Price strategy and the impact on the latest models

The Fiat 500L, Dodge Dart, Fiat Viaggio and Fiat Panda are the group's latest products. Their goal: big sales numbers.

The Fiat 500L, Dodge Dart, Fiat Viaggio and Fiat Panda are the group’s latest products. Their goal: big sales numbers.

In the last 12 months Fiat and Chrysler have launched 4 all-new models in 3 different markets. The first product to be introduced was the Panda, presented in Frankfurt 2011 and on sale since late December that year in Europe. One month later, in Detroit 2012, Chrysler presented the new Dodge Dart as part of the strategy of gaining more market share in the fast-growing small and mid car segments. The same car is the base for the development of the Fiat Viaggio for China, available from late October in that market. Meanwhile Europeans could see the new 500L, available from September 2012 in the whole continent (except for the UK and other minor markets). These 4 cars are extremely important for Fiat-Chrysler group for several reasons: the Panda is supposed to keep Fiat’s leadership in European A-Segment. The 500L is the next step of the successful 500 with export plans. The Dart is the first car developed under Fiat and Chrysler alliance that will demonstrate Americans that Chrysler can make fuel-efficient cars in a small package. And the Viaggio is Fiat’s first step in Chinese market. Fiat and Chrysler must make them work as the situation gets bad for Fiat in Europe and the group is not strong at all in China, the world’s largest car market.

But things seem not to be working as planned. The Panda continues to rule but not in the comfortable way its predecessor did. Its success is mainly explained by Italian market and the market share in other markets is not as big as it used to be. The arrival of the Up! and its cousins made things more difficult for the Italian-made Panda. In the case of the 500L it is too early to make a judgement but so far this small MPV is some steps behind (in terms of units sold) of the also new Ford B-Max (the best example for the comparison). In America the Dart is not performing as Chrysler planned and it has not even reached Chrysler 200’s levels. The same happens to the Viaggio in China, where it had an awesome start but December’s sales figures show the growth stopped. Yes, in the case of the 500L and Viaggio it is too early to make a conclusion, but it is quite alarming that the latest products of Fiat-Chrysler are not hitting the market as expected. But why is this happening? what’s the problem with these new and interesting products? is it merely a market crisis reason (in the case of the Panda and 500L)? or does it involve other variables inside the company?

List prices for January 2013. Compared to the Up!, in Italy the Panda is a bit less expensive than the Up! in the entry versions. In Germany there is even a bigger difference, which is not bad. However the larger gaps are in upper versions. Compared to other rivals, the Panda is positioned in the middle of the segment in Italy. Source: www.fiat.it, www.fiat.de, www.omniauto.it, www.vw.de.

List prices for January 2013. Compared to the Up!, in Italy the Panda is a bit less expensive than the Up! in the entry versions. In Germany there is even a bigger difference, which is not bad. However the larger gaps are in upper versions. Compared to other rivals, the Panda is positioned in the middle of the segment in Italy. Source: www.fiat.it, www.fiat.de, www.omniauto.it, www.vw.de

It is my belief that one of the reasons is the pricing strategy. For example, the Panda which has been always known as the popular car (good and cheap) is now offered with a higher average price than its predecessor, when European economy is not having its best moment. Yes, the Panda is not one of European’s cheapest cars anymore. At this point anyone could say that it is a new generation with much better features and therefore its price should be higher. Somehow is true from the point of view of the car itself: it is certainly much better than second generation and it could be considered the best in the segment. But it is a Fiat. It means that it can’t be as expensive as its competitors but not the cheapest one either. Unfortunately Fiat’s image among Europeans has reduced to small and economic cars. That’s why Fiat should position the Panda as one of the cheapest citycars far away from the most expensive ones. But according to its prices, the Panda is closer to the expensive offer. In a segment where the price (and maintenance costs) is definitely important, the Panda should lead not only in terms of innovation but with its prices. How is it possible that there is no Panda starting below 10.000 euros? according to a research of official price lists, the cheapest Panda is priced at 10.200 euros in Italy, its main market. That’s 4% more than the cheapest offer (among popular mini cars): the also all-new Kia Picanto. The Panda is even more expensive than Citroen C1 in equal engine and equipment conditions. Regarding the Up!, its new powerful rival, the Panda is cheaper but not in the way it should. A Panda 1.2 69 hp with the basic equipment is 50 euros cheaper than the equivalent Up! 5-doors with 60 hp. The same Panda with a bit more equipment is 10% cheaper than the Up!, and the version with all features and the same engines is 10.6% cheaper than the equivalent Up!. In my opinion, what’s wrong about it is that those differences should work in the opposite way: the basic Panda should be 10% cheaper than the basic Up!, while the best-equipped Fiat should be 0.5% cheaper than the best-equipped Up!. The entry version of the Panda should lead in terms of price as consumers of this range or price look for the best offer, while those with a bit more money will take their decision based also in other features. The methane version of the Panda is better positioned, in my opinion. The car is not cheap at all but compared to the Up! the Fiat has a turbo engine with 80 hp (against 68 hp  of the methane version of the Up!) and is a bit more expensive. In this case the pricing strategy is better as consumers of this kind of engines look for power to balance the type of combustion. The price is important but not as in the petrol versions. It is why in Italy the entry version of the Panda methane is 9% more expensive than the Up!, but is only 200 euros above it for the top version. Anyway asking almost 16.000 euros for a Panda is something Fiat would had done in the past for this model.

