Who has a V12 Vantage?
Discussion
Jockman said:
This assumes that people were paying the full retail price in the first place, Johnny Boy.
If, as expected, they were not then it is possible to REDUCE prices whilst simultaneously INCREASING the average profit margin.
You just make sure that the % reduction is less than hitherto expected.
I think they are just testing the elasticity of their pricing structure
Ceteris paribus never does hold! It does f-up modelling though...If, as expected, they were not then it is possible to REDUCE prices whilst simultaneously INCREASING the average profit margin.
You just make sure that the % reduction is less than hitherto expected.
I think they are just testing the elasticity of their pricing structure
How do you mean? If you reduce prices how do you increase the average (per-unit) profit margin? You can cut prices and due to an increase in volume and increase total profit but I don't see how you can cut prices AND increase average profit margin. Did I miss that lecture?
I suspect what you mean is that AML could cut list price from say £150k to £130k and see that since people were actually normally paying £129k then the margin increases. To this I agree, but...
I don't think that is what would happen though - stepping into the world of perceived value, I expect a lot of folks would find it bonkers that a car company cut list prices. While discounts do happen I am not aware of a premium car firm cutting list prices for the exact same product. I think that would end up as a kind of reverse giffen good whereby price cuts would lead to a perception of reduced value and a perverse reduction in demand.
So what in fact I think we see is an expression of this perceived value reverse giffen good effect whereby the list price remains constant but there are discounts. A week or so back someone posted on here about the way that optional extra prices have shot up. I suspect this a similarly weird pricing phenomenom - people will not generally haggle over optional extra prices.
Look at the 458 and McLaren - when Evo and the like test drive them they have a list price of £X but as specified are priced at 1.25 to 1.40 X. Especially the Ferrari with all of the carbon fibre options. I suspect that this pricing model is endemic now...
Just my view. It would be interesting to get some input from someone who works in pricing for a premium car maker.
JohnG1 said:
Ceteris paribus never does hold! It does f-up modelling though...
How do you mean? If you reduce prices how do you increase the average (per-unit) profit margin? You can cut prices and due to an increase in volume and increase total profit but I don't see how you can cut prices AND increase average profit margin. Did I miss that lecture?
I suspect what you mean is that AML could cut list price from say £150k to £130k and see that since people were actually normally paying £129k then the margin increases. To this I agree, but...
You've posed a question then answered it yourself. That's exactly what I mean. There was no lecture, it's just playing with the figures.How do you mean? If you reduce prices how do you increase the average (per-unit) profit margin? You can cut prices and due to an increase in volume and increase total profit but I don't see how you can cut prices AND increase average profit margin. Did I miss that lecture?
I suspect what you mean is that AML could cut list price from say £150k to £130k and see that since people were actually normally paying £129k then the margin increases. To this I agree, but...
I see no harm in testing the elasticity of price in ANY product.
Do you think it appropriate to marginally cost out an Aston Martin?
Conversely, would you deem it suicide for a business NOT to marginally cost out its products
clorenzen said:
Discounts are a frustrating thing. Everytime i really wnat something a never get a discount and when i don't want it i get it offered all the time. How does that work?
You answer the question yourself Sir....If you really want it then you'll be willing to pay full price. And if you signal that to people then they will charge you full price. It's why a female supermodel generally does not walk up to an ordinary bloke in a bar to offer to buy him a drink. She knows that there will be a lot of guys who will be interested in her and she just needs to stand there looking pretty.
The trick is to appear nonchalant at all times, to wear a poker face, so the guy on the other side of the trade does not know if you are interested. This is a broadly satisfying solution to many problem sets.
If you are interested in the topic, have a google for the phrase "the prisoners dilemma". It's an introduction of the game-theoretic approach to economics - apologies if you are in fact just having a rant and know all this stuff already.
Jockman said:
You've posed a question then answered it yourself. That's exactly what I mean. There was no lecture, it's just playing with the figures.
I see no harm in testing the elasticity of price in ANY product.
Do you think it appropriate to marginally cost out an Aston Martin?
Conversely, would you deem it suicide for a business NOT to marginally cost out its products
I think that the reverse giffen good effect holds for list prices in premium cars. I also posit that there is an insider/outside model of car purchase. Look at someone like Michael Gould. He's quite astute in suggesting prices for cars. I suggest he's an insider. Some folks just want one in blue. They are outsiders.I see no harm in testing the elasticity of price in ANY product.
Do you think it appropriate to marginally cost out an Aston Martin?
Conversely, would you deem it suicide for a business NOT to marginally cost out its products
The observeable truth is that we see a wide range of discounting for folks on pistonheads - a self selecting sample. I bet that if you interrogated every AML buyer you will see that many just pay the list price and be done with it.
Add the two up and I think this explains a fair chunk of the observeable market structure, conduct and performance.
Moving on - I think that one interesting observation is that pretty much all folks on here instinctively do not say "here's pictures of my new AML and it cost £x". This could be due to an understandable reticence to speak of money in polite company. But also, it would also change the market structure - the insider/outsider model would break down in a world of accurate, timely, comparable trade price reports. We'd end up with an arbitrage to a "one price in the market" model. Which would involved insiders - pistonheads types - paying more and outsiders - joe public - paying less. Based on joe public seeing the price data from pistonheads types.
Which kind of encompasses part of what I get paid to do to fund my fast car habit...
I have not really answered your point about marginal cost because I don't really think it's appropriate to firms with high fixed costs, high regulatory costs, production constraints and high R&D costs. Which encompasses premium car makers. Gun to head - no, I don't think it's sensible for premium car makers and specifically AML to engage in marginal cost pricing.
