Ford's Secret Profit Weapon -- Better Pricing

In 2010, Ford is again rallying around its consistent money-maker strategy of pricing. In the vein of its earlier strategies, Ford is focusing on:

(1) Setting prices that capture the high value of its products. Operating profit for every vehicle sold in North America rose from $2,265 in the first quarter to $2,905 in the second quarter;

(2) Offering consumers more options to choose high margin/high value items such as Sync communications systems, entertainment packages, and upgrades (heated leather seats, for instance);

(3) Creating value through unique differentiation. Emphasis is being placed on creating differentiated attributes that consumers are willing to pay premiums for such as style, quality, fuel economy, and high-tech features;

(4) Managing supply to avoid excess inventory. Production levels are constantly monitored to avoid excess supply which inevitably leads to unprofitable fire sales;

(5) Boosting the resale prices of its vehicles by restricting fleet sales to daily rental car companies.

The results of these straightforward pricing initiatives are impressive. Slightly more than half of Ford's $2.1 billion second-quarter automotive operations profits came from these pricing strategies.

A key benefit of focusing on better pricing is that prices can be changed on Sunday evening and new profits will start rolling in as early as Monday morning. Given the financial windfall reaped from Ford's initiatives, the top priority at every automaker -- including GM, Chrysler, Honda(HMC) and Toyota(TM) -- should be to uncover their billions in hidden profits by making basic improvements to their pricing strategy.

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