What’s driving the changes in car-buyer behavior?
In his new book, Auto Brand – Building Successful Car Brands for the Future, Anders Parment discusses how the leading car brands have survived the challenges of globalization, increasing safety requirements, scarce oil supplies, ever-growing competition and environmental concerns – and thrived. Based on original research, Parment charts the shift from over 40 leading car makers in 1970 to the current 10. This article, adapted and edited from a chapter in the book, discusses the car buying process based on recent research and puts the process into a broader framework where car makers and their dealers can relate the insights to their own business models and strengths, thus identifying potential improvements in their dealings with customers.
Regardless of age, consumers now have more power than ever in relation to companies. Most companies now offer customer call centers, customer care programs, generous return policies, extended warranties and other services, created and run either to gain a competitive advantage, thus driving operating costs and customer expectations, or to avoid being competitively disadvantaged.
We see this in most industries. A few decades ago, universities seldom undertook marketing activities beyond publishing catalogues with information on courses and programs. This practice reflected the power balance at the time: there was a scarcity of university courses and admission was difficult. Individuals were happy to be admitted and universities were seen as authorities. Today, everybody offering services is under constant customer surveillance – whether it is a doctor, a car mechanic or a school teacher.
Car managers and salespeople who take the time to understand customers, buying behavior and the buying process derive strong benefits, while those who don’t understand customers, how they think, what motivates them, where they live, what music and clothes they like and so on lose competitive power. As customer orientation is getting stronger in many sectors, salespeople who stick with what worked in the past and don’t develop can’t compete with the new breed of customers – and their existing customer base is likely to erode.
Looking at results from the Car Buyer 2013 Survey, two types of important knowledge for decision-making in the car industry can be derived – knowledge about what car buyers evaluate when buying a new car, and generational differences in this respect.
(The questionnaire was sent to three generational cohorts in the U.S., China, Sweden and Germany: 20-23 years old [1,492 responses]; 30-33 [1,461] and 50-plus [1,754], representing the 1990s cohort, the Generation Y/Millennials cohort and the Baby Boomer cohort that represents the hitherto strongest segment of car buyers in major markets. Age categories are hence representations of specific generational cohorts, based on cohort marketing assumptions. In addition, the results were categorized based on market area, dividing respondents into metro areas [areas with 800,000+ inhabitants; 1,545 respondents], city areas [80,000–800,000 inhabitants; 1,441 respondents] and rural areas [less than 80,000 inhabitants; 1,692 respondents].
In the first part of the survey, criteria that consumers express when buying a new car are examined, starting with a generational cohorts perspective. It is important to note that as older people are likely to have more experience when it comes to car purchase, their preferences are more likely to be persistent. The 20-to-23-year-olds are still in the formative phase and may change their opinions substantially.
As with other durables, the car purchase process is relatively lengthy and based on research, hence the location is not as crucial as for fast-moving consumer goods, which are sold quickly and at low cost. Something that really matters, though, is location convenience: by establishing a car dealership in a cluster – often called Ciudad Automóvil, Automobilstadt, car plaza, etc. – or at least easily accessible by car buyers, the threshold for seeing the dealer is lower.
The basic idea of a car dealership, especially among young car buyers, is that it provides a wide range of services. As almost every other car buyer, and even more among the young ones, sees it as crucial, car dealers should make sure they offer or at least can organize just about any service related to car ownership. That will make the dealership stronger and more financially sustainable when cost-efficient solutions that offer a limited range of services at low prices emerge.
A strong argument for offering new cars in key city locations (a practice that has been more common in recent years, long after car dealerships left city centers), is that it will be easier for younger buyers in particular to access them. Young people, often new graduates, with good jobs and living in downtown locations, may be difficult to reach without a city showroom with some dealership services – you need a car to buy a car. Maybe surprisingly, but consistent with the findings in a survey question on dealer location, young car buyers are not any more positive than older ones when it comes to dealer accessibility. A reasonable strategy for a proactive dealership could be to offer accessible – but not city center-located – dealerships and then run marketing campaigns on city locations and in cooperation with companies in other industries, e.g., hotels, fashion clothing, furniture, music and entertainment.
Consistent with the increased aesthetic orientation in the society that young individuals – born in the 1980s and 1990s – grew up in, the attractiveness of the showroom is more important for young buyers. But even more important, and also consistent with clear patterns in dealers’ experiences, is that the software appears to be significantly more important than the hardware; that is, the buying experience is significantly more important to young individuals. The same holds for the dealer’s attitude and customer treatment: when potential buyers meet the dealer, all generational cohorts find these critical, but even more so with young individuals, who are used to good customer treatment, extensive service and many choices (Parment, 2011a; Schewe et al, 2013).
