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Saturn's Pricing Strategy
The Unique Project - Saturn
The Saturn Project was an experiment by General Motors to stop the heavy loss in terms of sales that GM was undergoing to the Japanese car manufacturers. This was an attempt to manufacture and market cars in a way different from the traditional methods of GM. This was the reason that GM did not set up the Saturn Project as a division of GM like Chevrolet or Buick. Saturn was set up as an independent company. To make sure of the complete change in thinking even in manufacturing, GM shifted the factory for production from traditional Detroit to Spring Hill in Tennessee. Since the competition was to be specifically with Japanese cars, the manufacturing technology was also made to the best international standards available then. (Avertising Age, May 5, 1997, p. 30)
To get the necessary support from the workers, the company signed a special agreement with the United Auto Workers. This made sure that the union was involved with all decision making in the Saturn project, unlike the operations of the traditional GM factories. The advertising agency appointed for Saturn was also involved in all key marketing decisions. Thus to ensure the success of the Saturn project it was a partnership of all the key elements - the manufacturer, the labor, the suppliers, and the advertising agency. The mission statement for the Saturn project was to market the vehicles, which were produced and developed in U.S.A, which were considered to the leaders in terms of customer satisfaction, cost, and quality of the products in the world. This was supposed to be achieved with the help of the co-operation among the business systems, people and with the help of technology. It was also supposed to transfer the use of technology, knowledge and experience with the help of General Motors.
The different distribution strategy:
Most GM cars were earlier sold by high-pressure sales from salesmen. This was because GM had different divisions often competing among themselves, and many distributors competing among themselves. In the Saturn Project, we have seen that everybody involved with the success of the project was taken in as partners. For the Saturn project the retailers have been given much more freedom than they have for other cars. The business system it self integrates the dealers to the success of Saturn. For Saturn only one distributor was appointed in a large metropolitan area (e.g., the greater Boston metropolitan area) and he was to compete with the imported cars and not other GM vehicles. He is then made responsible for developing the entire area under his control. Usually, he started off with only one shop to cater to the entire area.
When the demand for the cars increased in the area, the company permitted him to open new outlets so that he could meet the demand and the requirement for service. New retailers are not permitted to enter the developed area. This method showed to the retailers that the company was interested in their welfare on a long-term basis, and their growth and prosperity. It also prevented severe competition between different retailers for the same car, and the same brand. That sort of competition only succeeded in hurting the dealers, but was not liked by the customers. If a customer came to know that he had paid a little more than another buyer, because of the dealer discounts, he never liked it. The purchase of a car is the second most important purchase for any buyer - next only to the purchase of his house.
Finally, the lower number of dealers also gave room to the manufacturer to communicate better with all its retailers and coordinate both their efforts in terms of sales. For this rationale, the first distributorships were given along the coastal regions where the penetration of the imported cars was the highest. The comparative lack of competition also gave rise to a much more relaxed atmosphere in the showroom with the salesman not forcing his opinions down, but only giving details asked for by the potential customers. (Ferrell, 1999, pg: 189-190)
Fixed price selling:
One of the reasons for the one retailer in each large territory was to stop the variation in prices between dealers. We have also seen why many customers did not like the variation in prices between different dealers. Ultimately, if he had ended up paying a higher price than his neighbor, it showed him as a not so shrewd person. Another factor in the variation in prices was the rebate programs offered by the companies which saw the prices sometimes drop by thousands of dollars in very short periods though the product did not change. The prices for all models are put on a fact sheet showing the different models available, their prices, the options available and the prices for the options. No retailer can sell at a price lower than this price.
These prices were very low when the brand started off in October 1990 at $7,995 for the base model. Of course these prices have risen since. These prices were however extremely competitive. The retailers were not permitted to discount prices under any circumstances. This policy however gave the buyer a no hassle purchase option for cars. If the cars were in short supply, then even the prices might have increased suddenly. In 1993, Mazda Miatas were being sold for as much as $5,000 above the retail prices, and the Saturn dealers selling a competitive brand could have charged higher prices, but this did not happen. This would have broken down the entire fixed price policy. (Koenders, 1994)
In 2003, Saturn has introduced a new brand called Saturn Ion. These were offered at a highly competitive price of $11,995 (Manufacturer's suggested retail Price). The price includes $485 as destination and freight charges. The car was to be produced in the Spring Hill, Tennessee factory. There were to be three trim levels; 1, 2 and 3. The car was to have the highest horsepower in that group of cars, good handling, and very modern technology. The fully equipped cars are to cost from $14,225 to $16,475. "The all-new ION is priced to provide customers a terrific value," said Jill Lajdziak, Saturn vice president of sales, service and marketing. "Reaction among the youth market has been very positive and we feel that the pricing strategy will help increase consideration by this very important part of the automotive market." (www.saturnfans.com) Thecompany and its sales people were able to put this information out in 2002, more than six moths before the car hit the market. As mentioned earlier, a car is the second most important purchase for a consumer, and some would prefer to know the choices for sometime before taking the decision. This is possible only when you have the pricing and distribution strategy that Saturn have. (www.saturnfans.com)
This has not been easy and over a period, Saturn had to control its retailers very tightly to retain the one price policy. Having a record of retail innovation, Saturn formed the Saturn Retail Enterprises (SRE), in Charlotte, N.C. The new enterprise was supposed to own and operate Saturn retail facilities and was to function as an independent retail operating company. "Saturn also announced that Donald W. Hudler will be the CEO of Saturn Retail Enterprises upon retirement Jan. 1, 1999 as Saturn chairman and president. Replacing Hudler as president and chairman of Saturn will be Cynthia Trudell, who also was elected a GM vice president. Trudell was president of IBC Vehicles, a wholly-owned GM operation in Luton, England, which produces the Frontera 4wd vehicle." (www.media.gm.com) Thus we see that serious action had to be taken by GM.
This was to be expected as the policy adopted by GM was cutting down the freedom of retailers. The company is however determined to keep up reputation for quality. In August 2001, the company got the number one rating given by the JD Power sales satisfaction Index. This was the sixth occasion; the company had won the award in seven years. GM has also been investing in Saturn and recently an investment of $1.5 billion was announced over a four-year period. New cars were also to come in with Sports Utility Vehicles from 2001; capital investments in the factory and production of brand new four cylinder engines and high tech V6 engines in collaboration with Honda.
We have seen that Saturn was a brand new concept in car marketing in the United States. It was also an effort by the largest car company in the United States: General Motors. Various one concepts in marketing were tried out and the most important aspect was the fixed price of the car. The concept of one dealer per territory that we have spent quite some time discussing was fundamentally only to make this a success, as if there were a large number of dealers in each large territory, it would have been practically impossible to maintain the fixed prices that GM…[continue]
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