Using the Car Salesman Pricing Strategy in Your Startup

Using the Car Salesman Pricing Strategy in Your Startup

Getting customers to open their wallets and pay for products requires a lot of work. If you think otherwise, you will be making a mistake. In short, a sign that you do not really care means that you will lose the customers pretty fast. Consumers are smart. Daily, they have to deal with opportunity costs in a world where they have limited resources to meet their largely unlimited needs.

There are many ways of getting customers to open their wallets and buy from you. Over the years, I have noticed one technique that works. I call it the Car Salesman Pricing Strategy. Most car salespeople in U.S. do not give price as a whole amount when you visit dealers for car shopping. Rather, they give you the price based on your estimated monthly payment installment amount, for cars that will be financed. They do not want you to be thinking of committing to a huge amount with all the associated burdens of paying back. The monthly payment is very manageable, in your brain.

Let us say you want to buy a car that costs $24,000 to be financed at 0% for 6 years. A good salesman will give you the price, usually in a written pad, as $333 per month, instead of $24,000. That $333 is more manageable than $24,000 even though the price is largely the same at 0% financing. That you can get 0% means that you have a good credit and the system is rewarding you for that. The product actually costs lesser when you factor inflation over time. But the reality is that you have a product of $333 and not necessarily $24,000 as you will be dealing with paying only $333 every month. You think of your paycheck  to see if it can accommodate additional $333 monthly.

This Car Salesman Pricing Strategy is not new. It has been part of the retail industry especially where the companies offer financing. You want to offer the pricing in ways that customers get to sign the papers as quickly as possible. Apple is deploying it as it works to obfuscate the very fact that its recent iPhone smartphones are expensive in excess of $1,000. Simply, they offer payment plans, focusing on the monthly servicing over the complete number. Samsung does the same.

The phone makers are going to great lengths to elide this psychological price barrier by reframing just how much their devices will cost you. Samsung lists its cheapest Note 8 price at $929.99, but right below it on the company website is the installment price, $38.75 a month for two years. (That zero percent interest rate represents a significant subsidy.) Apple charges $969 for the most expensive iPhone currently on store shelves, the 7 Plus with 256 gigabytes of storage, and over the past year has been heavily promoting its $40-a-month plan. Samsung is also emphasizing ways to defray the cost of a new model. Customers trading in their old phones can now get as much as $300 toward a Note 8 or Galaxy S8, up from $200 before the Note 8 was announced….

A $1,000 iPhone would likely cost customers less than $50 a month over two years. If you’ve absolutely got to have the latest hardware, that’s a lot easier than telling your friends you paid $1,000 for a phone

Apple is dealing with some issues. It is upgrading its phone in the age where innovation means more features and higher performance. According to Quartz, the “ $1,000 special anniversary smartphone, called the iPhone Edition or iPhone X, featuring an edge-to-edge screen, wireless charging, no home button, and a powerful set of dual cameras” will be unveiled today and Apple plans to make sure people do not see the real price they will be paying. They will use the monthly financing strategy.

Besides the monthly payment plan strategy, there are other ways companies use to create this psychological illusion in the minds of customers.

  • Sign up customers to supporting subscriptions or products: Common examples include gym or club memberships for buying some items in your business. Someone buys a car and you pay for the gym membership. The customer will remember that side attraction as though it matters that much.
  • Free optional accessories with the main products: Though the product may not be that valuable, it creates an illusion that you got a deal. Time Magazine has one terrible watch that it gives to new subscribers of its magazine as a time. That cheap watch seems like a big deal but it was nothing of value. But signing up and getting a watch could make the brain think like you have got a great deal
  • Offer “buy one get one” free to customers: You do this when the price of one is high enough to cover the two items. That means, customers are paying for the two items, even though you are making it seem like they are getting a good deal by paying for one item and you giving away another. Fast food companies do this a lot.
  • Reward system: You can give restaurant coupons to customers that sign up. That could be the edge over competitors. Possibly, the idea of going to that nice restaurant can move the customer to buy from you.
  • Through other company products: The cruise industry is good with this technique. They make you pay for cruise but right inside the ship, you could be paying $9 for a bottle of water. By the time you are done after 2 weeks, they have made so much from you to cover the subsidized cruise ticket.

All Together

Irrespective of what you sell, you need to have a strategy to make customers think they are getting value when they buy your products. Customers like to win and you must deliver that construct to them, always. The Car Salesman Pricing Strategy works anywhere and in any industry, and you need to deliver one in your company.

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