ALG’s Brand Pricing Score

Posted on: November 6th, 2013 by Editorial Staff

Car buyers, in both the new and used markets, find value in several different aspects of the vehicles they purchase. While size, features, performance and efficiency are often deciding factors, brand is often what puts a car on shopping lists in the first place, and is a driver of how much consumers are willing to pay for a vehicle.

ALG understands this relationship, and has studied the value of brands and their effect on resale pricing for many years. We’re pleased to introduce the newest iteration of our brand value metric, the Brand Pricing Score. This score isolates the pricing power that each brand brings to the market, for both new and used vehicles.

If a consumer were to see two identical cars—with the same condition, mileage and equipment—but each had a different badge, one car might have a significant premium over the other. The Brand Pricing Score helps to clear out all of the extraneous factors that contribute to volatility in new-car transaction prices and used-car auction prices, helping ALG and our clients understand brand differences and the elements of strategy that feed into them.

One of the most direct and transparent examples of differences in pricing power represented by Brand Pricing Score is a comparison of the Honda Passport and Isuzu Rodeo, which were sold in the mid-1990s to  early 2000s. The Passport was a badge-engineered version of the Rodeo and identical in nearly every way except nameplate and sales distribution channel. Nonetheless, the Honda held an average pricing premium over the Isuzu model of ~20% as a 3-year-old vehicle in the used market and ~12.5% as a new car. BPS does not necessary reflect the level of demand, since pricing power is a result of many different aspects of strategy, and one of these is volume levels. For most of the model run, the Rodeo sold higher volumes than the Passport, but the data would still push up Honda’s pricing power versus Isuzu.

The Brand Pricing Score replaces ALG’s Statistical Brand Value as a measure of brand pricing power. The updated metric puts more emphasis on recent data, allowing it to better capture the current state of the market. There are also improvements with how the model deals with used supply data and comparisons between segments.

Both new and used versions of the metric are derived from market transaction prices. On the new side, this means the actual price that buyers paid after all discounts and incentives are factored in. In the used market ALG derives pricing power from actual auction values of 1- to 3-year-old vehicles, which also inform our residual forecast.

BPS-New

Mainstream NewWhile Honda and Toyota have long been at the top of the mainstream sector when it comes to perception of quality, the pricing power of a brand stems from more than just this reputation. In fact, the contribution of other aspects of brand strategy ensures that those brands are not even in the top 3 when it comes to pricing power in the new market.

As previously mentioned, one aspect that makes a big difference is supply. The Mini and Buick brands have positioned themselves above their mainstream competitive set, and supported this positioning by keeping their volume expectations lower than other brands. Buicks have generally sold only a quarter of the volume of their comparable Chevrolet models, and Mini limits its dealer inventories such that many people still have to order their cars from the factory. GMC, the number-four brand, follows a similar strategy to Buick, though its sales rate is about half of equivalent Chevys.

Quality reputation still does come heavily into play for many of the leaders. Subaru combines an excellent quality record with its valuable associations to brand loyalty and rugged all-wheel drive systems. And Honda and Toyota round out the top 6.

Smart, on the other hand, has never managed to gain traction in the U.S. market, despite the long-held association between size and price growing weaker here. American drivers still rely heavily on highways, and smart fortwos have a disadvantage there to larger, but similarly priced subcompact cars; the value of the brand has suffered from these associations.

Lux NewWhile it’s clear that Suzuki was losing ground in the North American market up until its decision to exit, Dodge is actually on the rise here, with increasing sales as Chrysler pours more resources into product development for the brand. Still, that brand has an uphill battle if it hopes to be able to achieve the same transaction prices as leaders like Subaru and GMC.

On the luxury side, Porsche has a clear advantage over its rivals, with the ability to charge significantly more in every segment in which it plays. And while the brand is well known for its sports cars, this advantage translates to other segments, as well, with consumers seeing a high level of execution even among its utilities.

In fact, the past 12 months of data show that the average Cayenne transacted at around $76,500, roughly 32% above the ~$58,000 transaction pricing of the BMW X5, about even with the 31-ppt spread in BPS-New for the brand as a whole.

The German brands dominate the top of the luxury rankings, and they have built this cachet over the course of many years, while brands like Acura, Lincoln and Volvo have lost ground. These brands have had difficulties in recent years trying to figure out their place in the luxury market, and are each in various stages of rebooting their brands to regain traction.

BPS-Used

Mainstream UsedThe used vehicle metric of the Brand Pricing Score is derived from auction values, and once again Mini benefits from its low level of supply compared with overall market demand. But we see evidence that quality is a more significant input to the pricing power of a brand on the used side, which is logical considering that long-term dependability is more likely to affect a used buyer.

Mini has a smaller advantage versus the sector average and its closest rivals, while Buick has moved out of the top 3. This shift could also illustrate the direction of the brand, though, with Buick’s stronger score in the new market due to a new generation of improving products. This story is also interesting when considering Volkswagen’s movement, as that brand has moved its core products down in pricing for this latest generation, and that is reflected in the new market metric for the brand being closer to the mainstream average than its used market premium.

Within a segment that is seen as somewhat of a commodity set, it’s evident that this ranking makes sense, with 3-year-old Honda Accords getting a 7% premium versus comparable Toyota Camrys, aligned with their BPS gap of 7 ppts.

Lux UsedOn the bottom end of the list are several Chrysler brands, which suffer from the product drought that they went through as the company transitioned through different rounds of ownership. Chrysler’s older products are in the used pipeline, but once the newer generation starts to comprise more of the used supply, Chrysler’s brands should gain some strength in the used market.

In the luxury sector we see similar tiers between the new and used sides of the market, though the rankings are different. Porsche gains further strength when moving to the used market, which reflects the market’s high estimation of the brand’s build quality.

Lincoln drops to the bottom of the used luxury market, which reflects the lack of appealing product that the brand offered until recently.

ALG’s Brand Pricing Score offers a unique perspective on the power of brands within the auto industry, based on actual buying behavior, rather than subjective opinions about a make. This metric gives us deep insight into the factors that really impact the relative strengths of these brands, and help us to see which companies are following the strategies that help to bolster them in the long term.

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