Understanding Changing Customer Needs

Consumers’ wants and needs are constantly evolving, and we must keep pace with those wants and needs in order to remain competitive. Ford monitors global market trends, shifting consumer interests and social and political developments to identify issues that will likely affect our consumers, our industry and our Company. We rely on a network of internal and external experts – from around the world – to ensure that we get a diverse, comprehensive perspective on consumer trends and how they will affect consumers’ future choices about vehicles and mobility. We apply these trend analyses throughout our marketing, product development, research and design organizations to guide future product and technology developments.

Our marketing experts use an intensive research and analysis process to understand who our potential customers are, what they value and what they want in a vehicle. We define a “brand DNA” and “target customer” for each of our main brands. Ultimately each individual product is also assigned its own specific DNA and target customer. The brand DNA and target customer profiles go beyond simple demographic information such as age, gender and income; we build complete profiles of our target customers, from what they like to do to what music they listen to and where they shop. This approach helps us to pinpoint targets for each vehicle we produce. Using a fully developed, typical customer as the focus for vehicle development brings our market research data to life and keeps everyone on the product development team focused on designing a vehicle that meets customers’ needs and desires.

We develop our target customer profiles based on psychological traits and archetypes that transcend national characteristics and customer desires. This is a critical part of our drive to develop truly global vehicles that appeal to customers in multiple markets. Toward this end, we are focusing more on the emotional and psychological elements of how customers choose their vehicles as well as the traditional economic criteria of price and features. In addition to developing vehicles that deliver best-in-class features and price for value, our goal is to develop vehicles that fulfill the dreams and aspirations of each target customer group. We believe this approach not only helps us to understand our customers better, it helps us develop vehicles that capture the imaginations, dreams and loyalty of our customers across the globe. Of course, we are keenly aware that economic pressures will push the boundaries of brand loyalties, forcing us to work even harder to define our potential customers and build vehicles they can afford.

As we contemplate the economic pressures and other external factors that will influence our business, we know that we cannot predict the future. However, we can prepare for a broad range of possibilities through “futuring” exercises that help us to ensure we have robust strategies in place, whatever the future might bring. Therefore, in addition to product- and brand-specific market research, we have an office dedicated to tracking shifts in social, technological, economic, environmental and political arenas. This Global Consumer Trends and Futuring team is part of our ongoing effort to identify trends that will impact the future of consumers’ values, attitudes and beliefs. The team collaborates with internal subject-matter experts and external thought leaders to ensure that we have a truly global and diverse view of the world. Ultimately, our goal is to see changes on the horizon and respond to them in a way that gives Ford a sustainable competitive advantage in terms of our product portfolio and business strategies. The rest of this section discusses some of the trends that currently guide our thinking regarding consumers and their future needs, wants and desires. These trends include:

Increasing interest in safety and security
Increasing demand for more fuel-efficient vehicles
Growing consumer interest in “ethical consumption,” or a desire to buy products from companies that reflect one’s own environmental and social values
An increasing focus on “careful consumption,” in which consumers have to balance their values, passions and preferences with practical purchases, as the global economic recession continues
Expanding interest in vehicles that help consumers meet their increasing desire for information and connectivity and make the most of their time
A changing definition of luxury

Safety and Security

Personal safety and security are at the forefront of consumers’ concerns. It is essential that we deliver quality products that instill peace of mind for our customers. Ford offers a wide range of active and passive safety features. Electronic stability control, inflatable rear-seat safety belts and MyKey® are examples of our safety features. For more information, please see the Vehicle Safety and Driver-Assist Technologies section.

Demand for Fuel Efficiency

Rising fuel prices, energy security issues and global climate change have accelerated consumer interest in cleaner, more-efficient vehicles. In newly developed and emerging markets such as Brazil, Russia, India and China, small vehicles (i.e., in the sub-B, B and C segments) make up the largest portion of new sales. For example, small cars account for 60 percent of the industry-wide vehicle sales volume in the Asia Pacific and Africa region. In addition, we expect that increased demand for smaller, more fuel-efficient vehicles will continue in the mature markets of North America and Europe, and consequently we have seen – and expect in the future – strong demand in those markets for our small-car offerings. (These offerings include the new Ford Fiesta and Focus models, which are based on our global platforms.)

In the U.S.-based 2010 New Vehicle Customer Survey, fuel economy was chosen as the feature most influencing drivers’ next vehicle purchase decision. It ranked higher than pricing incentives and advanced safety technologies. Seventy-five percent of respondents ranked fuel economy as extremely or very influential in their next vehicle purchase decision, similar to the 74 percent level found in 2009, but below the 81 percent found in the 2008 survey. Average fuel prices in 2010 were 34 cents higher than in 2009, but still 56 cents lower than in 2008. As evidence of the overall trend toward more fuel-efficient vehicles, the crossover segment has doubled in market share since 2005, while the traditional truck-based SUV market share is less than half of what it was in 2005. This shift in demand is also visible in the changes in sales by vehicle segment since 2005 (see U.S. Sales by Segment chart).

