On May 25th, 1927, after selling more than 15 million Model T cars, Henry Ford was forced to halt manufacturing and send all employees home due to falling sales. Consumers had changed their taste, from clamoring for Model T cars (60% market share in 1921) to completely abandoning it in 1927. Why was Ford so successful at first? What was the reason for this complete change in consumer behavior? What was so popular in 1921, but so missing in 1927?
Step 1: Make the Technology Affordable
Cars were first made by skilled craftsmen following a meticulous manual process. Involvement of skilled labor is typical in the early days of most technologies, taking parts from existing industries and manually adapting them to achieve needed performance. Making things by hand is inherently expensive, as it is costly to train and pay skilled labor. High cost becomes a roadblock to mass consumer market adoption, as affordability is a necessary condition.
The first step towards affordability comes from standardtization of the product. When all resources are geared to supply a single, unified product, different activities go through the tried-and-true division of labor process, into steps that can be either automated or simplified beyond the need for specialized skills. Henry Ford’s assembly line for the Model T is an excellent example. The whole line was geared for the production of a single model, with large economy-of-scale benefits that allowed almost a 3 to 1 reduction in price while profitability numbers skyrocketed. There is however a price to pay. The extreme specialization makes the process inflexible: Even small changes are extremely expensive.
Another example for "give the customers any color they want, as long as it's black", was Abraham Darby's cooking pot, exactly 200 years before Henry Ford. It is a rather common occurence.
The examples in this post is far better decipted here.
Another example for "give the customers any color they want, as long as it's black", was Abraham Darby's cooking pot, exactly 200 years before Henry Ford. It is a rather common occurence.
The examples in this post is far better decipted here.
Step2: The Emerging Need for Variation, Style and Selection
Consumers always look for ways to differentiate themselves, to express themselves through what they buy[1]. When new technology is rare, the fact of having it is unique enough (like having the first car in the neighborhood); when it becomes commonplace, having the technology is not unique enough, and people look for other differentiations in the technology itself (if half the neighborhood has cars, I want mine to stand out). Henry Ford concentrated on value, mandating uniformity for efficiency (black color dries fastest – so “you can get any color as long as it’s black”). Any change in his super-efficient assembly line would have been cost-prohibitive. GM on the other hand did not change cars’ internals, but provided annual marginal variations in exterior design, and invested in new paint technology that allowed for many color variations.
Once a technology’s affordability is achieved through uniform offering, the consumers – almost overnight – change their habits and demand differentiation to set them apart with selection and style. Ford was baffled by this dichotomy, while GM’s Alfred Sloan fully capitalized on it.
[1] As noted by Thorstein Veblen in his classic “The Theory of the Leisure Class” (1899), there is a “ceremonial / instrumental dichotomy”, where people do not follow the ‘instrumental’ best price strategy, but enter the ‘ceremonial’ status-seeking game, and will pay more in order for example to display status difference
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