GM: Sticker Price Dynamite

Wednesday, I was harping on the contrasts at GM (NYSE: GM  ) . Now I see it's tinkering with sticker prices -- also known as the manufacturer's suggested retail price (MSRP).

GM announced that it has reduced the sticker price on 80% of its 2006 models. According to the company, "This action allowed for clearer comparisons to competitive vehicles and pricing simplicity. It also enabled the nearly two-thirds of new vehicle buyers using the Internet to research their vehicle purchase and get strong MSRP comparisons."

Let's play a little Marketing 101 for a moment and let me prove that GM might not accomplish the desired endpoint.

GM's last marketing marvel to move cars in the U.S. was "employee pricing." It moved a lot of cars -- but not profitably. Marketing has consistently used cash-back rebates and other methods to render in the consumers' mind that the sticker price is of little meaning. In fact, one could say GM and its American brethren have, in their own right, bred consumers to expect rebates and/or cash back on purchases. And who's to say the consumer will stop expecting giant-sized portions of both?

Here is what GM thinks it gets with the new sticker prices: "Today's action allows us to talk more about the features and benefits of all of our vehicles and to spend less time talking about 'the deal.'" After years of educating the consumer that the MSRP is subject to "deals" of sorts, does GM expect the consumer to think differently? That doesn't quite fit with the previous model of consumer behavior.

Imagine this: Ford (NYSE: F  ) or DaimlerChrysler (NYSE: DCX  ) don't reduce their sticker prices and continue to rely on big-dollar-amount rebates to attract consumers. They use the old tactic of getting a big discount to draw the same old buying response. Changing marketing direction (as GM has), especially after tens of billions have been spent on advertising over the years, doesn't quite make sense. After all, American car buyers have been bred to expect a certain sort of behavior from GM and others.

While the MSRP reductions will be minimal on some models, GM is trumpeting that it wants to compete. That's good. But the company still needs to prove that it can compete profitably. For that matter, a hearty dose of competition looms in Asia auto giants Honda (NYSE: HMC  ) , Toyota (NYSE: TM  ) , and Nissan. The eventual outcome remains to be seen, as with the customers' response to the MSRP marketing tactics.

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Fool contributor W.D. Crotty does not own any shares in the companies mentioned.Click hereto see The Motley Fool's disclosure policy.


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