Kevin Root Delivering a Keynote Presentation at the J.D. Power and Associates International Roundtable – 2007
This presentation covered the 2007 Dealer eBusiness Performance Study outlining industry performance and introduced social networking and consumer ratings of dealerships, and the impact on consumers’ decisions of where to purchase a vehicle. The study was conducted in partnership with Yahoo! and R.L. Polk.
A Positive Buying Experience is More Important to Consumers than the Absolute Lowest Price
Published in the J.D. Power and Associates Online Automotive Review
By Kevin Root, February 20, 2008
Cobalt recently released the 2007 Dealer eBusiness Performance Study: The New Buying Influences. This study was modeled after a report released in 2005 that examined dealer performance in handling online leads. After fielding a significant number of comments from our customers asking why and how car shoppers make decisions to purchase a car, we decided to dedicate a significant portion of this study to delve into what factors influence consumers to purchase.
Before I jump into findings, I want to lay the ground work and talk about the methodology we used. Our research concluded that vehicle purchase decisions are based on a combination of five primary factors or dealership “attributes:” price of the vehicle, quality of interaction with sales staff (and/or level of professionalism), loyalty to the dealership, location of the dealership, and the newest factor, online reviews and rankings written by other consumers. Today, with the constant barrage of advertising, consumers are becoming desensitized to traditional marketing messages and increasingly turning to others for insight regarding their shopping experiences. This demand has generated online reviews and rankings of businesses found on most search engines and other specialty sites. Online review and rankings are already influencing consumers so they’re an important component as we analyze how consumers arrive at their purchase decisions.
To understand how consumers are influenced by attributes like online reviews and price, a conjoint analysis was conducted using 1000 car purchasers to reveal the importance or “weight” of each attribute relative to the others. A conjoint analysis models “real-world” shopping behavior where consumers must trade-off some of one attribute for more of another to arrive at the dealership where they ultimately purchase a vehicle. A higher weight signifies greater importance to consumers than a lower weight. At the top are price with a weight score of 7.75 followed closely by professionalism of sales staff with 7.23. With these two top attributes almost equal in weight, it shows that professionalism of the sales staff is nearly as close to the same level of importance for consumers as price. Location and loyalty, commonly thought to be major forces in attracting dealership business, were found to be minimally important with weighting of 1.85 and 1.32 respectively.
Interestingly enough, online dealership reviews and rankings ranked strongly in the middle with a weight of 5.14 – below price and professionalism but significant enough to become the “swing attribute”. (Figure 1) While this technology is relatively new, this analysis shows the significant “pull” reviews and rankings can have on consumers.
A conjoint simulator was built to simulate how the five attributes work dynamically to show degrees of consumer preference for one dealership over another. Results of the simulator show that while price is the most important factor in deciding whether to purchase a vehicle – contrary to commonly held beliefs – getting the lowest price for a vehicle is not the single most important determinant for most consumers.
Perhaps most surprising, when choosing between a dealer with the lowest price but low level of professionalism from sales staff and a slightly higher, competitive price from a dealer who has a highly-professional staff providing a quality buying experience, most consumers are willing to pay a competitive price for a vehicle and not the absolute lowest price to get that positive buying experience. So here’s where online reviews and rankings exert their “swing” influence – consumers are reading about other shoppers’ experiences at the dealership to help them determine what kind of experience they can expect themselves. Mostly poor reviews means the dealership doesn’t put much value in providing a high quality customer experience while mostly good reviews means car shoppers drive away happy and satisfied enough to put the effort into writing about it.
To illustrate the scenario, the following two dealer profiles were developed:
- Dealer A is a volume dealership in a large DMA that offers the lowest price but with a sales staff that has a low degree of professionalism with high-pressure sales tactic and therefore the quality of interaction with customers is poor. A natural consequence of poor interaction is mostly bad online reviews from consumers.
- Dealer B is also a medium size dealership but with a focus on high-quality customer experience and services. Their pricing strategy is moderate to high. Dealer C has a professional, highly-trained sales staff and as a result, enjoys solidly positive online reviews from customers. For the sake of simplicity, location and loyalty are neutral for both dealer profiles
When attributes for Dealers A and B were plugged in to the conjoint simulator, Dealer B gets a whopping market preference of 94% while Dealer A’s preference is only 6% (Figure 2) as indicated by our 1000 car buyers. This shows that getting a competitive price is important to consumers but the quality of the interaction they receive from the dealership is pivotal and negates the argument that lowest price is the single most important factor in purchasing a vehicle. Online reviews and rankings are becoming an important source for consumers seeking information from trusted sources to get an idea of what kind of experience they’re going to have at a dealership. While reviews don’t make or break purchase decisions, they are becoming an important component in the dynamic of car shopping that dealers can’t afford to ignore.
While online reviews and rankings is still very new, adoption is projected to grow dramatically. Fifty-five percent of the car purchasers we surveyed were aware of websites containing consumer reviews of dealerships and 73% said they would be “somewhat likely” or “very likely” to use online consumer reviews when they purchased their next vehicle.
What should dealerships do to leverage online reviews? Smart dealerships management will embrace them as a valuable marketing tool and promote a welcoming and respectful sales environment where the customer is treated respectfully, promptly and transparently in all communication. Dealership management needs to train their sales staff and implement processes so every consumer is treated to a high-quality professional buying experience. The beauty of it all is that this type of experience feeds positive reviews which in turn attracts more customers. And by not having to offer the lowest price, a dealer may see an increase in per vehicle gross. Now that’s a positive experience a smart dealer can’t afford to pass up.