Buying the customer

Buying the customer does not work.

The Hyundai Excel was the Wundercar of 1987-88. Fifteen months after the Korean car’s introduction into the U.S. market, it was selling at an annual rate of more than 400,000 cars-the fastest growth of any automobile anywhere in history. But by mid-1990, only two years later, the Excel had all but disappeared.

There was nothing wrong with the car. But the company had greatly underpriced it to shoot itself into the U.S. market. As a result, it had no profits to plough back into promotion, service, dealers or improvements to the car itself. Hyundai, copying the Japanese, attacked the undefended low end of the market. But the Japanese learned long ago that to do so requires a substantial profit cushion, if only in the home market.

Henry Ford is supposed to have said, all of 100 years ago: We can sell the Model T at such a low price only because it earns such a nice profit.