Why a no-discount business model is a no-brainer for some Kiwi car companies
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Toyota New Zealand (TNZ) made national headlines back in 2018 when it moved to an agency model of business called The Drive Happy Project.
In short, dealers have became “stores” that sell cars as agents, on behalf of TNZ. Retail prices have been reduced dramatically to better reflect what was actually paid for vehicles post-discount.
And discounts are no longer given to private buyers, meaning everybody pays the same price for a new vehicle.
This is a revolution for NZ’s biggest brand and it’s a model that is gaining favour among others. Even premium makers: Mercedes-Benz has announced it will move to a similar agency model in 2022 in selected markets around the world, including NZ.
This has all been big news to many in the automotive industry. But not to Honda NZ, which has been quietly getting on with its Price Promise business model for over two decades now.
Price Promise was launched by Honda NZ in May 2000 and has continued unchanged to the present day. Honda dealerships act as agents for Honda NZ and new vehicles have a single price set for all customers, with no discounts given. Not even for fleets, which is one area where Honda differs from Toyota (it’s more fleet-focused and has a set “tier” discount system for business buyers).
“Originally, the concept was all about creating trust with the customer around total cost of ownership from a long-term perspective,” says Peter Ashley, general manager of sales and marketing for Honda NZ.
According to Ashley, Price Promise has contributed to high confidence in the brand among customers – as well as encouraging those owners to change their vehicles more often than the NZ national average.
“We have a very high loyalty rate, somewhere in excess of 80 per cent. Our retention rate is around 65 per cent. That’s an indicator that customers feel very comfortable changing their vehicles within a life cycle, and in fact we’ve been able to shorten that cycle.
“The traditional life cycle in NZ is between 3-5 years, but in our case it’s more like three and in some cases as low as 2.”
Price Promise has contributed to better-than-average values for Honda vehicles, although Ashley emphasises that many cars have good residuals – he argues the difference with his brand is consistency.
“Residual value depends on a lot of factors, including model timing, age and mileage.
“But what we consistently say is that we’ve been able to keep the retail value of used cars at a very good rate for the customer to come back and buy another Honda.
“The changeover price [the difference between the trade-in vehicle and the new one] has become very consistent and customers can rely on it.”