By Anders Parment
The car has been subject to great debate in recent years. Below, Anders Parment addresses changes in car buyer behaviour, and suggests what car companies can do to take advantage of these developments in the future.
The car has been subject to intense scrutiny in recent years. Urbanisation, traffic congestion, pollution problems, heavy reliance on scarce oil supplies and safety issues have provided challenges for car makers, politicians and urban planners in their efforts to organise transport, logistics and healthy living. At the same time, consumers, inspired by developments in other industries, have increased their demands, and strong consumer protection and easy access to up-to-date information have placed extra power in the hands of consumers. Everybody offering services is under constant customer surveillance. Prices of new cars are deteriorating, meaning less margins to manufacturers and dealers, and the tax burden on car owners is getting tougher. In some countries public opinion now favours heavy taxes on car ownership and use, in contrast to strong criticism of car taxation a few decades ago.
So is there any hope for car companies? Many people, even in bigger cities, will still need a car to organise their lives, get to work, and see clients, family and friends. An increasing portion of worldwide economic activity is taking place in non-Western economies where the car has hitherto been less questioned.
This article will discuss changes in car buyer behaviour and what car companies can do to take advantage of the development.
“Car buyers are strongly influenced by consumption culture with all the choices and opportunities that it offers, resulting in a fall in loyalty.”
Car Buyer Behaviour in Transition
Understanding how buyers think and behave is crucial to reaching success in the marketplace. The car manifests user freedom and has a strong role in economic growth. But cars also cause problems from a collectivist standpoint and may even create social isolation in a society built around cars to visit a DIY store, or see friends in their summer homes.
Car buyers may not know why they like, or prefer and buy a particular brand or product, so understanding consumer motivation is crucial. Car buyers are strongly influenced by consumption culture with all the choices and opportunities that it offers, resulting in a fall in loyalty. Popular culture is slowly moving away from cars as symbols of affluent living, and young consumers show a declining interest in cars. The percentage of people with a driving licence is going down and many other areas catch consumer interest and their wallets.
The power balance between companies and buyers is moving downwards. Most companies now offer generous return policies, extended warranties and other services, created and run to gain a competitive advantage, or to avoid being competitively disadvantaged.
A critical issue in the buying process is that buyers have little time. Hence, car companies must develop strategies to respond quickly and properly to consumer interest. Norwegian bank DNB offers a Dealerpad that makes it possible to complete the purchase process online in the dealer showroom. Easy navigation and a multitude of options for finance and ownership makes it possible to complete the purchase without any paperwork – it saves buyer and salespeople time, something that is necessary in today’s business landscape.
For young individuals, a strong preference for metro areas reduces the benefits of car ownership and a driving license.1
Driving rates are falling2 and the number and percentage of households with a car is decreasing.3 Higher fuel prices, improvements in technology that support alternative transport, and changes in Generation Y’s values and preferences have contributed to this development, and other modes of transport have gained impact. Bike trips have increased by 24 per cent in the 16–34-year-old cohort; walking has become 16 per cent more frequent and use of public transport 40 per cent more frequent.4
To young people, public transport is more compatible with a lifestyle based on mobility and peer-to-peer connectivity than driving. Reducing driving is also a way to contribute to a cleaner environment.
If the car was once the ultimate symbol of freedom, it is now restricting young people’s lifestyles. However, BMWs electric car i3 and the hybrid sports car i8 represent part of a solution for sustainability concerns while at the same time offering mobility in an attractive package.
Buying Online
A recent study investigates car buyer preferences and behaviour.5 Since the mid 1990s, car manufacturers have attempted to sell cars online, but often with few exceptions it has been with very weak results. However, car buyers want to buy cars from dealers and this preference is even stronger among young car buyers. Young buyers are surprisingly comfortable with car dealer location in industrial areas or along ring roads. (See Figure 1)
Owning or Renting?
General belief suggests that consumers, in particular young people living in metro areas, increasingly prefer flexibility and not owning products, hence avoiding the inflexibility and lock-in effects that inevitably come with ownership. The car does not, it seems, fit with this general belief. Regardless of age, country and market area (metro, city, rural), respondents show a strong preference for owning the car. (See Figure 2)
The results on this question suggest that the car has a very strong position as a personal item and also, to a large extent, as a status symbol. Why else would the percentage of respondents willing to pay more to own the car than to rent it be almost 40 per cent, while only 1 per cent prefer to rent the car if the cost is higher?
What Can Car Companies Do?
Car buyers are increasingly aware, enlightened individuals who know how to take advantage of the opportunities that today’s society and markets give them, and they evince flexible purchase patterns. The lack of a genuine interest in cars among young car buyers has forced some car makers to fundamentally rethink their design and marketing approaches to regain acceptance. Mercedes-Benz is running a fashion week in key metro areas twice a year, and by hiring celebrities and attractive locations the company hopes to regain a strong position in popular culture. Citroën is introducing numerous new models in the colourful DS series, and BMW has launched innovative i3 and i8 models.
“To young people, public transport is more compatible with a lifestyle based on mobility and peer-to-peer connectivity than driving. Reducing driving also contributes to a cleaner environment.”
