The Peril of Sameness or How to Buy a New Car

Have you ever bought a brand new car from a dealership?  There are many strategies on how to make the best deal.  Here was mine.  Then we’ll look at why it works and what you can learn to help your business.

After shopping around and test driving a few cars I finally decided on a Lexus.  Let the games begin.

Step 1, test drive the car.  Build a relationship with the salesman and let him know you are interested but you have to think about it.  Get his phone number.

Step 2, determine how much you want to pay.  What do you think is fair?  I determined at the time they should sell around their invoice price which was 10% off the MSRP. (Dealerships get back end rebates on cars sold so invoice seemed fair to me.)

Step 3, call your salesman and make him an offer.  “I’ll buy the car for $28,435.  I don’t want to negotiate.  Just tell me if you want the deal or not.”  Almost certainly he will say, “I need to take this to my manager, can I call you back?”  Say, “yes”.

Step 4, when he calls back he will say something like “That’s a really low price.  My manager says we can do it for an additional $500.”  He will say this no matter what price you give him.  It’s his job to get more from you.  Here is the most important part of this process.  Say something like, “I understand.  If none of the other local dealerships accept this offer I’m happy to pay $500 more with you.”

In my case, the salesman said “OK, would you give me the chance to match their price if they do?”  You must say, “no.”  If you agree they don’t have an incentive to give you your price.  The salesman asked me if I could wait 15 minutes before calling other dealers.  He called back and accepted my offer.

If the price you have chosen is acceptable, they will make the deal.

Why does this work so well?  Because there is very little differentiation between the dealerships.  I can buy from a Lexus dealer 5 miles from my house or 20 miles from my house or 25 miles from my house.  The closest one still honors the warranty and services my car.  Every Lexus dealership is essentially the same.  The only difference is how far I have to drive to pick up the car.

The Lexus dealerships have no differentiation so they have no pricing power.  They are at the whim of their buyers and competitors.

Here’s a fun fact.  It is more profitable for dealers to sell used cars than new cars.  Why?  Because you can buy the exact same new car at another dealer, but you can never find the exact same used car anywhere else.  One used car is different from every other used car.  Hence it is much more difficult to compare prices.

Think about your business.  How are you different from your competition?  Why would someone pay more to shop with you or buy your product?  If you are identical to your competitor you have very little control over how much you can charge.

Today’s lesson: constantly think about how to add value in your business.  Be different in ways your customers appreciate.  Don’t be the same.  Oh, and when you buy a new car, take advantage of the sameness of the dealerships.

 

Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author

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