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Old 9th July 2009, 16:54   #1
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Default Why not realistic pricing, and effect of price dropping?

I see no point in first having a high sticker price and then discounting heavily. You end up paying taxes (VAT, Road Tax) on the sticker price. So why not have realistic sticker prices to start with and let the government not get rich!

Also, do vendors realise that by reducing prices for models on the way out they are only hurting and annoying old customers. Take Accent I paid 6L+ for the GLS in 2002 and now essentially the same is available for 1L less. This reduces the resale as well. So I am unlikely to go to Hyundai this time around. The extreme case was of course the Cielo where people surrendered financed cars.
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Old 9th July 2009, 17:16   #2
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I guess this goes back to all the discussions we are having after the Jazz pricing was out in open. I guess the manufacturer would set the initial price based on various parameters and when the dealers aren't able to really sell them, they need to resort to various methods to improve sales. And price reduction is one of it.

Coming to think of it, it is the only tangible benefit based on which the consumer would look at the product. For example, if you dealer would give you free service with spares for the first two years, am not sure if that would fly with consumers as they are getting a 50K discount on the price or accessories worth that value.

Not only in cars, all products all over the world, its pretty much the same. Old models are always cleared off the shelves to make way for the newer ones and they are always priced lower. A classic example would be mobile phones and digital cameras.
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Old 9th July 2009, 17:55   #3
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Quote:
Originally Posted by sgiitk View Post
I see no point in first having a high sticker price and then discounting heavily. You end up paying taxes (VAT, Road Tax) on the sticker price. So why not have realistic sticker prices to start with and let the government not get rich!
Define realistic price. I may feel i20 is total VFM. You may feel it's a rip-off.
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Old 9th July 2009, 18:02   #4
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I remember a boss of Hyundai once saying they were selling cars, not potatoes. Hence he argued, price changes should be minimal. Unfortunately, the Accent would never sell at its original prices today so I guess its a matter where they had little choice.
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Old 9th July 2009, 18:03   #5
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Realistic price is indicative of what the majority feel, not just based on you & me!
About the Civic Hybrid/Jazz/i20 D, overwhelming majority feel they are overpriced.
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Old 9th July 2009, 18:16   #6
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I hereby define prices of tata vehicles in the entry level segment, fiat prices in the mid range segment, and skoda prices ( oh the irony) in the higher end segments to be the realistic prices
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Old 9th July 2009, 18:33   #7
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1. You conceive a product with some USP (vs competition)and set a goal for it

2. Set a target for yourself for the topline and bottomline for that product

3. Go to the market and try to sell it.

If it bombs then try alternatives, discounting being one of them. Discounting is also dependent on the age of the product.
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Old 9th July 2009, 18:39   #8
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Quote:
Originally Posted by muralisk View Post
Not only in cars, all products all over the world, its pretty much the same. Old models are always cleared off the shelves to make way for the newer ones and they are always priced lower. A classic example would be mobile phones and digital cameras.
That's very well summarized. It's all about business strategies to survive and excel and they are free to adopt to one they feel appropriate for their business. It may not make everybody happy, but that's the way it is and you and me can't do anything about it.
To be frank, me and you would have done the same (or at least similar) for stock clearance and to position new models well in the existing price bracket. If we were in place of Hyundai .

Last edited by Gandhi : 9th July 2009 at 18:49.
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Old 9th July 2009, 18:50   #9
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We must also consider that price cuts often have impact on quality.

For Example in case of Alto, one detailed look at the old models & the new one will tell the difference in quality.

Also I have heard that often companies reduce sheet thickness when heavy price cut versions are released. This is based on hearsay though.
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Old 9th July 2009, 18:52   #10
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Quote:
Originally Posted by sgiitk View Post
I see no point in first having a high sticker price and then discounting heavily. You end up paying taxes (VAT, Road Tax) on the sticker price. So why not have realistic sticker prices to start with and let the government not get rich!

Also, do vendors realise that by reducing prices for models on the way out they are only hurting and annoying old customers. Take Accent I paid 6L+ for the GLS in 2002 and now essentially the same is available for 1L less. This reduces the resale as well. So I am unlikely to go to Hyundai this time around. The extreme case was of course the Cielo where people surrendered financed cars.
A lot of the price you have mentioned has also got to do with taxes. AFAIK in 2002, excise duty for cars was 32%. In 2003 after I bought my first (a used one) the duty was down to 24%. Then it was brought down further to 12% and 20% (for small and large cars).

The reduction in Accent prices have a lot to do with this reduction in excise. Other things like a fully depreciated assembly line help too.
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Old 9th July 2009, 23:35   #11
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First couple of months -> Powerplay for manufacturers. Score a lot of runs..erm..customers and profits

Next come the boring middle overs.

And when a car is about to end its innings, the manufacturers try to slog as much as possible by offering huge discounts.
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Old 10th July 2009, 10:06   #12
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Realistic Pricing: Close to what the customer actually pays. No point in having a sticker price which is miles higher than what you actually pay. Very common with some vendors.
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Old 10th July 2009, 11:26   #13
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Well one thing is that they have all the intentions to sell at sticker price, not less.
The levels of discount depends on the levels of haggling a buyer does, and the the level of give-away seller has.

Second is that prices are bound to fall after a while because of decreasing demands.
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Old 10th July 2009, 11:50   #14
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Price discovery is a subject on which many books have been written. But any manufacturer would obviously try and price his product as high as he possibly can. Heck we would all do the same if we could. Imagine a company willing to pay us twice our current salary, we'd be dumb not to take it up.

A couple of years ago, pilots were in short supply and their salaries rose sky high, now with the downturn in aviation, pilots are a dime a dozen and salaries are low.
Its all a function of demand and supply. Same goes for our automobile industry.

And I can understand the reason they have a high sticker price initially and then offer freebies and discounts to woo the consumers as the product ages. Its a normal part of the product lifecycle. As the product matures, the price comes down. After all, remember that over a period of time, the machinery required to manufacture the car depreciates, the cost of the moulds, dies, etc... are recovered.

As regards your comment that you would not go in for a Hyundai since they reduced the prices of the Accent, well, then you should never go in for a laptop, a cell phone, an LCD TV either, cos all those things have become cheaper since you bought them.

Sometimes I don't get it. IF the manufacturer reduces prices, we have a problem since it affects our resale value, If he does, we have a problem since we feel he is greedy.
Why don't we realize that the price is determined by the market in a free economy? You think something is too expensive, don't buy it, if many people think like you, the manufacturer will be compelled to reconsider his pricing or be priced out of the market.
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Old 10th July 2009, 12:03   #15
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Quote:
Originally Posted by alpha1 View Post
Well one thing is that they have all the intentions to sell at sticker price, not less.
The levels of discount depends on the levels of haggling a buyer does, and the the level of give-away seller has.

Second is that prices are bound to fall after a while because of decreasing demands.
They normally increase the standard goodies over time. The point is that the sticker price increases the taxes (VAT & RTO) to be paid. Nobody gains except the government. Why not keep a realistic price (with say 3% margin) and then haggle on the goodies?

Similarly the big price cuts come when they are trying to . Why not discontinue the model.
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