The Importance of Appearing Savvy
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Strategy Marketing Economics Jun 3, 2013

The Impor­tance of Appear­ing Savvy

Women espe­cial­ly ben­e­fit from know­ing mar­ket rates for car repairs

Woman in a spotlight

Mykyta Dolmatov via iStock

Based on the research of

Meghan Busse

Ayelet Israeli

Florian Zettelmeyer

Few indus­tries inspire more dread in Amer­i­cans than the car indus­try. It is not the prod­uct we dis­like, of course, but the hag­gling — specif­i­cal­ly, the dogged sus­pi­cion we are hag­gling poor­ly. As soon as we have dri­ven our new con­vert­ible off the lot, we won­der, will our sales­man laugh at our naivety? Is the mechan­ic who sold us a replace­ment part tak­ing advan­tage of us?

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Across all indus­tries, cus­tomers vary in how informed they are about prices, how good they are at search­ing out prices, and how much they care about get­ting good prices,” explains Meghan Busse, an asso­ciate pro­fes­sor of man­age­ment and strat­e­gy at the Kel­logg School. Some peo­ple are real­ly bar­gain hunters. They have the time; they like doing it. Some peo­ple don’t care. They just want to be con­ve­nience shop­pers. Stores know this and they set dif­fer­ent prices. Some set high prices, know­ing they’re going to sell only to the con­ve­nience shop­pers; some set low prices know­ing they’re also going to get the bar­gain hunters.”

Dan­gers of Infor­ma­tion Asym­me­try

Yet addi­tion­al dynam­ics come into play in indus­tries where prices are unlist­ed and thus open to nego­ti­a­tion. Gen­er­al­ly, it is enough to know whether a post­ed price is com­pet­i­tive. But when nego­ti­a­tion is involved, how informed or price sen­si­tive we are may actu­al­ly influ­ence the price we are quot­ed. This is why peo­ple hate these inter­ac­tions,” says Busse, and this is why the Inter­net has been so impor­tant in car buy­ing over the last 10 to 15 years.” Sites like Edmunds​.com, True­Car, or Cars​.com all pro­vide prospec­tive buy­ers with infor­ma­tion about mar­ket prices for par­tic­u­lar makes and models.

Not so, how­ev­er, for auto repair. Auto repair is one of the last ves­tiges in which there is a tremen­dous amount of infor­ma­tion asym­me­try going on between con­sumers and firms,” explains Flo­ri­an Zettelmey­er, the Nan­cy L. Ertle Pro­fes­sor of Mar­ket­ing at the Kel­logg School.

This lack of trans­paren­cy may change, how­ev­er — at least if com­pa­nies like AutoMD​.com have their way. AutoMD​.com employs mys­tery callers” who ring up repair shops to inquire about prices, and then cal­cu­late mar­ket rates for com­mon ser­vices — rates the rest of us can use to inform ourselves.

But just how impor­tant is being informed? Or, to be more pre­cise, how impor­tant is the appear­ance of being informed? Busse and Zettelmey­er, along with Ayelet Israeli, a doc­tor­al stu­dent at the Kel­logg School, decid­ed to team up with AutoMD​.com to deter­mine whether auto shops would quote dif­fer­ent prices to informed and unin­formed callers.

Is Naivety Harm­ful?

In their study, expe­ri­enced mys­tery callers con­tact­ed hun­dreds of auto repair shops and read from a script. How much would the shop charge to replace the radi­a­tor on their 2003 Toy­ota Cam­ry? In one con­di­tion, the callers announced that they had an accu­rate mar­ket val­ue for the ser­vice in mind: I just vis­it­ed the web­site AutoMD​.com, and for this area they say the cost should be $365 to replace the radi­a­tor on my car.” In anoth­er con­di­tion, callers announced that they had an unre­al­is­ti­cal­ly high val­ue in mind: I just vis­it­ed the web­site AutoMD​.com, and for this area they say the cost should be $510 to replace the radi­a­tor on my car.” Final­ly, in a third con­di­tion callers revealed that they did not have a num­ber in mind at all: I have no idea how much it is to replace a radiator.”

Although reveal­ing your­self to have bad infor­ma­tion works to your dis­ad­van­tage, reveal­ing your­self to be price savvy does not seem to pro­vide you with any advan­tage at all.

The researchers found that callers who sug­gest a price that is high­er than mar­ket val­ue are quot­ed back a sig­nif­i­cant­ly high­er price than oth­er callers, as you might expect. But, says Zettelmey­er, we can’t find a sta­tis­ti­cal dif­fer­ence between whether you say you have no idea ver­sus whether you [sug­gest] the price quote $365.” In oth­er words, although reveal­ing your­self to have bad infor­ma­tion works to your dis­ad­van­tage, reveal­ing your­self to be price savvy does not seem to pro­vide you with any advan­tage at all.

