How Ram, Jeep, and Dodge are balancing price and volume

Aldo Martin is a vice president at market research and analysis firm Pananalytics.

People judge brands along many dimensions—for example, Reliability, Safety, Value, Styling, Performance, and Comfort. Brands position themselves in two ways—through the product itself, and through marketing. For example, Dodge has hammered on Styling and Performance in its marketing for over ten years—and has honed its product lineup on both dimensions.

For decades, Toyota has been focusing on DQR, Value, and Efficiency (DQR is Durability, Quality, and Reliability*). Hyundai and Kia  have historically focused on Value, Affordability and Efficiency, with Kia emphasizing Affordability more to separate itself a little from Hyundai.

In marketing, two examples are Mercedes’ luxury-focused “The Best or Nothing” and BMW’s performance-focused “The Ultimate Driving Machine,” which cleverly summarize their positions.

Brand dimension groups

We routinely analyze brand dimensions in the auto industry using factor analysis. Usually, these dimensions end up in three groups:

A Rational factor:

• Reliability (lack of failures, day to day)*
• Durability (lasting a long time without major failures)*
• Safety
• Value for the money (as opposed to Affordability, which is a Practical factor)**
• Resale value

An Emotional factor:

• Styling
• Acceleration
• Handling
• Craftsmanship (quality of materials, fit and finish)
• Innovation/advanced technology
• Comfort
• Customer service

A Practical factor:

• Efficiency
• Utility, passenger and cargo capacity, number of doors, and rows of seats
• Affordability, discounts, and promotions

There are more dimensions, but these are the most prevalent in the auto sector. We have worked with clients in the US, Canada, Mexico, and the rest of Latin America, and these dimensions always factor together very similarly.

This is where it gets interesting

A typical demand curve, as taught in basic economics classes, is essentially a graph with two axes—Quantity on the horizontal, and Price on the vertical, with a line showing that as price goes up, quantity goes down; and as quantity goes up, price goes down.

We find that each of the three factors above impacts on the demand curve in different ways:

Emotional dimensions (e.g., Styling and Performance) tend to move the brand up the Price axis and down the Quantity axis.  This explains Jaguar, Alfa Romeo, Land Rover, and, more recently, Dodge.

Practical dimensions (e.g., Affordability, Efficiency, Utility) tend to move the brand up along the Quantity axis and down the Price axis.  This includes Hyundai/Kia, Mitsubishi, and perhaps Nissan.

Rational dimensions (e.g., Reliability, Durability, Safety, Value) do both: they help a brand or company move in both directions at the same time. Economists call this a demand shift, or moving to a higher demand curve.

This is the ideal for a car company or any other brand—it allows for higher volumes without cutting prices; alternatively, they can raise prices without hurting volume. Marques which enjoy this include Toyota, Honda, and Subaru.

The Mopar connection

Fiat Chrysler (FCA) understood that work on emotional dimensions would allow their brands, especially Alfa Romeo and Dodge, to move up the Price axis; this helped with Sergio Marchionne’s oft-stated short-term goals for increased margins (premium pricing).

What FCA apparently did not understand was that this is not a long-term strategy.  Moving up along existing demand curves always hurts sales volume. The ideal, again, is to increase prices without hurting volume.

Because Fiat Chrysler did not to target DQR (“quality”), Safety, or Value for Money, none of FCA’s brands has shifted to a higher demand curve. That explains why Dodge commands far higher prices today than it did under Daimler, but also has lower sales. More dramatically, it explains why Alfa Romeo has been able to justify its lofty prices—but fails to sell in decent volume.***

Jeep is the most interesting. FCA spent boatloads of money upgrading the  craftsmanship, technology, and, some would argue, styling.  These all justify a higher price. On the other hand, Jeep has been adding 4xe and three-row-seating versions of vehicles across its product lineup, partly in an effort to grow volume—which pulls Jeep down the price ladder. These two actions are pulling Jeep in opposite directions.

Jeep apparently missed the fact that focusing on the rational factor, (DQR, Safety, and Value) would have allowed it to raise prices and/or grow sales.

Worse, by constantly raising transaction prices without improving issues on the rational dimensions, Jeep continues to erode the perceived value of its vehicles.

Companies that got it right

Subaru is the success story of the last decade—one of only two brands that was able to grow demand, increase sales, and justify a price premium.  Subaru did this by focusing on Durability (as opposed to Reliability), on Safety, and on Value for Money.  An excellent LOVE marketing campaign helped Subaru get the message across.

Toyota and Honda have been focusing on the rational dimensions pretty consistently for the past several decades, though Honda seems to have been slipping recently. Toyota’s recent sales lapses are due to lack of product, not lack of demand.

