How Automotive Pricing and Incentives are Shaped by Competitive Context

By Jeff Englishmen, VP of Dealer Success at ZeroSum

Consumers have many choices to make when buying a car: new or used, lease or buy, features and options, and color are just a few. But there are really two main decision categories that drive many of the more detailed ones—what to buy, and where to buy it.

While not the only factor, pricing often plays a key role in both fundamental decisions. Having an attractive marketed price is a major element in getting on a consumer’s consideration list and, therefore, having a better opportunity to make a sale.

But what is an “attractive marketed price,” and how does a dealership ensure that it is staying competitive in a dynamic and ever-changing marketplace? The key is comprehensive and competitive information about what incentive offers and discounts are being promoted to consumers and their impact on outcomes such as vehicle movement, turn rate, and days-on-lot.

ZeroSum’s Market Adjustment metric quantifies individual dealers’ marketed prices vs. MSRP and compares them to local averages and competitive rooftops. It then connects this pricing differential to supply and demand-related insights to determine their effects on marketplace dynamics.

A macro-level view of this information can provide a big-picture strategic backdrop to consumers’ choices. In the full-size pickup truck segment on a national level, for example, Ram 1500—which previously had a large Market Adjustment advantage over its main competitors—saw that gap disappear or narrow in the past three months. Over that same time period, that vehicle’s turn rate went from an in-the-pack competitor (and challenging F-150) to one that is trailing the field.

This indicates that Ram 1500’s fortunes are often influenced by the attractiveness of competitively marketed pricing. An 8% reduction on Ram might be seen as aggressive when viewed in isolation, but not as much when held up against other segment models that are increasing their Market Adjustments over time.

While it is important to understand the influences of that macro-landscape, it is even more relevant and actionable to have a market-level and dealer-level view of that same information. Take Ram 1500’s position in two DMAs as an example.

In Charlotte, Ram 1500’s Market Adjustment went from the largest to the smallest in the segment over the most recent 30-day timeframe compared to the prior one. In that period, its turn rate dropped by 28 points.

Charlotte NC DMA

In the Tampa DMA, meanwhile, Ram 1500’s Market Adjustment improved by 0.9 points to a robust -9.1%, but other competitors—particularly the Sierra 1500—also sweetened their promoted deals and discounts and subsequently reaped the benefits of a turn rate increase.

Tampa FL DMA

These two examples demonstrate that pricing and promotions cannot occur in a vacuum but must take the competitive context into account. While there are, of course, many other factors besides pricing that influence consumer decisions (e.g., location, reputation, past experience, inventory selection, etc.), it is clear that offers and promotions have an impact. In the Tampa DMA, for instance, five of the top six dealerships with the highest Ram 1500 turn rates over the past 30 days had Market Adjustment levels of 10.0% or higher.

Attractive marketed pricing, therefore, depends on real-time competitive context. And your dealership’s relative pricing within that context can help you make sure you are getting the right bang for your discounted bucks.