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I have been researching auto marketing for the past 10 years. Here is out latest article. Some of this may sound familiar. There is a message for FCA in all of this.
Here is a link to the online article: DON'T DISCOUNT, ADD VALUE INSTEAD!
As always, feel free to share your comments.
DON'T DISCOUNT, ADD VALUE INSTEAD!
The emergence of online advertising, the fragmentation of the media, the proliferation of new nameplates, and a shift in marketing budgets from HQ to the regions and dealer groups have, inadvertently, resulted in consumers being exposed to a great proportion of retail-focused ads touting deals or a discounts, and not enough ads that differentiate and create value.
Consumers have learned to expect large discounts and cash incentives off the price of automobiles. It’s become a widespread industry practice to advertise some sort of deal. But are deals and discounts what consumers really want?
CONSUMERS DON'T WANT A PRICE, THEY WANT VALUE
Consumer research shows price to be one of the poorest predictors of purchase intention. By contrast, value for money consistently ranks much higher. To put it simply, consumers want to maximize the value they receive for the price they are being asked to pay. This is true whether they are looking to buy a $16,000 Toyota Yaris or a $95,000 Mercedes S-Class.
Economic theory says that as price goes up, quantity goes down, and vice-versa, provided everything else stays constant. But as we know nothing stays constant in real life. Once we account for those things that are not constant on consumers’ minds, like brand reputation, reliability, safety, efficiency, customer treatment, etc., the economic model appears to break down. So what are we to make of all this?
Research data show that quality is the most universally desirable characteristic consumers want in a vehicle, followed by safety, and practicality. This is why automotive brands with an established reputation for quality, like Toyota, Honda, Lexus or Mercedes-Benz, are able to sell large volumes at prices that, often, are higher than those of the competition. Further, consumers tend to view brands like Toyota and Honda to deliver a better value despite commanding higher prices.
While this seems counter-intuitive, it is true because those other variables, like quality, safety, etc., create differentiation on consumers’ minds and, by doing so, grow demand. Greater demand manifests itself by a shift of the demand curve to the right –see chart below, enabling that manufacturer to sell more and charge more.
Brand differentiation, like the perception of quality, helps shift demand from D1 to D2 , enabling an automaker to do both, grow sales and charge more
![]()
Chart Key: D = demand curve, S = supply curve, P = price, Q = quantity
Source: Wikipedia.com
For a variety of reasons, the automotive industry has become obsessed with incentives. Incentives give automakers relatively quick results, and their impact can be tracked. Unfortunately, research data show that incentives do not generate demand; they simply pull future demand forward. Worse, over time, incentives have an eroding effect on the brand by creating a permanent association with discounts.
Research data shows that incentives pull future demand forward; they do not create more demand
![]()
THE ROLE OF ADVERTISING IS TO CREATE VALUE ON CONSUMERS’ MINDS
One automaker that has gone against the rest has been Subaru in the US: for the past 10 years Subaru has been able to create differentiation based primarily on Safety and Durability, through an ad campaign that has proved effective by being relevant and connecting at a personal level.
Against mainstream practice, Subaru ads focus primarily on people, showing the vehicles as the conduit that allows people to live their daily lives. Subaru has also been willing to show its vehicles in unflattering conditions, like wrecked after a rollover or a head-on collision, allowing it to tackle a serious topic like safety in an impactful, personal manner. It is by focusing on people and their needs, rather than on the vehicles, that Subaru ads connected with consumers, creating differentiation in a relatively short period of time.
As a result, Subaru sales have grown organically for an entire decade with little use of incentives. As the US market plateaus, sales growth has slowed down, but Subaru continues using some of the lowest incentives in the industry.
Subaru has shown courage with ads willing to go where other automakers are not
![]()
The difference between price and value is: price is just a number; value is a number with a context of consumer benefits. Thus the role of advertising is to give us context, not just a number.
None of this is to mean that deals and discounts don’t play a role. It simply means that by adding context, ads create value on consumers’ minds, which allows automakers to reduce their need for discounts.
