Ford Motor Co. has changed the way it doles out vehicle sales incentives, using computerized methods to predict what type of financing deals will appeal to different customers.
Ford's practice mimics the methods of packaged goods retailers, including Sears, Roebuck and Co.
Ford still uses national sales rebates and other incentives. But now it also uses vast computer information to offer incentives to specific consumers in specific regions.
For example, Ford is trying to predict what type of financing deal turns a 30-year-old female shopper considering a Ford Windstar into a buyer and how that differs from a deal that works for a 50-year-old male shopper considering a Ford F series.
The company is using the new approach on all Ford Division, Lincoln and Mercury vehicles marketed in North America.
'It is a calculated gamble. But this approach has been used in packaged goods companies with some success,' said Peter Greer, vice president of the automotive practice at A.T. Kearney in Southfield, Mich.
'The disadvantage is that the computer model may be wrong,' Greer said.
'The approach also could create ill will among dealers if they believe they will be less competitive without incentives that exactly match the competition.'
But, if successful, the approach could result in more revenue per unit sold.
'The objective is to save money or use it more purposefully by targeting the incentives to the needs of a specific customer in a specific area,' Greer said.
Ford is using computers to predict the impact on sales and profit of various incentive alternatives, including financing or leasing, cash back or discounted financing. Currently, Ford is using key variables such as geographic region, age, gender and vehicle line to predict buyer behavior. Later, other measures will be calculated in the equation.
'I can tell what kind of incentive program would be most effective with a specific group,' said Lloyd Hansen, Ford vice president and controller. 'This gives us better volume results and improves profitability for the company and for dealers.'
The approach relies on statistical analysis to identify accurately the key variables that will turn a shopper into a buyer for a specific product. Traditionally, automotive sales executives have considered vehicle marketing too complex to capture in a computer model.
The move comes as the automotive industry faces weakening demand and increased pressure to underwrite sales with incentives. For example, the Chrysler group has offered $4,000 per unit to sell 2000 minivans while also offering customer cash on 2001 models.
Traditionally, the auto industry has relied on a 'follow the leader' approach to incentives. One company announces a hefty national sales promotion on minivans. Other mass marketers follow suit.
Hansen declined to provide many details about Ford's program, citing competitive reasons. He would not say how the spending or the mix of national and regional incentives is changing. Nor would he detail the results of the company's test program.
Ford is spending slightly more this year than last year on incentives in an increasingly competitive North American market, Hansen said.
Ford began testing the computer software used for the new approach in January. In June, the test ended and the program began in North America.
The incentive changes are part of an overall focus on revenue management and brand building within the company, he said.