Responding to this increasing demand for fuel-efficient vehicles is at the heart of our financial recovery plan and our product development plans. We are maintaining our commitment that all of our new vehicles will be best in class or among the leaders in their segment for fuel economy. And we are continuing to design and introduce advanced technologies that improve fuel efficiency, reduce emissions and lessen dependence on foreign oil. Elsewhere in this report we describe our response to the increasing demand for fuel economy and our plans to improve fuel economy with advanced technologies.

Ethical Consumption

Customers are increasingly interested in buying products from brands and companies that reflect their environmental and social values – a trend we call “ethical consumption.” Ethical consumers are integrating ethical, religious, political, environmental and other beliefs in the purchasing decisions they make. They want to feel good about their consumption choices. In fact, ethical consumption is often driven by how it makes consumers feel about themselves and the world around them. Therefore, these consumers tend to buy products from companies with values that they believe reflect their own. As a result, companies have to be aware of the values they express in their actions, products and communications.

In addition, as many social and environmental issues – like climate change – have worked their way into mainstream consumer consciousness, corporations are being held to rising standards, shaped by the recognition that seemingly small actions can have personal and environmental health and wellness impacts. Increased access to information and corporate transparency are also driving purchases based on ethical issues.

While customers generally are not willing to compromise on performance or affordability, they do want products that come from ethical companies and have positive environmental and social impacts. Being a good corporate citizen, and making a positive impact on our stakeholders, communities and the planet as a whole, have been integral parts of Ford’s century-long heritage. Ford was recently named one of the world’s most ethical companies by the Ethisphere Institute. The fact that this kind of list exists – and perhaps more importantly that publicly traded companies on the list continue to outperform both the FTSE 100 and the S&P 500 – illustrates the relevance of corporate ethics and values to consumer choices. This sustainability report is one of the channels we use to share the Ford story about our commitment to sustainability with consumers and stakeholders.

Careful Consumption

At the same time that consumers’ interest in ethical consumption grows, they are also facing very challenging economic conditions. We are therefore seeing a trend toward “careful consumption.” Careful consumers balance their values, passions and preferences with practicality when making purchasing decisions. The careful consumer’s purchase decisions tend to be more planned and considered, and less spontaneous or impulse driven. People who used to pay extra for a wide range of sustainable products may now have to make tradeoffs between buying to meet their social and environmental values and buying what they can afford. People are still considering sustainability in their purchase decisions, but these choices are also being limited by increasingly difficult economic realities.

Value – in terms of style, safety and quality – is paramount to many consumers. Because buyers are holding on to their older vehicles for longer periods of time, long-term durability is also a key priority.

In recognition of the careful consumption trend, Ford is delivering products that evoke passion while still delivering practicality in terms of the essentials. For example, we are developing more fuel-efficient vehicles that will reduce overall operating costs by lowering lifetime fuel costs. We are introducing high-end technological innovations like the SYNC® entertainment and communication system as standard equipment in many of our vehicles. And in 2010, we introduced a complimentary maintenance program for our Lincoln vehicles. The program is designed to enhance the four-year, 50,000-mile bumper-to-bumper manufacturer’s warranty and covers oil and filter changes, tire rotations and multipoint inspections for up to eight service visits. As always, we are also reducing operating costs by increasing the quality and long-term durability of all our vehicles.

Information Access

More and more people are demanding access to information and a connection to their social networks while in their cars. People have come to see their cars as more than just modes of transportation; they want their vehicles to help them stay informed and connected. This can be driven by an emotional desire for connection and a practical desire for productivity. People who drive to work spend, on average, more than an hour every day in their cars – and they want to be able to use that time productively and safely. Consumers today want to be able to connect with the outside world from within their vehicles, and they want access to the information they need to get things done while on the move.

Ford is responding to these demands by developing and implementing a wide range of cutting-edge, “drive smart” technologies that increase in-vehicle connectivity, productivity and efficiency, in an effort to make our customers’ lives easier. MyFord Touch™ with SYNC® is the centerpiece of this effort. It allows our customers to have hands-free, voice-activated access to their phones and MP3 players inside their cars.

The Changing Definition of Luxury

The “era of excess” that was the 1990s and early 2000s came to an abrupt end in the wake of the global economic recession of 2008. Today, most consumers are weary of conspicuous consumption; indeed some people regard ostentatious displays of wealth with suspicion or disdain. Products and services in the luxury realm are less about impressing others and more about expressing oneself. As a result, luxury products have to be smarter and more innovative than in the past. Ford is responding to this changing definition of luxury in several ways. For example, we are committed to transforming the Lincoln brand, product range and experience to ensure that we deliver luxury cars with sophisticated design, high fuel efficiency and innovative technologies. The Lincoln MKZ hybrid, for example, is the most fuel-efficient luxury sedan on the market. In the future, we will also introduce a C-sized Lincoln model that will provide both excellent fuel economy and luxurious design and features. We also introduced MyLincoln Touch™, an innovative new driver-vehicle interface system.