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Old 10th May 2022, 11:45   #1
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Default Cars | What is the price-point of diminishing returns?

For any product, there is a point of diminishing return - a price point, past which, the gain isn't much for a major price increment.

In the case of audio equipment, some refer to the 80:20 rule - at 20% price (of the best there is), you almost have reached 80% quality (of the best on offer). Afterwards, you're not going to get perceivable quality gains for the next most expensive product.

In your experience, where is the point of diminishing return for cars? On both the sides - luxury car or sports car.
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Old 10th May 2022, 12:45   #2
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Default re: Cars | What is the price-point of diminishing returns?

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Originally Posted by akshye View Post
For any product, there is a point of diminishing return - a price point, past which, the gain isn't much for a major price increment.

In the case of audio equipment, some refer to the 80:20 rule - at 20% price (of the best there is), you almost have reached 80% quality (of the best on offer). Afterwards, you're not going to get perceivable quality gains for the next most expensive product.

In your experience, where is the point of diminishing return for cars? On both the sides - luxury car or sports car.
80% of value for an attribute could be 99% for one person and 50% for another. And it all varies with the size of the buyers pocket, the buyers attitude {wishes to flaunt or otherwise}, the attributes he / she prioritizes. You could have a buyer who can afford an S class Mercedes but prefers an E or even a Camry to stay under the radar relative to his position. For others it could be the other way around. So I guess 100 car buyers will have 101 views on a topic like this.
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Old 10th May 2022, 13:18   #3
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Default re: Cars | What is the price-point of diminishing returns?

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Originally Posted by V.Narayan View Post
So I guess 100 car buyers will have 101 views on a topic like this.
Seconded.
The parameters could be completely different. For example, for me, the major decision criteria for mobile phones is SAR which frequently elicits a "WHAT?" from people.

Even in our family, automatic is a must have for my wife and I am agnostic (prob prefer manual). Both of us do not care about the touchscreen but my son would like to have one, etc.
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Old 11th May 2022, 12:16   #4
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Default Re: Cars | What is the price-point of diminishing returns?

Great thread idea .

I would say 20 - 30 lakh rupees, depending on the bodystyle. The 10-lakh cars are too basic now, while the 40+ lakh ones are absolutely overpriced (including the Fortuner & C-Class). 20-30 lakhs is the sweet spot, beyond which you start suffering diminishing returns.

If crossover / SUV, do you really need anything more than a fully-loaded Creta / Safari / Hector / XUV700 in life? Among sedans, the Octavia punches way above its weight and easily matches 50-lakh sedans on many parameters. Frankly, even the Honda City (more space than an A4) & Slavia 1.5 TSI are sedans that meet every need. MPV? Does anyone really need any more "van" than an Innova Crysta or Carnival (whose variants were available under 30 big ones).

No one needs any more car than the 20 - 30 lakh ones. Anything over that attracts the law of diminishing returns. Hell, other than the style & 4x4, I consider the Innova Crysta to be a superior car to the Fortuner. The cannibalism was so much that Toyota discontinued the Innova 2.8L AT variant to differentiate the Fortuner.

Last edited by GTO : 13th May 2022 at 13:28. Reason: One more thing
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Old 11th May 2022, 12:54   #5
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Default Re: Cars | What is the price-point of diminishing returns?

This thread is something that probably is playing on the mind of most BHPians and car enthusiasts, "aam janta" won't even put much thought or perspective here. And this is going to be super subjective. For example, I consider a 2.0 TSI as a good to have as compared to the 1.5, so I lean towards the Octavia, may not be the same for others.

To keep it simple, for me the buck stops at D1. Most of the vehicles in this segment pretty much match up to segments above at a more affordable price point, minus brand value and cutting edge tech trying to keep it body-style agnostic. It was slightly confusing between C2 and D1 but personally, D1 made more sense to me.
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Old 11th May 2022, 13:05   #6
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Default Re: Cars | What is the price-point of diminishing returns?

For automobiles, it is all relative and there cannot be a fixed price point for diminishing returns. Because many times
vehicle purchases are emotional and heart over mind ones. That being said, many of the luxury cars have atrocious pricing because of the badge value and the taxes applicable and not because of the actual value it offers. Something like the Skoda Octavia had the 2.0 TSI engine at a lower price than the Audi with the 1.4 TSI.
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Old 11th May 2022, 13:50   #7
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Default Re: Cars | What is the price-point of diminishing returns?

I agree with Mr.Narayanan here - I am a curbed enthusiast on the forum (Larry David's "Curb your enthusiasm" and its famous jingle-song comes to mind). We are all automotive enthusiasts here, sure. But I have been curbing my enthusiasm for a variety of reasons, most of which are rooted in our realities...

As a curbed enthusiast, anything over 5 to 10 lakhs is a point of diminishing returns for me.

