How Disruptive Pricing Will Impact Consumers and Automotive Manufacturers in the UK and US

January 13, 2020

In both the UK and US, there is currently a real risk for political dynamics to result in the imposition of trade tariffs that have selective, disruptive effects on various product categories.

Traditionally, vehicle manufacturers have been able to introduce modest price rises almost indiscernibly. Sometimes, currency fluctuations may also serve to inflate prices but, critically, neither mechanism tends to disrupt the pricing hierarchy.

If sizeable tariffs are applied to vehicle brands from specific countries or regions, there is potential for the pricing hierarchy of brands to be massively disrupted.

So, how might car buyers react to massive overnight price hikes for various car brands? We conducted a small scale, attitudinal study in the UK and US to determine what car buyers would actually do in various scenarios.

It is clear in both countries that, faced with a discernibly higher price, car buyer behaviour would scatter in all sorts of different directions. In the UK, only 17% of car buyers would stick with their original make/model preference. A further one third would likely stay with their preferred brand but also seek a means of mitigating the price increase by down-grading on trim levels or segment. With one quarter delaying the time of purchase and another 14% intending to switch brand, it can be seen that close to 40% of buyers would adopt a behaviour that would deliver the most disruptive outcome for their preferred brand.

In the US, the impact of the significant price increases would be even more disruptive—27% would delay the purchase while 37% would switch brand, either within the same segment or down-grading.

While the UK responses were in reaction to a 20% price increase, the results indicate that US car buyers are particularly price sensitive—over 20% would react in response to a 5% increase while a further 50% would feel the need to re-appraise their vehicle choice if the price hike hit the 15% threshold.

So, What Does This Mean for Auto Manufacturers?

Severe price increases imposed via tariffs that brands have no control over create massive market challenges. Margins are already incredibly tight, so significant discounting is akin to commercial self-harming. Promotion of different ownership models may represent a medium to long-term means of mitigating some of these effects.

For any car buyer, there is always a personal value for “money equation” to be satisfied—in other words, balancing what the buyer gets for what they have to pay for it. While geo-politics might influence the “pay” side of the equation, manufacturers can always influence the “what the buyer gets” element by ensuring they build as much equity as they can into their make/model proposition. This translates into ensuring that, through all forms of marketing communications, manufacturers sharply focus on projecting to potential consumers the most influential and resonating benefits that are present in both the brand and the models.

There is never a bad time to reinforce the equity in a brand or its vehicles—but at a time when there is a risk of disruptive pricing, it becomes even more imperative.

Our Automotive & Mobility team is deeply embedded in the global auto industry as it undergoes ever-growing disruption and transformation. Feel free to send us a note with your questions and challenges—we can help you get ahead of the curve of this dynamic market.

 

This blog post references data from two Escalent studies. In one, Escalent interviewed a US-based sample of 998 consumers aged 18 and up in October 2019, of which 901 intend to purchase/lease a vehicle in the future. Respondents were recruited from the Dynata and Ipsos panels of US adults and were interviewed online. Quotas were put in place to achieve a sample of age, gender, income, and ethnicity that matches the demographics of the US population. In the other, Escalent interviewed a UK-based sample of 293 consumers in October 2019 who had bought/leased a passenger vehicle in the last three years (all passenger vehicle brands and segments were included). Respondents were recruited from the Dynata and Toluna panels of UK adults and were interviewed online. Due to their opt-in nature, these online panels (like most others) do not yield a random probability sample of the target population. As such, it is not possible to compute a margin of error or to statistically quantify the accuracy of projections. Escalent will supply the exact wording of any survey question upon request.

Mark Carpenter
Managing Director, UK

Mark is Joint Managing Director of Escalent’s European office based in Surrey, England. With over 30 years of creativity, experience, and passion for research combined with deep technical know-how, Mark leads business development in Europe in conjunction with Escalent’s global development strategy.