Introductory prices: A bait & switch tactic by carmakers

Car manufacturers these days have started abusing this strategy to gain quick positive marketing.

BHPian solari007 recently shared this with other enthusiasts.

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 BHPian 84.monsoon 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.

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 BHPian EaurougeatSpa 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.

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?

Here's what GTO had to say on the matter:

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".

Here's what BHPian locusjag had to say on the matter:

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.

Here's what BHPian drive2eternity had to say on the matter:

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!

Here's what BHPian solaris007 had to say on the matter:

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?

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