I ran a YouTube promotion this month where I mentioned “Bait And Switch.” Several people asked me to elaborate on the subject so I thought I would blog about it…
I recently made a large purchase of used 2010 Dodge Ram 1500’s, 2010 Dodge Grand Caravan’s, and 2010 Jeep Grand Cherokee’s from a national rental company. I bought a lot of them, and as a result, I bought them below what would be considered the “normal” wholesale market value.
This is nothing new really, not so uncommon. Other large used car dealers in Edmonton make similar purchases from time to time.
Some will buy 10 or more nearly identical units and price the least desirable one at or below what they paid for it. To avoid showing a loss on this “price leader” unit they will sometimes increase the cost of the nicer units, by perhaps a couple hundred dollars each, and credit the money to the “less desirable” unit that has been advertised.
Let me give you an example of how that might look;
If a rental company has to move 20 late model used pickups, they have two primary ways to turn this inventory into cash so they can replace the used units with new ones. (Something they need to do quickly as they don’t make money from parked rentals.)
1) They can send them to the auto auction.
2) They can reach out to large dealers in the area and sell them as a group. (One buyer. One cheque.)
Generally speaking, they prefer option 2 as they can avoid paying auction fees and they get their money faster. These deals are done over the phone and only take a couple minutes. If a dealer is buying 20 trucks, he or she expects to end up with at least one “rough unit”. (Smell bad, smoked in, scratched paint, torn seat, etc.)
When the trucks arrive at the dealership, the used car manager looks them over and and decides which of the group will be the price leader. (This would be the one in the worst condition, has perhaps been in an accident, or painted a colour nobody wants to own.)
In this example, if the dealer was paying an average of $27,000 for each of the trucks, and intended to put a retail price of $30,000 on 19 of them, the advertisement would go something like this;
Special Purchase. 2010 Pickups. Priced to clear. 20 to choose from STARTING AT ONLY $25,900.
(Translation; the two tone purple and yellow truck, that smells like your kids hockey bag, is on sale for $25,900. The other 19 trucks are priced at $30,000.)
If you call the dealer, you might be told “yep, we have 20 of ‘em… starting at $25,900…. come on in…”
If you see a picture in the newspaper of the truck that is on sale for $25,900, it will not be purple and yellow. It might not even be a picture of a truck with the same trim level. Look closely at the fine print. You will see a disclaimer that says “Actual vehicle may not be exactly as pictured” (or something like that.)
When you get to the store and ask to have a look at the one for $25,900, you could have a hard time finding it. You might be told;
“That truck is out on a test drive.”
“We just took a deposit on that one.”
“That’s it over there with the sold sign in the window. You just missed it.”
“That truck had some damage. It’s in the body shop.”
“We had to order a muffler bearing for that one. It will be tied up for a couple days. We can’t drive it.”
“We just loaned that out to a service customer over the long weekend.”
“One of the guys took that truck home last night to show his cousin’s sister’s uncle. He should be back tomorrow night at 6:00.”
And my favorite…
“Sorry buddy. We lost the keys…”
You may hear a lot of reasons why the truck that’s on sale for $25,900 is not available…
HOWEVER, you may also be told “there are 19 just like it for only a little bit more…” This is a classic example of Bait and Switch.
Here’s how Wikipedia defines “Bait and Switch”
“In retail sales, a bait-and-switch is a form of fraud in which the party putting forth the fraud lures in customers by advertising a product or service at a low price or with many features, then reveals to potential customers that the advertised good is not available at the original price or the list of assumed features is different.
The goal of the bait-and-switch is to persuade buyers to purchase the substitute goods as a means of avoiding disappointment over not getting the bait, or as a way to recover sunk costs expended to try to obtain the bait. It suggests that the seller will not show the original product or service advertised but instead will demonstrate a more expensive product or a similar product with a higher margin.”
For the record, when we made our “Special Purchase” of used 2010 vehicles last month, we did not have a “Price Leader” for each model. We priced them all the same.
At Sherwood Park Dodge, if we don’t have it, we don’t advertise it.