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Product Gems: Car Sales 101: Anchoring | Product Gems

Very few buyers expect to pay the full advertised price for a new car. Walking into the showroom you’re confident of negotiating a good deal, remembering that one time you haggled for some souvenirs in a bazaar on holiday.

You see the price sticker in the car window. Of course, you’re not going to pay that. “Who pays the full sticker price?”, you wonder. In advance, you decide a strategy of low-balling the salesperson, that is to suggest a seemingly unreasonable first offer for the car. Perhaps you try for 30% lower than the sticker price. Maybe 40% if you’re feeling brave. In either case, your bid is still anchored to the sticker price.

As negotiations drag on, and knowing you’re set on buying the car, you and the salesperson agree on a price that’s 15% lower than the advertised value (and they’ll throw in an air-freshener too). You later tell friends of the skill involved to obtain such a good deal and offer them some future advice on negotiating.

What you might not know is the sale was also a good deal for the salesperson, and the showroom, and the manufacturer, who all made money off selling you the car. Smart sales people, and their companies, will purposely set the advertised price of a car to allow for a reasonable profit after any negotiations while still satisfying the customer who believes they’ve walked away a good deal.

The advertised price, the anchor, sets the standard for any negotiations. Buyers focus will be fixed on the anchor during negotiations to baseline how well they are doing. As a result they won’t stray too far from it. Even if they use the low-ball technique described above, they can be quickly rebuffed by the salesperson using the anchor to point out how absurd they’re being. Prices lower than the anchor seem more reasonable.

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Product Gems: Car Sales 101: Anchoring.