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Car prices – a minefield of uncertainty

July 14, 2010
Image of Rover 75 Coupe

Car prices - without price reference points, customers cease focusing on brand and instead concentrate on getting the best deal

In the price/value equation, price (the buyer’s economic sacrifice) is rewarded by the financial worth (the value) of the product. For pricing to be effective, the value must appear to be more than the price.

Yet car pricing is one of those areas which causes great nervousness. It’s a common practice of dealers to put one price on their website and tell you that this is a “web price” when you enter the dealership. Then of course, customers get sold the “extras” they never knew they wanted. So the consumer, unless he/she is savvy, always ends up paying more than they thought they would.

But this isn’t all. A casual look at the car advertisements in the Sunday supplements reveals something surprising: many cars aren’t priced. That’s right – it’s as if the car companies are afraid of quoting list price. This creates a value perception issue for customers – an obfuscation of reference.

This could imply that they are deliberately trying to sell the “value” of their car without giving a price reference point – telling the price-buying, bargain-hunting punter to “bring it on”. I doubt it’s that sophisticated – I suspect they know that customers now have huge “shopping around” power and are hoping that it will be the extras which make the profit in the sale room.

However, take a look at the ads for the expensive cars and price is more evident. Price implies exclusivity – you must be rich to buy one of these. These companies are exploiting issues such as exclusivity, status and quality perception. Quite right too – if the quality is evident. These companies use price as a positioning tool: Price=Quality.

Taking luxury cars out of the equation, however, the removal of price from advertisements creates a problem of perception. Without a price, a car becomes an “object”, a commodity. These “high street” car makers have surrendered their price positioning and are hoping for the best – that customers will hopefully be  thinking they will be getting “a bargain”; the car’s particular “brand” is now based only on emotional rather than emotion + quality-based perceptions. Business at any price.

This is an interesting price development. The price value equation doesn’t come into play until the moment of purchase rather than the build up to purchase. What is the customer actually buying? Why are they buying it? Is it actually worth the money? How do they know if there are no reference points?

Such an environment is a recipe for disaster. It creates our old friend “Post Purchase Cognitive Dissonance” – where consumers suddenly grow cold and sweaty following that mad rush of blood to the head in the dealer room. When customers feel ill after initially being excited, brand loyalty is under huge pressure.

In such cases, customers of high street brand cars today focus only on getting the lowest price and have only one fall back to justify their purchase to themselves and their friends – that they managed to get “a bargain”.

But “getting a bargain” means customers only focus on price – value, brand value goes out of the window. Indeed, in the world of car buying, there’s no such thing as a bargain. In my experience, the only bargain in buying a car is when you are given one for nothing. A strategy focused on giving customers a sense of getting the “best deal” devalues the brand and, strangely, distresses the customer. This is a doubly-flawed business position.

It’s time to bring reference-point pricing back into car-buying.

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