Marketing Mix Analysis

Pricing Strategies of Tesla Inc

by Nishat Tarannum Mridula

Tesla incorporation is a vehicle manufacturing company based in America. The company was founded on 1 July 2003. They are currently famous for their electric cars and within a few years, they were able to build a solid infrastructure of electric cars in the United States. Their incredible pricing strategy was able to captivate the people of the US.

Types of Pricing Strategy Applied by Companies

From the beginning of their launch, Tesla was known as a premium brand. As their target was a certain group of people, they applied the premium pricing strategy which certainly limited their targets when it came to profitability. One of the reasons behind this is their smaller production scale. Besides, the company is aware of the fact that the pricing strategies do affect a consumer’s buying decision. Hence, Tesla usually follows two different pricing strategies.

  • Premium pricing
  • Market-oriented pricing strategy

Related Reading from Tesla Inc: Tesla SWOT Analysis and Tesla Marketing Mix

Details Discussion on the Pricing Strategy Applied by Tesla Inc

Tesla is famous for its premium cars. Their cars certainly give the consumers a futuristic vibe. Hence, the demand for their products is quite high. Tesla’s main pricing strategy is premium pricing. Their cars fall into the more expensive side. They are backing up their pricing with high quality and unique attributes. Tesla is offering something which none of the companies can offer right now. They are using advanced technology and they have a strong ecological system. Their innovative product designs are keeping the consumers hyped.

A company can only take the premium pricing approach when they are able to offer something different to their consumers. This usually means the distinctiveness of the products. Tesla prefers a market-based pricing strategy for their solar panels and other consecutive products. But usually, these strategies change from time to time. With new products, they follow new strategies according to the company’s objective and the style of that particular product.

Pricing strategy is the most vital aspect of a company. It can make or break a company’s profitability ratio. Tesla’s pricing strategies and outcomes are overviewed by their CEO. Generally, before deciding the price, they analyze the market demand, consumer behavior, demand for the new products, etc.

The Pricing Policy of Tesla

Tesla’s pricing policy follows a fundamental strategy where the main focus remains on the consumers and the coherence of the market. Tesla doesn’t prefer the discounting strategy as it reduces a car’s resale value. Alongside that, it depreciates the value of a car’s foundation parts. Hence, the CEO of Tesla Inc. Elon Musk has taken this strategy where he is able to protect the price of brand-new cars alongside the resale value of old cars. His strategy protected the investment of previous buyers who trusted Tesla and bought their cars at the beginning. It also helped Tesla to build brand loyalty as it ensures that the consumers are satisfied with tesla’s effort. This assures that once a person purchases a Tesla car, all of their cars in the future are going to be from Tesla. All of these advantages are gained by letting go of the discounting strategy. Tesla won’t have tunnel vision. Instead, they are seeing the bigger picture and ensuring that their consumers stick with them for a longer period.

Price Elasticity

Even though Tesla has never followed the discounting strategy, it also never said that it will never adopt this strategy. Rather, Elon Musk states that pricing plays a vital role in determining the value of a product. Hence, they follow a strategy that represents the premium quality of Tesla. In this case, Elon Musk also mentioned that, if discounts are in control and appropriate where the value of the product will not be compromised, then there’s no issue of adding this into the pricing strategy.

Market Analyzation

One of the most important steps before setting Tesla’s pricing is analyzing the market thoroughly. Under this process, consumer behavior, target consumer’s age, income, demographic, purchasing behavior, etc. are analyzed properly. According to the result, Tesla decides its promotional and pricing strategy.

A Policy With No Negotiation

When it comes to making a bigger purchase like buying a car or a house, everyone looks for a good deal. Who doesn’t feel good when they get to negotiate? A consumer would love to purchase a product at a reduced price. But unfortunately, at Tesla, this is nearly impossible. Tesla provides top-notch service for its unique and magnificent features. Therefore, they have taken a no negotiation policy. Even though consumers love to negotiate, it doesn’t at all affect tesla’s demand as the quality of their service is beyond comparison.

Challenges Along the Way

Tesla’s biggest challenge is its target market. Tesla has only targeted one group of consumers. As Tesla provides premium cars and has taken the premium pricing strategy into account, their target market is the upper class who prefer luxurious products. As a result, they are missing out on a huge portion of consumers inside and outside the country. 91.3% households of USA own a car and spend on the automobile. Only 17% of the USA’s population spends on premium cars. Another challenge is, the competition is getting higher and higher with every passing day. Therefore, Tesla has to continuously provide innovative products.

Pricing Strategy of the Competition

Automobile companies follow different pricing strategies. Among them, one of the famous ones is the cost-plus approach. Some of the companies prefer competitive pricing strategies over the cost-plus approach. In most cases, this industry doesn’t follow consumers’ preferences like other industries when it comes to deciding pricing strategies. But companies do take into account the market value of the vehicle they are producing.

Recommendation

Tesla’s niche is the premium society as it follows the premium pricing strategy. Because of that, it is missing out on almost 83% of the USA’s population. This is a huge chunk and if tesla target’s this audience, their profitability ratio will get much higher. In order to do that, they can simply provide installment offers to their consumers. This will help them maintain their premium pricing and also allow the remaining 83% of consumers to enjoy the premium features of Tesla.

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