In the present years, many established automakers find themselves in the transition from internal combustion engine vehicles to electric vehicles. Climate change is a growing concern in society, so car manufacturers try to do their part to combat it. As of today, the most promising environmentally friendly option is the battery electric vehicle, so many expect it to dominate the markets in a few years. However, this transition brings many fundamental questions, one of them being the pricing strategy. Elevated production costs, government intervention, and very dynamic competition make the companies face a situation they have not faced before, so, this investigation tries to guide them by comparing the three most used strategies: penetration pricing, price skimming, and a cost-plus strategy.
I used a survey in combination with information from the literature to assess the effectiveness of each of the pricing strategies. The results have been analyzed for both emerging and developing markets using the examples of Germany and Mexico, but only small systematical differences could be identified. As the results show, neither penetration nor a skimming strategy is promising. In the case of the penetration strategy, companies would have to sell cars significantly below production costs, and once they increase the prices to recover financial losses, clients would flee to other brands due to a high demand elasticity and low brand loyalty. For the price skimming strategy, it was found that it is very hard to generate a solid initial sales volume. Thus, companies sticking with the simple cost-plus strategy are most likely to succeed.
Table of Contents
1 Introduction
1.1 Problem statement
1.1.1 The need for electrification in the passenger vehicle business
1.1.2 Different types of electric vehicles (EVs)
1.1.2.1 The battery electric vehicle (BEV)
1.1.2.2 The hybrid electric vehicle (HEV)
1.1.2.3 The plug-in hybrid electric vehicle (PHEV)
1.1.2.4 The fuel cell electric vehicles (FCEV)
1.1.3 The alternative: E-fuels
1.1.4 The transition in the automotive sector
1.2 General objective
1.3 Specific objectives
1.4 Justification
1.5 Scope and limitations of this work
1.6 Overview of the structure
2 Literature review
2.1 Factors influencing the pricing strategies
2.1.1 Government intervention
2.1.1.1 Purchase subsidies
2.1.1.2 Tax reduction for BEVs and tax increase for ICEVs
2.1.1.3 ICE prohibition and emission standards
2.1.1.4 Other government policies and incentives
2.1.2 Production cost
2.1.2.1 Battery pack cost
2.1.2.2 Other cost factors
2.1.3 Competition
2.1.3.1 Competition from ICEVs
2.1.3.2 Competition from FCEVs
2.1.3.3 Competition from HEVs
2.1.3.4 Competition within the BEV sector
2.1.4 Consumer characteristics and attitudes
2.1.4.1 BEV consumer profile
2.1.4.2 Environmental concern
2.1.4.3 Consumer attitudes
2.1.4.4 Consumer education and primary demand
2.1.5 Marketing activities
2.1.5.1 Product design and features
2.1.5.2 Distribution
2.1.5.3 Promotion
2.2 Pricing strategies used in the BEV sector
2.2.1 BEV price premium
2.2.2 Tesla’s pricing strategy
2.2.3 Other start-up’s pricing strategies
2.2.4 Established brand’s pricing strategies
2.2.5 Price forecasts
2.3 Influences of pricing strategies on the businesses
2.3.1 Pricing influences on the demand and offer
2.3.2 Pricing influences on the profitability
2.4 Conclusion of the literature review
2.5 Hypotheses for the investigation
3 Methodology
3.1 Objective of the research
3.2 Decision to investigate the consumer perspective
3.3 Decision to use a quantitative approach
3.4 Differentiation between emerging and developed economies
3.5 Size of the target group in Mexico and Germany
3.6 Sample size and characteristics
3.7 Method of data collection
3.8 Statistical method for the data analysis
4 Results
4.1 Results per question
4.1.1 Results question two
4.1.2 Results question three
4.1.3 Results question four
4.1.4 Results question five
4.1.5 Results question six
4.1.6 Results question seven
4.1.7 Results question eight
4.1.8 Results question nine
4.2 Statistical Analysis in IBM SPSS Statistics
4.2.1 Results question two
4.2.2 Results question three
4.2.3 Results question four
4.2.4 Results question five
4.2.5 Results question six
4.2.6 Results question seven
4.2.7 Results question eight
4.2.8 Results question nine
5 Discussion
5.1 General insights
5.1.1 The competition by ICEVs, HEVs and FCEVs
5.1.2 The disposition to pay a premium for a BEV
5.1.3 The elasticity of the demand in developed and emerging markets
5.1.4 The disposition to abandon the brand for a better price-value ratio
5.1.5 The willingness to buy more expensive models
5.2 Resulting differences between emerging and developed markets
5.3 Verification of the stated hypotheses
5.4 Implications for the effectiveness of a penetration pricing strategy
5.4.1 Short-term perspective
5.4.2 Long-term perspective
5.5 Implications for the effectiveness of a skimming pricing strategy
5.5.1 Short-term perspective
5.5.2 Long-term perspective
5.6 Implication for the effectiveness of a cost-plus pricing strategy
5.6.1 Short-term perspective
5.6.2 Long-term perspective
5.7 Limitations
6 Conclusion
Research Objectives and Topics
The research evaluates the effectiveness of three primary pricing strategies—penetration, skimming, and cost-plus—within the automotive sector's transition from internal combustion engine vehicles (ICEVs) to battery electric vehicles (BEVs). It specifically examines consumer buying behavior in emerging versus developed markets (using Mexico and Germany as examples) to determine if market-specific differences affect the success of these strategies.
