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Have You Ever Been a Victim of the Phantom Discount?

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A few months ago, my wife and I were buying a new car and I felt something shady going on. Doesn't everyone get that when buying a new car? The dealership offered a military discount, which, as a military family, was of interest to us. They asked if we were in the military before any negotiations of a car took place. There's nothing wrong with that, right?

I'm more skeptical than most by nature. I think it keeps the mind sharp thinking about ways to beat the system... or in this case how the dealership might get us to pay the most and thus maximize their profit. In a scenario where the price isn't pre-determined, asking about the qualifying discount can be seen as potentially shady. Here's why:

Customer A, who qualifies for no discount, comes in and negotiates a $30,000 sticker price car to $27,000. She did all the research online and knew around where the price should be and came out with what she considers a good deal.

Customer B, who qualifies for a discount, comes in likes the same $30,000 sticker price car. The salesman asks about the qualifying discounts. The customer honestly answers the dealer. Negotiations start and he does a good job negotiating getting it down to $27,500. The salesman knows he's going to get the $500 discount (for military or other reasons) and plans that into his negotiating... setting his floor at $500 more.

Customer A and Customer B walk out of the dealership having paid the same price. The qualifying discount only served to drive Customer B into the dealership and believe that he is getting a special deal.

For this reason, whenever I know I qualify for a discount, I try to hang onto that information until the end and then cash in on the $500 discount. Sometimes it's easier said than done.

This came up again recently in a search for a cleaning service. Once again, there's no pre-determined price for a cleaning service. They like to look at the home and get an idea of size and time it takes to clean. Over the phone, my wife got the service to say $135 per cleaning for house our size. (I had pre-coached my wife not to disclose our military status due to the discount mentioned on their website). When the company representative came by for a tour, she asked about the military discount. With a point blank question, I had to say that we were military. When it came time for the quote, it was... $135. I questioned her on that because we were quoted that before the military discount over the phone. It would be an usual coincidence if our home was more difficult to clean than they planned to just the level to negate the military discount.

The representative said that the price is usually $150, but with the 15% military discount, it would be $135. At the time, I didn't even think that it would be a 10% discount to bring $150 to $135. If it really was $150, it should be $127.50 with the discount. One again, I felt this was shady... offering a phantom discount to position the business as military friendly.

In the end, I'll really never know if these people were truly giving a discount or just using it as a carrot to get customers in at a regular price. However, if you are running a business, I highly suggest that you don't play this game. Put the numbers in writing and then ask if there are discounts at the end and the customer will know that they are truly getting a discount. I imagine that this won't happen, because it's easier to sell most consumers on a phantom discount and come out roses for having provided the perception of a good deal while still getting a good price.

Posted on July 11, 2013.

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4 Responses to “Have You Ever Been a Victim of the Phantom Discount?”

  1. Steve says:

    Such discounts are little more than a marketing gimmick sometimes. Other times they are funded by the head office, government, etc and the salesperson is actually stealing right from your pocket. In the end, they won’t do a deal that is unprofitable for them, and if a marketing discount makes it so, they’ll simply decline.

  2. This is just the good old marketing game. It is played everywhere. These companies know that discounts will get people in the door. I do think that if you are going to offer a military discount, then it better be a true discount, not a phantom one. Sorry to hear of the troubles.

  3. Kevin Watts says:

    When it comes to negotiations on price the more information you have the better position you have to negotiate. I’m in sales and when I am signing a new customer I always lead with my best price since I think in terms of volume. However if it’s a current customer and I know what they are paying then I can up-sell on price.

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