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Old 13th December 2011, 20:37   #1
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Default The downside of price cuts (for an existing owner)

Yes, price cuts are benefitial to the company and paves way for more sales. Price cuts bring the vehicle into the bracket of people with lesser budgets.

Now lets look at the price-drop from an owner's perspective who has just paid top dollar for his motor before the price-cut. Lets take the case of the Honda Jazz, the most widely known car for its price drop. Aria joins the bandwagon now. If you are owner who have purchased a honda jazz at "pre" price-cut prices, what all do you lose ?
  • The more a car is priced the more "exclusive" it is. (False Prestige)
  • More buyers buy the car after a price cut so it becomes a "common" car.
  • You lose on resale value by at least 2 lacs if you send it to a 2nd hand market.
  • Attitude at dealer and workshop changes when many bookings are registered.
  • Frustration builds up for paying "more" as an initial patron.
  • Jealousy at the other man as he would be paying a lower emi for a lesser tenure, while we would be paying a higher emi for a longer tenure.
  • No more an "aspirational" car
  • Lower priced version "May" appeal to taxi segment. (11.25 lacs OTR for Aria basic)
Please feel free to add points to this if any. This thread is aimed at venting the feelings of someone who has borne the brunt of a price cut of his favorite car. This is not targetted at any specific brand / Manufacturer and also not focussed on bashing any manfacturer.

Last edited by GTO : 14th December 2011 at 12:58. Reason: Removing opening line as the thread title has been suitably edited. Thanks
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Old 14th December 2011, 12:57   #2
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Default Re: The downside of price cuts (for an existing owner)

I fully support price-cuts as they inevitably lead to a value-for-money proposition. Who's the end beneficiary? I, the customer.

However, I might add, it's best for the manufacturer to price the car correctly from day one. That greatly helps in:

- Strong sales performance from day one. There are several cars (Jazz included) that haven't taken off even after a price cut. Now, imagine what volume Honda would have enjoyed if it had to price the car perfectly from day one itself. The Jazz was so poorly priced that it made the i20 suddenly look like a VFM car (consider how its sales shot up after the Jazz was launched). People on the street still don't know of the Jazz' new price. Honda basically killed the car with a lousy strategy.

- The brand value takes a huge hit in case of drastic price cuts. Sentiment from existing owners becomes negative, while resale values plummet too.

Still, correcting the price of a good car is far preferred over continuing to sell it at an inflated price.
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Old 14th December 2011, 13:13   #3
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Default Re: The downside of price cuts (for an existing owner)

Yes, a different price point will make the entire decision making logic at the time of purchase flawed. But as GTO mentioned, in the larger interest better reprice ridiculously priced cars.

Nothing like a right price from day one. Auto companies, come on, just go through the relevant threads here on Team-BHP and you will get much more than your highly paid so called surveys..
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Old 14th December 2011, 16:41   #4
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Default Re: The downside of price cuts (for an existing owner)

I agree that the 'first' owner of the vehicle loses a lot in terms of resale value. But then the car was over priced which is why it underwent a price-cut. And the owner was ok with the previous price,so he shouldn't be complaining and should rather enjoy the otherwise good car.

AFA the loss in resale is concerned, just accept it as a part of the deal. Just enjoy your ride till the day you plan to sell it and only then think about the resale.

As GTO mentioned, price cut leads to cars being more value for money and more affordable to buyers. And again i agree with GTO that cars which were priced from day 1 are the best.

PS: Just think about the E class owner who bought his car for 50 odd lakhs and the same(a different variant though) can be bought for 34L and you will end up being happy. Here's the link to the story:
http://www.team-bhp.com/forum/indian...c-e-200-a.html

Last edited by ashis89 : 14th December 2011 at 16:45.
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Old 14th December 2011, 17:53   #5
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Default Re: The downside of price cuts (for an existing owner)

Agree, price cut hurts the resale to a small extent. There is however another angle to it, by cutting the price you push more cars on the road thus making the car more visible, giving the sense of security to the next buyer that the car is still relevant in the market. Think about the fiats as I say this. When you make the car more common your addressable re-sable market base increases thus increasing you chances to sell the car. Your odds or selling the car reduces, your resale price might reduce too, but its better to be able to sell a car say at X Rupees rather than wait for a single customer for months to sell it sat say X + 30,000 Rs.
More popular cars (or cars that already come with a good resale brand like the Honda City) the price reduction will hurt the first owner as the car anyways would have sold (as it has a premium factor that helps resale). For cars like Skoda Fabia my above explanation is more relevant. So all in all a price cut to increase to VFM is welcome, but price cut to gain market share hurts!
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Old 14th December 2011, 18:56   #6
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Default Re: The downside of price cuts (for an existing owner)

Buyer's remorse is almost inevitable in a case of a drastic price reduction and I sympathise with the points made by the Bharath. What GTO said is also very true- carmakers need to get prices spot-on on day one. In reality very few do. Perfectly good cars like the Honda Jazz and the (new) Ford Fiesta are killed in the marketplace by poor positioning/pricing. And often this is irreversible: a drastic price reduction sends all the wrong messages to the market and even the cheaper car doesn't sell well.