Feel free to contact me with any questions or comments at [email protected]
Here is a link to the online article: DON'T DISCOUNT, ADD VALUE INSTEAD!
As always, feel free to share your comments.
DON'T DISCOUNT, ADD VALUE INSTEAD!
The emergence of online advertising, the fragmentation of the media, the proliferation of new nameplates, and a shift in marketing budgets from HQ to the regions and dealer groups have, inadvertently, resulted in consumers being exposed to a great proportion of retail-focused ads touting deals or a discounts, and not enough ads that differentiate and create value.
Consumers have learned to expect large discounts and cash incentives off the price of automobiles. It’s become a widespread industry practice to advertise some sort of deal. But are deals and discounts what consumers really want?
CONSUMERS DON'T WANT A PRICE, THEY WANT VALUE
Consumer research shows price to be one of the poorest predictors of purchase intention. By contrast, value for money consistently ranks much higher. To put it simply, consumers want to maximize the value they receive for the price they are being asked to pay. This is true whether they are looking to buy a $16,000 Toyota Yaris or a $95,000 Mercedes S-Class.
Economic theory says that as price goes up, quantity goes down, and vice-versa, provided everything else stays constant. But as we know nothing stays constant in real life. Once we account for those things that are not constant on consumers’ minds, like brand reputation, reliability, safety, efficiency, customer treatment, etc., the economic model appears to break down. So what are we to make of all this?
Research data show that quality is the most universally desirable characteristic consumers want in a vehicle, followed by safety, and practicality. This is why automotive brands with an established reputation for quality, like Toyota, Honda, Lexus or Mercedes-Benz, are able to sell large volumes at prices that, often, are higher than those of the competition. Further, consumers tend to view brands like Toyota and Honda to deliver a better value despite commanding higher prices.
While this seems counter-intuitive, it is true because those other variables, like quality, safety, etc., create differentiation on consumers’ minds and, by doing so, grow demand. Greater demand manifests itself by a shift of the demand curve to the right –see chart below, enabling that manufacturer to sell more and charge more.
Brand differentiation, like the perception of quality, helps shift demand from D1 to D2 , enabling an automaker to do both, grow sales and charge more
Chart Key: D = demand curve, S = supply curve, P = price, Q = quantity
Source: Wikipedia.com
For a variety of reasons, the automotive industry has become obsessed with incentives. Incentives give automakers relatively quick results, and their impact can be tracked. Unfortunately, research data show that incentives do not generate demand; they simply pull future demand forward. Worse, over time, incentives have an eroding effect on the brand by creating a permanent association with discounts.
Research data shows that incentives pull future demand forward; they do not create more demand
THE ROLE OF ADVERTISING IS TO CREATE VALUE ON CONSUMERS’ MINDS
One automaker that has gone against the rest has been Subaru in the US: for the past 10 years Subaru has been able to create differentiation based primarily on Safety and Durability, through an ad campaign that has proved effective by being relevant and connecting at a personal level.
Against mainstream practice, Subaru ads focus primarily on people, showing the vehicles as the conduit that allows people to live their daily lives. Subaru has also been willing to show its vehicles in unflattering conditions, like wrecked after a rollover or a head-on collision, allowing it to tackle a serious topic like safety in an impactful, personal manner. It is by focusing on people and their needs, rather than on the vehicles, that Subaru ads connected with consumers, creating differentiation in a relatively short period of time.
As a result, Subaru sales have grown organically for an entire decade with little use of incentives. As the US market plateaus, sales growth has slowed down, but Subaru continues using some of the lowest incentives in the industry.
Subaru has shown courage with ads willing to go where other automakers are not
The difference between price and value is: price is just a number; value is a number with a context of consumer benefits. Thus the role of advertising is to give us context, not just a number.
None of this is to mean that deals and discounts don’t play a role. It simply means that by adding context, ads create value on consumers’ minds, which allows automakers to reduce their need for discounts.
Feel free to contact me with any questions or comments at [email protected]
