Silly me — while I was concentrating on the technology (see last posting on “Detroit discovers flexible manufacturing“), I missed the real innovation in Detroit’s latest marketing ploy. From
WSJ.com – Business World: Why Detroit Can’t Stop Haggling:
Shopkeepers in ancient Babylon used splashy discount promotions to clear excess inventory. For reinventing this wheel, General Motors is now being hailed as a marketing genius for a new millennium. What gives?
You can’t fault the numbers produced by its “employee discounts for everyone” promotion, begun in June and now extended into August. June sales were up 47% compared to a year ago; the goal of cleaning up a million-vehicle backlog was evidently met. Dealers are now complaining about a shortage of merchandise.
Yet, and peculiarly, the average selling price of a car was almost identical to the price before the promotion. The “Law of One Price” prevails in the car market after all — i.e., the market price for a car is the market price for a car, however you gussy it up. GM’s “employee discount” merely substituted for various rebates and other “incentives” that GM had previously used to rationalize the gap between the sticker price and the selling price.
But, lo, a mystery presents itself: What accounted for the big increase in volume if not a big drop in prices?
Answer: GM’s inspired gimmick may not have meant better deals on new cars, but it did mean a radically altered buying process. All but eliminated was haggling, which surveys show is reviled by most consumers.
So what happens when the novelty of the marketing gimmick wears off? Then we are back to the point I made earlier about going beyond costs. Even the Business World columnist, Holman Jenkins, makes the same point (after railing on the auto companies’ labor costs).
Yet notice that dozens of models — from the Chevy Corvette to the Ford Mustang to the humble Dodge Neon SRT — were carefully exempted from the employee discount offer. These cars command a market price that reflects the sticker price, and covers the cost of building them. Why? Because they are desirable cars, which is Detroit’s only salvation if it can’t create more flexibility in its labor overhead.
Build desirable cars? What a novel idea. A lot better that the industrial era strategy of “flexibility in its labor overhead” (read: cut worker costs and benefits).
Maybe Detroit is doomed to enter the I-Cubed Economy after all.