ONE PRICE SELLING OR WHEEL AND DEAL?

Newsletter

By Carl Davidson of Sales & Management Solutions

One of the questions each of us has to ask ourselves as we approach the new millenium, is - Will your company go with a one price policy or will you stay with the traditional wheel and deal system? Most articles you see today are in favor of one price systems but before you make your final decision, here are some factors you might consider.

One price sounds like a great policy. It sounds more forthright and it sounds like something you can be proud of. But like many utopian concepts such as "all men should work hard and share their wealth" it may lack a little in the execution department. After all, the basic principles of communism and socialism sound good on paper, but the good old capitalist system beats them every time in economic performance and in citizen satisfaction. To prove this, we need only look at North and South Korea or East and West Germany. The free enterprise country has flourished while the more controlled country is an economic disaster.

The first question to consider is, "Do people want a single price?" History and a look at other industries may show they may not. Look at our sister industry - site built homes. That industry is still dominated by the give and take of offer and counter offer. If single pricing worked, realtors would simply post a price on the for-sale sign and wait for a deal. Look also at other large transactions such as art auctions. Why are expensive works of art sold at auction instead of simply placed in a showroom with a big red price tag on it? Why, throughout history, has haggling remained an enjoyable pastime in almost all cultures? Where is the history of one price trading throughout the history of mankind? History seems to show that in large ticket transactions, human nature wants to haggle.

Let's take an auction for example. A few months ago, my wife and I attended a livestock auction just for fun. We didn't want livestock and have no use for any but were out for a day in the country. After a while, a small goat came up for auction. The auctioneer asked for an opening bid of $50. When no one replied, he asked for $40, then $30, then $20 but still no bids were made. When he hit $15 a bid rang out and to my horror, my wife made the bid. "Why", I asked, "would you bid on something we don't need or want?" She replied that at $15 it was such a bargain she couldn't pass it up. The bidding then started in earnest and the auctioneer skillfully raised the price. My wife kept bidding because now she viewed the goat as "hers" and wanted to stay in the running. The goat was finally sold under rapid, competitive bidding for $70. Luckily it wasn't sold to my wife. What does this show about human nature? Why were many people who wouldn't offer $30 for the goat in the beginning willing to offer $60 and finally $70 to own the very same goat? The answer lies in human nature and the emotional desire to get a special deal.

Every study ever done on selling shows that people decide to purchase based on logic but they decide to do it now based on emotion. Let's compare the sale to love. When you meet someone in a relationship, hopefully you use logic to determine if you are a match but in the end, it is emotion that makes you decide to go ahead and make a commitment now! Many sales people in our industry have no problem interesting people in homes but they have a bigger struggle in getting them to commit now. One price marketing makes the entire sale logic and removes the emotions that make it worthwhile to go ahead now.

Some people point to the automotive industry as a successful proving ground for one price systems, but there are several differences between that industry and ours. No industry has such a bad reputation for making the purchase experience about as pleasant as a root canal as the automotive industry. Many people will do anything to get out of the normal wheeling and dealing they perceive as stacked against them. However, a closer look reveals key differences between our industry and theirs. Our normal prospect is slower to decide because it's a bigger decision and a more complex transaction. Many automobile dealers say that 80% of the people who visit their automotive dealership have bought a car within 7 days. Our customers take longer to make up their minds. Also, in the 70's many automobile dealers tried one price systems but a large number have returned to traditional pricing because it simply did not deliver sales as well as traditional methods.

Many people point to the success of Saturn and the new mega chains of used auto stores as successes, but Saturn is selling to a very specialized market. They represent a very small segment of the total. If it has worked so well, why haven't more of the big franchises jumped on the band wagon? As for the mega chains, it's too soon to make a definitive decision but is it the pricing or the perceived value of a huge selection and strong warranties that have made them popular so far? You will know for certain if you see a significant number of traditional dealers switch to one price systems in their used car divisions.

Another question to consider is - which party to the transaction wants to change the price? Most manufactured home sales people start out a sale by listing the home and options and arriving at a "list price". If the customer didn't want a lower price, I assume the sales person would stick with the "list price" . That means that the customer is the one who offers something less than list price or normal terms. Even though the say they hate to "wheel and deal", they are the ones who say things like "That's a lot of money" "Can you do any better?" "What's your best deal?" and other phrases that get the negotiating rolling. Bargaining is like scratching yourself. No one says they do it but a lot of it goes on behind closed doors.

Many one price companies pretend they are one price but offer special concessions in financing, set up or options which is the same as negotiating the price. This is because it's only natural to try to get the sale by sweetening the deal if the customer isn't buying your original offer. I recently went to an automotive dealer who advertised all over our area "The Price Is The Price". After taking a test drive and listening to the reasons why they don't negotiate and why they are too ethical for price changes, I told the sales person that I could buy the same vehicle 15 miles away for $150 less. Did they throw me out for telling them this? No, they offered to match the price, so in the end the price was not the price. It's basic human nature for a dealer to want to get a sale for $150 less after getting so close to the sale. As far as ethics goes, it looked more unethical for him to change the price after bragging that the price was fixed. Because of this, dealers who go with one price systems should stick to the plan or work out an alternative plan that saves face if they do discount to get the sale.

Possibly the most important reason not to go with a one price system is the huge hole it leaves in the sales process. In a typical presentation, the sales person has found out what the clients are interested in and presented the home as fulfilling their wants and needs. Now, the couple and the sales person return to the office and the sales person works out a "list price". If that is the final price, this ends the sale. They don't need to get any more information. They now know what you have to offer and how much it is. What is the normal reaction to this situation? In smaller ticket sales like a pair of socks, they decide to take it or not, immediately. The bigger the price the more they tend to think it over. Since our product represents one of the largest purchases of their life they will want to give it careful consideration. One important factor in every purchase is the price. They can think about how the price affects their budget on their own, but one other normal consideration is the question, "Is this a good price for the home?" The only way for them to solve the question is to contact another dealer and find out. When that happens, you have a very strong chance that your competitor will find out your price and beat it by enough to get the business. The company that uses logic to present the home as the right one and then uses the emotion of getting a great price will always close more sales.

But what about image and ethics? Since customers are the ones who want to negotiate a lower price, it isn't unethical. Anyone who sells at a one price store will tell you they spend a lot of time explaining the one price policy and the price. If it was natural human behavior, no explanation would be required. The fact that you need to explain shows you are changing what they expect and what is natural. We have noticed however, that one price companies train their sales people to spend a lot more time telling the customer great things about the company, while stores that negotiate often skip this step and focus on the price. We feel that non-one price stores would do well to make sure their entire staff tells the customer great things about the product and company as part of every presentation.

Before you decide which is right for you, make sure you look at both sides of the arguments. It is possible to be ethical no matter which option you choose. If you look at the natural sales process, the history of selling since the dawn of time and human nature, we believe you will find that even though the one price concept sounds great on paper, negotiating is more natural, more efficient and more profitable.

 

Carl Davidson is President of Sales and Management Solutions, a company providing audio and video sales and management training cassettes for the Manufactured Housing Industry as well as live seminars. You can reach Carl Davidson: