Automotive: price elasticity of demand in a quickly changing industry

In 2022, h2\ set out to answer this question for a global automotive manufacture. Higher automobile prices, driven by a combination of impending regulation, higher fuel costs, higher raw material costs, increased labour and production costs, as well as supply chain delays and disruptions are forcing customers to think hard about their future mobility solution. Our client needed to understand the degree of price elasticity of demand for the automotive category and for specific vehicle types and brands.

Rendering matters more complex, several markets across the world are experiencing a strong acceleration in the EV (Electric Vehicle) offer, thanks in large part to more affordable EV options, optimized infrastructure, and state support. While many automotive manufacturers have embraced this transition wholeheartedly and have publicly set ambitious goals to support this transition, the nuances underpinning consumer demand for EVs remained murky. Within this context, h2\ undertook extensive qualitative and quantitative research in a key European market amongst a large sample of drivers in order to unpack the trade-offs made when considering an EV and how price fluctuations may impact demand for EVs, for ICEs (Internal Combustion Engines) and for the entire automotive category. The research, based on a conjoint analysis approach, allowed us to quantify key value drivers, calculate price elasticities of demand, and simulate the success of new launches. This allowed our client to optimize their overall marketing strategy, including their product development plan and pricing policies.

‍