Popular wisdom has it that Henry Ford, because of his pioneering work on interchangeable parts and the moving assembly line, was able progressively to lower the prices of his cars. In fact, as the following summary of his philosophy shows, the low prices came first. The resulting volume of sales both enabled and forced the production efficiencies for which Ford was rightly famous.
Our policy is to reduce the price, extend the operations and improve the article. You will notice that the reduction of price comes first. We have never considered any costs as fixed. Therefore we first reduce the price to the point where we believe more sales will result. Then we go ahead and try to make the prices. We do not bother about the costs. The new price forces the cost down. The more usual way is to take the costs and then determine the price; and although that method may be scientific in the narrow sense, it is not scientific in the broad sense, because what earthly use is it to know the cost if it tells you that you cannot manufacture at a price at which the article can be sold? But more to the point is the fact that, although one may calculate what a cost is, and of course all of our costs are carefully calculated, no-one knows what a cost ought to be. One of the ways of discovering this is to name a price so low as to force everybody in the place to the highest point of efficiency. The low price makes everybody dig for profits. We make more discoveries concerning manufacturing and selling under this forced method than by any method of leisurely investigation.
Ford (1923) ‘My Life and Work’ Doubleday: New York pp146-7, as quoted in Levitt T (1960) ‘Marketing Myopia’ Harvard Business Review July-August
That his methods were successful is self-evident from the growth achieved by Ford. The Model T was announced in 1908 and ran for 19 years reaching a peak of 2 million in a single year in the 1920s, and a total of 15 million by 1927.
However this outstanding success contained the seeds of later difficulties when Ford’s great rival General Motors began to exploit the consumer’s emerging desire for wider choice.