The bases of a cars price should be the cost of production. As long as you make enough to pay for the cost of production then your business can survive. In the case of a car the cost of production is relatively high and must be worked out for each line and specification of car e. g. Ford have lines such as the KA, Fiesta, Focus, Mondeo, and each of these lines have a choice of engine class, capacity and extra’s. An example of how a car may be priced follows. A ‘Mondeo’ may have an entry price of i?? 10,000 for the basic model. The ‘Mondeo’ may also come in different engine capacities of 1.
8 litres, 2. 5, and 3 litres and the price for these capacities may increase by two thousand pounds each time the capacity increases. Extras are added and are available on any model. The extras may be priced as follows. The entry-level price should cover costs of production and profit. Individual components prices should cover their own costs of production and profit. If the price of a ford car is set to high then the product will not sell, if it is set to low however then the company will not make enough money to pay the costs of production.
The purpose of a company is to make money so the profit you make should be based on points two and three. Competition Competition can cause a problem but can also be used to the companies advantage. You must price a car so that customers will buy it whilst at the same time including as much quality and extras as possible. If a new car is brought out by ford at the same time as a car by Skoda there are various things to take into consideration when pricing the car. When looking at competition to price your car you should weigh up the following points. Image
Skoda have a bad company image and so ford could make the same car and charge more. Most people would rather have a ford than a Skoda. Whilst Skoda have tried to re-vamp their image by implementing a new marketing scheme their image has stayed with them. Ford also have their own image to uphold. They have to price according to their own image. Ford cars are known as friendly, reliable, family cars. They have to price accordingly. They can’t expect a family to be able to pay high prices for their car. Ford have tested other images such as a sporty image by introducing the ‘Puma’.
They still have to price the car according to their image though as they are not associated with sports cars. Subaru are known for their rally cars and so they have a sporty image. It would be easy for them to sell a sports car just because of their image. Ford could not expect to compete with them in the sale of sports cars other than by offering a cheap family alternative. Quality Skoda may sell a cheaper car because they can get parts cheaper but the quality suffers. If Ford want to charge more for a car than Skoda then they should offer a higher quality car.
This is difficult to advertise but when customers come to buy the car the quality will be important. The quality of what the competition offers should be compared to the quality of what you offer before pricing occurs. Extras As discussed under the cost of production a company can charge more than competition if extras are offered. Extras such as electric windows and a sunroof are usually given free. A company who aim a car at a specific group and trying to give a certain image can use extras to sell a car.
A top of the range car designed to have a luxurious image, targeted at high earning workers, may have an extra such as a coffee cup holder or in-car entertainment as a standard feature. If the competition is not offering these things then you can increase the price. Physical extras are not the only things used to sell a car. Customers can be swayed by extras such as interest free credit, nothing to pay for a year, and low monthly payments. What Customers will pay? If a new car is introduced and put on the market at an extremely low price then the car may not sell.
People associate cost with quality and rightly so guessing the amount to price a car at. People are expecting to pay a certain amount and if you price below this expected amount people may take notice but they will think the quality suffers and will automatically assume they get more if they pay more. If you price above what they are prepared to pay then they simply wont buy. What customers are prepared to pay will be based on their own status and wealth. The same market segments can be used to figure out what customers will pay. A successful businessperson will be prepared to pay more for a car than a manual worker.
So we can charge more for a car when selling to that particular segment. Manufacturers have some leeway when setting a cars price; this is known as pricing discretion. It is the value that lies between the cost of production and the demand. In conclusion pricing plays a very important part in any products market positioning and market mix but even more so in a car. Cars are difficult to price because there are so many variables that change all the time. The economy changes all the time and so does the demand for a car. The pricing of a car is one of the most important features in deciding whether or not it is successful.