Here's why - we have begun paying a very high cost for helping to protect the world, here in India. This is at a time when citizens of the developed world have horrific carbon footprints, owing to heating in winter, transportation of essentials over longer distances and low population densities (e.g., Canada, Australia, Texas in the US etc.), horrible consumption driven lifestyles (e.g., Fijian spring water, which gets produced on one side of the globe, gets shipped over the world) etc. Meanwhile, these lucky citizens get to drive their decades old vehicles with abandon. My friend in Connecticut, USA, gets to happily drive his 20 year old $1500 used Camry, which has 300,000 miles on the odometer. All he has to do is get a fitness test done once in every 3 years and he's good to keep running it. Our NCR region meanwhile has a useless 10 year/15 year ban on ICE vehicles. Kolkata has begun imposing a 15 year scrappage rule now. This cancer will begin spreading.

On the other hand, we have stubble burning by farmers (endorsed by Greta the horrible), rampant burning of garbage and multiple other actual contributors to a poor AQI and greenhouse emissions (the global shipping industry which runs on crude oil, the construction industry, the meat industry etc.). Car owners are 100% sure to be soft targets of agencies such as the NGT and our courts.

Whatever you buy now is sure to be affected by a stupid scrappage law wherever you live in India - just give it a period of 5 to 10 years.

So when I look at all these cars in the 10+ lakh range, I am unable to appreciate all of their features when I presage their inevitable fate at the hands of a scrappage facility's car crusher. And of course, there is the prospect of imminent depreciation of cars as a result of mandatory scrapping. There's a healthy chance that all our present vehicles are money pits! So I just need a car that will run and provide returns on my minimal investments at the present. My strategy going forward is to spend the least amount of money possible on ICE cars so that I will be able to scrap them as and when needed, without having to shed tears for it.

Thus, any car that can do more than run reliably is already beyond the point of diminishing returns for me.

Damn you Greta.

PS: I am not against measures to curb global warming. I am merely against climate change charlatan gurus and "safe" yet useless measures against soft targets such as car owners. If we are seriously planning to tackle global warming, I believe mankind must prepare to tackle our hardest and meaningful problems first, even if it means kicking several hornets' nests such as cutting down on meat consumption, stubble burning etc.

Last edited by locusjag : 11th May 2022 at 13:56.
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Old 11th May 2022, 14:06   #8
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Default Re: Cars | What is the price-point of diminishing returns?

Law of diminishing return is more investment focussed. I think we should rather discuss the topic using diminishing marginal utility, which is more consumer oriented.
First of all, it should not be applied to cars which have a different purpose altogether. If I have a parking space for a hatchback, no matter what you offer me, I will still buy a hatchback. Yes, a sunroof may not add to the marginal utility I extract from it.
Secondly, we are not putting in the same benefit and comparing; where the marginal utility concept actually applies. Let us assume a car comes with x AC vents. If I increase the number of AC vents, there is a diminishing marginal benefit with each increase but at one point, there is no point in increasing it further.
At max., I can apply it to variants within the brand like LXI, VXI, ZXI. We all make this choice, whether we know the term ‘marginal utility’ or not.
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Old 11th May 2022, 14:16   #9
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Default Re: Cars | What is the price-point of diminishing returns?

In my opinion, the 50L on road mark is where you achieve this point as far as regular vehicles are concerned : the Camry Hybrid, Skoda Superb, Kodiaq, etc. are some terrific all rounders; and the 330i is a brilliant driver's car - not much of an upgrade in terms of performance except for the M340i which is where the buck would probably stop in terms of performance cars.
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Old 11th May 2022, 15:45   #10
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Default Re: Cars | What is the price-point of diminishing returns?

Highly subjective topic.

Though I have models for each price slab. WagonR, Ertiga, City, Innova are some models that you can't go wrong with depending on your budget. Anything below WagonR is a compromise, anything above the Innova is ostentatious. That is for most of the buying population.

Ofcourse, depending on buyer's preference, there could be a tipping point model. Octavia, Fortuner, 3 series, Camry, E class LWB, S Class are some that comes to my mind. Ofcourse, even globally, anything upto the S class is explainable. Anything above that is pure luxury. There used to be a time when most rich people in India would end up with a Corolla or CR-V, with anything above that not being rational.

Though, am glad we are away from the times when many would say, " Do you need anything more than an 800?"
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Old 11th May 2022, 16:12   #11
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Default Re: Cars | What is the price-point of diminishing returns?

I would opine that whilst there isn't a single price-point/segment/range overall, there are perhaps a total of three cutoff points, or slabs:

The first cut-off as GTO suggested above is the 20-30 lakh range at present, which probably provides a very large segment of customers the optimal balance of features, performance, space, reliability and quality.
The second cut-off is the 50-70 lakh range, which will get you all of the above along with potentially significant performance related gains (power, traction etc.).
The third and final cut-off is probably the 1.5 Cr mark which may get all or mostly, only some of the attributes of the above 2 categories but guarantees a certain level of exclusivity which is ultimately what that segment is all about.
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Old 11th May 2022, 22:31   #12
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Default Re: Cars | What is the price-point of diminishing returns?

