The rise of extended warranties began during the oil embargos for the late 1970s. For the first time, many Americans were driving inexpensive fuel-efficient cars that seemed to run forever, but were made overseas. American auto manufacturers knew they had to do something to soften the risk of buying an American car.
Chrysler Corporation CEO, Lee Iacocca, identified the problem of mistrust in American cars and launched a nationwide advertising campaign offering a five-year, 50,000-mile “bumper-to-bumper” warranty on all new Chrysler vehicles. General Motors caught on and soon upped the ante to six years or 60,000 miles. Believing risk reversal was his greatest sales tool, Iacocca trumped GM’s warranty with an unheard of seven-year, 70,000-mile “bumper-to-bumper” guarantee.
This warranty frenzy set in motion a long-term trend: the demand for a risk safety net with almost everything we buy. You’ve probably been offered, and might even have, a warranty on your smart phone or washing machine. You may know people who have purchased warranties on their child’s $50 bicycle. We are bombarded with risk aversion opportunities from one year free replacement plans to five year unlimited protection with on-site geek tech service.
Warranties and guarantees are just the tip of the risk reversal iceberg. Today, consumers expect them, every car manufacturer offers them and there’s a good chance the dealership down the street has one that’s better than yours. When you sell to your customers, you must:
- Understand how automobile buyers perceive risk
- Be ready, willing and able to reduce each risk to an acceptable level for the buyer
- Realize that the more risk you transfer away from the buyer, the more money you make
Customers’ Beliefs About Risk
After 9/11, millions more Americans drove to their destinations than flew, because of the anxiety involved with boarding a commercial airliner. As a result, there were 1,600 more traffic-related deaths in 2002 than in 2001. Statistically, driving as a means of travel is about 1,000 times more dangerous than flying, yet we perceive the risk of flying as greater. Your customer’s analysis of risk is not exactly rational, so it’s important that you understand their risk-related thinking before you develop your sales approach.
Automobile buyers’ key attitudes toward risk include:
- Trust reduces risk – Buying an unfamiliar or complex product is taking a new risk. Every detail that is not understood by the customer creates an element of risk, whether warranted or not. Part of creating trust means informing the buyer about the product so potential risks are fully understood and dealt with should they arise. The more your customer trusts you, the less they fear risk. Almost everyone you’ll talk to today has been through the car buying process at least once or twice before, but think about your last sales opportunity for a moment. Do you know how long it had been since they’d purchased their last car? Is this a good question to be asking? How much has changed relative to connected technology, safety, and even financing in just the past 2-3 years? It’s your job to inform and guide your customers through the process. The more they trust you, the greater the chance they’ll be buying.
- Their desire to avoid risk is stronger than their desire for gain – This fact is borne out of research that showed investors are more motivated by the possibility of losing money in the market than by the potential for gaining it. A lot of people “bought high and sold low” during the last economic downturn. In other words, the threat of pain is more powerful than the promise of gain. You have to make your customers feel safe before you start telling them about all the benefits.
- They believe buying proven brands lowers risks – Your customers actually visualize the consequences of buying one vehicle make over another. The higher the perceived risk of a certain automobile brand, the more likely they are to evaluate other brands that come to mind. Known brands equal predictability and predictability reduces their perceived risk. Some of the buyers you talk to may have purchased the same brand of car for as long as they’ve been able to drive. If it’s the brand you’re selling, the sale is yours to lose. If they’ve been buying a different brand, but they’re checking yours out, ask questions to find out why they’re making the change and carefully illustrate where the differences in your Ideal Vehicle might be.
- They imitate others to minimize risk – Your customers tend to be more comfortable with an automobile purchase that has been vetted by their friends, family or neighbors ahead of time. They love recommendations from others. How’s your store doing with online reviews and social media?
- Desire trumps risk – The strength of the buyer’s desires can overshadow their perceived risks. Remember, desire trumps everything, but sometimes your job is to create the desire that compels them to take the risk. The risk of not getting exactly what they want can trump most other risks. Most of the people you talk to are making a somewhat long-term decision. If they miss out on the upgraded heated seats and leather, they’re going to be dealing with that decision for the next 2-5 years.
The Simple Equation
The fundamental cause of all automobile buyers’ perception of risk is this: the more it costs or the less they can afford it, the greater the risks they perceive. As you deal with buyers whose incomes are lower than the average, you’ll find this need for reducing uncertainty becomes greater. When customers are at the outer edge of what they can spend, their margin for error is microscopic. For the 62% of Americans living paycheck to paycheck, buying a new car that ends up in the shop with costly repairs and missed work days could ruin them financially. They know it’s impossible to totally eliminate risk but they can’t afford to buy the wrong thing and be stuck with it. Even if they’re in a better financial situation, they still want to avoid the risk of making a bad financial and/or social decision.
On your next sales opportunity, remember there’s some risk associated with a big ticket purchase like this. Help your customers see that buying a car from you and your dealership practically eliminates the risk. Everyone who steps on your lot wants you to make them feel their risk has been minimized to an acceptable level before they’ll buy.
By James Mueller (President) and Steve Howard (Founder), No Pressure Selling®
If you’d like to start selling the way your customers want to buy, call (800) 515-003. Please consider taking a free 3-day Preview of our No Pressure Selling® Certification program. After completing our Max Profit Selling™, Boomer Selling™ and Control Your Destiny with Presold Referrals courses, you’ll have the skills tools and confidence to sell at least 5 more cars/month.