JohnG1 said:
I have not really answered your point about marginal cost because I don't really think it's appropriate to firms with high fixed costs, high regulatory costs, production constraints and high R&D costs. Which encompasses premium car makers. Gun to head - no, I don't think it's sensible for premium car makers and specifically AML to engage in marginal cost pricing.
Would it not be appropriate MORE SO to a company with High Fixed Costs ??You've mentioned before that AM's R&D costs were minimal for a high end maker.
Holding a gun to my head, I would suggest that AM are already marginally costing. They are just not telling you.
Unfortunately I think that AML is managing for cash rather than profits. Due to the constrained nature of their balance sheet i think the ability to meet payments is top of their agenda rather than building the brand through maintaining high prices, minimum discounts and ensuring high residuals. So whether you can get a discount is more dependent on the current state of the cash flow (of the dealer and the factory) rather than the more long term brand marketing strategy.
Jockman said:
Would it not be appropriate MORE SO to a company with High Fixed Costs ??
You've mentioned before that AM's R&D costs were minimal for a high end maker.
Holding a gun to my head, I would suggest that AM are already marginally costing. They are just not telling you.
AML have a constraint - they cannot make more than 10,000 cars per year at Gaydon. That is why they did the deal wth Magna to build Rapide in Austria. Hence going for volume does not make sense. So true marginal cost pricing would be a suboptimal solution due to the severe discontinuity in the supply curve around 10k units per year. To make that work you need to "jump" from one production output level to another or be willing to invest in unused capacity. In current market that's most unlikely.You've mentioned before that AM's R&D costs were minimal for a high end maker.
Holding a gun to my head, I would suggest that AM are already marginally costing. They are just not telling you.
The competitors engage in what I think of as perceived value hedonic pricing analysis. I think AML has to follow in order not to be seen as "odd". Hence my earlier posts about Titanium exhausts being priced around the perceived value rather than anything approaching marginal cost.
Your last point is a good one, you may well be right. But I think that the informational gap is crucial to the success of this strategy for the reasons I mentioned earlier.
clorenzen said:
Unfortunately I think that AML is managing for cash rather than profits. Due to the constrained nature of their balance sheet i think the ability to meet payments is top of their agenda rather than building the brand through maintaining high prices, minimum discounts and ensuring high residuals. So whether you can get a discount is more dependent on the current state of the cash flow (of the dealer and the factory) rather than the more long term brand marketing strategy.
I agree with this. I think AML is in such a deep financial hole that they have not really got a bloody clue how to get out of it. They are suffering from a severe lack of degrees of freedom in finding a solution.I also think that any analysis of the pricing needs to keep in mind the slightly screwy agent/principal issues around the factory/dealer relationship. A number of dealers are pretty unhappy that they spent a fortune on stone cladding and glass to conform to a corporate dealer identity and then the market turned and their investments were not returning the expected numbers.
JohnG1 said:
AML have a constraint - they cannot make more than 10,000 cars per year at Gaydon. That is why they did the deal wth Magna to build Rapide in Austria. Hence going for volume does not make sense. So true marginal cost pricing would be a suboptimal solution due to the severe discontinuity in the supply curve around 10k units per year. To make that work you need to "jump" from one production output level to another or be willing to invest in unused capacity. In current market that's most unlikely.
Would you say that as the capacity is 10K at Gaydon, and they are running at, say, 60% capacity, that an aggressive marginal costing drive would be an effective strategy in investing in unused capacity ?After all, fixed costs are by their very nature 'fixed' whether they are doing 10K or 6K units. Indeed if the current 6K units are absorbing all fixed costs, then the remaining 4K units' costs are purely pime and variable. There is a method of targetted discounts - as discussed by other posters - which could be used to address this situation. There is no desire to see newspaper ads with discounts all over them, as is undertaken by the mass producers. This would only serve to dilute the brand image.
I'm sure there was mention of bringing the Rapide production to the UK ???
Jockman said:
Would you say that as the capacity is 10K at Gaydon, and they are running at, say, 60% capacity, that an aggressive marginal costing drive would be an effective strategy in investing in unused capacity ?
After all, fixed costs are by their very nature 'fixed' whether they are doing 10K or 6K units. Indeed if the current 6K units are absorbing all fixed costs, then the remaining 4K units' costs are purely pime and variable. There is a method of targetted discounts - as discussed by other posters - which could be used to address this situation. There is no desire to see newspaper ads with discounts all over them, as is undertaken by the mass producers. This would only serve to dilute the brand image.
I'm sure there was mention of bringing the Rapide production to the UK ???
Rapide is now produced at Gaydon. My point was that there is a sever discontinuity in supply curve around 10k units.After all, fixed costs are by their very nature 'fixed' whether they are doing 10K or 6K units. Indeed if the current 6K units are absorbing all fixed costs, then the remaining 4K units' costs are purely pime and variable. There is a method of targetted discounts - as discussed by other posters - which could be used to address this situation. There is no desire to see newspaper ads with discounts all over them, as is undertaken by the mass producers. This would only serve to dilute the brand image.
I'm sure there was mention of bringing the Rapide production to the UK ???
Pricing to sell 10k units would, in my personal view, be commercial suicide. The patina of AML would be lost. You move from perceived value to perceived cost.
This distinction is why a nissan GT-R costs half of a 911 turbo S that by many reports the nissan beats for performance.
Targetted discounts - dangerous. Information travels too fast.
We come back to market structure, conduct and performance in a world of information asymmetry. AML do their best but I wonder if they could take lessons from Porsche - the masters of pricing to perceived value.
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