Recently we’ve been seeing a lot of trends around gender and ethnicity. For instance there are women who have a male friend or significant other manage their entire negotiation with a dealer, and others that sign up with a man’ s name. We also have buyers with non-English names like (Thanh or Younyi) sign up with traditional English names like John and Henry. This behavior isn’t atypical – there is a very real perception that car dealers price their product differently basedon the gender/ethnicity/sexual orientation of the person they are negotiating with. A study by Edmunds.com showed that 66% of female purchasers believe they were treated differently at the dealerships because of their gender.
What’s great about working on a product that’s building a marketplace is that you get to observe interactions to see if this type of differential pricing is really occurring. I wanted to use this blog to post outline what we’ve seen happen in our marketplace to determine if there’s any truth to the notion that car dealers price their products based on who they’re talking to (or, in our case, who they think they’re talking to).
We looked at a sample of deals started by men and women and controlled for the following criteria:
- Limited to one major metropolitan area in the US
- All deals were for the same make and model of car
- The deals were started in same time frame (started within 2-3 weeks of each other)
- Limited to a car with a small option set (i.e Toyota Corolla, etc)
- Limited to new cars with an MSRP of less than $40K
- Limited to buyers where there was no ambiguity of gender (i.e no Pat’s, Alex’s, etc). CarWoo! is anonymous but we do show the buyer’s first names to dealers
- Implicit in 1-5 is that the same set of dealers were observed across the trial period
We observed the following:
- 65% of dealers offered the exact same price (i.e 0 difference in the price offered to men and women)
- 15% of dealers made offers with a price difference less than $500 (average being $100)
- 20% of dealers made offers with a price difference greater than $500 (average being $650)
We decided to dive deeper into the three buckets to verify that this was consistent behavior (in other words it wasn’t just random chance). Within each bucket and for each dealer the activity was statistically significant with a 95% confidence interval. In other words the behavior observed above would consistently occur and it wasn’t just random chance that dealers in the 20% bucket offered different prices on the same car to men and women.
I decided to talk to a few dealers in the 20% bucket to get their perspective on why a dealer might make an offer with a price that’s materially different and here is what we heard:
“It’s a negotiation, and you have to size up the person whose across the table from you. If I sense that person is going to be a strong negotiator I might set my price higher.”
“There are cultures where negotiation is a part of life. In some in fact you lose face if you don’t negotiate. Culture impacts my pricing because the price I sell the car at determines how much I get paid in the end.”
From our research 20% of dealers differentially price their products based on the gender of the person on the other end of the negotiation. The only caveat is that it’s not clear whether the differential pricing is malicious or strategic.
You should be cognizant of the self fulfilling prophecy. If you walk into a negotiation with the belief the dealer is biased you’ll find something (truthful or not) to substantiate that belief and that will poison a negotiation. Approach each deal under the assumption that people are fundamentally good and ultimately it’ll work out.