Henry Ford is celebrated for the wrong reason: for his production genius. His real genius was marketing. We think he was able to cut his selling price and therefore sell millions of $500 cars because his invention of the assembly line had reduced the costs. Actually, he invented the assembly line because he had concluded that at $500 he could sell millions of cars. Mass production was the result, not the cause, of his low prices.
From the book “Henry Ford, My Life and Work”, here is his operating philosophy expressed succinctly:
“Our policy is to reduce the price, extend the operations, and improve the article. You will notice that the reduction of price comes first. We have never considered any costs as fixed. Therefore we first reduce the price to the point where we believe more sales will result. Then we go ahead and try to make the prices. We do not bother about the costs. The new price forces the costs down. The more usual way is to take the costs and then determine the price; and although that method may be scientific in the narrow sense, it is not scientific in the broad sense, because what earthly use is it to know the cost if it tells you that you cannot manufacture at a price at which the article can be sold? But more to the point is the fact that, although one may calculate what a cost is, and of course all of our costs are carefully calculated, no one knows what a cost ought to be. One of the ways of discovering…is to name a price so low as to force everybody in the place to the highest point of efficiency. The low price makes everybody dig for profits. We make more discoveries concerning manufacturing and selling under this forced method than by any method of leisurely investigation.”
I take my hat off to Ford. He certainly went against the grain when it comes to “sensible” marketing. Most companies jack up prices as high as they can. How many companies strive for efficiency to reduce pricing, which certainly is a benefit to customers? Not many. Too much work to become more efficient. It’s easier to increase prices. This way of thinking isn’t customer oriented at all. My encouragement to marketers is take a lesson from Henry Ford. Be more concerned about the customer, not the profit.
Taken from the Harvard Business Review article – Marketing Myopia.