Marketers Adjust to American Disdain for Haggling
LOS ANGELES (AdAge.com) -- Last month you could buy a Samsung plasma TV at Circuit City for $2,249.99, a Chevrolet Tahoe for $36,934 or a new Pulte home in Tucson for $690,990, all at no-haggle prices. Fixed-price retailing has moved up into the biggest purchases as consumers embrace a simply fair deal.
|Pulte Homes, CarMax and Circuit City are among the marketers that have made no-haggling and fairness a touchstone of their pricing structure.|
No-haggle's consumer appeal is perceived fairness: If everyone gets the same deal, then no one feels snookered. "You don't have to have the lowest price every day, but you have to offer a fair price every day," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consultancy and investment banking firm.
Don't like haggling
Joe Kunkel, senior vice president of marketing and strategy at CarMax, a fixed-price retailer of used cars, sees a spectrum for haggling: About one-fourth of consumers love to deal, another fourth detest it, and the rest of the population "really doesn't like haggling, but they believe it is necessary to get the best deal."
A common perception is that men are bigger price wranglers. "There is some work out there that suggests men are more willing to haggle than women because haggling is seen as more aggressive," said Debu Purohit, professor of marketing at Duke University's Fuqua School of Business.
But propensity to haggle appears more related to other factors. Mr. Kunkel said the no-haggle approach of Circuit City spin-off CarMax appeals most to younger, better-educated consumers with above-average incomes. That's not surprising. Britt Beemer, chairman of America's Research Group, said consumers below age 35 are least likely to negotiate; older consumers, with families, more budget constraints and more experience buying cars, are more likely to haggle.
Educated buyers like no-haggle, Mr. Kunkel said, because they're not accustomed to rough-and-tumble dealing in other goods they buy. People with above-average income, he said, like CarMax's total package -- simple deal, like-new car, warranty -- even if they might find a used car at a somewhat lower price by haggling somewhere else.
No-haggle is a natural outgrowth of big-box retailing and Internet shopping. The former is built on volume and efficiency; the latter, said National Retail Federation Vice President Daniel Butler, has made price comparisons easy. Both have driven down margins and created opportunities for no-haggle commerce. To be sure, the Net also fosters online haggling at eBay and travel sites. "Haggling is easier when it's not face to face," Mr. Purohit said.
No-haggle was a key appeal of the employee-price promotions introduced by General Motors Corp. in June and copied by Ford Motor Co. and DaimlerChrysler. The promo blew out inventories, and GM last week said it would end the employee-price deal today. Employee-price plans technically aren't no-haggle, but most customers take the price.
GM to cut prices
GM intends to proceed with a plan to cut '06 list prices, reduce rebates and trim dealer margins on some models. That leaves limited room for haggling; list price will be closer to transaction price. Whether GM can pull off value pricing and make money is an open question; it lost $1.2 billion in its North American auto business last quarter despite a blowout June that saw vehicle sales jump 41%.
Consumers have had plenty of opportunities this year to buy cars at no-haggle prices -- the Big 3's summer promotions, Internet-only prices, CarMax.
No-haggle, or limited haggle, is at play, too, in the sizzling housing market. Price negotiation will return to real estate if the market turns soft, but for now sellers set the price. The average house last year sold for 99% of original asking price, according to the National Association of Realtors. Home builder Pulte Homes said it won't budge from price lists. "We're firm on our pricing and don't negotiate," said spokesman Mark Marymee.
Fair no-haggle deals
Consumers can get a fair no-haggle deal on virtually everything that goes in the house. Furniture retailer Ethan Allen Interiors last year adopted everyday pricing, a bold move in a category built on discounts and promotions. Lowe's sells everything from a $4.98 hammer to a $1,397 Whirlpool washer at an everyday value. "The price is the price," said Lowe's spokeswoman Chris Ahearn.
There may be wiggle room. Mr. Marymee said Pulte offers "incentives," such as a sprinkler system or appliance upgrades, "to help sell homes at times, usually in a market where there's either considerable competition ... or where overall sales ... are slow." Ms. Ahearn said Lowe's will match rivals on price or offers, such as free delivery.
That wiggle room helps explain why consumers think they're negotiating more even as retailers appear to be haggling less. In a phone survey this year, America's Research Group found that 62.8% of consumers said they'd negotiated a purchase (excluding cars) in the previous six months, up from 40.8% in 1994.
Fairness the key
Frank Luby, partner in global pricing consultancy Simon-Kucher & Partners, said no-haggle can be a profitable strategy if consumers feel the price is fair; if, on a low-price positioning, a seller has costs below or even with rivals; and ideally if a company can own the message by being first in category to embrace the approach. "It's hard to come up with a singular no-haggle price point that pleases everybody," he said. If a seller falls to a lowest common denominator price to appeal to everyone, "you're giving up too much margin. ... At the end of the day, it makes you worse off."
Price negotiation won't go away. Many consumers think they need to deal -- and many sellers are willing to undercut a rival's fixed price. For haggling to take place, said Fuqua marketing professor Preyas Desai, margins and product price must be high enough to warrant it and there must be some heterogeneity among consumers -- some must demand a lower price, some must like to haggle or at least dislike it less than others.
"As long as there exists some consumers, even a small group, that would not mind haggling, then you will see haggling exist," said Fuqua colleague Mr. Purohit.
In the car business, there are too many manufacturers and dealers for a steady state of no-haggle to take hold. Dealers are likely to keep haggling with buyers regardless of GM's push for value pricing. "My sense is that some consumers will defect for a price break," Mr. Purohit said. GM drove summer deals, but it may have created the perception that employee price is the new ceiling in a market with no floor. Unless new products stir the market, GM will hardly be in the driver's seat to stop selling deals.