The 500L is well positioned in its segment and it seems Fiat applied the price penetration strategy for Italian market. However things get complicated for this new MPV as its average price is located just at the middle of other interesting and larger products. Notice that the average price of a petrol 500L is the same of the entry version of a C-MPV Seat Altea. In the case of the diesel 500L, its average price is even higher than the price of the popular Nissan Qashqai with 177 hp. Different segments but they all focus to a family target. Source: www.fiat.it, www.fiat.fr, www.citroen.it, www.citroen.fr, www.omniauto.it

List prices for January 2013. The 500L is well positioned in its segment and it shows Fiat applied the price penetration strategy for Italian market. However things get complicated for this new MPV as its average price is located just at the middle of other interesting and larger products. Notice that the average price of a petrol 500L is the same of the entry version of a C-MPV Seat Altea. In the case of the diesel 500L, its average price is even higher than the price of the popular Nissan Qashqai with 117 hp. Different segments but they all focus to a family target. Source: www.fiat.it, www.fiat.fr, www.citroen.it, www.citroen.fr, www.omniauto.it

The 500L is another example of how an excellent product can be negatively affected by its pricing strategy. Its entry price doesn’t seem to be high but when adding more features this nice minivan enters in a range of prices where big players coming from other segments rule. Fiat wants to position the 500L as it did with the 500: an ‘chic’ product with differentiated shape and features. It includes the price too as this new family of fashion cars are supposed to be perceived as more exclusive and therefore more expensive than regular cars. It worked with the 500 but it is not clear if it will work with the 500L. Two things must be considered here: the brand’s image and Fiat’s intentions of creating an added-value range of cars. As it was cited above, in Europe Fiat is more known as the small and cheap car manufacturer. But Fiat wants to tell consumers it can do fashion cars with higher prices. And that’s where the problem is: an ‘exclusive’ car with Fiat logo. It is one of current challenges of Fiat and the 500L should make its part. However the way they are pricing it may not help them: the 500L is normally cheaper than its competitors of the segment (in Italy, the entry version of the 500L 1.4 petrol engine with 95 hp is 10% cheaper than the equivalent Citroen C3 Picasso 1.4 95 hp), but when adding more features (top versions) the price is located in a range of prices that is really hard. A Fiat 500L 1.4 95 hp Lounge (top version) is priced at 18.750 euros, while the same version for the 500L Multijet 1.3 with only 85 hp is priced at 20.950 euros. It means that the best versions of this minivan have the same price of other cars coming from other segments such as the popular Nissan Qashqai 1.6 with 117 hp (19.160 euros) or a Focus SW 1.0 with 100 hp (19.250 euros). Yes, they are totally different cars with different use, but at the end they are all family cars, so the target may not vary so much. A 500L for 21.000 euros? does it worth it? shouldn’t it move more volumes if it was priced at lower tariffs making use of lower labor costs in Serbia, where it is produced? maybe a penetration price strategy could work better at the beginning as the market is not ready for high prices and Fiat needs to increase its market share in this segment.

Dodge positions the Dart a few step lower than the Avenger but both cars are completely different. However Americans love big and muscle cars and charging just $800 less for a Dart may not be the right thing. Source: www.dodge.com

Dodge positions the Dart a few step lower than the Avenger but both cars are completely different. However Americans love big and muscle cars and charging just $800 less for a Dart may not be the right thing. Source: www.dodge.com

Finally there is the Dodge Dart. The all new compact sedan is Fiat and Chrysler’s biggest bet nowadays. It is the model to be  sold globally under Dodge brand in North America, and Fiat logo in China and Europe. In USA the Dart has been on sale since June 2012 and the results so far are not as expected. Dodge sold 19.200 units last year but the forecast was to produce around 12.000 units/month by December. What’s wrong? at the beginning it was the lack of automatic transmission but now that it is available, sales numbers has taken off yet. One of the reasons could be found in the same Dodge brand. The Dart is only 5% cheaper than the Avenger, its bigger brother. This is not good at all. Yes, the Dart is an all-new car with the ultimate technology, while the Avenger is an old car. But Americans love muscle cars with big engines and if an Avenger with V6 engine and 283 hp is only 1.400 dollars more expensive than a Dart 1.4 Turbo with 160 hp, many of these buyers will think twice when going to Dodge dealers. In terms of technology, design and features, the Dart is years ahead of the Avenger, but the tiny difference there is between their prices may be affecting negatively the Dart. The rebates should play an important role when deciding what car to buy.

