“Convergence of Art and Science”
As we discussed in the previous parts, pricing in the used car industry is all about guessing. This leads us to ask the following question - how can pricing become more rational and scientific?
Before we get there, we need to recap and understand the following - why pricing in the used car industry is more of an art and not science?
In the previous two articles we highlighted that most of the used car transactions take place in the unorganized space and there was no clear mechanism in place to study/analyze these transactions. The bottom line is that in the absence of data we rely on guesstimates and capability to negotiate and convince.
The solution (and the next logical step) is to collect data and we at Indianbluebook.com have compiled over 2 million actual transaction data - data of prices at which the cars were sold or bought. We compile this data across various channels, be it studying customer-to-customer transactions taking place in the certified and non-certified dealer channels or auctions data or loan forwarded data of cars being financed.
We have exclusive access to these data sources and have developed a mechanism to periodically replenish the database with recent transactions.
The other important reason for which used car pricing seems a difficult science is the amount of permutations and combinations that go into pricing used cars. Over 3000 car variants exist in the used car market, in which each car is owned and driven by millions of different users. One has to combine the qualitative aspects of the car, such as who drove and maintained the car, with quantitative aspects such as vehicle life, depreciation and market demand for the car, etc.
The lack of a scientific tool to mine this complicated data is also another reason why used car pricing was never a science.
We at IndianBluebook with our automobile expertise of having physically inspected over 2,00,000 cars and having studied the depreciation forecast for a range of top car makes and models, for over 2 million transactions, have developed a power price forecasting engine. We have also developed built-in mechanisms to track the micro and macro changes in the car industry, for example, diesel and petrol price differences, discontinuation of an old model, changes in duty and taxes, etc. We regress this massive amount of data through our algorithm to arrive at the benchmark price. We call this ‘Precise Pricing’.
Why do we call it Precise Pricing?
This is because we provide the benchmark range that a seller and buyer can reference for negotiation. It is within this range that the optimum price discovery takes place. It is at this price that both the seller and buyer are happy. We do not promise a seller the best price or a buyer the best bargain. We merely provide the precise price - the price at which both parties to the transaction are happy and would not end up in post transaction dissonance.
We have a daunting task ahead in our journey of precise price discovery in the Indian used car market. Given the complexity, vagaries and unorganized nature of the Indian market, price discovery is not easy. But no matter how formidable the task, we believe we have the mechanisms in place that will help changing the canvas of the used car market and are confident in the science of precise pricing becoming the new art of used car pricing.