When individuals make decisions, they generally adjust their outlook depending upon a set perception, or anchor. Once an anchor has been set for future comparisons, that anchor is hard to remove from the mind. This process of bias is called anchoring, and also the retail sales industry uses it to good 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 for making high prices seem palatable. Foreknowledge of this natural tendency helps, particularly in places like the used auto lot.
Anchoring to high vehicle prices
A prospective auto buyer who has never heard of anchoring – call her Marcy – walks onto a used automobile lot. Her old Toyota is holding up, but Marcy wants something new and more environmentally friendly. After a few minutes of searching, she finds a lovely hybrid car. Marcy kicks the tires, gives it a good look and begins to fall for this automobile. But the sticker price shakes her. That used hybrid automobile costs a whopping $ 24,998.
Enter used automobile salesman with reassuring grin. He asks Marcy what she thinks, and our heroine’s words – “It’s out of my price range” – plummet like lead balloons. 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.
’No way! For the next few hours, it is on sale for $ 14,000!’
That’s all that Marcy needs. Without further thought, she hits the finance office, applies for an car loan and is eventually behind the wheel of her beloved new hybrid. As outlined by You Are not So Smart, however, Marcy has taken the bait for an anchoring con. As Marcy didn’t know what the car was really worth, the salesman could effortlessly use anchoring to play with her expectations. The markdown he offered seemed tremendous to Marcy, but the sad reality is the actual value of the car was $ 9,997. The markup is what was tremendous. That anchor was a killer, and the salesman didn’t have to do much. The dealer made out like a bandit, thanks to anchoring.
Haggle your way to a better price
The price we are willing to give up is rarely concrete. 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. Dealers use anchoring to trap unsuspecting buyers.
Allow a dealer that kind of room to play games and your money will turn to vapor. That’s why it is advisable to haggle, particularly against neophyte dealers. If you control the game, anchoring could have less pull on your attention. Be prepared with research before you buy a car and haggle for a lower price at every opportunity. A veteran dealer will notice that you’ve done your homework and respect that fact.
Additional reading
Wikipedia
en.wikipedia.org/wiki/Anchoring
You Are not So Smart
youarenotsosmart.com/2010/07/27/anchoring-effect/
