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July 06, 2005

EDEO is the new EDLP

Edeo_2


We’ve all heard of EDLP -- Every Day Low Prices. Now, thanks to General Motors, we have EDEO (Employee Discounts for Every One) to add to our marketing vocabulary.


Faced with sluggish sales and rising inventory, General Motors decided to ditch its four year-old discount strategy of cut-rate financing combined with huge rebates for a less convoluted approach. Beginning in June, GM began offering customers the same price its employees pay for a new GM-made car.


GM’s Employee Discounts for Every One program offers customers an attractive selling price for a car anywhere from 3% to 6% below the dealer’s invoice. No haggling necessary with the EDEO pricing strategy since customers are able to buy GM cars at about the same price the car dealership does. (Car dealers are able to eek out a profit because GM will rebate dealerships around $1,500 per vehicle sold.)


For the month of June, GM increased sales by 47% and boosted its market share nearly 7% from the month prior. (Yowza!)


I cannot argue with the success of the EDEO program. However, all GM has done is trade the deep discounting of low financing and big rebates for a different discount with a different, albeit more compelling name.


For long-term vitality, General Motors and the entire car industry must overcome their addiction to discounting. Profit margins will continue to suffer, the equity of brands will continue to erode, and worst of all … consumers will continue to be trained to only buy a car on deep discount.


Seth Godin said it best in PURPLE COW, “Cheap is the last refuge of a product developer or marketer who is out of great ideas.”


No matter if you sell a car under an EDLP or EDEO pricing strategy … it’s still going the cheap route to motivate people to buy it. Aren’t we, as marketers, too smart, too savvy, and too damn creative to fall for this low price trap?


(Please say yes. Otherwise, I may have to change my livelihood.)


SOURCES:

  • USA TODAY | article | 06.29.05
  • Wall Street Journal | article (sub req’d) | 06.07.05
  • Wall Street Journal | article (sub req’d) | 06.20.05
  • Wall Street Journal | article (sub req’d) | 07.05.05
  • Austin American-Statesman | article (reg req’d) | 07.06.05
  • Wall Street Journal | article (sub req’d) | 07.06.05

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    » Employee Discounts for Every One from raving lunacy
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    Comments

    You're right, John. American cars will become like pizza - no one buys unless there is a coupon.

    So what are the responses telling American car marketers? That cars are too expensive? (I haven't seen foreign car companies doing this.) That new cars lose so much value in the first two years that they must be deeply discounted to be worth buying? (True.) Or that American auto makers are no longer showing customers the value of their products? (Ding, ding, ding!)

    I buy pizza all the time without coupons, but unless dealerships start serving car buffets... you're right Darrin.

    I'm currently pitching the whole branding/word of mouth/purple cow marketing concept to a retailer who has been beaten up by price matching and undercutting. He's skeptical. He is starting to think that people will buy solely on price, but his conscience won't let him buy into that lock, stock, and barrel.

    The marketplace changes have gotten him so confused that he's sending mixed messages to his employees, customers, and prospective customers - "We'll match any price." but "We provide the best customer service." but don't forget, "We have EVERYDAY LOW PRICES!" oh, and "We have a wide selection of the best brands." and "the most knowledgable sales staff.." and "Whatever else will get anybody anywhere to walk in our doors and buy something from us please." Talk about an identity crisis.

    I'm hoping we can save him from the eternal flames of discount hell.

    Right on, John!

    One need only look at cars like the Mini Cooper and the Toyota Prius to see long waiting lists and firm pricing (sometimes way over sticker!)

    I'm hard pressed to understand why the American car makers can't learn from other successful auto makers and innovate themselves out of this discount mess they've gotten themselves into.

    Let me speak as plainly as possible: Auto discounting destroys brand equity. Savvy car buyers know that the costs of owning a car do not hinge solely on purchase price. Also to be taken into account are running costs, and more pertinently, resale values.

    Discounts piled on top of rebates piled on top of discounts only serve to diminish the image of a brand. The end result is that resale values of domestics are just hammered because the natural momentum of pricing is ever downward--massive deprciation.

    A Honda or a Toyota will not net much in the way of ridiculously huge discounts. However, over the course of ownership, they make superior investment propositions than the heavily discounted makes.

    As one that was at Saturn during the mid-90s I remember the reasons for creating brand critical standards establishing real value. In a client meeting last week one participant told us all of buying a GM car for two thousand dollars below the "EDEO" price. Consumers are being lied to again; no surprise, but sad to see all the same.

    Employee Discounts for Every One is the Clown Suit of the Auto Industry
    http://theheadlemur.typepad.com/ravinglunacy/2005/07/employee_discou.html

    Good stuff Head Lemur ... good stuff. Luv the Clown Suit Rule

    The Clown Suit Rule
    'One of the methods used by desperate businesses in need of revenue is to place somebody in a Clown Suit outside their business in hopes of getting folks to stop in. The Clown Suit is an excellent signpost to the impending failure of the business employing them. The only exception to this rule is the Clown Suit Rental Store.'

    from | http://theheadlemur.typepad.com/ravinglunacy/2005/07/employee_discou.html

    Margin has to be made somewhere. In the end, if EDEO sticks underlying pricing would have to rise across the board. Who loses out? The employee, because their "discount" is now meaningless.

    Here's to hoping that the focus of marketing soon shifts back to the "car experience" versus EDEO.

    Martin Tibbitts

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