Is Dodge giving away the store by offering a money-back guarantee?

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Right now at the Dodge Tent Event, you can purchase a new Dodge, drive it for 60 days and if you’re not 100% blown away by the four-wheeled pure awesomeness, return it. No harm. No foul. And no monthly payments – that’s right, the first two months are on us. We’re giving you this opportunity because we’re confident in our vehicles and we know that once you’re in a Dodge, you won’t want to get out of it.

Even after factoring in the fine print (buyer is not reimbursed for title, registration fees, insurance, accessories, dealer fees, extended warranties, finance charges and is responsible for negative equity), the offer seems pretty compelling from the buyer’s perspective. Knowing you have the option of changing your mind within 60 days on such a major purchase will certainly make buyers more compelled to go ahead and purchase the car.

But how does the offer look from Dodge’s perspective? Are the finance guys at Fiat (Dodge’s parent) screaming “How can we do this? What happens if the buyers return all the cars or trucks? How are we going to sell these used cars and trucks without taking a bath?”

The answer, most likely, is that it also looks pretty good from the seller’s perspective. In most cases, buyers will not return the cars or trucks even if they are less than satisfied with their purchase. Based on a behavioral economics concept known as the endowment effect, people seem place a higher value on objects they own than objects that they do not. To take this one step further, once you’ve got that car or truck home and in your garage, your preferences change – they realign…the auto is now “yours”, so you’re far less likely to take it back to Dodge, even if it doesn’t turn out to be as good as you thought when you bought it.

So for Dodge, it could be a win-win proposal. The money-back guarantee figures positively into the buyer’s cost-benefit calculation about whether to buy the auto or not, and once buyers get that car or truck home and have driven it, the endowment effect predicts that they are far less likely to return it.

Here’s the takeaway: Behavioral economics plays a powerful role in the decisions of both buyers and sellers. Failure to take advantage of these powerful forces means less money in your pocket.

 

Republished with author's permission from original post.

Patrick Lefler
Patrick Lefler is the founder of The Spruance Group -- a management consultancy that helps growing companies grow faster by providing unique value at the product level: specifically product marketing, pricing, and innovation. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.

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