Overcompetition, transparency and overlap of businesses
Over time, transparency has increased, something that reflects a transition from companies being in power to consumers having the upper hand. It has become more difficult to sell a car with a poor reputation: information about mileage, inspections, repairs, owner history etc is available to buyers through services such as CarFax. Transparency protects buyers and contributes to improving industry reputation. The buyer’s risk of getting a “lemon” is lower than ever before.6
Overcompetition causes tension between manufacturers and dealers, i.e. between a standardised approach and local adaptation. A car maker CEO puts it thus: ”We take the customer relations much more seriously than our dealers. Generally, the dealers are very nervous, and they have every reason to be, because most of them haven’t changed the way they operate for the last 30 years, and the world has changed… From the customer’s point of view, one of the key points in retailing is to always dream of this as a factory, to have standard processes.” Such a perspective underestimates the role of the locally anchoraged dealer.
Dealers will be necessary in the foreseeable future
The buyer wants a dealer and from an efficiency point of view, it would hardly save a lot of costs to sell cars at Carrefour, Hornbach or Tesco. Test-drives, product demonstration, and knowledgeable sales people are necessary ingredients of a car sale – and taking a trade-in car and offering a repair shop that changes to winter tyres or installs a towbar in house may be an advantage. A good dealer can put together a great package and give the customer a clear benefit: one point of contact, convenient and competent. Key in approaches to make cars available for younger buyers is removing risks and offering flat monthly rates.
Car makers’ attempts to maintain and increase market share is reflected in expanding model ranges. Audi introduced its first SUV, the Q7, in 2006 – and there’ll soon be a Q1, Q2, Q3, Q4, Q5, Q6 and Q7. BMW will soon provide an X1, X2, X3, X4, X5 and X6. Mercedes will have the MLC, ML, GL, G, GLK and GLA Class. An interesting development in the broadly defined SUV vehicle type that was introduced by European manufacturers with the US built Mercedes ML introduced in 1996. For car makers, creating new products is a way to meet buyer preferences but also to gain risk diversification. Different models do well in different economic climates, and in different stages of the product lifecycle. If a new product is not very successful, a company with few models will face severe problems, while car makers with 10 to 20 models are more likely to survive competition.
The Car in the Branded Society
The car industry early used branding on a broad basis. Annual product upgrades were introduced in the 1930s and gave car buyers incentives to change cars frequently.7 Cars have been widely displayed in many aesthetic contexts: house, clothing and travel advertising and magazines; popular music; movies, television programmes and other popular cultural contexts. The abundance of products offered forces companies to differentiate their products from an aesthetic point of view. Regardless of whether one sees the car as a gorgeous lifestyle item or something that is consistently stuck in traffic jams, creates enormous amounts of emissions, causes death and destroys cities, the image of the car has strong connections to aesthetics and branding.
In customer surveys, the software – attitudes and customer treatment – is seen as more important than the hardware. Meanwhile, extensive effort is spent on making sure showrooms are in line with corporate identity – normally an enormous investment for dealers – while only a few measures are taken to control attitudes. Mystery shopping is typically applied twice a year to control whether customers are addressed and treated properly. A modern approach must include the hardware as well as the software. Theodor Levitt presented in a very influential Journal of Marketing article more than 50 years ago the ”marketing myopia” insight: companies tend to define the industry in which they operate too narrowly.8 These insights are still highly relevant. The car is to an extent in the transport industry, but it is also a product bought for reasons of showing off, a hobby, a way of belonging, or self-realisation. Industry definitions are closely linked to purchase criteria – and purchasing power. Understanding to what extent different motives drive a car purchase may be crucial in knowing how to deal with environmental and competitive forces, and competitors’ moves.
Auto Brands of the Future – Beyond Premium Brands
Car makers often refer to upmarket brands in defining their competitors. Studies reveal a substantially higher satisfaction for premium dealers compared to their volume counterparts, and this is also largely reflected in dealer satisfaction surveys. Premium brands show higher attractiveness in relation to a variety of stakeholders and higher margins, and they can hand pick their dealers since dealers often want to go upmarket. Car makers, dealers and customers share the tendency to strive for higher society. Customers may be willing to pay higher prices for maintenance and repairs. However, the premium brand segment has become very crowded, hence, the option to ”go premium” is likely to lose attractiveness. There may be many other dimensions, hitherto not very well researched, to define a strong or attractive brand than its ”premiumness”.
Premium brands grow through targeting the mass market by offering large discounts to private buyers and very attractive fleet car conditions to companies. Consequently, social acceptance has increased. Few people now turn their heads when they see an Audi A3 or a Mercedes-Benz C180, and the number of sales reps driving Audis, BMWs and Mercedes-Benz has increased significantly. Premium auto brands take market share and price premiums are going down. Premium products used to be expensive and rare.9 Now they are neither which, in combination with a decreased interest in cars, provides a huge challenge for premium car brands. This tendency is strong in many European markets but less in markets with very high taxes on luxury cars (eg Thailand, Norway and Australia).
