Rapid growth markets may continue to represent the greatest growth opportunities for new car sales – but global manufacturers know that the terms of that growth are shifting.
As the first generations enjoying widespread car ownership return to dealerships for their second or third vehicle, there’s a noticeable difference in their buying behaviour. These auto consumers are no longer content for brands to set the parameters where price is concerned. They are walking through showroom doors with individual perceptions of a fair price already established in their minds – and auto brands need to rethink their strategies in order to meet these new expectations.
In doing so, they must accept the fact that the pricing discussion for rapid growth markets has often moved onto the same footing as more experienced car-owning countries. But they must also be ready to adjust their strategies to the very particular journey that each set of consumers has taken towards pricing awareness.
The three drivers of pricing awareness
In each market, this journey is likely to have three distinct drivers. Firstly, consumers are encountering more above-the-line advertising for more vehicle models at more price points. Auto buyers are smart. They can see the pricing context developing through advertising and they will form their own view of where a new model fits within it.
Secondly, and in a similar way to mature car markets, there’s the increasing depth of information available through social media, auto websites and specialist media channels about the prices that vehicles actually change hands for. As auto buyers become more experienced, they become more aware of the distinction between list price and transaction price – and they know where to inform themselves about the latter.
In many ways, this awareness stems from the third driver: buyers’ own previous buying experience. When they first bought a vehicle, some years ago, they may well have arrived at the showroom prepared to pay the list price. However, the chances are that in order to close the deal, they were offered a discount of some form. This personal experience will have fuelled expectations of discounts in the future – but what size of discounts? To fully understand the price perceptions of their target consumers, auto manufacturers need to know what their car buying experiences tended to be last time around.
Fair price – not lowest price
These three factors will ensure that each second and third-generation buyer negotiates for their new vehicle with a strong feeling about what a fair price should be. However, manufacturers cannot afford to make the assumption that this will simply be the lowest price they can get. As in more developed markets, consumers want a price that aligns with their expectations of what is reasonable – not one that undercuts those expectations. Discount too heavily and a brand won’t just be turning away revenues – it could be dangerously undermining its brand equity as well.
A three-step plan for developing pricing strategy
So how can brands in rapid growth markets set about assessing buyer expectations of a fair price for a particular car model? They must start with a clear sense of the appropriate price range that their brand commands amongst the buyer segment they are targeting – and this is where their approach to pricing strategy may well need to make its greatest adjustments. Western brands with long heritages in Europe and the US cannot expect to import that heritage wholesale to new markets. In China, for example, Porsche is the brand of the Cayenne and Panamera rather than the 911. As they build brands from new starting points, manufacturers must have a precise sense of how their brand and price premium adjusts as a result.
Most consumers of course, do not buy a vehicle on brand alone. It is equally significant for manufacturers to identify the particular vehicle features that consumers are prepared to pay for: the elements that make the greatest contribution to the probability of them buying at a particular price point. Offering the right features at the right price is the key to achieving sales and growth targets.
Lastly, a manufacturer must understand the complex interplay between list prices and transaction prices at dealerships. Set the list price too close to the price that buyers consider fundamentally fair and those buyers may be disappointed that they are not offered a larger discount from the dealership. Set the price too high, and the larger discounts offered to secure a deal could damage credibility, raise suspicions and undermine brand equity. These expectations aren’t just specific to cultures; they are specific to market segments. Discounting is likely to feature far less significantly in premium car buyers’ expectations, for example.
The real game begins
The gold rush of setting list prices in the expectation that consumers are ready to pay them is over. In rapid growth markets, the real game of setting pricing strategy and securing market share is about to begin. Those armed with the most precise understanding of pricing drivers and expectations in each market will be the ones to emerge on top.
Kai Adolphs heads up the Auto IPD practice in Germany and is also Global Automotive Product Research Director. He is responsible for improving Kantar TNS’ overall product research performance, particularly for car clinics and pricing research projects.