It seems that a dominant strategy in the world of advertising is to offer guarantees that you’ll never have to honor. I’m not talking about the extended-warranty that they’ll offer you at BestBuy or Circuit City (which, coincidentally, are their profit centers). No, I’m talking about the “best price” guarantee. Specifically, I’d relate it most frequently to automobile dealership advertisements, although I’m sure it’s also prevalent in other markets, too. Likely candidates include high-end electronics, and consumer appliances for which consumer prices are never advertised – the law understands the advertisement to be an “invitation to make an offer,” so even the printed circular that comes with your Sunday paper doesn’t constitute a price quote.
My “price-match guarantee” example comes from a few years back. I had gone with the girlfriend to the dealership, where we met a nice, middle-aged man who showed us the lot, the vehicles, the test-drive, etc. His quote was competitive – certainly nothing to balk at. But she wanted a second opinion. Now, this salesman made the “If you get a better price somewhere else, just give me the opportunity to beat it” pitch. OK, you’re a nice guy, as far as salesmen go. I’d like to give you that opportunity.
The next dealer was the slick stereotype. I did not like him then, and I don’t like him now. But the price he quoted was maybe $15/month less than the first salesman. We tried to prevent it, calling back the friendlier salesman and telling him of the predicament, at which point he asked us to provide a written offer – something that he was (or would’ve been) unwilling to provide, just as the other salesman was unwilling to provide it. Typically, they’ll “keep your file” in a folder in their desk, so if you come back, it’ll be there. But they never let you take it.
And this is par-for-the-course: they will absolutely refuse to give you any price quote in writing. My theory is that they generally know that they’re ripping you off, and that game theory dictates that someone else will make you an offer that is just slightly less of a rip-off, will underbid their offer, and win the sale. Which is precisely what happened.
I suggest this is the dominant strategy – offering a best-price guarantee, while refusing to actually offer a price quote to any of your prospects – because anyone who deviates from this strategy will be playing into the hands of anyone who doesn’t.
I imagine that this has something to do with the distribution model for automobiles, and the way dealerships are compensated by the manufacturers, etc. It’s my understanding that they get paid per vehicle moved, so as long as they can minimize their selling costs and their carry-costs, they can’t not make a profit. The licensed nature of the dealership game doesn’t help, either. I bet if there were such a thing as “independent” dealers, who sold both Dodge and Nissan products at the same location, it might be easier on the consumer. But I don’t know enough about either to do anything more than speculate wildly.
** “But we know our competitors will never actually make you an offer…”