Fiat Viaggio prices China

According to Chinese press, the Viaggio offers a lot for little money. Source: GAC-Fiat. Photos by: www.carnewschina.com

The case of the Viaggio is different. The new Chinese-made Fiat had a wonderful start with more than 7.000 units delivered in the first 2 months but December charts show that sales growth stopped. Fiat wanted to sell 15.000 units by the end of last year but they finally sold 11.300 units. I think December results correspond to the normal performance an unknown brand can have in a such a big market. Therefore I don’t think the Viaggio had a bad December but an awesome and unexpected November. However December sales were just 20 units above the previous month, and it should be more explained by the fact of the presence and awareness of Fiat among Chinese buyers. In my opinion, the price of the Viaggio is not a problem at all as Fiat managed to keep the price very low (Chinese press was expecting a start at 120.000 yuan). According to the Chinese site carnewschina.com, the Viaggio “is a lot of car for little money”. The penetration price strategy is the right one because Fiat needs volume, and must bring new clients. It is also ideal when the market is big enough and rivalry is really hard, two characteristics of Chinese market. The challenge will be to increase the number of Fiat dealers and the image awareness of the brand so Fiat will be able to redeem manufacturing and distribution costs with higher volumes sold. At the end the positioning and pricing are just strategies that can be settled in time. So far Fiat and Chrysler have made excellent products and that’s certainly a good step.

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15 responses to “Price strategy and the impact on the latest models

  1. On the Dart vs Avenger comparison, it’s important to note that Chrysler is offering far bigger rebates on the Avenger: up to $3000, compared to just $750 for the Dart. It helps sell the aging Avenger, but does no favours to the Dart, which ends up being more expensive than its larger sibling.

    In China, I think the pricing strategy is right. Do you have any data on the size of the Fiat dealer network? That is a slow thing to build up.

    • Yes, you’re right. My analysis doesn’t include the rebates. By November Fiat had 110 dealers in China. They expect that number to double in the next months and they are working hard in service: Fiat offers ‘Elite Service’ in Guangzhou in a place open 24 hours/day. There is also a Call Center 24/7 and customers can also appeal to Fiat Elite on the road. They will use Elite to enlarge the number of members of Fiat-club in China.

      • I think 110 dealers only allow them to cover a small part of China, or only major cities, so there should be a lot more potential as the dealer network grows (relatively slowly). With 110 dealers, the sales per dealer were still a respectable 1000 units each over three months, or about 34 cars/dealer/month.

      • e tra 18 mesi verranno prodotti alcuni modelli della gamma Jeep nello stabilimento Changsha (maggiori informazioni sul nostro sito).
        AutoItalian

      • With 150 dealers, the number is still 75 cars per dealer for the three months, or 25 cars per month for a single model.

        By the way of comparison, VW has about 950 dealers in China, and Audi and Skoda have about 250 each. Long-term growth in China will require investment in the dealer network, the country is simply too big to cover with 150 dealers.

      • GM announced they will open 400 new dealers in 2013. Strong growth, but requires substantial resources to accomplish. Fiat will grow, but if prices are not competitive the dealers will have a difficult time selling enough to earn an acceptable ROI. With 19 million cars sold in 2012 in China and the growth projected, there’s plenty of room to fight for market share, but only if prices are aggressive.

  2. Fiat ha sempre proclamato la sua contrarietà sulla guerra dei prezzi. Secondo il pensiero di Fiat è meglio perdere quote di mercato che assottigliare i margini di profitto. Quindi Fiat si è sempre tirata fuori dalla guerra dei prezzi. L’esatto opposto di Opel che pur di mantenere la propria quota di mercato stabile in Europa si è lasciata andare con sconti e incentivi. Opel però dal 2000 ad oggi ha perso 12mld di dollari. In pratica sono decisioni strategiche, di pricing e di marketing completamente diverse, ognuna con risultati completamente differenti.

    • Quite true … the Opel way hasn’t worked out for GM. But giving up a lot of market share isn’t good, either, it takes a long time to recover. I think that there is a golden middle road somewhere (provided that the production costs are competitive), offering products at aggressive prices but still not at a loss.

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