While working with one of my clients covering a strategy on changing the price of a vehicle he had priced at $15,298, my first reaction was to tell him to reduce it to $14,995 so he wouldn’t miss any searches done up to $15,000 because of his $298.

Then it dawned on me, don’t even change it to $14,995; that might not work either. After the conversation, I came across a strategy that has changed the way I tell my dealers how to price a lot of their cars.

It made me research all pricing strategies and how this type of pricing started in the car business.

Pricing a vehicle at $19,995, $14998, or $9,997 is a strategy that marketing experts call physiological pricing strategy.

How it works
“A psychological pricing strategy works by selecting prices to which consumers will have an emotional reaction. For example, a car might be priced at $14,995 rather than at $15,000. A completely rational consumer would recognize that a price difference of $5 is negligible on a big-ticket item such as a car. In reality, however, consumers do not tend to behave in such a rational manner, but will tend to act emotionally and round down prices.

“Although the price of the car is closer to $15,000, many consumers will tend to think of it in the $14,000 range.”  From: What Is a Psychological Pricing Strategy? By Wendel Clark, eHow Contributor updated June 30, 2011.

We do this so when a consumer sees our ad, $14,995 looks smaller than $15,000 and they may mentally round it down to $14,000 range, but that is if and only if they actually see your ad. This strategy goes way back over a hundred years and it is an effective strategy for traditional advertising. I would say though, for a lot of used cars on your lot, this is not the strategy I would carry over to today’s market.

When you think about it, we have changed almost every aspect of used car management because of the Internet, every aspect except psychological pricing. Not changing from this pricing strategy is costing your vehicles search results (SRPs) on sites like Autotrader/Edmunds.com, Craigslist, KBB.com, some dealership web sites and a lot of certified web sites. It is also causing your vehicle to not get the vehicle detail page views (VDPs) that it deserves because we are positioning them into pricing buckets that make them less appealing.

Let’s say you take a sedan from a price of $15,495 to a price of $14,995 to help move the car off of your lot and to get it more exposure online. But all you might have done is just moved that car from one price bucket into another price bucket and not increased its search results at all.

Here is why:  If you have 500 customers shopping for a sedan in a price band of $12,000 to $15,000 and then you have 500 customers shopping for a sedan between $15,000 to $18,000 all you did is move the sedan from one price bucket to the other and you broke even in search results and didn’t get any more exposure on the car.

You need to get away from psychological pricing and price your sedan at $15,000! By pricing it at $15,000 you will double the opportunity for your vehicle to show up in searches. By staying with a traditional pricing of $14,995, you will miss the opportunity of any search done for  $15,000 and up because of $5.

Let’s face it: Craigslist is not the easiest of sites to shop for a vehicle. If you have ever shopped on Craigslist before, searching by price is the most effective way to find what you are looking for, unless you know the exact model of car you are looking for, and if you price yours at $14,995 instead of $15,000, you are missing a lot of activity on that site.

This strategy is what I call flat based pricing, and that would be to round up or down to the next common price band. The most common ones are $5,000, $10,000, $15,000, $20,000, $25,000 and on and on in $5,000 increments.

But there are also a lot of searches with $8,000, $12,000, $18,000 and pretty much any thousand-dollar range under $10,000. I am not saying to take an $11,235 priced car and move it all the way down to $10,000 or to raise its price up to $12,000 just to get it in a common price point, but if it were due for a price change, I would move it to $11,000. All of this also depends on things like market days supply, age, percentage of market or ranking and other factors, so keep that in mind when you are pricing a vehicle.

Psychological pricing could also be costing you vehicle detail page views (VDPs) and here is why:  Let’s go back to the customer shopping for a sedan between $12,000 to $15,000. Most customers shopping between $12K-$15K have a budget closer to $12K but will look up to $15K, so pricing your vehicle at the traditional $14,995 will position this vehicle at the top of their budget and less appealing than the cars closer to $12,000.

Now, pricing it at a flat $15,000 will also get that car into a price search of $15,000-$18,000 and if their budget is closer to $15K than to $18K, your car is the lowest priced car in this pricing bucket making it more appealing and getting it more VDPs. With this strategy, your search results and vehicle detail page views will increase significantly.

There are many other advantages to pricing your vehicles at a flat-based price and I will cover them in later articles but we know at vAuto, the more VDPs your inventory gets, the more cars you will sell.

Here are a couple of quotes that I have received from some of my dealerships over the last month since trying flat based pricing:

“Jasen, I just thought you would want to know what your suggestion did for our Internet department. I can’t thank you enough!”

“2008 Toyota Tundra listed at $18,477.  After seven days this month it had 1,025 impressions and 14 clicks at a rate of 1.4%. After changing the price to an even $18,000, in only 11 days it had 3,430 impressions and 79 clicks at a rate of 2.3%.” This car went from 146 SRPs per day to 219 SRPs a day. It also went from two VDPs per day to six.

“A 2007 BMW X5 listed at $30,524. After seven days this month, it had 833 impressions and seven clicks at a rate of 0.8%. After changing the price to an even $30,000, in only 11 days it had 4,218 impressions and 49 clicks at a rate of 1.2%.” This car went from 119 SRPs per day to 308 SRPs a day. It also went from one VDP per day to four.

“Here are two examples that I thought you would enjoy hearing about for the flat based pricing:
2003 Dodge Durango, 357 days old, changed price to $6,000 and sold it for that in four days.

“2000 Ford Ranger, 59 days in inventory, original price $7,499, on 6-1-2011, no action.
Raised price to $8,000 on 7-22-2011 and sold it at that price five days later.”

“Since adoption of flat based prices in early July our SRP and VDP numbers have just skyrocketed within Cars.com and AutoTrader.com.

AutoTrader: Four months SRP
April   May     June     July
74K     70K     55K     110K  

Four months VDP
April   May     June     July
1,800   1,650   1,260   2,200

Cars.com: Four months SRP
April   May     June     July
45K     39K     36K     75K 

Four months VDP
April   May     June     July
1,780   1,200   1,410   1,920   

Now don’t go telling everyone!”