May 08, 2024

Sale Prices Work Best When Consumers Know About Them (You Don’t Say!)

Rick Wainschel
Rick Wainschel

Market Adjustment Metric Reveals Effects of Promoted Pricing

Last week, I was in our local grocery store and saw that there was a sale on a bottle of wine that was normally a bit out of my price range. I bought it, tried it, and enjoyed it, and went back to get more. But in the interim, the store had advertised that all wines over a certain price point were discounted by 30%, and when I went to the shelves, they were out of stock. The sale was much more effective when consumers were alerted to the regular and reduced prices rather than relying on them to find and appreciate that discount on their own.

While buying wine and cars are two totally different kinds of transactions, the notion of a promoted discount performing better than a passive one is intuitively applicable to both.

When shopping for a car, consumers often look at the differential between the MSRP price and the marketed price—which can include dealer discounts and available incentives—to help determine which vehicle to purchase as well as when and where to do so. At Cloud Theory, we monitor that price differential and connect it to vehicle movement diagnostics such as turn rate and days on lot in order to understand the interconnection between all of those factors. And we do it across virtually 100% of dealerships in real-time, so we have a unique and comprehensive capacity to make sense of this data.

Recent dynamics associated with the Ford Mustang Mach-E showcase this interrelationship particularly well. In anticipation of its 2024 MYCO, Ford began reducing the price of 2023 model year Mach-E vehicles, which were having trouble moving—in part because of its price point. With 2023 inventories needing to be reduced to make way for the 2024 model year changeover, it was important to improve a stubbornly low turn rate.

That reduction in list price is visible in the chart below, which shows a sharp drop in MSRP (the purple line) beginning in late January. However, the Market Adjustment metric (the red line) went up as the MSRP declined, signifying that the dealers did not shift their marketed pricing to reflect the new base level. For about four weeks, that metric was greater than zero, signaling to consumers that the Mach-E was being marketed at the same price as before (and now above MSRP).

Meanwhile, turn rate for the Mach-E remained severely challenged during the initial base price reduction period. It was not until dealers mirrored the MSRP reduction in their marketed prices—starting in late February—that the turn rate jumped and remained elevated as that Market Adjustment metric continued to be less than $0 (i.e., marketed price was below MSRP again).

Just like the wine sale experience, sales improved once consumers were made aware of the discount via the marketed pricing on the dealers’ websites, and the price differential was clearly communicated and understood.

Examples of highest and lowest segment-level Market Adjustment levels provide insight into the approaches that OEMs and dealers are taking to promote their vehicles. Models with more aggressive discounts are often ones that need to challenge the leaders, while those with marketed prices closer to MSRP are ones that can command premiums in the marketplace (led by Toyota, as seen in the selected segments below). But other instances can also point to specific occurrences such as sales events, model year sell-downs, or inventory surpluses.

Screenshot 2024-05-08 at 12.38.42 PM

OEMs and dealers alike would be wise to carefully monitor the price differences that consumers are seeing in the real world, and to coordinate the promotion of both sides of the equation in order to maximize performance and program effectiveness related to actions such as new vehicle introductions, model year changeovers, sales events, and incentive offers. Cloud Theory’s Horizon platform enables that monitoring and coordination at the national, regional, DMA, and even rooftop level. Click here to learn more.



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