Tetrahedron Automotive Price Index (TAPI)

Vehicle pricing is definitely a science…but also an art! In finding out the price competitiveness of vehicles in the market, we were faced with the question: In the purest sense, when does the vehicle become competitive? Assuming that all key factors like branding, days’ supply, parts distribution et al are equal, pricing plays a crucial role, since it determines the profitability of the manufacturer…particularly if it is a key model in the brand portfolio.

Pricing in the Automotive Industry

Setting the Context

  • Manufacturers maximize revenues when plants run at full capacity; however optimizing the balance between price and volume is not easy.
  • The relationship is almost never linear; a small price reduction might have the potential to generate a big increase in volume and vice versa.
  • Thus, automotive pricing in theory is governed by the largest positive gap between revenues and total costs; and achieving a fine balance between the two.
  • The price position of any new vehicle along with its strength or weakness can never be in isolation; it is always relative to competitor models.
  • Market reality is that the price position of a new model is constantly changing because competitors’ products, price positions, and other brand strategies are in a state of flux.
  • A sub-optimal price position can result in a dip in revenues and volumes if the model is overpriced, and margin erosion if it is underpriced.
  • The challenge remains in identifying the most appropriate price position considering tactical market reality and competitor activity.

The consumer research route for zeroing-in on the right price position doesn’t work

The pitfalls of traditional consumer research

  • Conventional consumer research is not ideal for obtaining price; when pricing is determined from focus group results, the process breaks the link with market reality.
  • The relative price position of any new model, along with the strength or weakness of competitive brands, is too fast-moving to be analyzed with traditional research methods.


Pricing it right

Correct pricing decisions based on factual market data

  • The relative price positions of different competition models can only be determined from factual information on: –
    • Sales volumes
    • Actual price realization
  • Time series data for sales volumes and price can enable a manufacturer to carry pricing interventions aligned to the manufacturer objectives at that point in time.

The weakest link in pricing decision making

The Tetrahedron Vehicle Price Tracking Study offers reliable & actionable price positions of different vehicles in a segment and facilitates effective pricing interventions

Information areas & Deliverables

  1. List price/Dealer Price/Retail Price (MSRP)
  2. Transaction price (after discounts / offers)
  3. Key vehicle content for the price (for every trim level)
  4. Extra offers (insurance, registration etc.)
  5. Final transaction price (MSRP minus discounts, offers, insurance, registration etc.)


  1. Brochures
  2. Price Quotation
  3. Spec sheets


Research Methodology

  • Mystery Shoppers are recruited and briefed about the exercise.
  • Entire shopper team is spread out across cities/dealerships.
  • One mystery-shopper won’t cover the same dealership more than once.
  • All shoppers are rotated across brands and product segments.
  • Frequency: Monthly
  • The mystery shopper would visit the dealership and
    • Determine the MSRP; and take a quote (final transaction price) for the vehicle
    • Identify and list the main vehicle content for that price
    • Obtain a list of offers like free insurance, extended warranty, free accessories
  • To deduce the final, absolute price of the car within each segment: –
    • Value of the offers will be estimated; and the estimated value of the offers would be subtracted from the transaction price to get the absolute price.

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