Australian motoring journalist John Cadogan examines the ‘thin-slicing’ of factors on the forecourt.
Consumers demand choice. There’s no doubt – most marketing experts will tell you: more choice is better. Choice is liberating, empowering. Right?
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Unfortunately, according to Malcolm Gladwell’s 2005 landmark behavioural research tome, Blink, consumers actually make worse choices when confronted with more options. In extremis, a tsunami of choice even leads to "analysis paralysis".
Making the right choice and being satisfied are of course two very different things.
This is especially true of cars. Here in Australia the automotive market is intensely competitive. With a population of just 23 million, approximately 50 automotive brands and around one million units sold annually, competition is intense. The marketing spend per sale, or per capita, is huge.
In the most popular segments, more than 30 different competing vehicles are on the table. If you landed here today from Alpha Centauri, it’s doubtful you would even be able to tell them apart. It’s doubtful most consumers in the market now could name more than five, and brand loyalty is eroding.
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By GlobalDataPeople choose motor vehicles sequentially. The vehicles are presented this way, at bespoke-branded dealerships separated from one another by geography. The prime motivator to move on to a different dealership is fear: fear that if one jumps here and now, one might miss out on a superior alternative in the next postcode.
Gladwell says people make decisions, even important ones, by "thin-slicing" – that is, by gauging what is really important in a complex situation from a very narrow window of information. Car dealers know this, perhaps not explicitly, but certainly as a practical matter. It’s imperative, therefore, for dealers to present consumers with a compelling proposition that forms the ‘thin-slice’, or crux, of the decision to buy now.
With the increasing commoditisation of the most popular vehicle types, an obvious ‘thin-slice’ proposition is that of zero per cent finance – something literally too good to be true, but which is tremendously compelling provided you don’t think about it too hard, or if mathematics never was your strong suit.
In Australia, inflation runs at 2.5% and the central bank has the cash rate at 3%. On fundamentals, zero per cent finance is laughable – because if it’s true, somebody’s taking a bath – but it is extremely compelling as a marketing proposition. As in: How could an independent financier compete with that? Dealers routinely more than recoup the on-paper loss inherent in a zero per cent deal by using it as a lever – discounts and rebates are suddenly off the table and rock-bottom trade-ins are commonplace.
Once the decision is ‘thin-sliced’ and in place, however, this doesn’t seem to matter.
A better deal is often the result of independent finance at a realistic rate, together with tougher negotiation on the price of the vehicle. For example, if you’re searching for a rough point of equivalence, if consumers can negotiate a £3,000 discount on a £25,000 car, even with a 6% interest rate from an independent financier they would be £200 better off over the life of a four-year loan.
In many other situations, were it not for thin-slicing, hard negotiation would easily trump the easy option of the ‘unbeatable’ 0% interest rate.
The challenge for independent financiers Down Under (and, presumably, in the UK too) is distilling this concept into a suitably ‘thin-sliceable’ sound-bite.
There are probably easier marketing problems to solve.
John Cadogan is editor-in-chief of Carloans.com.au
