Friday, March 10, 2006

When you buy a car...

...does it really matter that the excise duty on it is 12% or 16%? On a price tag of approximately Rs. 4 lakhs (4,00,000), does a price cut of Rs.12000 (thats 3 percent) really matter? Will that make you switch cars? Yes, it may make someone who is buying a cheaper vehicle to look up and think if he can afford a more expensive car with the difference and then some, but will it make a person switch? Unlikely. Will it make a person buying a scooter (cost approx 30,000 rupees) switch to buying a car (cost approx 3,00,000 rupees)? Again unlikely.

What it does do is that people think, I would have spent Rs.3.12 lakhs on a small car, so, "Let me buy a car worth Rs. 3.12 lakhs (which theoretically could be the next higher model - not necessarily the next higher segment) now" OR "let me buy the same car and splurge on the accessories".

Most people have decided on the car/vehicle they want. The price points that matter when you buy a car is not in thousands or tens. It is in lakhs. But our newspapers go ga-ga over small excise cuts in an item that costs a few lakhs.

Where these sort of price cuts of a few rupees work is in the small items, and here too there is a caveat. A price cut or a freebie would induce me to try a brand (or company) I know and induce me to switch- but not switch to some totally unknown brand. In fact I would be suspicious if a totally unknown brand offered me a buy 1 get 2 free offer.Seth has put the point across brilliantly, in Most people dont really care about the price.

1 comment:

Ravi Purohit said...

Only a few months back, small car companies had hiked prices by a similar proportion. And, we now have a cut in prices. So essentially, prices would have gone nowhere, well only for the end-consumer. But, not for the car company, which seems to have passed on a nice little hike in car prices as "price cut". Stock markets are smart enough to know this, i guess. Hence, a 15-20 per cent appreciation in most of small car companies' share prices.

--
Ravi Purohit.