[solaris007]

Introductory pricing is not a new marketing strategy. In our case, it allows new car manufacturers to quickly gain market share with their offerings and also allows existing car manufacturers to quickly enter new vehicle segments. In addition, this also benefits consumers as they can “test” new products at a relatively lower cost risk.

Win-win situation right? Not really. Car manufacturers these days have started abusing this strategy to gain quick positive marketing, take significant customer bookings and ghost customers till they suddenly increase the prices and expect those same consumers to go along for the ride.

Cases in point:

• Kia Carens: Launched at a very, very aggressive starting price of 8.99 Lakhs - significantly undercutting the competition. It took just 6 weeks for them to increase prices by up to a whopping 60k mainly on the lower variants (~7% price increase). To "sweeten" this deal, they did not offer any pricing protection for older bookings, purposely limited the production of lower variants and offered no transparency on allocations. Here is what one fellow forum member had to say on this:
  
  

  “It’s not at all fair or ethical of Kia to raise prices so soon after lunch, plus offer no price protection to those who booked earlier. There are people here who have sold their current cars to the same dealer and waiting for the Carens based on the price points at launch. Creating an artificial and inaccurate price perception through heavy advertising during pre launch and launch phase, only to yank the carpet from under future customers within weeks and that too after throttling delivery of attractively priced lower variants, is a greedy and sure shot way to ruin brand equity and perception.” - 84.monsoon

• Skoda Kodiaq: Almost Audi Q5/7 like luxury at ~45 Lakhs? Sign me up! Rumours of price increases started just within a week of launch. Within a month, prices were increased by up to 1 Lakh! Customers were left in the dark regarding allocations and dealers had no clue either. In addition, the car has been sold out for the entire year because only a paltry 1200 units were allegedly allocated to the Indian market. Now, the jury is out on wether this was terrible, terrible planning from Skoda or if this was part of a bigger ploy to further increase prices and milk the consumer as stock magically appears. Here is what one fellow forum member had to say on this
  
  

  “They have made a joke of the launch process with this release.
  Whatever is the point of booking early when there is no commitment on them to provide an accurate delivery date but the consumer is required to book early to avail the prices.” - EaurougeatSpa

I am sure I have not captured all the examples but one thing is clear - manufacturers know the current market conditions are heavily in their favour. They are trying every possible avenue to exploit consumers because they can and know we have no other choice. Is this the new normal for us consumers now?

[locusjag]

Electronics manufacturers follow a marketing principle called price gouging. When electronics gizmos are launched, that's when they're most in demand from early adopters. Within a short span of time, obsolescence sets in and those products become gradually irrelevant. So the companies indulge in price gouging - by pricing their products sky high at launch, and then selling them with discounts later on to stragglers and assorted late adopters.

We learn to work around this marketing strategy by not buying the gizmos when they're new. For instance, I've bought flagship smartphones 6 months to 1 year down the line at quite sane prices. I'm a straggler; I don't rush in to buy products when they're hot off the press...wanting to buy the newest and the best is a choice that I'm not dissing upon.

When it comes to automobiles in India currently, affordability matters. Automotive OEMs need to get footfalls in their showrooms and they need to evince interest from our price shocked population. With increasing vehicle costs and fuel costs, they just can't alienate their prospective customers with high prices right off the bat. So they're engaging in the opposite of price gouging - whatever it is called (I'm sure there's a B Schoolish name for that kind of a pricing strategy).

There's also the psychological effect of the number digits in a displaced price for a product; Bata's shoes priced at Rs.999.99 come to mind! The Carens was priced to be below the psychological 10 lac price point initially. It did make a good first impression in the market!

I'm okay with whatever our OEMs want to do. It's their product pricing prerogative; I'm just going to continue to work on my workaround, which is to scour the used car market going ahead for my needs.

[drive2eternity]

Pricing and fluctuations are all market dynamics. I'd be open to them all the time. What I totally detest is the lack of price protection for the buyer.
Mr. Automobile Manufacturer, your customer booked your vehicle at Rs.X. You may take 6-8 weeks to deliver it (or longer), but honor the price at the time of booking.

Even in the Real Estate market - where prices keep on increasing, you, as a customer pay the price you made the booking at!

[ranjith_cbz]

Automobile manufactures are just showing their true colours by following 'bait and switch' pricing model citing current market conditions. Don't know if the chip shortage is real anymore or not but it's serving the car manufacturers very well and they finding that demand is at an all time high and we are looking at 3-4 price rises in a financial year.

I think it's the customers who have a final say on the effectiveness of such strategies. Unless we answer with our pockets such experiments will be standardised and will become a norm in future. I for one postponed my new car purchase until all this mad rush is settled down and some sanity is restored.

[achyutaghosh]

Originally Posted by locusjag

I'm just going to continue to work on my workaround, which is to scour the used car market going ahead for my needs.

You will find that used car prices have also gone up significantly.

Originally Posted by drive2eternity

What I totally detest is the lack of price protection for the buyer. [/b]

Could not agree more. Price protection, even for a short duration, denotes transparency and trust. Sadly though, our auto market is making a bull run out of the current pent up demand and supply constrained environment.

