A transaction cost is typically the cost(s) incurred in making an economic exchange of sort, and in automotive retailing, this particularly applies to bargaining costs where the consumer is negotiating a price with the seller.
Automotive manufacturers carefully monitor components of the price; likely to include the list price, the street (transaction price) and the used car price. Although a holistic approach is essential, it is the street transaction price, i.e. the final selling price, that is the most important one.
Although manufacturers use price wars and discount battles in an attempt to stimulate new car sales, the impact of such strategies is not always beneficial for long term profit and brand image. A tightly controlled discount policy and careful monitoring of promotions are factors that can positively influence the price cycle and uphold brand image.
We know pricing is a much more complex game than just setting list prices. Significant amounts of money can 'disappear' from list or base prices as customers receive discounts, financing offers, incentives and other giveaways, so that dealers can conclude deals and maintain volumes and consequently, qualifying the profitability of transactions is certainly not straightforward.
The objective is to calculate the real price the customer is being charged after accounting for a range of discounts and/or extras, to determine how much money is being made and whether the correct price is being charged for each customer and transaction.
The used car price should also be monitored, as it measures the 'price loss' over new purchases and when the car becomes a viable option to other buyer segments.
Information systems and off the shelf pricing software have made it easier to check transaction pricing, but in some markets such as automotive, accurate information can only be really obtained through participation in a real-life negotiation scenario. Mystery shopping therefore provides the opportunity for manufactures to discover the real price being charged to customers.
Gathering the data is difficult as the information collected needs to be very detailed, and quality and training of shoppers is critically important. Dealers can be contacted initially in a number of ways, but the assessment will also involve a physical visit that will involve negotiation at the dealership. Shoppers therefore need to be authentic, particularly for premium segments.
GfK Mystery Shopping has a panel of assessors experienced in conducting such assignments and we are aware of the complexities of re-configuring prices in an accurate and timely fashion.
Recent studies have included an automotive manufacturer who wanted to conduct transactional studies for used and demonstration vehicles. The client wanted to know what percentage of incentives was offered in the transaction price across their own and competitor dealerships, with prospective owners being briefed to 'push' for as much discount as possible.
We were also asked by a leading motorcycle manufacturer to feedback on a major new product launch by monitoring the consulting and handling of customer quotes across a number of markets, enabling us to benchmark performance between countries.