Selling Cars Like Radiohead

I downloaded In Rainbows yesterday, and paid 5 pounds. I forgot how much the dollar had declined, so I thought I was paying around $7 or $8, instead of $10. Radiohead is one of my favorite bands, and I would have bought the album regardless, but it made me wonder how people value buying decisions.

I’ve read several behavioral economic studies that shows sellers of an item value it more than the potential buyer, no big surprise. Just for fun though, if a dealer asked a customer to suggest a “profit” amount on a car buying decision, I wonder what the customer might say. Each person may pay the exact amount they are comfortable paying.

While I think consumers tend to undervalue provided by dealers, as well as underestimate the costs, it may be worthwhile to try once.

4 responses to “Selling Cars Like Radiohead

  1. This is actually a classic car dealership “closing statement”, one usually reserved for situations where we are not sure whether or not someone is a “shopper” or a “buyer”. Actual dealer cost is provided to the customer and request is made to “let me know what you think is fair for me to make on this deal”. While I said that this is one of the oldest closing lines notice that I did not say it is one of the best. Roughly 80% of the time the customer will not provide an answer, or say $0.00. In the 20% of the time where the customer does answer, we are then certain that we are dealing with a buyer not a shopper, and in just about every instance that I can recall of having used this technique, the customer has answered with a profit margin that is higher than what would have been my true “bottom line” acceptable deal. Food for thought….. I would love to see the statistics on sale prices, and actual revenue on Radiohead’s sales vs. forecast if they had marketed their work traditionally. Kind of a different business though, COGS as a very high percentage of transaction price with a car, vs. COGS as a very low percentage of transaction price with a music download.

  2. I think this model for cars would be a little different. In theory, it sounds like a good idea. Mbrair is right in saying that it’s a commonly used closing technique – I would frequently offer to show my customer the ‘factory invoice’ of the car I was trying to sell. But as car shoppers have become better informed with tools like Edmunds’ TMV, they’ve found that the invoice price isn’t neccessarily what the dealer paid for the car, because it excludes stuff like holdback, and of course the dealer’s back-end profit. As a result, customers are becoming more and more distrusting and see ‘profit plus’ as just another shady sales tactic.

    Carmax is a notable exception, though. It seems that their no-haggle policy has some sort of halo effect that effectively gives them a license to charge much, much more than other dealers – which just goes to show that people find a lot of value in a pleasant buying experience.

    And for the record, it would depend on the car and manufacturer incentives if it was new, but I would OK with paying invoice + 500 on a new car, and handle my financing on my own.

  3. Mbriar,

    That’s interesting, I hadn’t considered the difference in cost of goods between Radiohead and cars.

    I did an internship at a car dealership to improve sales skills and every once in awhile I would hear the owner say, “I have ‘x’ in the car, how much will you pay?”. I always felt like he had failed to build value in the car and dealership if he was closing in that way.

    Radiohead has unique value as they are the only ones capable of selling that product. I’ve seen some polls that put the average price paid for the CD around $5, but that was the first day of the sale. I would be willing to bet the price paid goes down over time.

  4. How do you think an incentives model would work for a customer? Something like where the dealer investment is revealed and the customer pays a fair price, but by having his vehicle serviced at the dealership he essentially gets rebates for the service which over time makes it so he ends up paying near-invoice for the automobile. The vehicle will require a certain amount of service regardless and if the customer has the incentive to get it serviced with the dealership from which the vehicle was purchased, then the dealer over time ends up making more profit on the sale, at no loss of value to the customer. This would build value and customer loyalty.

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