When people make decisions, they generally adjust their outlook based upon a set perception, or anchor. Once a person has established an anchor to compare related circumstances against, that anchor tends to remain set in the individual’s mind. This process of bias is called anchoring, and the retail sales industry uses it to great advantage when dealing with consumers. While there is no single tactic to resist the mind’s natural inclination toward anchoring, it pays to know how auto dealers use it to make high prices seem palatable. Knowing may help consumers to step back and look at prices with greater clarity.
Anchoring at the auto lot: A demonstration
A prospective auto buyer who has never heard of anchoring – call her Marcy – walks onto a used car lot. Her old Toyota is holding up, but Marcy wants something new and more environmentally friendly. A sharp hybrid catches her eye. She checks it out from front to back, sits in it and wonders if she may have found her dream car. But when she looks at the sticker price, the shock sets in. The used hybrid costs $24,998; she simply can’t afford it.
However, a smiling used car salesman makes his way over. He asks her if she likes the car, and while Marcy does, she exclaims dejectedly that it’s out of her price range. She loves how she feels when she sits in the hybrid, but can’t get around that ugly price. What the salesman says next catches Marcy pleasantly by surprise.
‘Don’t worry about that. It’s on sale right now for $14,000!’
That’s all that Marcy needs. Without further thought, she hits the finance office, applies for an auto loan and is eventually behind the wheel of her beloved new hybrid. Unfortunately, she has fallen prey to one of the oldest retail con jobs in the book, writes You Are Not So Smart. Marcy didn’t know exactly what the hybrid was worth before falling in love; the car salesman used anchoring to reel her into the sales office. The markdown he offered seemed tremendous to Marcy, but the sad reality is that the actual value of the car was $9,997. The markup is what was tremendous. Marcy needed an anchor to help her make her purchase decision, and the salesman obliged. It just wasn’t the best anchor for Marcy; it was designed to save the car dealer’s budget, not hers.
Haggle, don’t buy the vapor
Typically, the price we’re willing to pay for an item has very little to do with the elements that would actually contribute toward the specific value of a purchase. Focusing on the manufacturer’s suggested retail price – or in the above scenario, the used car dealer’s apparent markdown – creates an unrealistic expectation of cost. It anchors the mind to an inflated price that is far above what the dealer paid for it, let alone its true worth.
When you allow a dealer to play psychological games with you, you’re buying into a notion as solid as vapor. Haggling pulls you away from the concept of anchoring and can make less experienced auto dealers squirm. You have the ability to control your decisions, rather than relying upon anchors. Come prepared with information regarding the car you intend to purchase, but always try to haggle for a lower price. More experienced car dealers will always expect it.
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