But look at it fom the point of view of the carmaker: he has made a crucial mistake and his product has bombed: what does he do next? Any new model is a huge investment for the company and nobody would like to leave the battle without a fight. So these price reductions, while they may seem needless and unfair to customers who have paid a higher price, are essential. They give the carmaker a second chance and also expand the user base, which is ultimately beneficial to the buyer.

Why? Well, I am not very sure how good the after-sales experience is for a car that has not that many buyers. Maybe we should ask a Nissan Teana owner. A lovely car but completely a flop thanks to strange pricing and bad marketing. At least the Jazz and Fiesta have some niche appeal going for them! Fewer buyers also means lower resale value. As strange as it seems, a carmaker expanding the market by reducing prices, if it works, will end up benefiting everybody!
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Old 14th December 2011, 19:25   #7
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Default Re: The downside of price cuts (for an existing owner)

The only way out for a buyer is to figure out whether the car is a VFM or not right when it is released. If not wait for price cut. Of course this strategy means waiting for at least a year, so getting a brand new model is out. On the other hand by the time you (and a host of others) figure out that a new release is VFM, there is a long long waiting period.

When Jazz came out, there was practically no competition, but today practically every segment and sub-segment has a competition, so the price correction will come within a few months if not sooner.
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Old 15th December 2011, 01:05   #8
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Default Re: The downside of price cuts (for an existing owner)

Quote:
Originally Posted by noopster View Post

Why? Well, I am not very sure how good the after-sales experience is for a car that has not that many buyers. Maybe we should ask a Nissan Teana owner. A lovely car but completely a flop thanks to strange pricing and bad marketing.
Isn't the Teana a CBU? That's why Nissan had no choice but to price it exorbitantly. Much like the Camry for Toyota. Localization should help bring costs down, but Toyota and Nissan must find it feasible to do so. Low volume products like the Camry and Teana wouldn't warrant the need for an assembly line.

Having said that, Toyota plans on assembling the Camry next year, and that should bring costs down, and open up the D-Segment a little more.

Quote:
Originally Posted by Aroy View Post

When Jazz came out, there was practically no competition, but today practically every segment and sub-segment has a competition, so the price correction will come within a few months if not sooner.
The Jazz had competition, my friend. In the form of the i20, which I believe killed the Honda. The Punto and the Fabia were around too.

-------------

When we bought our Jazz, it set us back by a cool 10 lakhs on the road, with all accessories, options etc. And, the same Jazz, albeit with a minor face-lift, now retails @ 7 lakhs! But we're not really grumpy about it. We do understand that Honda needed to do something to catch the attention of the market. We also know that the Jazz is a wonderful product, despite the price tag.

We've learnt to live with the price-cut and enjoy the car, instead of getting flustered about it.
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Old 15th December 2011, 08:30   #9
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Default Re: The downside of price cuts (for an existing owner)

The price cuts are healthy for the product, it helps manufacturer sustain the product for longer time. Once the product sells it helps the existing owners in terms of resale at a later stage, as compared to product priced high and so sale.

Apart from this the lesser the car sells the lesser is its sapare parts availability (As manufacturers dont see any value in stocking lots of them), and lesser the resale of the same few years down the line.

So keeping everything in mind its good for all owners (Existing and new), although in the short term it may seem like a loss to an existing owner, in longer term it benefits them.
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Old 15th December 2011, 11:23   #10
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Default Re: The downside of price cuts (for an existing owner)

We bought a City about 6 months before the price cuts [there were quite a few of them] and now the face lift.
As an owner, you do enjoy the car irrespective of the price paid for it as you know what you are getting into. When we bought it, it was the best AT available up to that price range IMO.
That being said, the price cuts do get irritating for the existing owners. The City was never selling badly. It was just being trumped by it's diesel counterparts.
We had decided to sell the City but were shocked to learn that even at 9k on the odo we were loosing about 4 lakhs!!
Needless to say, the City was not sold

So my take is: As long as you don't go selling your car every now and then it's not really a bother, but when you do, a very frustrating reality hits you and it keeps hitting you every time you see a newer [cheaper] version of the same car.
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Old 15th December 2011, 12:59   #11
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Default Re: The downside of price cuts (for an existing owner)

