Chapter 12 Video: Car Tiny Price Tag And Gasoline

Chapter 12 Video Casetiny Car Tiny Price Tag Tiny Gasoline Bill The

Chapter 12 Video case Tiny car, tiny price tag, tiny gasoline bill. The Smart Car, made by Daimler’s Mercedes Car Group in Hambach, France, first appeared on U.S. roads in 2008, just as prices at the gas pump were hitting record highs week after week. The timing could not have been better. Tired of emptying their wallets every time they filled their gas tanks, many U.S. drivers were thinking about downsizing from a big sport-utility vehicle or pickup truck to a smaller vehicle. But were they ready for a 106-inch-long car that seats only two people?

Daimler was ready to find out. The Smart Car had a good track record in other parts of the world. From 1998 to 2008, Daimler sold more than 900,000 Smart Cars in Europe, the Middle East, Asia, Australia, Mexico, and Canada. The car was cute, nimble, and unconventional—a good size for getting through crowded, narrow city streets and fitting into any tight parking spot. Not only was the purchase price highly affordable, but the excellent fuel efficiency made the car especially popular in countries where gas prices were generally high.

To bring the Smart Car to the United States, Daimler redesigned the body and engineering to meet U.S. safety standards. It added six inches to the car’s length and included four air bags, an antilock braking system, a collapsing steering column, and other safety features. It also installed a fuel-saving 71 horsepower engine so that the Smart Car would go about 40 highway miles on a gallon of gasoline. Daimler set the list price of the Smart For two Pure model, the basic version of the two-seater, at $11,590. The list price of the Smart For two Passion Coupe, equipped with more features, was $13,590.

The list price of the Smart For two Passion Cabriolet, a convertible with leather seats and additional features, was $16,590. Buyers had the option of ordering extras, such as a metallic paint finish or an alarm system, for an additional fee. Keeping the list price as tiny as the car allowed, Daimler aimed to build market share quickly. Rather than selling Smart Cars through its regular dealer network, Daimler contracted with the Penske Automotive Group to handle distribution and sales. In another unusual move, Daimler set up a website to let buyers reserve the model of their choice and select from six interior colors and six exterior colors on the car body’s removable panels.

Three of the exterior colors were offered as part of the purchase price, while the three metallic exterior colors were offered at an extra cost. The $99 reservation fee was applied to the buyer’s purchase price once the ordered model became available. By the time Smart Cars arrived in U.S. showrooms, 30,000 people had paid for reservations. To build customer interest prior to the introduction, Daimler sent a number of Smart Cars on a 50-city U.S. tour. Nearly 50,000 members of the media and prospective car buyers took test drives.

Although many reporters couldn’t resist poking fun at the tiny car (USA Today called it a “breadbox on wheels”), they all noted its high fuel efficiency and low purchase price. Soon, demand became so strong that even buyers who had reserved their cars well in advance had to wait months for delivery. A few U.S. customers who didn’t want to wait paid as much as $39,000 for European Smart Cars adapted to meet U.S. safety and emissions standards. Down the road, as more auto manufacturers gear up to bring gas-sipping cars to U.S. markets, will the Smart Car maintain its popularity? For more information about this company, go to Questions 1.

Why is bundle pricing appropriate for the various models of Smart Cars? 2. How is demand likely to affect dealers’ willingness to negotiate prices with Smart Car buyers? 3. Imagine that Daimler is considering whether to sell unpainted Smart Cars and reduce the list price by $1,500. The Smart Car exterior consists of ten removable panels that can be easily painted. Buyers could paint their own panels, leave the panels unpainted, or pay the dealer an additional fee to personalize their cars by having the panels custom finished in almost any color or design. What are the advantages and disadvantages of this pricing idea?

Paper For Above instruction

Innovative pricing strategies are central to a company's ability to effectively market different models of its products while maximizing profitability and consumer appeal. Bundle pricing, in particular, is a frequently used strategy for various models of products like the Smart Cars manufactured by Daimler. This strategy involves offering multiple products or features bundled together at a single, combined price that is typically lower than the sum of individual prices, thereby creating perceived value for consumers and encouraging them to purchase more comprehensive packages.

For Smart Cars, bundle pricing is appropriate because it allows Daimler to offer different models—such as the Pure, Passion Coupe, and Cabriolet—at various price points tailored to different consumer segments. The basic model, priced at $11,590, appeals to cost-conscious buyers, while additional features and luxury options in higher-end models justify higher prices. Bundling these features makes it easier for consumers to perceive value and simplifies the decision-making process, reducing the cognitive burden of selecting individual options separately. Furthermore, offering packages in tiered levels enables Daimler to segment its market efficiently, targeting different customer needs and preferences through strategic pricing.

Demand influences dealers’ willingness to negotiate prices significantly. High demand, as experienced by Daimler in the U.S., often reduces dealers’ incentive to negotiate, because supply struggles to meet consumer interest. When demand outstrips supply, dealers are more likely to stick closely to the manufacturer's suggested retail price (MSRP) to maximize profitability, as customers are willing to pay premium prices for instant availability. Conversely, if demand diminishes or stabilizes, dealers may be more open to negotiating to close sales and clear inventory, especially when faced with slow-moving stock or increased competition.

Considering a reduction in the list price by $1,500 for unpainted Smart Cars, where the exterior panels are made of removable, paintable panels, introduces a compelling pricing and customization opportunity. Customers could paint panels themselves, leave them unpainted, or pay for custom finishing, which offers flexibility and personalization. The primary advantage of this approach is increased customer engagement and perceived customization value, which can foster brand loyalty and differentiation in a competitive market. Additionally, this reduces manufacturing costs if the vehicle ships with unpainted panels, allowing Daimler to pass savings to consumers or increase margins.

However, there are disadvantages as well. Selling unpainted panels may create logistical challenges for Daimler in terms of quality control and consistency, particularly if customers choose to paint or customize panels independently. There’s also a risk of diluting the brand's premium appeal if unpainted, customizable panels are perceived as lower-quality or less desirable. Moreover, the customization process could backfire if consumers lack the skills for painting or customizing their panels, leading to dissatisfaction or a potential increase in after-sales service costs. Consequently, deciding whether to reduce the list price involves weighing these potential benefits against the risks of brand dilution and operational complexity.

In conclusion, strategic pricing approaches such as bundle pricing and flexible customization options are vital tools for automakers like Daimler to differentiate their products in a crowded market. By understanding consumer demand dynamics and leveraging customization opportunities, the company can enhance its competitive advantage, build stronger customer relationships, and optimize revenue streams.

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