On a Marketing Disaster

What happens when a corporation spends the equivalent of over 2.1 billion dollars on a product that ends up being a sales disaster? Well, for most companies, it would spell bankruptcy. And it certainly caused financial woes at this particular company. But we’ll come back to that in a second.

From almost every angle, this product should have been a winner. It came in the 1950s, at a time when consumer purchasing power was greater than it had ever been before in American History. The post-World War 2 boom in housing and consumer goods was still going on, and consumers were eager to spend the money a good economy was paying them. The market was right. The product should have been right. But, it failed. Why?

Well, turns out that the company that made the product was behind the times. Despite so much money spent on market research, the company ignored the fact that most people who were asked simply weren’t eager to purchase this new machine. The American public felt that the market for this particular product was saturated, that this new creation wasn’t, in fact, new at all. What was different about it was off-putting and weird to most people. And they weren’t efficient machines at all. In fact, at a time when people were starting to look more at user-costs to items, this particular product ended up being one of least cost-effective of its type.

And, sadly, the replacement parts for this machine proved to be one of the major reasons it flopped. No one wanted to spend money to repair something with hard-to-get parts that cost more than normal for a similar type of machine. Besides, so much money had been poured into marketing that little things, like gauges that didn’t work or seals that easily leaked were left unfixed or not well designed. Some poorly marketed products can survive bad naming or lack of popular support initially, but poor craftsmanship dooms any product. Critics panned it mercilessly.

Finally, there was the name. It stunk. In an era where forward-sounding, space-age marketed products were everywhere, this particular company named their product after…wait for it…some old guy. Yep. Nothing says “modern” like a product named after your grandfather. The name moved absolutely no one to purchase the product.

Thus, the product flopped. Spectacularly. Did I mention the over 2 billion dollars? And it was the first product by this major American corporation to do so. After making them for only three or four years, the company dropped the product. Surprisingly, the item was so bad and so disliked that, today, they have become highly valued by collectors; some of them can fetch as much as $100,000 in today’s market.

And that’s not a bad return on an investment in a failure, considering you could’ve bought an Edsel new for about $2,700 in 1958.

On a Risky Venture

Investments are tricky. It doesn’t seem to be a matter of throwing money at the popular or profitable company now, but the secret to good investing seems to be the ability to predict the Next Big Thing. Such an opportunity befell John S Gray in the early 1900s.

Gray was part of an immigrant family from Edinburgh, Scotland, who came to the United States in the 1850s. By the beginning of the 20th century, Gray had become a typical American success story. He had become a successful candymaker, businessman, and banker. That’s when his nephew, a man named Alexander Malcomson, approached Mr. Gray with an investment opportunity.  The nephew said that he had a friend who was on the cutting edge of some new technology that was going to be the next big thing.

Another business axiom is that people who have money often keep it because they don’t invest in risky ventures. That’s why, at first, John Gray wasn’t interested in his nephews proposal.  Look at the picture of John Gray above. He is solid, respectable, and conservative. He does not seem to be the type of man who would suffer fools gladly. But, Malcomson persisted, and he promised Gray that investors could take their money out of the company at any time.

John Gray thought about this for a long time. Perhaps it was his Scottish blood that made him not want to throw good money at a risky venture. His nephew had an up-and-down record of risky investments, and it was Gray’s feeling that this was one of the more risky opportunities. However, the promise that his money could be recovered at any time proved enough for Gray to reluctantly invest $10,500, which gave him just over 10% of the company.

On the strength of Gray’s name, Malcomson was able to convince other investors to join the risky venture that he and his other partners were pursuing.  Interestingly, some of the investors in this group included the Dodge brothers, who would go on to build the successful line of automobiles. Because of his stature in the financial community, John Gray was elected the first president of the new corporation at the first meeting of the 12 investors.

Oh, the venture was profitable from the start. Within a few weeks, all the investors made back their initial outlays several times over.  Yet, despite the success, friction arose between the investors. Some of them had their own businesses – – Malcomson and Gray among them. Some of the investors only worked at the new company.  The friction centered on what direction the new company should take going forward. Surprisingly, Gray sided with those who worked only in the company. He and the other investors eventually froze Malcomson out, and the company bought Malcomson’s shares.

The future looked bright for John Gray, and this risky venture now seemed to be a stroke of genius. Unfortunately, only three years into the venture, John Gray died of a heart attack. He was replaced by the vice President of the company—the man upon whose idea the company was based.

By the way, when Gray’s estate finally sold his shares back to the company, the original $10,500 investment produced a total return of almost $40 million.

You’re probably wondering what company John Gray risked his money over. The company was named for that vice president who took over when Gray died, and the product the company made became synonymous with the man who started it.

You know it as the Ford Motor Company.