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RIP RRP?

On 20th February 2019 the UK’s Advertising Standards Authority issued a ruling against carwow, an e-commerce platform that connects new car buyers with dealers willing to sell them cars at discounted prices.  The ruling stops carwow advertising savings achieved by comparison with the manufacturer’s recommended retail price (RRP), and by extension applies to the whole industry (and presumably) other sectors. The ASA logic was that they had “not seen sufficient evidence to demonstrate that the RRP did not differ significantly from the price at which it was generally sold, we therefore concluded that the claimed RRP was misleading.”

There is a strong argument that the ruling is flawed, and carwow have announced their intention to appeal. Many consumer surveys, including those conducted by ICDP, show that consumers recognise RRP as a starting point for a negotiation, even if this is an aspect of the car buying process that most dislike. Despite this, the ASA stated “that consumers would understand the RRP claim to represent the price at which the vehicle was generally sold” and that they “expected to see evidence to demonstrate that the RRP did not differ significantly from the price at which it was generally sold across the market by other retailers.”

However, if the ruling is upheld, it has broad implications, not only for advertising, but the whole basis on which manufacturers and dealers go to market.  Presumably any manufacturer or dealer promotion that quotes “£1,000 off” will no longer be allowed.  Promotions will only be possible on the basis of an absolute price.  This will surely accelerate the already strong trend towards offering cars at a monthly rate, through leasing type offers of PCH and PCP, as the monthly rate is subject to many different customer-specific factors.  If RRP is officially viewed as irrelevant, then what is the point of using it as the basis for dealer margin structures or depreciation rates?  With a growing number of manufacturer websites offering cars for sale online – normally on the basis of RRP or some national offer such as 0% interest rates – can these still be credible if they continue to be based on a price that has been dismissed as “misleading”.

We may be moving towards a similar situation to the airline industry where there is no reference price for a ticket, but a dynamic pricing model that proposes a price to each consumer based on what they book – including a range of extra features and options, when they book, and a prediction of capacity utilisation.  The potential for this to turn into a “race to the bottom” could be influenced by the position the competition authorities take on retail price maintenance following recent actions in consumer electronics.  In an omni-channel world, there is an open question as to whether a minimum price level may be reasonable for all sales made through official channels, and this may form part of the next round of Block Exemption discussions.

Making flexible pricing more visible may then lead to growth of price comparison sites, similar to those common in the travel industry.  These give consumers confidence that the choice they make offers fair value for the specific travel needs they have, but the sites in turn are being investigated by regulators for practices that exert influence on the suppliers to offer their lowest price on the sites.  Perhaps manufacturers should consider hosting carwow or price comparison site type functionality on their own websites, providing buyers with some level of confidence that they are getting a fair price, but reducing the risk of the prospect “defecting” to a competitor brand on a cross-brand site?

In the automotive world, it may be time to consider different pricing models.  Regardless of the outcome of the ASA process, and not restricted to the UK market, there is a strong argument that RRP is no longer fit for purpose:

  • It makes the sales conversation all about price savings rather than about the product and the service, when manufacturers and dealers claim they want the opposite

  • It undermines consumer trust in the purchase process, makes them wary, playing into the hands of potential new entrants and disruptors, but equally creating an opportunity for an OEM who breaks away from the current model

  • It is holding manufacturers back from offering what a growing minority of consumers want, which is an online buying experience which delivers a fair transaction price, and doesn’t treat you like a shopper in an Arab bazaar.