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The auto industry is undergoing a structural change. From selling fossil-powered cars to selling renewable-energy cars. From car dealers with a workshop to showrooms and online shopping. From a large service and maintenance market to a marginal aftermarket market for electric vehicles. From good profitability to low profitability. The search for new income is understandable.
Modern cars have evolved from being a pure means of transportation to a platform for attractive additional services – in the same way that a mobile phone has become a platform for other services. “Freemium pricing” or free access to features is increasing – and attractive additional features (“Premium”) cost money. In practice, this means that some features are included in the price of the new car, while additional attractive features are available during a trial period, after which they become available through a subscription.
By redefining the car as a platform for content and charging for additional features and services, car manufacturers have created a new and attractive source of revenue, which in 2020 was a staggering $2,422.6 million and is expected to grow 19.5 percent annually. years to 2030, according to Accurate strategic intelligence. General Motors (GM) expects future car buyers to pay an average of NOK 15,600 annually for additional functions such as navigation, autonomous driving and other digital services that design the in-car experience.
Want as much as possible listed
The additional expenses come on top of existing consumer subscriptions with Netflix, Hulu, Spotify, the gym, newspapers, and a growing number of other subscription services. For the average American consumer, subscription costs in 2021 were supposed to be around 31,200 kroner. So what do consumers say to the auto industry’s new pricing model?
According to the post Survey by Cox Automotive 75 percent of those surveyed said they were not willing to pay an annual or monthly subscription fee for most services on the next car. In particular, safety and convenience features — things like split seats, remote car start, lane departure assist, and automatic braking — should be part of the price, they think. Twenty-five percent say they are willing to pay something – 3,400 to 4,000 kronor – for more safety and 2,300 to 3,000 kroner for more horsepower or longer battery life.
Deadlines with trial periods
Car manufacturers are smart. They know that customers are systematically reducing their monthly subscription costs and that it’s about getting customers to “test” new features, get used to them, and get them to experience the value they miss out on if they don’t renew the subscription.
For example, buyers of a 2022 Toyota Tundra must pay just over 3,600 NOK per year after the trial period to access most of the connected services and cloud-based navigation system. Cadillac Escalade buyers who want the self-driving Super Cruise system must pay 2,375 kroner up front, then pay an additional NOK 2844 each. The years in which the trial period ends. It’s about creating habits — and a little bit of confusion.
One consequence of the digitization of goods and services is that suppliers can develop a pricing model that in some contexts is intended to be confusing so that customers choose the more expensive alternative. Dan Ariely, Professor of Behavioral Economics at Duke University, writes a little about this in his book Predictably irrational What he found is called the “importance of irrelevant alternatives”.
Ariely’s starting point was that The Economist offered its readers the following subscription:
- Access all web content for $59 (digital)
- Subscription to the paper version for 125 USD (analog)
- Combine paper and web for $125 (digital + analog)
No sane reader would choose option B. Why do we offer it? In an experiment for students, he found that while 84 percent chose C, only 16 percent chose A. No one chose B! He repeated the experiment, but removed the unpopular alternative B. What happened is a surprise: Now as many as 32 percent wanted Alternative A, and only 68 percent wanted Alternative C. With b’s clearly unattractive presentation, c became more valuable and therefore more attractive. than A. Whether or not A is expensive is not relevant, but C is much more valuable than A is important.
Car manufacturers have realized this, and with more electronics, software functionality, and updates, they are leaving “all-in-one pricing” in favor of “piece-rate pricing” for all functions. The next step, in my opinion, is that they will present the “irrelevant alternative” in order to get as many people as possible to choose the more expensive alternative.
What are morals? Ibsen quote “Only what is lost is forever king!” It needs to be updated, as in the digital and software-based world you can get back what you’ve lost – for a fee!
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