More Money For Less Car? It Depends On What You Value

Nov 17, 2015

 

Why would a car that has been stripped of features like air conditioning, sound system and floor mats sell for more money even though it costs less to make?

 

In the exotic/high performance car market there is a tradition of offering stripped down versions that include fewer amenities. Ferrari does it with their Stradale specials. Porsche does it with their RS models. BMW sometimes does it with CSL editions.

Typically these models are built without amenities – like sound systems and air conditioners – that are included with the standard models. Power leather seats are replaced with cheaper, manually adjusted, fabric alternatives. Less, if any, sound-deadening insulation is used. Fancy decorative trim pieces are removed. Even carpets and floor mats may be excluded.

From this perspective the customer is getting less. They are getting a noisier, hotter, less comfortable car with fewer amenities.

The manufacturer is spending less money to build these cars, and if they adhered to a cost-plus formula these cars would be cheaper. But they're not – these stripped down cars typically sell at a hefty premium.

Why? Why would the manufacturer charge more money for less car?

Because they understand what it is that this customer, a special subset of the high performance car market, values about their product. This customer places a higher value on performance than on amenities. They aren't giving up the air conditioner, sound system and more to save money – they're doing it to save weight. They're paying a premium for the higher performance that comes with a lighter car.

By understanding what it is that consumers truly value about their product the exotic car manufacturer can realize even higher margins and bigger profits.

 

In The Flower Business

It applies to all kinds of things, even flowers. If for example a customer comes in with their own vase the florist won't have to supply one. This reduces their costs and, if they adhere to a cost-plus model, they would charge less because of the reduced materials cost.

But is a lower price what the customer is interested in? It might be – they might be reusing a vase because they are on a tight budget and need to reduce costs in any way possible. That buyer should pay a little less because if they don't, they won't be buying flowers. In fact recycling vases is a great hurdle to increase sales to price-sensitive customers.

But there will be other customers who aren't focussed on the cost – they're focussed on their vase instead. They want beautiful flowers in the vase that they love.

They'll pay for that. The florist doesn't have to discount, they can even charge a premium.The car manufacturer isn't selling a car without a radio, they're selling a lighter card with better performance. The florist isn't selling flowers without a vase, they're selling flowers expertly arranged in the customers favorite vase.



Category: Examples

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