As the Indian auto market gets filled with more and more car models by the day, pricing has suddenly become a very tricky (and sensitive) strategy for car manufacturing companies. As competition grows fierce with car companies striving for their proverbial share of the sales pie, the pricing of new car models has become increasingly important as the market is not too forgiving or relenting for (perceived as) over-priced models.
Over the past few years, over-pricing a product has suddenly become a norm. If the product tastes success, the company goes on a roll. If the product receives lukewarm response from the market, official/unofficial discounts start pouring in 5-6 months down the line, and are followed by officially declared price cuts later if sales figures don't pick up along expected lines of the company's corporate management.
Not every company has got the pricing spot-on right from the word go either, yet we have models which are distinctly over-priced for what they offer and have gone on to become bestsellers, and then there are models which are perfectly priced or are immense Value For Money (VFM) options when compared to the competition, yet sell in low numbers. This is one conundrum related to the market which is yet to be explained.
The country's biggest car manufacturer, Maruti-Suzuki India Limited (MSIL), was guilty of overpricing it's premium crossover offering, the S-Cross in it's 1.6L avatar when it was launched last year. Discounts to the tune of 90,000 rupees followed within 2 months of it's launch, and the company officially declared a price slash of over 2.05 lakh rupees in the 5th month of the 1.6L S-Cross's sales tenure, back in January 2016. (
link (Maruti slashes S-Cross prices by up to Rs. 2.05 lakhs!))
The company also extended a goodwill gesture to all early S-Cross 1.6L buyers at the same time, by offering them refunds of 90,000 rupees and a free 2-year extended warranty package. (
link (Maruti's goodwill gesture! Early S-Cross buyer gets a Rs. 90,000 refund and 2 year extended warranty))
R S Kalsi, executive director (marketing and sales), MSIL:
Quote:
“In case of S Cross, the 1.6 litre variant had an imported power train and hence was expensive. But customers did not see a value in 1.6 litre variant (priced at a premium of Rs 3 lakh) vis a vis the 1.3 litre model. Today, pricing has to be market driven as the market is highly competitive."
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Another company which has been in the news for price slashes of it's car models is Ford. The American blue oval car company slashed the prices of it's bestselling compact SUV, the EcoSport, to the tune of about 1.12 lakh rupees back in March 2016 just days after MSIL launched the Vitara Brezza as a strong in-segment competitor. Of course, the EcoSport had benefited from regular price hikes ever since it's launch 3 years back (as it had become a huge bestseller), so the price slash pretty much negated all the hikes the EcoSport had had in this time period. (
link (The Brezza effect: Ford reduces EcoSport price by up to 1.12 lakhs))
Then, last month, the company slashed the prices of it's Figo/Aspire siblings. Reason? Lukewarm response to the new-gen products ever since it's launch about a year back. The Aspire received price cuts up to 91,000 rupees, while the Figo became 50,000 rupees cheaper. The impact on sales of these two cars is yet to be seen. (
link (Ford India cuts Aspire, Figo prices by up to INR 91,000))
Renault India also did a similar price slashing exercise couple of months back when they slashed the Lodgy MPV's price by almost 96,000 rupees! Weak sales in the MPV segment, plus offering a better challenge to the segment-leader, the Maruti Ertiga, was touted as the main reason. (
link (Renault India drops prices of the Lodgy MPV by Rs. 1 lakh))
Rafael Treguer, vice-president (sales and marketing), Renault:
Quote:
“The MPV segment is on a decline. As a marketing strategy you need to correct prices sometime.”
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The S-Cross and the EcoSport have seen a steady rise/stabilisation in sales after their price corrections, hence have been beneficial to their respective companies to some extent.
But not all such pricing fiascos result in profits/realisation of margins.
Early Honda Jazz owners will remember the brutal price slashing exercise the earlier-generation Jazz went through back in 2011-12. The Japanese auto major cut prices across the Jazz range to the tune of over 1.75 lakh rupees (
link (Honda slashes price on Jazz as well ? EDIT: Launch pics of new Jazz Pg.56)), leaving many owners fuming. Reports came in that Honda Cars India was actually making a loss on every Jazz sold then, and Honda launched the facelifted earlier-gen Jazz at a much lower price point to push sales further. Of course, none of that did much to revive the Jazz's sales fortunes, and the company discontinued the Jazz shortly afterwards, making way for the "India-specific
mainstream" new-generation Jazz a couple of years later.
Rakesh Srivastava, senior vice-president (sales and marketing), Hyundai:
Quote:
"Many products fail to clock volumes as the price does not justify the value proposition to the customers. Pricing of a car is strategic commercial decision targeting projected volumes over various stages of product life cycle. With changes in market scenario, many times the volume does not happen, creating an inward pressure to discount and alter the price value proposition. But such a step leads to reduced margins and affects the sustainability of the product.”
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Also, some overpricing stunts are deemed as "strategic".
Jeep India, which teed off it's Indian innings a few days back, brought it's first 3 Jeep offerings at steep, eye-watering prices. But the general thinking behind the rationale of such pricing decisions was that when Jeep would bring out it's "India-specific" products from next year onwards, their competitive pricing will make them seem more value-for-money (VFM) when compared with the rest of the Jeep's lineup. (
link (Driven: Jeep Grand Cherokee))
And most recently, Hyundai India brought out the
much asked for Elite i20 automatic in a single "Magna" trim at a price of over 9 lakh rupees, ex-showroom Delhi. The company has tasted resounding success with it's already overpriced products (Creta, Elantra) hence the price tag for the Elite i20 automatic wasn't surprising for ardent Hyundai followers. And if it manages to garner sales in the days to come, the company will again have the last laugh. (
link (Why is Hyundai stubbornly not launching the Elite i20 Automatic? EDIT: Launched at 9.01 lakhs!))
Of course, if the sales don't come through for such atrocious pricing stunts, there's always the discounts/price slash exercises to fall back on.
(With inputs from
Business Standard)