- Analysis of factors influencing BEV pricing, including government subsidies, production costs, and competition.
- Evaluation of consumer disposition toward price premiums and brand loyalty in different economic contexts.
- Assessment of demand elasticity and its impact on pricing strategy effectiveness.
- A comparative study of consumer preferences in emerging and developed markets.
- Determination of the most sustainable long-term pricing model for BEV manufacturers.
Excerpt from the Book
1.1.1 The need for electrification in the passenger vehicle business
The fact that the global climate is changing, and the temperature is rising is no surprise to society anymore, and neither is the reason therefore: Greenhouse gas emissions, almost exclusively caused by human activity. Many intents have been made to limit the global warming, but probably the most popular one is the Paris Climate Agreement. In this agreement from 2015, which was signed by 193 countries and the European Union (EU), the goal to limit global warming to under 2 degrees Celsius until the end of this century was stated (United Nations, 2023). However, the actual trajectory is heading towards more than three degrees temperature increase (Aleluia Reis & Tavoni, 2023).
Consequently, greenhouse gas emissions must be reduced drastically, and passenger vehicles play a deciding role in this mission. In Mexico, road transport emissions are the second biggest source of greenhouse gas emissions after the electricity generation, and passenger cars make up for two thirds of the transport emissions (Vallarta-Serrano et al., 2022). In Germany, transport makes up for almost 20% of all greenhouse gas emissions (Umwelt Bundesamt, 2022). It becomes clear that the emissions of passenger vehicles must be reduced drastically and rapidly, and various technologies have been developed trying to do so.
Summary of Chapters
1 Introduction: Provides an overview of the global climate impact of transport and introduces the necessity of transitioning from internal combustion engines to electric vehicles.
2 Literature review: Analyzes the factors affecting BEV pricing, such as government policy, production costs, and competition, and evaluates the common pricing strategies currently used by manufacturers.
3 Methodology: Details the research objective and the design of the quantitative consumer survey conducted in Germany and Mexico.
4 Results: Presents the findings from the survey data, including statistical comparisons of consumer attitudes toward BEV pricing and branding across the two target markets.
5 Discussion: Interprets the survey results and examines the practical implications of different pricing strategies for manufacturers in the short and long term.
6 Conclusion: Synthesizes the research findings and argues that a cost-plus pricing strategy is the most viable path for long-term profitable success in the BEV market.
Keywords
Battery Electric Vehicles, BEV, Pricing Strategy, Penetration Pricing, Price Skimming, Cost-plus Pricing, Automotive Industry, Consumer Behavior, Market Penetration, Price Elasticity, Emerging Markets, Developed Markets, Sustainability, Government Subsidies, Production Cost
Frequently Asked Questions
What is the core focus of this research?
The work examines how automotive companies can successfully manage the pricing of battery electric vehicles (BEVs) during the industry's transition away from traditional combustion engines.
What are the primary pricing strategies evaluated?
The study evaluates three main strategies: penetration pricing (starting low to gain share), price skimming (starting high to maximize early margins), and cost-plus pricing (setting prices based on production costs plus a profit margin).
What is the primary objective of this investigation?
The main goal is to assess the effectiveness of these pricing strategies for established car manufacturers and specifically to see if market development status (emerging vs. developed) creates different consumer responses.
Which methodology was employed for the research?
The author utilized a quantitative approach, conducting a survey of 209 participants across Germany and Mexico to collect data on buying behavior, price sensitivity, and brand loyalty.
What topics are covered in the main body (Literature Review)?
The main body covers external influences like government incentives, internal factors like battery production costs, the impact of competition from various vehicle types, and consumer attitudes regarding environmental concerns and education.
Which keywords define this academic work?
Key terms include BEV (Battery Electric Vehicle), pricing strategy, market penetration, price elasticity, consumer behavior, and the comparison between emerging and developed automotive markets.
Does the level of economic development significantly change consumer behavior toward BEVs?
The study concludes that while there are minor cultural differences, the core price elasticity and general disposition toward BEVs are surprisingly similar across the studied emerging and developed markets.
What is the final recommendation of the author?
The author recommends that established companies favor a cost-plus pricing strategy, arguing that both penetration and skimming strategies carry excessive financial risks regarding production losses or customer retention in the long term.
- Arbeit zitieren
- Tim Tegtmeyer (Autor:in), 2023, How to Successfully Manage the Transition into the Battery Electric Vehicle Market. A Comparison of Pricing Strategies in Developed and Emerging Markets, München, GRIN Verlag, https://www.grin.com/document/1387633