The success of premium brands is convincing but a more pronounced desire for value for money may decrease buyers’ willingness to pay for premium car qualities. The next generation of car buyers will most likely buy cars that are sustainable, affordable, practical and convenient – but also deliver on design and emotional appeal.
Beyond ”premiumness” there is an opportunity for brands that aren’t mainstream or traditional premium brands. Saab was known for attracting architects, doctors, engineers, and journalists. They didn’t want a mainstream premium brand that might be associated with newly-rich people who want to brag. Brands like Jaguar, Volvo, and Alfa Romeo aren’t mainstream, neither are they cheap to own, but they have a coolness that appeals to some people – not to everybody, and that’s the point of not being mainstream. Another opportunity is to launch new brands. Since the launch of Lexus and Infinity in 1989, and Tesla in 2003, few new brands have emerged while many brands have been discontinued (e.g. Plymouth, Saab, Pontiac, Saturn, Hummer). As long as there is a strong car maker group in the background, launching a new brand might be an attractive option just like Insignia, 1 Series and CLA are new names within the portfolio of an existing car maker. Not having a brand heritage may hinder immediate success but also give opportunities to build the brand from scratch.
“The next generation of car buyers will most likely buy cars that are sustainable, affordable, practical and convenient – but also deliver on design and emotional appeal.”
Understanding mobility in the future
Car companies have to take an active part in shaping mobility for the future, something that demands a balance between global requirements and individual needs. Young consumers show a higher awareness of their social responsibility and want to organise their lives in a sustainable manner. Integration with other modes of transport is a crucial part of the car industry’s future. For instance, car-pooling shares the financial and ownership logic of other modes of transport. Each vehicle on average replaces eight privately owned cars and eliminates the need for nine parking places.10
The self-driving car will soon become a reality and generate numerous advantages. There will be fewer traffic collisions since the autonomous system has higher reliability and lower reaction times than humans. Roadway capacity will increase since superior traffic flow management with shorter distances between cars generate many advantages: Improved fuel efficiency, lower emissions, less congestion, shorter travel times and smoother journeys. The self-driving car works even with impaired drivers and parking scarcity will be reduced since cars could drop off passengers, park far away, and return to pick up passengers. Costs for traffic police and vehicle insurance will go down.
There has been intensive debate over existing fuels. The effects of different fuels, however, are unclear and many research reports are based on assumptions that might be questioned. The same holds for electric cars. Numerous makers of electric cars have gone bankrupt but the great performance of Tesla looks promising. Market penetration is largely conditioned by the development of infrastructure.
A key question in the design of cars for the future should be what buyers, particularly younger buyers, will expect and want from cars. It is unlikely that young car buyers prefer the joy of driving to saving the environment for future generations. And it’s indisputable that the trend towards more sustainable use of the car will continue.
About the Author
Anders Parment, Ph. D., is a research fellow at Stockholm University and an established brand and business consultant in the automotive industry. Anders has dealt with the industry’s challenges since the late 1990s from a variety of perspectives. Key customers include Audi, Citroën, Porsche, Saab, Seat, Volkswagen and Volvo in addition to major banks, consultancy, insurance and finance companies, governments, authorities, and professional organizations.
References
1. Parment, A. (2014), Auto Brand. Building Successful Car Brands for the Future. London: Kogan Page.
2. Sivak, M and Schoettle, B (2011) Recent Changes in the Age Composition of Drivers in 15 Countries, University of Michigan Transportation Research Institute, Chicago, IL
3. Kuhnimhof, T, Wirtz, M and Manz, W (2011) Lower Incomes, More Students, Decrease of Car Travel by Men, More Multimodality: Decomposing young Germans’ altered car use patterns, Institute of Transport Studies, Karlsruhe
4. Davis, B, Dutzik, T and Baxandall, P (2012) Transportation and the New Generation: Why young people are driving less and what it means fortransportation policy, Frontier Group, US Pirg Education Foundation, Washington, DC
5. Litman, T (2012) The Future Isn’t What it Used to Be: Changing trends and their implications for transport planning, Victoria Transport Policy Institute, Australia. The study is based on 4,707 complete surveys in the United States (1,014 surveys), China (1,040), Germany (1,623) and Sweden (1,030) reveals some interesting findings among three generational cohorts: 20–23 years old (1,492 responses), 30–33 (1,461) and 50-plus (1,754), the latter representing the hitherto strongest segment of car buyers in major markets. See Parment (2014) in which the study on car buyer behaviour is presented in more detail.
6. Akerlof, G.A. (1970), The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism, The Quarterly Journal of Economics, 1970, 84(3), pp 488-500
7. Scherer, F M (1996) Industry Structure, Strategy, and Public Policy, HarperCollins College Publishers, Harvard, MA
8. Levitt, T (1960) Marketing myopia, Journal of Marketing, 38 (4) pp 45–56
9. Kapferer, J-N (2012) The New Strategic Brand Management: Advanced insights and strategic thinking, Kogan Page, London
10 Diem, W (2013) Decline of car culture under scrutiny in France, Wards Auto Europe, 11 June