Demand and Pricing Strategies:Ford and GM

Demand and Pricing Strategies:Ford and GM

The demand for the goods of Ford in 2019 fell 1.6% for unpopular cars and increased for trucks, vans, and SUV’s. Lincoln, Ford’s premium brand, grew 11.2% in sales last year. All of Ford’s pickup trucks, vans, and SUV’s made up 83% of the company’s total vehicle sales in the first quarter of 2019. Ford truck sales rose 4%, SUV sales rose 3.5%, and Lincoln SUV’s rose 23.2% during the first quarter, as well. Based on this information, Ford’s demand is growing. The demand for services of Ford has introduced a reward program where you can earn points. They offer complimentary vehicle maintenance when members purchase or lease a new Ford vehicle. Customers can also earn points on service spending at Ford dealerships. I would consider this to be a luxury since Ford is only one of a few to roll out something like this. It does make the competition that much greater for other car makers, though.

The demand for the goods of General Motors in 2019 fell 2.3% compared to 2018. Crossover sales increased by 12.7%, while passenger cars decreased by 30.5%. Pickup trucks, full-size SUV’s, and vans dropped 2%. Chevrolet, General Motors’ largest brand, declined 3.8% last year. Buick, Cadillac, and GMC increased sales last year by just a smudge. Based on this information, General Motors’ demand is both growing and declining, depending on which car maker you look at. The demand for the services of General Motors has introduced an auto rewards credit card called Buy Power Card. I would consider this to be a luxury since the credit card rewards you with earnings on every purchase you make, and it is redeemable toward the retail purchase or lease of a new Chevrolet, Buick, Cadillac, or GMC vehicle. Consumers do have to apply in order to get the credit card, as you normally would.

I would say that consumers have similar preferences when it comes to General Motors and Ford. Because they both make similar types of cars, they are always in competition. General Motors has more branches of car makers than Ford does so consumers have more choices when buying a General Motors made vehicle compared to a Ford made vehicle. The two vehicles with the most competition between each other would be the Ford Expedition and the Chevrolet Tahoe. Consumers tend to lean more towards the General Motors side of car makers when it comes to full-size SUV’s due to the name power. If you would survey 100 people, 75 of them would pick a Chevrolet Tahoe over a Ford Expedition just because Tahoe’s are more popular.

Now, if you would compare the two vehicles with the most competition under General Motors, that would be a different story. Under General Motors, the Cadillac Escalade and the Chevrolet Tahoe would be up against each other. Both of these full-size SUV’s rake in a lot of revenue for General Motors, especially their extra-long wheelbase siblings, the Chevrolet Suburban and the Cadillac Escalade ESV. Because Cadillac is a luxury brand by General Motors, the cars costs way more than a Chevrolet or a GMC. If consumers want a luxury brand made by Ford or General Motors, they’re looking at a Buick, Cadillac, or Lincoln.

Price setting and price ranges are the most important aspect and pricing influences sales in the car market. General Motors uses some pricing strategies such as market-oriented pricing strategy and premium pricing strategy. The objective of General Motors in the market-oriented pricing strategy is to set competitive prices based on the prevailing prices of automobiles in the global market. An example of this would be that lots of General Motors vehicles are priced according to what the price range of competitors are. The objective of General Motors in the premium pricing strategy is to set relatively higher prices that correspond to premium branding. An example of this would be that Cadillac vehicles are offered at higher prices. The high pricing supports the premium brand image of Cadillac, while also helping to maximize profit margins due to General Motors cost leadership strategy.

Ford’s pricing strategies are a bit different due to the prices varying. Ford uses some of the same pricing strategies that General Motors uses, like market-oriented pricing strategy and premium pricing strategy. The objective of Ford in the market-oriented pricing strategy is to set prices that are appropriate to market conditions, while considering the competition, demand, consumer perception, and other variables. An example of this would be that Ford applies this pricing strategy to their trucks and sedans. The objective of Ford in the premium pricing strategy is to set higher prices for some of its products. An example of this would be that the Lincoln vehicles use this due to it being Ford’s luxury line.

