Wrong about the cheaper car cannot beat BMW. Acura TL was the best selling entry level luxury sport sedan for 2005 and 2006 in USA, beating the BMW 3-series sedan. Imagine if Acura had the similar lineup like BMW, it would have beaten the BMW easily.
And price based costing strategy is better than the cost based pricing. Because if you charge more than what your product's perception value is worth, nobody will pay for it. Previous generation Cadillac CTS came loaded for just above 41K, which worked fine as it was a new car and people needed to get warmed to it. The current one comes loaded for about higher 40's. That is certainly a development. Give another generation and it may sneak into the Beemer 5er territory. If Caddy would have charged the customers price into the league of the 5er for the current generation CTS, that would have been a huge jump compared to the older generation and people would balk at it. Look at lexus, they started well under the radar of the Germans with the IS, now they are sitting besides them in price. You cannot jump right off with the BTS in regards to pricing, because if you do so, chances are you will slaughter the CTS, which will be just a bit expensive, unless your market estimate is spot on for both the cars to comingle, which is never the case.
The current CTS starts at 33K, you cannot start charging the BTS 34K to compete with the 3er, that will be ridiculous. BTS should be charged a little under 30K, then push the price envelope higher with the next generation CTS and so forth.
And besides that you should not be chasing BMW, like Balthy said. What if the rags start humping the Infiniti? Now the target has moved, so Caddy should start going behind them?
Caddy should be a class of its own, let the people compare with whatever they want to, just like they are doing with the current CTS. The current CTS sits squat between the 3 and 5, so let others compare wherever they want the car to be in, so as long the car is competitive, sporty, and has a good value, people will buy it. Oudoing a BMW is being ridiculous.