When will this get better?

1. Definitely till this pent up demand is not met.

2. Definitely till the supply scenario improves.

3. Definitely till there are some regulations that offer some sort of price protection to beleaguered consumers who today are at the mercy of the automakers. This is probably the toughest as it will compel authorities to look at the auto industry consumers differently, rather than just collecting new taxes.

4. Definitely till there are new players that look at the market in a new way as compared to the land grab model currently in place by incumbents.

5. Definitely till subscription models become popular.

[FrozeninTime]

The way prices are being increased without any price protection is nothing but cheating the customer.
Over a period of time, such frequent price hikes will bite manufacturers. CCI should probe Auto manufacturers for unfair trade practices.

[ashis89]

I book a car today by paying a nominal amount. Let's say the on-road price is 10L and the waiting period is a few weeks/months. Now some questions that come to my mind:


Do I have to pay for the car in full, while waiting? No

Does it prevent me from buying another car since the one I chose is unavailable? No.

Once the car is ready for delivery (even at 10L), am I forced to take delivery of the car? No.

Can I cancel my booking at point in time (even if the car has already been produced for me)? Yes

Can the seller increase their prices? Yes

Is the seller 'forced' to produce the car within the timeline quoted? No


It is an open market where there isn't any "agreement" between the buyer and seller. Buyer has an expression of interest of buying a car and seller manufactures by 'gauging' the demand/supply for particular model/variant.

I am comfortable with the way the market works right now and gives every one the flexibility.

[solaris007]

Originally Posted by ashis89

It is an open market where there isn't any "agreement" between the buyer and seller. Buyer has an expression of interest of buying a car and seller manufactures by 'gauging' the demand/supply for particular model/variant.

I am comfortable with the way the market works right now and gives every one the flexibility.

While I agree that there are no legal contracts in place and either party can back out at any time - this practice still ends up hurting the buyer and here is why.

1. A car manufacturer launches an exciting new car with unbelievable prices
2. As soon as bookings open, person X goes to the dealer and books the car with his hard earned 50k and eagerly awaits delivery. SA informs him that the price applicable will be at the time of delivery. Person X understands this but he booked on the 1st day and there is no way that the manufacturer would increase prices so quickly right? (Wrong!)
3. He spends weeks excitedly advertising the car to his friends and family about the car's VFM and how he is getting a steal
4. Car dealers start getting massive bookings soon after - significant working capital that they can get good interest on
5. Person X keeps enquiring with the dealer regarding delivery date, dealer says he has no idea. Even the car manufacturer is deathly silent about allocations
6. Weeks pass - no delivery. Dealer keeps telling Person X that delivery will happen soon. Person X starts making arrangements to sell his old car
7. Months pass - no delivery. Car manufacturer announces price increase. Person X will now have to pay the new price even though he booked as soon as bookings opened
8. Dealer tells person X to pay the new price and take delivery immediately. Person X falls to the sunk cost fallacy - he has already waited so long why not just pay the higher price and end the headache

If you had told person X that he would have ended up paying a higher price (up to 7% in some cases) so shortly after a new launch (matter of weeks in some cases) he would not have made the booking in the first place and gone through all the headaches. He is out 50k for those few weeks/months while the dealers stuff themselves full of cash from the "introductory prices" offer. Again, this is not a matter of the amount but the principle of the matter. We are at a point where it almost feels like manufacturers purposely limit allocations of new cars so customers have to pay the higher price.

In which other market can sellers get away with such shady tactics?

[locusjag]

Originally Posted by solaris007

In which other market can sellers get away with such shady tactics?

How about almost every other product or service?

For instance, the profit margin per plate of food in the restaurant business, as I've been credibly told, is obscenely high. What is it - a return ratio of 8 to 1, at premium restaurants? We're really paying for the ambience, they say! But many of us still love eating at restaurants. I can think of other controversial examples (including the actual cost of a car off of the production line, according to an industry insider I met) which will only result in sidebar and off-topic discussions.

But I concur with Ashish; these are cars we're talking about - not insulin or pacemakers or even food. If we can't or won't buy a car, it doesn't materially change much about our lives. You'd be richer in fact, by not buying a heavily taxed product which would've further ruined you by burning heavily taxed fuel. It just sounds so unreal when we get so worked up about something so un-necessary.

I mean - why not just buy something else - including other OEMs' new cars or buy used, if you must buy a car?

[solaris007]

Originally Posted by locusjag

How about almost every other product or service?

For instance, the profit margin per plate of food in the restaurant business, as I've been credibly told, is obscenely high. What is it - a return ratio of 8 to 1, at premium restaurants? We're really paying for the ambience, they say!

Sorry, I just do not think that is a good analogy here. What you are discussing is the VFM for a product or service - which is not at all what I am arguing about.

If I were to use your restaurant analogy here on a small scale for my point, it would go something like this:

1. New restaurant opens up with large pizzas costing a mere Rs 100 (Introductory offer!)
2. People rush to the restaurant, sit down, look at the menu and order the food. No formal transaction has taken place at this point
3. 10 minutes later, the waiter comes out and says - "Introductory prices are no more. Everything costs Rs. 100 more". You can pay or leave.

