Wed September 11, 2013
Henry Ford, In Reverse
How Henry Ford developed mass-production is a fascinating story. It's also one that I've had backwards all my life: I believed that Ford was able to reduce car prices for a mass market because of his genius in perfecting mass-production assembly lines.
Actually, the opposite is true. Ford's low prices forced development of mass-production to meet the demand. Hear what Ford, himself, said about it:
Our policy is to reduce the price, extend the operations, and improve the article. We first reduce the price to the point where we believe more sales will result; we don't bother about the costs. The new price forces the cost down. The usual way is to take the costs, and, then, determine the price.
Although that may be scientific, what earthly good is it to know the cost, if it says you cannot manufacture at a price at which the article can be sold? Anyone can calculate what a cost is; no one knows what a cost ought to be.
One way to discover it is to name a price so low, it forces everyone to the highest efficiency.
Ford's words should remind us again that price is one of the most powerful marketing tools in every business.
How would your business react to Henry Ford's approach, in which pricing drives the cost, rather than cost driving the price?
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