From: How Fiat Chrysler 'Got Smart on Pricing' USA Today August 10, 2015
This is a great article with an important message: Think about your pricing. Fiat Chrysler merged in 2014 and Fiat's CEO, Sergio Marchionne took over the struggling auto maker. At the time, their profits were half of their cross-town rivals, Ford and GM. So Mr. Marchionne decided to start thinking about pricing. What's unusual about that? Usually executives react to pricing.
And, that reaction is almost always down.
- Need to sell more…..lower price.
- Need to increase share…..lower price.
- Need to close a deal….lower price.
When you react to something with price, it always goes down.
When Mr. Marchionne started thinking about price, he realized that he had some popular brands and decided to raise price. Profits and revenue went up. One of his most expensive brands, the Charger SRT Hellcat sold out. He'll raise price on that one too. He reduced low-price sales to rental fleets which freed up capacity for the more profitable cars. He increased prices by 1% to dealers. That $200 per car helped improve profits and revenue. Finally, he cut back on customer incentives knowing that general market sales were increasing due to low gas prices and profits increased.
Looking back on Marchionne’s decisions, his changes seem logical and “easy”. He innovated with new and better models to get the demand and the growth in revenue and profits. Plus he started thinking rather than reacting about price. But if it’s so easy, why do executives seem to struggle to increase sales and revenue?