It’s not rocket science that promoting a reduced price will have an effect on consumer behavior. A marketed discount—either by price adjustments, incentives, or both—will generally improve a vehicle’s chances of being considered or even purchased.
But here’s the thing. Not all reduced prices are created equal, especially when held up against other offers in the marketplace. An OEM rebate or dealer markdown may seem aggressive in isolation but may not be when compared to other competing programs available to consumers. Only a real-time view across all makes and models can provide the backdrop needed to truly understand the competitive pricing dynamics and programs that play out in the real world. In other words, sellers need to make sure that a good deal is a big deal.
That’s where Cloud Theory’s Market Adjustment metric comes in. Because we collect supply (inventory), demand (vehicle movement), and pricing data (MSRP, marketed offers) for virtually all vehicles across the U.S. and update it every day, we can determine the effects of these consumer offers in real-time and over time.
The full-size truck segment illustrates the crosscurrents at the segment, make, and model level. Looking at metrics over the past year, it is clear that OEMs and dealers have been more aggressive than average within this market sector. In June 2023, for example, full-size trucks had a 2.83% market adjustment compared to the non-luxury average of 1.80% (and full-size SUVs at a similar 1.65% reduction). That one-point differential has grown to more than two points (-6.71% for full-size trucks versus -4.43% for non-luxury in general and -3.48% for full-size SUVs).
Cloud Theory Horizon Insights, June 2024
This market adjustment increase has generally coincided with average inventory growth, which makes sense. The more supply there is in the marketplace, the more competition there is to contend with. Sellers therefore have to do more to attract demand for those vehicles.
Cloud Theory Horizon Insights, June 2024
As those supply and demand dynamics were playing out, the increased attractiveness of those offers resulted in a growing Inventory Efficiency Index performance in the full-size truck segment. IEI—which measures whether a segment, make, or model is getting its fair market share given its relative inventory position in the marketplace—has moved closer to the 100 benchmark that signifies a balance between the two.
Cloud Theory Horizon Insights, June 2024
At a model level, meanwhile, the competitive implications are just as compelling. Over the past year, three of the domestic full-size trucks have been on a trajectory of increasing market adjustment levels. The Ram 1500, on the other hand, has seen its market adjustment advantage dissipate in the last three months. While still hovering around an aggressive 8.0% rate in that time period, its differential with the Silverado 1500, F-150, and Sierra 1500 has either disappeared or been greatly diminished.
Cloud Theory Horizon Insights, June 2024
Coinciding with that shift, Ram 1500’s turn rate went from in-the-mix to trailing-the-field.
Cloud Theory Horizon Insights, June 2024
Ram 1500’s recent change of fortune illustrates the importance of recognizing and acting upon pricing offers in a competitive context. An 8% market adjustment in a vacuum may still seem aggressive and attractive to the OEM and dealers promoting it. But in relative terms, the advantage that had been previously buoying Ram 1500’s turn rate outcomes disappeared, and its sales performance suffered as a result. Identifying these market dynamics in real time enables sellers to adjust programs or supplement them with marketing support to ensure that their vehicles remain competitive with consumers.
The moral of this story: make sure your good deal is a big deal.