Quote:
Originally Posted by GTO View Post

20-30 lakhs is the sweet spot, beyond which you start suffering diminishing returns.
Agree 100%. I often get tempted to buy cars in the range of 35-50L and I ask myself - would I be happier / better off buying two cars instead, with the same money? In most cases, the answer turns out to be YES.

For example:
Compass = City/Slavia + Thar

Quote:
Originally Posted by GTO View Post
Hell, other than the style & 4x4, I consider the Innova Crysta to be a superior car to the Fortuner.
At the risk of going a bit off-topic, a big void in the 20-30L segment currently is absence of a 4x4. Thar (under 20L) is still not practical enough and Compass (over 30L) is overpriced. Hopefully the upcoming Scorpio will fill this void.
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Old 12th May 2022, 00:06   #13
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Default Re: Cars | What is the price-point of diminishing returns?

I'd like to draw the analogy between phones and cars here, two niches with a lot of similarities that can be drawn.

Remember when phones came in plethora of shapes, sizes and colors? They're all the same form and color now, and there ain't a lot of variety despite being a lot of variety in the market.

Same goes with cars: a lot of companies have forayed into the Indian market, but with limited engine options. Its the same 1.5 or 2.2 everywhere. IMO unless you're aiming for insane brand value, anything above the 40L mark (Fortuner) gives you less bang for your buck. Wireless charging, a sunroof, ventilated seats, good ICE? The new age Korean/Euro cars have it all, and the technological gap between expensive imports and any car in the goldilocks range (20-40L) is narrow, and is getting narrower with each release.

I have a feeling once EVs become mainstream and the support infrastructure to facilitate EVs gets commonplace (I'm optimistic, I hope it develops as fast as broadband infra picked pace) the world will inch closer to decentralization of accessible tech and gap will only constrict itself.
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Old 12th May 2022, 00:07   #14
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Default Re: Cars | What is the price-point of diminishing returns?

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Originally Posted by MT_Hyderabad View Post
Law of diminishing return is more investment focused. I think we should rather discuss the topic using diminishing marginal utility, which is more consumer oriented.
Brilliant point, and thank you for the education! I always get mixed up between the two.


To the OP, TLDR : There isn't one, it is entirely up to what a person wants and how much they are willing to pay for it.

When you venture into the "Luxury/Niche" segments, these concepts have already gone out the window. So many people before me have posted, why would I buy an A4 or A6 when I get an Octavia for half the price?

On this forum, people do not buy luxury vehicles just to show off (exceptions can occur in the world). There's usually a very interesting debate that takes place between the head and the heart. I have had the privilege of reading these posts, and come to the realization that you must do what your heart wants.

To sum up, there's no point spending 30+ lacs buying one car and then wishing you had a bought a 530d you see at the next stop light.

Everyone's got their reasons, compulsions and needs. I've just offered my perspective.

Last edited by BeMyWings : 12th May 2022 at 00:27. Reason: Edited for clarity
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Old 13th May 2022, 09:23   #15
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Default Re: Cars | What is the price-point of diminishing returns?

Like most have suggested this already, it is subjective topic. According to me, 13-18 lakhs is a sweet spot to access most of the safety, luxury features and pinch of enthusiasm, beyond this one pays to upgrade for larger body, higher displacement or brand value - which IMO as a driver/passenger do not mean much.

I feel the OEMs are not totally at fault here, government's ridiculous tax norms are at blame for the most part. Came across this interesting article today which was an eye opener on the profit made per car by the OEM. (This may not be totally relevant to this discussion but wanted to share as we blame OEMs for regular hikes)

Quote:
Toyota Fortuner which is a premium offering with an ex-showroom price of Rs 39.28 lakh for which a buyer has to shell out approximately Rs 47.35 lakh (on-road) from his/her pocket. Considering the high price, one would imagine that Toyota could be earning a big chunk of it which is not true. The company only earns about Rs 35,000-40,000 per vehicle, even as premium as Fortuner.

A dealership, through which the vehicle has been sold to the customer, earns a commission of 2.5-5 percent on each carís ex-showroom. In Fortunerís case, a Toyota dealer would earn approximately Rs 1 lakh on sale of each unit. This figure also varies from company to company since each OEM offers different commissions to its dealership.

Majority of the proceeds go to governments at both State and Central levels through various components of taxes. Taking the example mentioned above, out of the ex-showroom price of Fortuner, approximately Rs 13 lakh goes to the government. This includes two GST components- GST at 28 percent and GST compensation cess at 22 percent. Both amount to Rs 5.72 lakh and Rs 7.28 lakh respectively in case of the D-segment SUV.
Quote:
Among the mass market segment, Kia has the highest operating profit per car at around Rs 70,000. Maruti and Tata have an operating profit of around Rs 40,000-45,000 per car whereas Hyundai earns a profit of around Rs 30,000 per car.

Copyright (C) 'RUSH LANE' Read more at... https://www.rushlane.com/toyota-earn...-12435713.html .
Source: Rush Lane

Last edited by hdman : 13th May 2022 at 09:34.
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