I couldn’t find anything about Ford Motors being accused of predatory pricing. I did, however, find some information about General Motors being accused of predatory pricing. General Motors and Louisiana All Star Chevrolet was sued by Felder’s Collision Parts on the grounds that they violated an antitrust law related to predatory pricing. In the “Bump the Competition” program, dealers, like Louisiana All Star Chevrolet, sell OEM parts to auto body shops for less than cost. That way, the shop picks a new OEM component over an otherwise cheaper aftermarket part demanded by insurers. The shop has a lower baseline from which to mark up their own price, but the customer at least gets an OEM part. At the time of the case, General Motors had given the dealerships a rebate for the difference between the cost and the reduced price charged by the auto body shop, and also tacked on a 14 percent profit on the original price as an incentive.

Felder’s Collision Parts had told the original Middle District of Louisiana court that its income fell from a peak of $3 million in 2008 to $2 million. They also argued that General Motors could drive them out of business one day. Felder’s Collison Parts had asked the Supreme Court to hear the case and rule on whether the rebate counted when determining predatory prices. They noted to the Fifth Circuit and Supreme Court that the case turned on that point of law. The Fifth Circuit had already ruled that the rebate kept the transaction from falling below the supplier’s average variable cost and thus wasn’t predatory.

I think the pricing strategies introduced by General Motors and Ford Motors are representative of the automobile industry as a whole. The market-oriented pricing strategy and the premium pricing strategy can both be used by not only General Motors and Ford Motors, but also all of the car brands in the automobile industry. A market-oriented pricing strategy is also called a competition-based strategy. In this pricing strategy, the company will evaluate the prices of similar cars that are on the market. Depending on if the car has more or less features than the competition, the company sets the price higher or lower than the competitor pricing. For example, if the car has an extra feature, like lane changing assist, the company could decide to price it the same, therefore making it the better value, or it could price it slightly higher due to the additional feature.

A premium pricing strategy is also called re-badging. In this pricing strategy, companies have the idea that cars have a higher value over the competition. If companies use this type of pricing strategy, they make more profit, optimize the brand value across all the cars, and create a blockage for entry against the competitors. In order to establish a premium pricing strategy, companies need to highlight key attributes of the cars they have.  Once you’ve established the essential points concerning the car and customer usage, you can use these customer insights to advertise and market the cars on the lot and online. For example, a Cadillac Escalade is as good as a Chevrolet Tahoe or a GMC Yukon, but owning the Cadillac Escalade means class and prestige. Consumers are willing to pay more for the Cadillac Escalade just because of the high class attributes.

References

Anthony, L. (2019, February 6). What Is a Market-Based Pricing Strategy? Retrieved from https://smallbusiness.chron.com/market-based-pricing-strategy-5121.html

Ferguson, E. (2017, February 5). Ford Motor Company’s Marketing Mix (4Ps) Analysis. Retrieved from http://panmore.com/ford-motor-company-marketing-mix-4ps-analysis

Login. (n.d.). Retrieved from https://media.ford.com/content/fordmedia/fna/us/en/news/2019/05/02/ford-sharpens-focus-on-customer-experience.html

MyGMRewards. (n.d.). Retrieved from https://www.buypowercard.com/faq/buypowercard/

RobertoFerris. (2019, April 4). Ford sales fall 1.6% due to unpopular cars, but truck, vans and SUVs gain. Retrieved from https://www.cnbc.com/2019/04/04/ford-sales-fall-1point6percent-due-to-unpopular-cars-but-truck-vans-suvs-gain.html

Supreme Court declines aftermarket petition to reconsider Fifth Circuit GM ‘conquest’ pricing ruling. (2015, October 16). Retrieved from https://www.repairerdrivennews.com/2015/10/06/legal-win-for-body-shops-as-supreme-court-declines-aftermarket-petition-to-hear-gm-conquest-program/

Wayland, M. (2020, January 3). GM’s 2019 sales decline after discontinuing some models and demand falls for trucks, SUVs. Retrieved from https://www.cnbc.com/2020/01/03/gms-2019-sales-decline-on-discontinued-cars-lower-chevrolet-sales.html

Wells, T., & Wells, T. (2019, October 18). Premium Pricing Strategy: Is It Possible To “Just Charge More”? Retrieved from https://taylorwells.com.au/premium-pricing-strategy

Young, J. (2017, June 1). General Motors Company’s Marketing Mix (4Ps) Analysis. Retrieved from http://panmore.com/general-motors-company-marketing-mix-4ps-analysis