Yesterday we had a captivating conversation with The Colonel. It struck us that we can connect numerous dots from back in the day to 2014.
Lets resume this morning...
Q: Incentives, continuity, loyalty what can you tell us?
A: Incentives at the time were a "tool" to attract opportunistic customers, and to tempt new customers. Continuity implies that once attracted you want to set up a deal that has easy continuity. Loyalty we all know that leasing has a higher loyalty than a purchase.
Q: Does it still apply today?
A: The incentives absolutely, continuity no, loyalty not as much...its a new world order.
Q: Tell us...to initiate, strategise, incentive programs required access to massive amounts of data.
A: Think about this...back then there was software to search the database from a variety of perspective.
Q: Big Data existed way back in the day...
A: Sure it did...you could look at finance and lease portfolios from a myriad of perspective to develop incentives, strategies, within a specific budget.
Q: The manufacturer has a budget of X for a specific model, the financial service provider develops an incentive program, the budgeted cost...and so on.
A: Precisely, and today its easier and faster. When the 0% is announced, there is a good amount of background work done prior to the announcement.
Q: We have the impression that there was a gradual build up, with some manufacturers being more conservative than others.
A: Yes it was gradual through the years. Today its strategic and tactical on the part of the manufacturer. Yes in Canada some manufacturers were (notice past tense) more conservative.
Q: In an environment of constant incentives the impact is lost on the market. The customer is always expecting an incentive.
A: That was the concern way back in the day. In 2014 does anyone know what a "heads up" deal is all about? I don't think so...its a huge ball of "dynamic pricing". The constant for the customer is $500 per month.
Q: For the customer its: lets wait till the end of the month, roll over the deficiency, and continue at $500 per month.
A: Its that simple...notice the strength of the advertising last month (November) towards the end of the month. Customer run on a 10 to the 40th month.
Q: Will incentives go away?
A: Who wants to stop moving iron?
Q: Will they go away and show actual "heads up" numbers, with actual rates? Obvious that MSRP's are elevated to uphold an incentive structure.
A: Lets look at an example: The MSRP is 35K, the real price is 29K (6K incentive), the rate is 0% for 84 months (the actual rate would be 6% and the 6K incentive supports the rate), and the deficiency on the trade is 7K.
Q: Its a deal, but it does not look or feel like a deal.
A: Precisely...with widespread dynamic pricing actual transaction numbers are unimaginative, while losing resonance.