ENGLISH ABSTRACT: The aim of this research report is to identify the impact of the changes in retail pricing driving forces since the introduction of the Motor Industry Development Programme (MIDP) in 1995, identify the shortcomings and develop an improved retail pricing principle model for Volkswagen of South Africa (VWSA), taking cognisance of the changing competitor environment. The anticipated outcome will be to improve WVSA'scompetitive position in the South African automotive industry (SAAI) passenger vehicle market by securing market share and optimising profitability.Prior to 1995, the SAAI passenger vehicle market was highly protected and competition was low. Cost increases affected all Original equipment manufacturers (OEMs) to the same extent and therefore retail price increases were similar. However, the introduction of the MIDP in 1995, resulted in a reduction of the protection levels, inviting new global competition. It furthermore resulted in structural changes which affected the status quo of the competitor framework and caused a relative change in the cost base between competitors. The structural changes lead to new variablesaffecting costs and ultimately retail prices to different extents for the various competitors. This necessitated the understanding of, not only VWSA's own organisation's cost drivers and behaviour, but also that of key competitors in order to develop optimal retail pricing principles. Retail pricing driving forces are redefined in section 3.4 and divided into the "Role of the economy" (section 3.4.3) and the "Role of the government" (section 3.4.4). As a consequence of the difference in cost basis of thevarious competitors, this left the SAAr passenger vehicle market uncertain as to retail pricing principles to be followed.The author makes use of primary data collected from interviews and secondary data collected from content analysis, literature reviews and various SAAI passenger vehicle information centres to achieve the aim of this research report. Retail pricing principles and influences based on international marketing are explored and evaluated for the SAAI passenger vehicle market in Chapter 4. Retail pricing principles consist of two elements, namely the determination of a retail price for a new product and the evaluation of inflationary retail price increases for existing products. The former isconsidered well applied by the SAAI passenger vehicle market. The latter wasidentified as the main weakness in the SAAr passenger vehicle market and receives attention in Chapter 6 and Chapter 7.The evaluation of the cost position of WlSA for the period 2003 to 2007 indicates that WlSA is at a cost disadvantage (including fixed cost) of 12 percent (of retail pricing)against Toyota SA and six percent against Chinese importers, taking into account the total impact of exchange rate and inflation. Therefore, WISA will be under the most pressure to increase retail prices. This is the case before the effect of a natural currency hedge, MIDP duty differentials and imported content inflation is considered.As a result of price elasticity of demand (PED), the pressure to increase retail prices more, relative to key competition, could have a negative impact on WISA's market share and consequently its profitability and long-term sustainability. Furthermore, should the macroeconomic situation not improve, the cost focussed competitor strategies of Toyota SA and Chinese importers might be more desirable to the end consumer from an affordability perspective. The main strategic focus areas to support WISA's premium pricing strategy are the improvement of:• Consumer centricity satisfaction index for sales and service.• Quality standards.• Brand strength.• Supplier cost competitiveness.• Productivity.A new retail pricing principle model, TRIPP (consisting of three steps), is developed in Chapter 6 to address the changes in the retail pricing driving forces and cost structures, which caused uncertainty with reference to retail pricing in the SAAI passenger vehicle market. This model determines the required percentage retail price increase in order to retain a net margin percentage for WISA relative to key competitors. The aim is to provide VWSA with intelligent market information to assist in the optimisation of retailprice increase decisions. By applying TRIPP (STEP ONE and STEP TWO), it has been discovered that, as at the end of quarter two 2008, Toyota SA has experienced the least pressure (6.1 percent of retail pricing), whereas WISA experienced a little more (7.5 percent of retail pricing) and Chinese importers have experienced far more pressure (17.7 percent of retail pricing) than either WISA or Toyota SA to increase retail prices (after taking into account the effect of natural currency hedge and MIDP). Theoreticallyit means that it should be safe for VWSA to increase retail prices by a minimum of 6.1 in comparison to Toyota SA (Figure 6.10), resulting in VWSA's profitability deteriorating by 1.4 percent of retail pricing. However one should not price without considering the following:• Current market conditions with consumers having low levels of disposable income.• The impact of the principle of price elasticity.• Exchange rate volatility, keeping in mind that once the SAAI passenger vehicle market has moved pricing, retail prices will not reduce for reasons previously discussed. A concept, the tipping point, is relevant.It is extremely important to take cognisance of the tipping point concept and consider it wisely when making retail price increase decisions. If not, a price war with negative implications on profitability may follow. It will impact on long-term investment strategies taking longer to render a return. This situation will not benefit any competitor in the long run.Other elements that should be monitored and considered before making a final decision whether or not to increase retail prices or on the extent of increases are discussed in section 6.3.5 and also listed in the previous section. These are different for each OEM and importer and it is therefore not possible to do a competitive analysis without inside information, but should not be ignored when considering retail price increases.Having identified the shortcomings in VWSA's current retail pricing principles, with reference to price increases, it is proposed that the current retail pricing model used by VWSA be replaced by the TRIPP model (which was implemented in September 2008)in order to improve the intelligence of decision-making with reference to retail price increases and optimise profitability and market share. In order to ensure meaningful results from the TRIPP model, the following key points are of importance:• Know the SAAI market drivers.• Know your cost drivers, also relative to key competitors.• Understand the impact of certain "other" elements as listed under TRIPP: STEP THREE.• Know and focus on key strategic issues influencing your product in order to allow premium pricing.The above mentioned points should be reviewed regularly, monitored by dedicated project teams and continuous improvement be applied to the TRIPP model."It is all about getting to the future first." (Roberts, 2008, [Online]) and knowledge is power. Volkswagen of South Africa should therefore ensure it gets there before key competitors do in order to ensure sustainability in the SAAI
