Think you might buy a car for less by offering $140 more? According to a new study by Harvard Business School, the answer is yes! There are many tips for buying a new car but this one sounds the most absurd.
Tips For Buying A New Car: Why Offering More May Get You A Lower Price.
The study was focused on mergers and acquisitions – deals that are much more expensive than a car. However, the authors believe that the results apply to any negotiation. The authors found that investors who offer “precise” bids for company shares yield better market outcomes than those who offer round-numbered bids.
The reasoning is that people place more value on precise numbers than on round numbers. By this thinking, a car dealer may think your offer of “$27,000” reflects that you are just taking a guess to a fair price, or to your budget, while an offer of “$27,140” indicates that you are more certain that this is the right price – or at least that this is what you can afford and no more.
The Science Behind The Theory
The study builds on several prior studies that conclude “people tend to assume, true or not, that someone must have crunched lots of data to come up with an amount so specific. A round number, on the other hand, suggests that a person is just ballparking it – offering an approximate valuation based on vague knowledge.”
This is good information, but there is a limit to it. If you were to go to a dealer and offer “$27,143” for a vehicle, the dealer might interpret that as a pure negotiation ploy rather than a show of market knowledge or budget limit.
In the new car buying dealer environment, trained salespeople pick up on the signals you send – both the ones you want to send (such as a precise bid, or reams of paper showing the research you’ve done) and the ones you don’t (your child complaining that he is sick and tired of car shopping and wants to go home). So it is very important to your negotiation success that you send the right signals.