ka as a feminine car and women were concerned that they might not be taken seriously driving a car that looks frivolous.” Ford would need to further sub-segment the genders, which would eventually require multiple marketing campaigns. Additionally, this method does not seem to identify the customer segment that would value the Ka as well as the attitudinal segmentation approach.
TEAM 13 AFTAB MAO MUCKERMAN PAVIA ZHAO