Mazda seems to be moving along an existing demand curve by focusing on  emotional (styling, performance, craftsmanship) and practical (3rd-row seating, efficiency) dimensions, without really paying special attention to DQR or Safety, which will leave Mazda vulnerable down the road.

The German Myth

German automakers have been able to convince buyers into believing that they are getting reliable, trouble-free vehicles—partly through consistent and emphatic marketing of “German engineering.” Independent studies show that the DQR of German autos is no better than that of other automakers. Nevertheless, the general perception, not just in the US but around the world, is that German cars are of superior quality and safety.  This has allowed them to grow demand, increase sales, and command premium prices at the same time—and it helps to explains why BMW and Mercedes can sell 300,000 units and Alfa Romeo cannot.

Chrysler

If Chrysler leader Christine Feuell has done her homework, she must have figured out that DQR and Safety are key elements of her brand relaunch.  Failure to focus on these dimensions will leave Chrysler stuck moving up and down the brand’s pre-existing, low demand curve. Whether she can actually do anything to increase DQR is an open question.

She has put a stop to existing product initiatives; but what will replace them is still unknown, possibly within Stellantis as well as in the general public. Delaying production of new Chrysler vehicles may at least provide time to figure out a viable brand position, select a compelling design language that reinforces the marque’s new position, spot and fix engineering or production or parts flaws in the marque’s platform-mates (e.g. the future Dodge Charger) before the Chrysler name goes onto a car, which could help Chrysler’s DQR without changing Dodge’s at all.

Fiat in North America

When Fiat returned to these shores in 2012, the brand had a lot of baggage it needed to overcome.  Packing and leaving consumers in a lurch 30 years prior had left a bad taste on the mouths of American consumers.  The only thing many Americans associated with the Fiat brand were old Fix It Again, Tony jokes.

Fiat decided to ignore the elephant in the room and relaunch the brand along the lines of “sexy Italian style.”  The problem with this strategy is that it ignored the very dimensions on which Fiat needed to rely to establish itself on the market, move to a higher demand curve and prosper—particularly given the relative premium price position it wanted.

Stellantis’s recent announcement of a new head of Fiat USA and upcoming brand relaunch includes words like “cool vehicles” and “cool technology.”   Unfortunately, there is no mention of Fiat looking to offer Quality, Safety, or Value for Money, which would offer true benefits to consumers.  As long as this doesn’t change, we should not expect Fiat’s fortunes in North America to improve significantly.

Jeep, Durability, and Reliability

* A Toyota Camry or a Honda Civic is usually reliable—it starts every morning and gets you home for ten or more years without complaints. In contrast, a Ram 1500 or Chevy Silverado is durable. The power windows and  air conditioning may have stopped working, and the body may be rusted, but the engine still runs and can still take a serious pounding. (The “slant six” is a good illustration of “durable.”)

Instead of competing against Toyota on Reliability, Subaru picked Durability as more credible. For example, one of Subaru’s LOVE campaign ads showed a family pulling up in a new Outback, and through the window you saw an 20-year old Legacy wagon parked in their driveway. Another ad had a father teaching his twin teenage sons to drive a manual transmission and you can hear them grinding the gears on their old Legacy sedan without concern.

Historically, Reliability has been more important with car buyers while Durability is more important for truck buyers—but, with trucks becoming more mainstream, Reliability is becoming more important to buyers across the entire spectrum.

Traditionally, Jeeps were not reliable but they were durable. As Jeep becomes more mainstream, buyers expect greater Reliability. For example, Wrangler owners have started complaining about reliability issues with the dual battery system and other advanced electronics, which would have been unheard of a decade ago.

Plymouth and Value vs Affordability

**When Walter Chrysler was in charge of the company, Plymouth was Chrysler Corporation’s most affordable brand, but it was not the most affordable car on the market. That position belonged to Ford, which made lower-priced cars; but Plymouth was often also pricier than Chevrolet. That worked because Plymouth was still a greater value; a Plymouth tended to have technologies which made the car a better deal even at a higher price. Not every buyer was clever enough to figure that out (or able to spend the extra cash), but buying a Plymouth often meant spending a little more for  better brakes, sometimes faster acceleration (even vs a stock Ford V8), greater reliability, a more comfortable ride, and lower maintenance costs. Value is harder to measure than affordability, because affordability is a single number (what’s the selling price?) whereas value requires either subjective judgements or long-term studies.

Alfa Romeo

*** The fact that people are buying Alfa Romeos tells us that it is justifying its price; but poor sales in the US, and merely disappointing sales in Europe, indicate that it needs to shift to a higher demand curve. To do that, Alfa needs to convince more people that its vehicles are reliable, durable, safe, and a good value. Currently, buyers associate almost none of these with the brand; indeed, Alfa’s reputation in the United States is almost the opposite of where it needs to be.