Yes, of course the person can go ahead and go to another restaurant but that's not the point. A car purchase is a much more complex process that a lot of people plan for and a lot of moving pieces are involved. One should not tolerate such "bait-and-switch" pricing ploys from car manufacturers that jeopardises all those plans.

Originally Posted by locusjag

But I concur with Ashish; these are cars we're talking about - not insulin or pacemakers or even food. If we can't or won't buy a car, it doesn't materially change much about our lives....It just sounds so unreal when we get so worked up about something so un-necessary.

Please let us not even get into this. By that view, this very forum could be considered unnecessary - I mean who cares that Hyundai launched a new limited edition of the Creta? A great many things in our lives are not materially needed but it does not mean we should not enjoy or not care about them.

This is a very different discussion on life that is best had in a different thread.

[GTO]

Broadly, to a CEO, there are 3 ways to price a new car being launched:

1. Underprice (i.e. really VFM). Customers will flock to it, like bees to a hive. The EcoSport started the trend of a mouth-watering starting price for the base variant, the XUV500 also had fit here, the Kia Carens is in this category too. Advantage = brand can always increase prices later once demand is established.

2. Just the "right price". This is very, very tricky and few brands other than Maruti, Hyundai have figured out how to "perfectly price" their products. Nobody knows whether you priced it right or wrong until customers start walking into your showroom to check out the new car.

3. Overprice: Greed, chasing profits, overconfidence. Kushaq / Taigun, Octavia, Citroen C5. Disadvantage = companies know it's very hard to recover from an overpriced launch, even if you offer discounts later. Just ask Ford whose overpriced Fiesta sank like the Titanic on launch, never to float again. A few heroes are overpriced and get away with it because of brand + reputation (Fortuner, Mercedes C-Class).

Pricing it right is crucial at launch and the least risky strategy is the first one. VFM at the start and then, slowly raise prices based on customer demand. As the CEO of an auto company, this is what I would do. What I would also do is offer price protection to the earliest bookers. This is something Automotive CEOs need to understand. How would they feel if they book a room at the Taj for 10,000 / night, then go there 2 months later only to be told "sir, you have to pay the new increased room price of Rs 18,000 / night".

[Sebring]

It is the very low price which attracts buyers. Manufacturers use these surging numbers against the consumer. For example, after a day of launch they post ads that proclaim '50,000 units booked'. Now, the consumer gets it into his mind that there is a 'demand'. Albeit created artificially/or by fake promises by manufacture. Now 'he needs to have early delivery'. The trap is set. This is nothing but deceit. The automotive body or Government should look into this

[pannags]

Originally Posted by solaris007

Car manufacturers these days have started abusing this strategy to gain quick positive marketing, take significant customer bookings and ghost customers till they suddenly increase the prices and expect those same consumers to go along for the ride.

From my own experience pre-booking as many as three cars - all pre-launch - I was offered to the option to cancel my booking as far as three to four weeks after the official launch.

In fact, in the most recent case of the Taigun, the dealership alerted me well ahead of the impending price increase, while I chose to cancel my booking as late as two months after the official launch.

In my opinion, customer bookings don't really mean much, except to generate a bit of initial hype and interest. While car makers may still be able to brag about the numbers, they will do well to get a good portion converted to actual sales. Therefore, while as customers we have the right to withdraw our proposal to buy, I believe manufacturers have the prerogative to alter prices at their will. Now, in the context of the matter under discussion, is this practice ethical? I'm not sure. Is it exploitative? perhaps, not.

[krishnakumar]

I feel OP raises a very valid point. Pricing tactics of various colors exist in the market. Being an open market, there is no harm in that.

But getting the booking done at one price and saying prices will be applicable at the time of delivery isn't fair when the seller is the one causing the lead time in delivery. This would be fair if the buyer is delaying the process - that's not the case here.

A law should come to put a check on this practice. Of course, exceptions to this law should exist but right now, especially the example of Kia, is just an unethical practice.

Manufacturers can raise the prices of their cars all they want, but the prices at the time of booking should be applicable. Period.

[JoshMachine]

To paraphrase some of the points mentioned so far, there are 3 pricing strategies that are usually deployed:-

1). Penetration and/or psychological pricing - this is the bone of contention in this thread. Manufacturers who implement this strategy in 'letter' (with special introductory prices) but not in the actual 'spirit' get flak. And rightly so. They are just keen to penetrate/enter with a bang in the market with insane pricing, but do not follow it through. Examples include potentially the Kia Carens.

2). Product line pricing - this is akin to providing the entire range of product : price options, right at the beginning and that too, transparently. It is said that manufacturers gain the most (bottom line + top line) with such a strategy. But this is also the most difficult to implement since this requires knowing and understanding what the customer really wants, for a particular segment and a price point. Maruti & Hyundai have done it umpteen times.

3). Experience driven value pricing - this is typically in the realm of luxury segment, where customers look beyond the feature set + pricing combination. They look for the entire experience expected to be derived from the product.