Robert Smith, the owner of a few car dealerships, had an amazing answer on Quora to the question, “How much can a person usually negotiate off of a brand new car?”
He doesn’t directly answer the question, but he does describe how to buy a new car. His answer was basically to say to the dealer, “I’m looking at several new cars. Another dealership offered me $100 over invoice, but I like your car better. Will you match the deal?” Of course, ask to see the invoice. (To be fair to Robert he goes into more detail, but this is enough for our pricing lesson.)
Why does this work? Because car dealerships are competitive, but mostly because you are making a which one decision. You are deciding which car to buy or even which dealership to go to. And, you are letting the car dealer know that you have other alternatives that are almost as good as theirs.
Now let’s assume we own a new car dealership. We are selling a product that has very close competition. Buyers come into our dealership saying they will do the deal at $100 over invoice, so how can we win that business at a higher price? The answer, differentiation! We must create offerings that people value. Here are a few that I just brainstormed.
1. When you buy from us, you get moved to the front of the queue when you come in for service.
2. When you buy from us you get a 10 percent discount on all service calls here for your vehicle.
3. When you buy from us we will wash your car free at every service call.
If we offered something like this, could we get $200 over invoice? Maybe. We probably won’t get list price. We have competition and they drive our prices down. However, our differentiation helps us drive our prices back up.
How are you differentiating your product or service?