Quote:
Originally Posted by scopriobharath View Post
If you are owner who have purchased a honda jazz at "pre" price-cut prices, what all do you lose ?
  • The more a car is priced the more "exclusive" it is. (False Prestige)
  • More buyers buy the car after a price cut so it becomes a "common" car.
  • You lose on resale value by at least 2 lacs if you send it to a 2nd hand market.
  • Attitude at dealer and workshop changes when many bookings are registered.
  • Frustration builds up for paying "more" as an initial patron.
  • Jealousy at the other man as he would be paying a lower emi for a lesser tenure, while we would be paying a higher emi for a longer tenure.
  • No more an "aspirational" car
  • Lower priced version "May" appeal to taxi segment. (11.25 lacs OTR for Aria basic)
Scropio, when someone buys a car, he should be aware that it is overpriced. Will you pay 100 bucks for a kilo of onions ? If you have to (sure everyone has to), then you will, because you need it at that time. You cannot wait for a week for the prices to come down and then only buy it. I am not comparing onions to cars, but an informed buyer (most are when it comes to their money) would know that it is overpriced and that is the price they pay when they buy it at that time. Ok, maybe they enjoyed that 'exclusivity' for a brief period of time. Over.

Quote:
Originally Posted by suhaas307 View Post
When we bought our Jazz, it set us back by a cool 10 lakhs on the road, with all accessories, options etc. And, the same Jazz, albeit with a minor face-lift, now retails @ 7 lakhs! But we're not really grumpy about it. We do understand that Honda needed to do something to catch the attention of the market. We also know that the Jazz is a wonderful product, despite the price tag.

We've learnt to live with the price-cut and enjoy the car, instead of getting flustered about it.

See what i mean !!

Quote:
Originally Posted by ra'ul M View Post
We bought a City about 6 months before the price cuts [there were quite a few of them] and now the face lift.
As an owner, you do enjoy the car irrespective of the price paid for it as you know what you are getting into. When we bought it, it was the best AT available up to that price range IMO.

So my take is: As long as you don't go selling your car every now and then it's not really a bother, but when you do, a very frustrating reality hits you and it keeps hitting you every time you see a newer [cheaper] version of the same car.
Again, another broad minded perspective.

Goes to show that people are willing to give up certain stuff like price cuts when they have made an informed choice.
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Old 15th December 2011, 14:24   #12
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Default Re: The downside of price cuts (for an existing owner)

Quote:
Originally Posted by scopriobharath View Post
Please feel free to add points to this if any. This thread is aimed at venting the feelings of someone who has borne the brunt of a price cut of his favorite car. This is not targetted at any specific brand / Manufacturer and also not focussed on bashing any manfacturer.
I feel that a buyer who bought a Jazz at 9L OTR would sure have had extra money, and did not care about "Value for money" when he bought that car. Same is the case with Aria. They both are sure very good cars, and the Jazz in a way was way ahead of its times when it was launched. But, do you still feel that the car warrants such huge money?

Another one was the City, which was selling at a clean 11L OTR Bangalore. And there was no competition until the slew of launches last year. Should one spend so much money for the spartan interiors? One could say.

Now the new Fiesta. The hottest looking and highest selling hatch in the UK. But hey, our market does not care if the car can handle over the course of a World rally stage. We want plush cars at that price, and this isn't one.

2010-11 was when the maximum price cuts could have occurred. You may not see such drastic reduction going further. If anything, we are only going to see price rise for a lot of these cars as the market reduces. [Remember the aviation sector a few years back?]
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Old 15th December 2011, 16:17   #13
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Default Re: The downside of price cuts (for an existing owner)

Mid-cycle price cuts for a car in India is nothing new. It all started with the Cielo.

For those who can remember, the Daewoo Cielo was probably the first properly modern "luxury" car, with all bells and whistles and modern tech, sold in exactly the same form in Europe and India. Huge amounts of prestige attached to the ownership of that car.

A few years down the line, price was cut by 1.5 lakhs (if I remember correctly). The downgrade in aspirational value was massive!

Isn't this a case study mandatory for all car pricing strategists?
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Old 15th December 2011, 21:12   #14
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Default Re: The downside of price cuts (for an existing owner)

I believe that there is no wrong in doing this. This doesn't happen in the car market, it happens everywhere. If you buy a newly lanched phone, the same phone comes to half price in 1 year. It works on demand, supply & competition. Do you still get any discounts on Swift Diesel though it has been launched many years ago.
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Old 16th December 2011, 09:15   #15
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Default Re: The downside of price cuts (for an existing owner)

I, a Sept 2010, All New Honda City owner feel doubly cheated. First the deep price cuts and then steep fuel price rise.

Both side we got rammed !
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