Modeling the impact of incentives on vehicle sales volume

In the last decade, automotive companies have developed various aggressive marketing campaigns and have used incentives such as cash rebate, low financing rates to boost vehicle sales. Although the impact of incentives is often immediate, heavy incentives can cut into profit margins and sometimes create huge losses. It is therefore desirable to have a quantitative model that can measure the impact of incentives on actual sales volume. Furthermore, the model can be used to calculate the elasticity of the sales volume with respect to various incentives. In this paper, we will discuss various incentives commonly used in the automotive marketplace and evaluate their effects on sales volume. A multivariate regression model was developed which employed incentives and other economic variables such as foreign exchange rate and inventory level as input variables and calculated vehicle sales volume as the output variable. Historical sales and incentives data were used to estimate model parameters. Based on the analysis of a popular vehicle segment, the model prediction on vehicle sales volume agreed consistently with actual sales data across different vehicle brands. The model thus provides a quantitative tool for marketing managers to formulate effective marketing campaign strategies.