Faulty Logic Regarding 135i Pricing

[lib]

I'm amazed that this is being called a "entry-level" car - before the 1 came along, did you call the 3er an entry level car?

Yes. I've often heard of it called the "baby beemer", "poor man's beemer", "little beemer", "a cute car for dad's to give sorority girls", etc etc.

The 3 series was the entry level BMW. The 1 series has now replaced it as the entry level BMW. BMW can market it in any way they'd like but as long as it says 1xx on the back it'll always be considered "entry level".

The vast majority of the population doesn't track BMW releases and models. Most people know the difference between a 3 series and a 5 series but your average person doesn't know a 328 from a 335. Now, those people that don't know the difference won't be buying the 335 but their opinions will direct the general opinion of the model placement within BMW's line.

[ibeam81]

Originally Posted by MPower

Your assumption, though, that a higher price must maximize profit is incorrect. Generally, the lower BMW prices the 135i, the more revenue they will make at which point the cost of each car becomes critical. The 135i is not using many 'unique' parts, apart from the brakes, so I can not image the production costs being that high.

Not exactly... I only assumed that BMW wants to maximize their profit, how they do so is pretty much conjecture at this point. Basically they can either sell more units at a lower price or fewer units at a higher price to generate the same overall profit.

As I said previously there are a lot of variables that we are not privy to, so it's really impossible to guess at BMW's strategy until they publish pricing. If I had to guess I would predict that volume is a bigger part of the profit equation for the 128i and that it's not as important for the 135i.

I do agree that because the 135i includes a lot of standard features it should be cheaper to produce.

[Garrett]

Originally Posted by SmoothStyle1

In concept, why shouldn't it cost more? As I mentioned above, same engine, comparable interior space, better handling, faster 0-60 times and better gas mileage.

Hey crackhead...

The simple fact it's called a 1 series dictates it won't cost more than it's older brother the 335i. The 3 series still has more luxury, better ride and more bells and whistles, not to mention it is bigger.

The premis for the 1 series is a more grainy, viceral BMW. A drivers car. Fun and cheap!

A fully loaded 135i will probably end up being a tad over $40k





-Garrett

[gbent]

Originally Posted by 128er

I THINK THAT IS THE STUPIDEST THING I HAVE EVER HEARD ON THIS SITE!

[imported_MPower]

Originally Posted by ibeam81

Basically they can either sell more units at a lower price or fewer units at a higher price to generate the same overall profit.

I really dont like that statement and I cant quite put my finger on what is particularly bothering me...

Ah ha! This statement is correct with regards to revenue, not to profit (even then, your statement does not always apply as certain products). Because of diminishing returns and the cost of each vehicle, profit is not going to be approximately the same at either point.

[Taz]

This car competes with the VW GTI and ing general the Golf series in Europe. If they price it at 35k base for the 135i, I am exploring other options for other options for sure. Another Subie or an EVO X would be high on my list or go for a stripped Vette.

At a base of 38k (if true) for the 135i they are trying to price it like a M1 type car and it isn't an M. What would a true "M" version go for, 50K? I'd buy a R32 and slap the HPA turbo kit on it and have something truly amazing for the money.

Let's hope the OP is wrong. It still is a tiny car with a motor that they have already recouped a lot of the R&D costs so they can afford to price the car competitvely. At 33k I am in, at 38k I am going somewhere else for sure. With enough convoluted logic you can justify almost anything. At 38k I can't justify a 135i.

[ibeam81]

Originally Posted by MPower

I really dont like that statement and I cant quite put my finger on what is particularly bothering me...

Ah ha! This statement is correct with regards to revenue, not to profit (even then, your statement does not always apply as certain products). Because of diminishing returns and the cost of each vehicle, profit is not going to be approximately the same at either point.

Wow... I'm getting the feeling that we're on the wrong forum. Is this Econ 101 or 1Addicts?

Please notice that I said "Basically" and that the rest of my previous post mentioned that there are other variables.

Anyway, my main point is that BMW will price the 135i at the point that makes the most sense to them. Does this give us a clue as to the price? Maybe. I can confidently say that it will be less than 40k and more than 30k. So it will be 30 something. Do I win a prize? :wink:

[imported_MPower]

Originally Posted by ibeam81

Wow... I'm getting the feeling that we're on the wrong forum. Is this Econ 101 or 1Addicts?

I'm just trying to be as accurate as we can be at this point. Surely, you wont disagree with being accurate?

[ibeam81]

Originally Posted by MPower

I'm just trying to be as accurate as we can be at this point. Surely, you wont disagree with being accurate?

How accurate can you be in regards to pricing on the 135i? Our estimates are guesswork. I don't doubt that we have some smart people on this forum, but it's still guesswork unless you're part of the BMW executive team that handles pricing.

[kurichan]

Originally Posted by Garrett

Hey crackhead...

Not appropriate.

[kurichan]

Originally Posted by MPower

I really dont like that statement and I cant quite put my finger on what is particularly bothering me...

Ah ha! This statement is correct with regards to revenue, not to profit (even then, your statement does not always apply as certain products). Because of diminishing returns and the cost of each vehicle, profit is not going to be approximately the same at either point.

Not quite.

The variables here are sales price, revenue, units sold, production cost and the derived profit from each unit.

The hypothesis is this:

If they make the price too high and therefore sell fewer units, they will have more revenue per unit. However, since they sell fewer units, there will be less economy of scale, so the production cost of each unit will be higher, sapping profit from the higher revenue.

On the other hand, if by charging a lower price, selling more units and benefitting from the economies of scale through mass production, that should lower the production cost of each unit, providing, on balance, the same amount of profit.

