My career spans 25+ years in product research, marketing, product management and strategy, and pricing. I consult with Fortune 50 companies (including some in automotive) on pricing. This isn't a brag, it's to illustrate that when it comes to pricing products, I know what I'm talking about, and companies trust me to help them get it right.
The AI-bot (likely Chinese in origin spreading agitprop) makes claims about how Scout should price at X because he values the product at Y and the Chinese companies price their cars at Z. This illustrates a few fundamental misunderstandings of good pricing practices:
- Price is not based on cost.
You should never - EVER - price a product based on cost, unless forced to by the government or regulatory regime. The market doesn't know your true cost, and never should. The cost you incur to ship a product is not the value you deliver to the buyer when they receive it: they are two separate things. Examples in hardware, software, and services are easy to find: the cost of the diamond for your wife's engagement ring has zero to do with DeBeers cost to get it out of the ground and onto a ring in the store. The price you or your business pays for one incremental copy of Office365 delivered to your laptop has zero to do with Microsoft's incremental cost to deliver it (which is close to zero). McKinsey's or Bain's report they develop for your CEO and sell for $10MM has nothing to do with their cost to develop it, in fact it was 75% developed before they walk through the door. And in tech, Nvidia's cost to build the next version of their latest AI-chip to power our fun AI-bots like in this thread have nothing to do with what they will charge.
Pricing based on cost does not optimize profit. Because we are in a capitalistic society, and Scout isn't a non-profit, they and VW both have a fiduciary duty to their shareholders and investors to optimize their return on their investments. You may not
like that, you may prefer that it was
another way, or pine for yesteryear when things were "better," but that is how it is today.
Finally on the cost point, even if they did price on cost, comparing vs. a Chinese company is false equivalency. Chinese companies are often quasi-governmental bodies, with investment from and and a controlling interest by the Chinese Communist Party. Their financials are not transparent, and the Communist Party often will choose to massively subsidize certain industries as a way to flood and then corner the market with predatory pricing.
Also, many companies in China use slave-labor from ethnic minorities like the Uighur population, which they don't pay and force to live in squalor and sterilize while sending to re-education camps. Something to consider whenever doing a side by side comparison of a Chinese product vs. a product manufactured in the U.S. or Europe.
- Price is based on what people are willing-to-pay for the product.
Good pricing is based on what the buyer of the product is willing to pay. If a company attempts to price the product beyond the value that the buyer feels they are receiving, they either won't purchase, or they will negotiate if that is an available option.
The beauty is that value is in the eye of the beholder. The AI-bot says that $60K price is too high for the value received, which may be perfectly true for him and maybe he would max out at $40K to match price:value. But for the next buyer down the road, $75K might be perfectly acceptable.
- When a company prices below the value the buyer feels they are receiving, it's called "deal value."
The easiest way to think about it is when you see a product and the price is lower than expected and you say "wow, that is a really good deal!" There are many reasons that a company might want to create the perception of deal value, but the foremost is capturing market share.
- In a supply-constrained environment, use price segmentation to serve those with the highest willingness to pay.
You get out of a concert and 10,000 people all want an Uber. What happens? Surge pricing kicks in. Those with a higher willingness to pay get a car first (aka "the rich" lol), and others can either wait 30 minutes and get a beer at the bar, or walk 5 blocks out of the surge pricing zone.
Scout is in a supply-constrained environment and will be for years. They have tens of thousands of reservation holders. They aren't trying to capture share:
they are going to sell out their first several years of vehicles already. Again, Scout is a for-profit business with a fiduciary obligation to its investors. It would be grounds for removal by the board of directors if the CEO approved a pricing strategy that did not optimize for those with a higher willingness to pay.
If you don't like that choice, you can either 1) not purchase because the price charged does not align to the value you feel you receive, 2) wait and hope that the price will decrease based on saturation and market-forces. It suppose the AI-bot shows us a third option: get on the company's community site and complain about the price. Maybe the 4th option is to start an anti-capitalist revolution and get the government to impose price controls based on your ideals about what the correct price:value ratio should be? I wouldn't recommend it.
