It has been reported earlier on this blog that the UK government is considering cutting to proposed £5000 incentive grant for BEV/PHEVs in its budget austerity measures. Direct financial incentives can be exceptionally effective at influencing consumer behaviour towards a product but they are not the only option that is available. Indeed, it is often a combination of different incentives that proves to be the most effective. Below we will look into other common forms of consumer incentive that can be considered both by the UK government and car manufacturers to help boost demand for LEVs.
1. Financial Incentives – not solely limited to cost reductions but also include cash back on purchases, financing deals and money for old vehicles (such as in the UK government scrappage scheme). These incentives are usually easy to understand and highly attractive to consumers who desire to spend as little money as possible to acquire the vehicle of their choice.
2. Part Exchange – Similar to the scrappage scheme but run by the private companies instead, these schemes give consumers a discount dependent of the value of the vehicle they exchange at the dealership for the new car. It proves beneficial to the car owner as they do not have to expend the effort to sell their old car or pay for it to be recycled. For the vehicle manufacturer they not only boost demand for their new cars but can also reuse/recycle the parts in the old cars back into their production process.
3. Warranties and Money Back Guarantees – Especially with the introduction of new technology in the vehicle, consumers will want to see extended warranties and money back guarantees sold inclusively with new LEVs. This will increase maintenance costs associated with these vehicles and possibly production costs if the manufacturer wishes to reduce malfunctions to low levels.
4. Gifts and Add-Ons - Optional extras are usually a source of additional income for manufacturers who can convince consumers to get these additions installed on their new cars. Consumers like to see as many vehicle features installed in a car as standard as possible. A manufacturer can boost demand by increasing the amount of features as standard as these are often highly visible to a consumer (such as MP3 player, satellite navigation, heated seats etc.) however this will decrease additional features as a source of revenue to the firm. Often additional features come in different levels (such as interior trim) and offering consumers free upgrades can be enticing. Discounted of free breakdown over and vehicle insurance can also prove to be a big lure to consumers.
5. Special Offers – In other industries a popular strategy when introducing a new product to generate initial demand is to offer the product as buy one get one free offer. This is obviously not appropriate in the private automotive market but may prove enticing to large institutional buyers. Perhaps not offering any unit free but giving purchasers who are buying in bulk a discount dependent on the quantity they are buying. Giving returning consumers a discount can be effective as it encourages consumer loyalty and repeat business.
6. Preferential treatment by 3rd parties – An incentive often used by credit-card companies, consumers of a certain product can be offered access to a scheme that gives them discounts/special offers by 3rd parties. In the vehicle market this could manifest itself in “free parking a NCP car parks for all LEV drivers” or “5% fuel discount at all BP service stations”. The City of London is already employing this measure by offering LEV drivers free parking, exemption from the congestion charge and free charging points.
These are all the incentives I can think of off the top of my head but I have no doubt there will be others out there and that new incentives will be developed to carter towards this market in the future. The possibilities, both for private manufacturers and also for governments, are extensive and it will take careful deliberation and trials to determine which ones will be the most effective and efficient.
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