Their challenge is to set the price low enough such that they will capture enough sales to make the car at hit so they can make so many that each is cheaper to make, yielding more profit at the end of the day. Of course, they want to price it just high enough that people will say "what the heck" and pay the BMW premium, but still buy tons of them...

I strongly doubt that BMW would run into diminishing returns on this product because of potential brand equity upside and the fact that volume buying power is huge in the auto industry.

[kurichan]

Originally Posted by ibeam81

How accurate can you be in regards to pricing on the 135i? Our estimates are guesswork. I don't doubt that we have some smart people on this forum, but it's still guesswork unless you're part of the BMW executive team that handles pricing.

I think he meant "realistic" not "accurate.":iono:

[ibeam81]

Originally Posted by kurichan

Not quite.

The variables here are sales price, revenue, units sold, production cost and the derived profit from each unit.

The hypothesis is this:

If they make the price too high and therefore sell fewer units, they will have more revenue per unit. However, since they sell fewer units, there will be less economy of scale, so the production cost of each unit will be higher, sapping profit from the higher revenue.

On the other hand, if by charging a lower price, selling more units and benefitting from the economies of scale through mass production, that should lower the production cost of each unit, providing, on balance, the same amount of profit.

Their challenge is to set the price low enough such that they will capture enough sales to make the car at hit so they can make so many that each is cheaper to make, yielding more profit at the end of the day. Of course, they want to price it just high enough that people will say "what the heck" and pay the BMW premium, but still buy tons of them...

I strongly doubt that BMW would run into diminishing returns on this product because of potential brand equity upside and the fact that volume buying power is huge in the auto industry.

At the end of the day it's all about the money. BMW wants and needs to make a profit on this car. That said, I certainly hope that they can arrive a reasonable price for the 1er.

[imported_MPower]

The point that I was making, and one which still holds true, is that maximum profit will be found at a point in between the high price/low quantity and low price/high quantity points. While the two points might result in the same profit, those points will not represent a maximum profit.

Clearly, we do not know the specific numbers that BMW would use to calculate the price of the 135i. That still does not mean that we cant be as accurate as we can be.

Originally Posted by kurichan

I strongly doubt that BMW would run into diminishing returns on this product because of potential brand equity upside and the fact that volume buying power is huge in the auto industry.

Diminishing returns applies to anything and everything; that is what makes it the law of diminishing returns.

[djminkin]

Theyve already said they are not sending a lot of cars to the US. With only a coupe and convertible being offered, it doesnt seem like they have much motivation to make this car a steal or price it far lower than the 3.

[ibeam81]

Originally Posted by MPower

The point that I was making, and one which still holds true, is that maximum profit will be found at a point in between the high price/low quantity and low price/high quantity points. While the two points might result in the same profit, those points will not represent a maximum profit.

If you want to talk theory then the point of maximum profit can be at any point on the line based upon supply and demand.

Clearly, we do not know the specific numbers that BMW would use to calculate the price of the 135i. That still does not mean that we cant be as accurate as we can be.

Not knowing the actual numbers makes it impossible to determine where the point of maximum profit will occur. It's just a guess by this forum and although BMW has access to better numbers their price is just a more educated guess (although it's the only one that counts). And unless you have access to parallel universes good luck proving otherwise.

Diminishing returns applies to anything and everything; that is what makes it the law of diminishing returns.

You're joking. Right?

[imported_MPower]

Originally Posted by ibeam81

If you want to talk theory then the point of maximum profit can be at any point on the line based upon supply and demand.

I apologize, you are correct. I should have said that maximum revenue will be found between the two points.

Originally Posted by ibeam81

Not knowing the actual numbers makes it impossible to determine where the point of maximum profit will occur. It's just a guess by this forum and although BMW has access to better numbers their price is just a more educated guess (although it's the only one that counts). And unless you have access to parallel universes good luck proving otherwise.

Again, correct. My point throughout was that we should try and be as truthful about general theory as we can. Just because we dont know the exact numbers does mean we can truthfully say anything we want.

Originally Posted by ibeam81

You're joking. Right?

With regards to any sort of business, the law of diminishing returns applies. If you have found a business where this does not occur, you have become the first to disprove the law. Naturally, for BMW or any business, the goal is to avoid these diminishing returns and that is easier for some than others.

[Mr. E]

C&D 2008 auto guide that just came out had the est price of the 128i at $26k and the 135i at $32k. I think thats pretty darn close. No way people are going to pay $30k for a 128 or close to $40k for a 135.

[Garrett]

Originally Posted by Mr. E

C&D 2008 auto guide that just came out had the est price of the 128i at $26k and the 135i at $32k. I think thats pretty darn close. No way people are going to pay $30k for a 128 or close to $40k for a 135.

lol...

[ibeam81]

Originally Posted by MPower

With regards to any sort of business, the law of diminishing returns applies. If you have found a business where this does not occur, you have become the first to disprove the law. Naturally, for BMW or any business, the goal is to avoid these diminishing returns and that is easier for some than others.

It's an economic law or concept, so of course it applies to businesses although in some cases it has little to no impact such as when a business is in a steady state.

My apologies, but when you said that it applied to everything I interpreted that to mean that it was a universal law and that's clearly not it's intent.

Hey, what was the point of this thread anyway? Weren't we supposed to be blessed to give up our first born (or something like that) for the privilege of having a 135i? Sorry, but I'm not drinking that kool-aid. :drinking:

[Mr. E]

Originally Posted by Garrett

lol...

Whats so funny?

[ibeam81]

Originally Posted by Mr. E

C&D 2008 auto guide that just came out had the est price of the 128i at $26k and the 135i at $32k. I think thats pretty darn close. No way people are going to pay $30k for a 128 or close to $40k for a 135.

Will BMW please just release the US prices and stop the insanity.