Monday, September 11, 2017

Tesla "Crimping?"

Alex Tabarrok over at Marginal Revolution thinks Tesla may have unwittingly committed a marketing faux pas. As Hurricane Irma bears down, they expedited an over-the-update to the cars to extended battery life.
Tesla owners in Florida may be grateful for this mileage boost as they escape the ravages of Irma but I suspect that some of them will be upset when they have more time to reflect. How could Tesla increase the mileage at the flick of a switch? The answer is that owners of the Tesla 60kWh version of its Model S and Model X actually have the same battery as the 75kWh vehicles but the battery has been purposely limited or “damaged” to provide only 60KWh of mileage. But why would Tesla damage its own vehicles?

The idea of offering both premium and discount versions is common, as is purposely 'damaging' the product one so as to make the discount version perform more poorly than the premium version (i.e. "Crimping").

In this case though, there may have been no deception. There is a report that owners may have opted not to pay for the better battery life.

2 comments:

  1. I found an article that offered an explanation of how this was possible. "The move is possible because some lower-power models, which were removed from Tesla’s lineup earlier this year, actually shipped with 75kwh batteries that were software-downgraded to 60kwh. According to TechCrunch, temporarily unlocking that extra capacity should amount to an extra 30 miles of driving – not a ton, but potentially enough to help get a driver to safety."
    The company did this at the request of a car owner that lives in Florida and their evacuation zone was 30 miles away. This shows the company is very responsive to customer needs and took it a huge step further by providing the update to all Florida owners. Though it is offered for a specific period of time it is still a $3,000 upgrade. I think it is great they did this to help people get to safety. I guess by changing the capacity of their batteries maybe they save in manufacturing. They can reduce to the 80% of the battery capacity by a software update and save. It may streamline their process better and not necessarily be damaging their own goods. It could be helpful overall to only manufacture and know about one kind of battery.
    Morris, David Z. September 10, 2017. "How Tesla is Helping Florida Drivers Escape Hurricane Irma." Derived from: http://fortune.com/2017/09/10/telsa-hurricane-irma-battery-range-capacity-model-s-x/ Accessed on 9/18/2017

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  2. After reading the article relating to ‘Tesla’s Damaged Goods Problem’ it really made me sit back and think. I had never wondered why cars that were so similar were priced so differently. I mainly looked at the features and visible aspects such as leather interior vs. cloth, and whether or not the car has heated seats or not. I had never considered the idea or thought of “crimping”. After reading the article ‘Tesla’s Damaged Goods Problem’ by Alex Tabarrok I looked at the car industry in a whole new perspective. Tabarrok says, “Tesla knows that some of its customers are willing to pay more for a Tesla than others. But Tesla can’t just ask its customers their willingness to pay and price accordingly. High willing-to-pay customers would simply lie to get a lower price. Thus, Tesla must find some characteristic of buyers that is correlated with high willingness-to-pay and charge more to customers with that characteristic. Airlines, for example, price more for the same seat if you book at the last minute on the theory that last minute buyers are probably business-people with high willingness-to-pay as opposed to vacationers who have more options and a lower willingness-to-pay. Tesla uses a slightly different strategy; it offers two versions of the same good, the low and high mileage versions, and it prices the high-mileage version considerably higher on the theory that buyers willing to pay for more mileage are also more likely to be high willingness-to-pay buyers in general. Thus, the high-mileage group pay a higher price-to-cost margin than the low-mileage group” (Tabarrok, 2017). The airline analogy helped me better understand the why and how behind the reason Tesla “damages” their car and how they market their products to their consumer. Damaging the car in a sense allows Tesla to sell its same product at a lower discounted price. The same car that they do not damage has the same base price but Tesla is making much more on each vehicle simply by not crimping or damaging the vehicle and offering the higher mileage both are technically compatible for.
    Now that I better understand how crimping is managed, I can see how Tesla can increase mileage in the flick of a switch. I feel as if Tesla did the right thing by increasing mileage for the vehicle owners trying to escape Hurricane Irma. Understanding that vehicle owners had the choice of mileage options and battery life at the time of purchase makes me realize Tesla did the right thing and this was not a faux. The choice Tesla made to increase mileage on cars they could during a time of need like this, shows the consumer the positive caring business culture Tesla portrays. I feel as if this act will only give Tesla a competitive advantage over others when considering a new car in the automobile industry.
    Reference:
    Tabarrok, A. (2017). Tesla’s Damaged Goods Problem. Retrieved from: http://marginalrevolution.com/marginalrevolution/2017/09/teslas-damaged-goods-problem.html#comment-159713944. October 6, 2017.

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