• Madani Sahari

Avoid purchasing vehicles on perceived values

Cars are priced based on the manufacturers' main objective to maximise their revenues.

Companies analyse the relationship between sales price and volume of sales achievable with the set sales price and the pricing decision in the final analysis will ensure profits are maximised.

Some automakers practice market oriented pricing strategy to determine their vehicles prices based on market conditions and competitors' prices within the same vehicle segment. However some automakers determine their price levels based on the market conditions and customers' perceptions.

Perception is a customers' behaviour with regard to their decisions in vehicles purchase and automakers do not usually overlook this factor in pricing their vehicles. One perception is their assessment of domestic versus foreign made which some car sellers capitalised as their marketing strategy.

Domestic or foreign made is largely a matter of perception and is debatable in the current automotive manufacturing ecosystem.

Manufacturers nowadays practice mix outsourcing for their components both locally and overseas. Most foreign manufacturers outsource non-critical components in the country of manufacture while critical components are from their parent companies or associates.

To achieve lower manufacturing cost automakers may also procure components from foreign countries that are able to produce them at much cheaper prices.

Locally established manufacturers will outsource those components that are locally unavailable.

Therefore there exist a grey area where customers should establish the brand of cars they are purchasing, truly local made or foreign made.

A survey by a UK based consulting house illustrates an observation made on American customers on their perception between local and foreign made.

All major car manufacturers are truly global players and all assemble cars in the USA. The survey revealed that Ford and General Motors were perceived as the true American brands despite Ford Fusion and GM Buick Regal are two recent vehicles that are built outside the US but sold as domestic brands. Whilst brands such as those of Toyota, Honda, Nissan, Subaru, BMW and Volkswagen are still considered foreign brands despite being assembled on American soil.

Car makers outsource components mix with minimum cost possible in order to widen their sales margin while selling their cars at a maximum perceived price customers would pay.

It has now become industry trend that car manufacturers will package those once considered optional accessories into the vehicle they produced. These packages vary from one vehicle version to another of the same segment. Henceforth the standard options now simply increase with each model resulting in the purchase offers to have very few non-standard accessories options. As such price of the vehicles are increased.

The above two factors are interesting issues that customers must consider in selecting the vehicles to purchase. Believing the vehicles with foreign brands but they are not necessarily foreign made, while increase in prices of vehicles could well be the manufacturers' new offer of packages of previously optional now inclusive as standard accessories.

Purchases should be made based on reasonable value of the vehicles not on their perceived reputation. Automakers will attempt to associate their brands on the basis of perceived lifestyle and foreign made, however consumers should evaluate brands in terms of their earned reputation for product excellence and their total ownership cost.

Local car manufacturers have been gradually reducing their prices of various degree respectively since 2013. An average of 5% was reduced in 2013 while 7% and 2.7% average reductions were achieved in 2014 and 2015 respectively.

Owing to the current economic situation an average of 2.48% increase in car prices was recorded for the month of January 2016 which many were attributed to the increase in the cost of imported raw materials.

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