Ray Kroc and the Ford Edsel

On November 19, 1956, Ford Motor Company announces to the Detroit automotive press that it was launching a new car brand, the Ford Edsel, that would be available for the 1958 model year. The company spent $250 million on marketing the car, which had cutting edge features like seat belts, children’s locks, a rolling-dome speedometer, and warning lights for low oil and engine overheating. It had a funky design that looked like the GM Lasalle and was billed as the “car of the future.”

The product was so overhyped that it led to inevitable disappointment upon its market launch. It was discontinued within three years, and only 2,846 Ford Edsels were manufactured in 1960. Ford stock fell from $47 per share to $28 per share between 1958 and 1960. If it weren’t for New Coke, it would probably be regarded as the worst business launch of the 20th century. It even got a line in the Billy Joel song “We Didn’t Start the Fire” with “The Edsel is a no-go.”

There is a great passage in John Love’s “McDonald’s: Beyond the Arches” in which John Love talks about how the failure of the Ford Edsel left a strong impression upon Ray Kroc as he developed the McDonald’s franchise system.

Kroc would refuse to bill any particular product launch as the source of future salvation for the company. He would just roll out the McNuggets or Big Mac or McRib or Happy Meal or Filet ‘O Fish. There would be an advertising campaign, yes, but the product would be rolled out without any promise to investors or the public at large regarding the effect that the product was supposed to have on the bottom line.

In addition, Kroc also pioneered the concept of using test markets to debut products before launching them. When it was time to roll out the McRib, he was testing it throughout eastern Missouri and southern Illinois locations in 1980 to determine whether or not it would be a success. He always liked using the greater St. Louis area for his test markets, as he could use urban, suburban, and rural franchises in the area to get an idea of how each demographic would respond to a new product launch (even to this day, Burger King continues to copy Ray Kroc’s intuition as it tested the Impossible Burger and other products in the St. Louis area as well). Then, McDonald’s rolled out the product nationally in 1981 with a high certainty that it would be a success.

I still see this cautious approach in McDonald’s management today. When the company rolled out all-day breakfast, it wasn’t swearing to its investors that it would boost sales and re-establish the company as the market leader. They tested it in Florida, Missouri, and Illinois, rolled it out, and now quietly collect an additional 15% in annual earnings due to the all-day availability of the breakfast menu items.

Elon Musk could do well by studying the history of the marketing of the Edsel brand and its effect upon Ford’s stock price after it was failure. The stock fell from $365 in December to $221 today in part because Musk makes overhyped promises about future Tesla vehicle production and the future of self-driving cars. If he managed expectations in the spirit of Ray Kroc, it would have a better business and a more committed shareholder base.

Ray Kroc spent a lot of time figuring what expectation he wanted to convey to his audiences. When he met with suppliers, he would wear a fancy suit to convey success to get them to agree to enter into exclusive or near-exclusive contracts with McDonald’s. When he met with potential franchisees, he only promised them above-median wages compared to other business owners in the community so he would have a franchisee base with low expectations that would be wowed when they ended up having a license to print money. And when he communicated to the public at large, he would speak of new business ideas as a “bolt-on” to the greatest fast food institution so any failure could be absorbed without affecting the successful parts of the business.

Ray Kroc’s study of the marketing disaster associated with the Ford Edsel taught him the important lesson that people, businesses, and institutions are not measured according to absolute results, but rather, the results in relation to pre-existing expectations. Many people pay lip service to this notion, but for Kroc, he re-oriented all of his social interactions around this concept and it still affects McDonald’s strategy to this day.

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