DaimlerChrysler: Using a Decision Support System for Promotional Pricing at the Major Auto Manufacturer

The Problem

Pricing decisions play an important role in the marketing-mix plan of most companies, but especially so at automakers like DaimlerChrysler. Automakers keep their manufacturer’s suggested retail and wholesale prices fixed throughout the year, then customize pricing through seasonal incentives that reflect supply and demand conditions. The magnitude of these decisions is a staggering $45 billion per year across automakers in the U.S. market alone. Just a 5% increase in pricing efficiency can result in $2 billion in savings for American automakers.

The Analytics Solution

Working with J.D. Power and Associates, the Chrysler Division of DaimlerChrysler implemented a J.D. Power price elasticity tool called PIN (Power Information Network) to optimize and customize the company’s pricing decisions. The model prototype is used to predict the impact on market share and sales volume of incentive programs offered by the company’s Chrysler Group, as well as the impact on vehicles of competitors’ incentive programs.
The PIN approach helps management assess different possible incentives for each combination of product (a vehicle model, such as Jeep Grand Cherokee), acquisition method (cash, finance with multiple terms, lease), and incentive-program type (cash back, promotional APR, cash/promotional APR combination). The PIN model allows DaimlerChrysler to optimize pricing decisions at the levels of local market, region, and national markets.