It’s a Man’s World

But then the researchers noticed some­thing else. When they exam­ined the price quotes giv­en to male and female callers sep­a­rate­ly, a dif­fer­ent pat­tern emerged (see the fig­ure below). For male callers, there is no dif­fer­ence between hav­ing no idea” about an expect­ed price and being a savvy con­sumer: either way, you are quot­ed some­thing right around mar­ket price. But for female callers, says Zettelmey­er, you’re much worse off say­ing you know noth­ing as opposed to quot­ing the price of $365.”

Why would a man with no knowl­edge be treat­ed dif­fer­ent­ly from a woman with no knowl­edge? One pos­si­bil­i­ty is that, from a shop’s per­spec­tive, the admis­sion means some­thing dif­fer­ent when spo­ken by a man. If you say I have no idea’ and you’re a woman, you real­ly have no idea,” posits Zettelmey­er. But if you are a man, maybe you’re being real­ly strate­gic,” says Busse. You must have some idea; you may even be test­ing the shop.

Anoth­er pos­si­bil­i­ty? Shops may assume that a poten­tial cus­tomer with no idea” about pric­ing is sim­ply at the begin­ning of a search process. If the shop believes that women will not search as long for an accept­able price — or will con­duct the search less effec­tive­ly — then the shop may quote less competitively.

The Role of Stereo­types

Inter­est­ing­ly, the researchers also found that when a caller pro­vides a num­ber — be it the rea­son­able $365 or the absurd­ly high $510 — all gen­der dif­fer­ences disappear.

This, says Busse, sug­gests that repair shops prob­a­bly do not inher­ent­ly dis­like women or take plea­sure in rip­ping them off. Instead, the data are more con­sis­tent with sta­tis­ti­cal dis­crim­i­na­tion. Shops believe, right­ly or wrong­ly, that women know less about cars and car repair. In the absence of infor­ma­tion to the con­trary, they will be offered a high­er quote. But when you show that stereo­type is wrong” — because you reveal your­self to be an informed woman or an unin­formed man — you get treat­ed the same way,” says Busse.

Final­ly, the researchers won­dered how often shops would agree to a low­er price if a mar­ket rate was not orig­i­nal­ly offered. And once again, when they looked at data col­lect­ed by the mys­tery callers, the results sur­prised them.

For the most part, shops refused to budge from their ini­tial price. But among the shops that did offer a price con­ces­sion, an inter­est­ing gen­der dif­fer­ence emerged. Essen­tial­ly what we found is that women are more like­ly to obtain a match [to a low­er price] than men are,&rdrdquo; says Zettelmey­er. Specif­i­cal­ly, female callers who request­ed a low­er price obtained it about 35% of the time, while men only did 25% of the time — a pret­ty size­able” dif­fer­ence. These results can­not be explained by women ini­tial­ly being quot­ed high­er prices.

So what can explain this result? Con­sid­er that most of the shop employ­ees were male. It may be that men are more like­ly because of social or cul­tur­al con­di­tion­ing to respond pos­i­tive­ly to requests made by women,” the researchers write. (Though chival­ry is an admit­ted­ly odd expla­na­tion, giv­en that women were offered high­er prices to begin with.)

Alter­na­tive­ly, it could be that shops are sur­prised by the idea of a woman hag­gling over prices. If on aver­age women don’t ask [for a low­er price], but this woman is ask­ing, that’s quite dif­fer­ent from what’s nor­mal­ly expect­ed,” explains Zettelmey­er. Men, on the oth­er hand, are expect­ed to ask. If a man asks for a low­er price, a shop employ­ee will not nec­es­sar­i­ly cave. Says Busse, But a woman who actu­al­ly push­es me? I believe she is actu­al­ly going to walk out of the door if I don’t give her a good price.”

How to Fina­gle the Best Price

The study offers some obvi­ous strate­gies for cus­tomers inter­est­ed in find­ing the best prices. If you are a woman, the smartest thing you can do to get a good deal is to shop around, either online or by phone. Once you have gath­ered some infor­ma­tion, when you call each addi­tion­al shop,” says Busse, reveal that you know what you’re talk­ing about — that you know the car, you know the repair, and you know what a sen­si­ble price is — right off the bat. And if you get a price that’s above that, ask for a discount.”

The task is a bit eas­i­er for men: You are already assumed to have a good idea about what con­sti­tutes a fair price. But you would be wise to avoid engag­ing in any behav­ior that reveals otherwise.

About the Writer

Jessica Love is the staff science writer and editor for Kellogg Insight.

About the Research

Busse, Meghan R., Ayelet Israeli, and Florian Zettelmeyer. 2013. “Repairing the Damage: The Effect of Price Expectations on Auto-Repair Price Quotes.” Mimeo. Kellogg School of Management, Northwestern University.

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