‘No haggle’ pricing a smart move in the internet age

OPINION: One of the more charming aspects of living in a small rural community is the grass-roots entrepreneurism.

Part of this is the barter economy – emails coming around saying someone has a chaff sack of feijoas that they’d like to swap for six bales of Lucerne hay.

Then there is the roadside commerce. Free-range eggs, various sizes, five dollars a dozen. Old man pine, split yourself, $4 a biscuit. And of course the ubiquitous horse poop, $2 a supermarket bag.

Last weekend, some kids down the road set up a stall selling fudge to help pay for a sports trip down south. They had coconut ice, classic chocolate and, my favourite, Russian fudge. All going for the bargain price of $3 a bag.

Fudging pricing has been common in New Zealand for some time. The advertised price is often not the final price that is paid. This has ranged from timber through to paint through to new cars.

New-car pricing has been particularly fudgy because it has historically suited manufacturers (and their franchise dealers) to be that way.

By not disclosing their best (i.e. lowest) pricing, dealers have been able to increase their profit margin. Better yet, they have been able to obfuscate a key variable to prevent consumers doing commodity comparison shopping.

In other words, they have been able to keep the seller/buyer power balance heavily in their favour to their fiscal advantage.

Which was all well and good until bloody social media came along, gave power to the consumer and the ability to publish strike-pricing to all their mates. And, along with the national marketplace afforded by Trade Me and increased volumes of imported used cars, this has had the effect of lowering the actual price paid for new cars relative to the average wage by about 20 per cent over the past 20 years.

Car manufacturers responded in different ways. Many took a ‘‘price to change’’ approach, so that rather than focusing on a ticket price, they had the buyer look at the cost they would pay after trading in their existing car so that the price attributed to the new vehicle was fudged.

Mazda developed a set of regular sales which allowed them to effectively offer two tiers of pricing, dependent on what month it was. Holden and Porsche regularly offer ‘‘run out’’ pricing.

Meanwhile, Toyota seemed to have had a policy of publicly having a set of premium prices (which served to underline premium products such as the Hilux and Corolla), but privately would give a good amount of discount according to how much you were prepared to haggle.

Which worked so long as their models were the top sellers. That’s now changed with Hilux sales eclipsed by Ford Rangers while Suzuki Swifts are giving the Yaris a bit of a nudge.

All of which explains the context to Toyota New Zealand’s move last week to ‘‘no haggle’’ pricing.

Toyota has dumped recommended retail pricing and instead come clean with their bottom-dollar price. This has seen listed prices drop by about $6000 for a Corolla and close to $10,000 for a Highlander.

That means that you will pay the same $32,990 for a RAV4 whether you buy it from a flash city dealership in Newmarket or a rural one in Ashburton. Except they are not called dealerships anymore. Because they no longer have the power to haggle over deals, they are now called stores.

Stores will no longer have new vehicle stock on the floors, they will be located in three hubs – Wellington, Auckland and Christchurch. The customer will work with consultants to build their car online (in terms of colours and features), then it gets delivered from the nearest hub.

Plus, if you don’t like it when it arrives, they have a ‘‘buyer’s remorse’’ arrangement where you can return the car within seven days so long as it is in ‘‘as-new’’ condition and has got less than 500km on the clock.

In a world where power has shifted to the consumer, it’s a smart move. It embraces transparency and at the same time drives costs down. Plus, it stops buyers feeling trapped.

Because they have a monopoly over supply of new Toyotas, Toyota New Zealand have been able to do what many retailers would like to do, but can’t. That is, have one universal price for a commodity, rather than face predatory pricing by online-only stores. They’ve also put pressure on the other manufacturers to come clean as well.

Pricing is often the most overlooked component in the ‘‘four Ps’’ of marketing – product, promotion, place and price. You can use price to maximise profitability or defend a market from new entrants, or alternatively to enter a new market. You can also use it to help position a product – be it premium or pedestrian. Or you can Goldilocks price, guiding consumers to the ‘‘just right’’ offer.

But in the age of the internet what you can’t do, is fudge it.