A low price is critical for about 65 percent of buyers and not important at all for slightly more than 5 percent – here, no differences related to age and cohort exist. In dealing with the tension between saving costs on the one hand and differentiating the offer and delivering superior, brand-tailored services on the other, it seems that young people expect more from the latter while the desire to make a good deal does not change with the new generation of car buyers.
Another aspect of dealership availability is the opening hours. A strong tendency over time in the service sector has been to provide longer opening hours – supermarkets, dentists, hairdressers, pharmacies and shopping malls all have extended their opening hours (although some countries place restrictions on opening hours). Spanish departmental store chain El Corte Inglés used to be open until 10 p.m. (in some cases slightly later) but closed on Sundays; it now provides open stores every day for customers looking for the latest fashion and accessories, perfumery, cosmetics, watches, groceries, sports, home electronics, books, toys, souvenirs – or a travel agency, an insurance office or an optician.
The implication for car dealers appears to be clear: longer opening hours! But it’s not as valued by car buyers as one might think, and the cost of running an automobile dealership late at night is very high. An opportunity would certainly be to have the showroom and the pick-up from the service department open late at night – and let other parts of the dealership stay closed. But if the point of seeing a car dealer when other opportunities to buy, maintain and repair a car emerge is superiority in terms of service range and quality, it is doubtful whether the strategy to offer just a limited amount of services is useful. The paint shop and the body shop could certainly be closed at 9:30 p.m. but if the customer wants use the dealer’s car wash, buy additional insurance, test-drive a new model that has been heavily advertised or talk to a salesperson, closing down key activities may save costs but result in missed opportunities. In addition, large facilities with no customers don’t give a great shopping experience to most shoppers: a dealership with personnel, activities and customers frequently showing up is livelier and hence more attractive to customers, staff and others – here’s the place where things happen! Needless to say, this is easier if the location is good.
Not surprisingly, a good Web site is more critical to younger car buyers. Every dealer must have a Web site, and providing a decent Web site is not very expensive, but the question is whether a Web site could constitute a competitive advantage. To a car maker it could; to a dealer it’s more doubtful since the dealer is normally accessible through offline means and customers as well as dealers want the face-to-face contact.
Ease of contact is a key criterion. The opportunity to contact the dealer is appreciated and this certainly holds for young car buyers. Dealing with e-mails, Facebook groups, Instagram, Web forums, etc., is a difficult venture. First, a car company must know “the language,” the codes of conduct and the culture. It may be a shock to people not used to this type of communication to look at feedback, which is often direct and rough. Hence, a car company, like any other company, can’t be too defensive or too offensive in dealing with people in social media. Second, the way of communicating in social media may not be the best channel for offers and discussions with clients on run-down trade-in cars, repairs after an accident, an invoice for a costly 100,000 mile/160,000 km inspection for a car owner who can barely afford it or whether it’s time to change winter tires or use the old tires another season. These are sensitive issues that are costly for the car owner and may involve decisions with an impact on safety and resale value. Third, the way the car company appears in this type of channel must be consistent with the overall strategy and with other communication efforts.
While car companies are forced to communicate through many channels, because of pressure from the competition, high sales targets and buyer expectations, dealers may decide to have a presence in social media channels but don’t work with them intensively. Whether that’s a clever or (too) defensive strategy depends on the situation at hand, but one thing is sure: companies that deal with emerging channels because they are under pressure to do so but lack the necessary motivation and knowledge, may not only be unsuccessful but also appear in a way that has a negative impact on the brand.
Numerous car manufacturers – e.g., BMW at the introduction of the i3 electric car – have announced they will start selling cars on the Web. But car buyers don’t want to buy cars on the Web and the survey found this preference to be even stronger among young car buyers. Although the typical car dealer location in industrial areas or along ring roads may not be ideal for reaching young buyers, they are very comfortable with this dominant design. The very weak preference for Internet sales was also clear in an earlier study in 2009 (Parment, 2011b) and while many car companies have invested enormous amounts of money over the years in Internet sales, with few exceptions it has been with very weak results. In metro areas, it’s a good idea to run a showroom in a central location as a complement to a larger dealership.
As with their view on the car’s role as status symbol today, older respondents have less confidence in the car’s role as status symbol in the future. However, all generational cohorts share the belief in the car being a strong status symbol in the future.
In addition, there is a relatively strong belief in the car’s role as an important means of transport in the future across the generational cohorts. This is good news for car companies and a strong argument against proponents of a society with less emphasis on the car as a means of transport.
Excerpted with permission from Kogan Page.