Question 1

Why is automotive market research important?

Accepted Answer

In the automotive industry, market research is important for designing vehicles, evaluating new features, testing new names, optimizing CX/UX, pricing, and tracking perceptions and satisfaction. Automotive manufacturers and other industry players use the data and insights generated throughout their organizations to drive product development, product line management, marketing, sales, advertising, brand management, customer management, and business planning. The automotive market is actually several distinct markets characterized by well-defined consumer and business needs plus intense competition. Within a car class, such as compact or luxury, automobiles are designed to specific use cases, such as “economical daily travel” or “stylish and comfortable transportation,” and listed within price ranges that are usually well-defined. While a single individual may own both a compact car and a luxury car, they do not shop for them simultaneously and have different criteria in each purchase scenario. Competition is very keen within each class as several manufacturers will offer vehicles with equivalent performance, but each must stand out in terms of brand, features, options, price, and so on. These factors underscore the importance of market research as manufacturers need to have very granular insights regarding how shoppers perceive the alternatives and decide between them, and they must have such understanding within each class and geographic market in which they compete. They need to understand which features or enhancements consumers within each class prefer, whether each feature is a “must-have” or optional, whether consumers understand it to be different from what a competitor offers, and how it impacts the overall value proposition. If consumers value it more than what the best alternative offers, they should be willing to pay more it. If not, price may need to be lower than competition. Automobiles are complex products which are critical to consumers’ lives and well-being and usually purchased after a high-involvement shopping process. Market research is necessary to make sure that your offering is optimized to beat competition class-by-class and that target consumers know that it is.

Question 2

What are the important methods and approaches for automotive market research?

Accepted Answer

As with many other industries, quantitative surveys, focus groups, CX/UX, VR, and brand and satisfaction tracking methodologies are important to the automotive industry, but in-person approaches are also important because so much of the purchase decision-making is made via direct experience with the car. Although other industries also use mock stores and product clinics, the automotive industry has a long tradition of inviting consumers to central locations to evaluate competitive vehicles. In these car clinics, consumers can experience the cars visually and tactilely, not just in a dry, intellectual way via review of specifications. Typical quantitative surveys can range from simple ratings exercises used for brand tracking and satisfaction measurement to more sophisticated conjoint or choice-based exercises in which multiple aspects are compared simultaneously. One of the keys to successful automotive ratings research is to ensure that the respondent has experience with the makes or models to be evaluated. It may be fairly straightforward to ask a driver to rate their current vehicle but trickier to select an appropriate set of competitive makes which the respondent would consider as alternatives. New vehicle purchases can be influenced strongly by inertia for the current make and model: a driver may be more likely to buy a particular model simply because it is the one they currently or “have always” owned. Various kinds of tracking surveys enable you to understand the strength of this “brand inertia,” what drives it, and whether competitors are coopting aspects of the image or chipping away at its advantage. Conjoint and choice-based surveys measure trade-offs across different aspects of vehicles, such as interior space, typical mileage, upholstery material, or price. You can combine these trade-offs to build hypothetical “cars” that were not tested directly in the survey and see which configurations are most valued. If price is included, you can also use these results to test competitive price points, provided the survey has adequately represented the most salient value aspects in the trade-offs, or you can use these to compute willingness-to-pay for specific features. One of the challenges to these approaches for automotive research is that the actual purchase decision often includes more factors than can be covered in a single interview, and this must be addressed in the design. Some studies will choose to include a large number of aspects by using a maxdiff approach, while others may focus on a distinct subset of features, such as options packages, and apply a menu-based choice methodology. Focus groups are particularly useful for topics that can benefit from a group discussion. They do not provide deep insight into each individual, but they can produce insights that could not come from independent in-depth interviews or IDIs. They can be particularly insightful in automotive research due to the high-involvement purchase process. In reality, most purchasers would not buy a car without discussing it with people they trust, and this experience may lead to different purchase outcomes. Although members of a focus group may not be “trusted advisors,” the group discussion simulates what could happen during the purchase process and enables automobile marketers to understand which arguments are most convincing to buyers. CX/UX research is also important because the in-car experience is key to both purchase and repurchase. A superior experience at the dealer may make the difference in a sale, and a great experience over time may lead to a no-brainer repurchase. Of course, credible customer satisfaction tracking will identify whether this experience is being delivered or not. The dealership experience is also critical, leading auto makers to introduce virtual reality (VR) experiments for showroom design as well as driver experience optimization.

Question 3

What are the key market segments in the automotive industry?

Accepted Answer

The dominant segmentation in the automotive industry is a product-based segmentation. Cars are classified differently across different countries, but they general include the following segments: Mini- or sub-compact Small family or compact Large family or mid-size Executive or full-size Luxury saloon or full-size luxury Minivans or multi-purpose vehicles (MPV) Sports/performance Off-road or sports utility vehicles (SUV) While product-based segmentations can be less useful than needs-based or behavior-based segmentations, this approach works at the industry level because these classes approximate consumer-based segments. They represent different configurations by size, purpose, and price, and these act as rough proxies for transportation needs, preferred experiences, and socioeconomic groups. Because they are effective, these segments are important in research to ensure that respondents are prompted with relevant stimuli. For example, a consumer who is shopping for a compact car is likely to have everyday transportation needs for a small number of passengers, to need to move large loads infrequently, and to have set a price threshold toward the more economical end of the spectrum. The compact car shopper is not likely to also consider a sports car or SUV because these do not match their needs or budget. No doubt they can express opinions about sports cars and SUVs and even trade off prices within those classes, but those opinions will never be part of a real purchase decision, nor will those prices ever be paid by them. Further, if you ask them to make choices across compact cars and SUVs, you will get less information than if you showed them only compact cars because many of the alternatives will be irrelevant, and all you will learn is that they really are shopping for a compact car and nothing about what they prefer in one. Each car class also has subclasses. For example, sports cars can be further segmented into sports sedan/sports saloon (sedan with sports car-like performance and handling) and supercar/hypercar (highest performing cars). Other kinds of automobiles include motorcycles, buses, single-unit trucks, and tractor-trailer trucks (semis), and each of these also correspond to distinct types of purchasers, with buses and trucks purchased almost exclusively by businesses and other organizations, such as large corporations, small businesses, rental car firms, utility companies, and government agencies. Individual consumers versus fleet purchasers represent another major dimension for segmentation. Other segmentations are used within the automotive industry which are derived from consumer demographics, geography, needs, behaviors, and attitudes rather than car classes, and these can be performed across or within classes. For example, a segmentation across classes might discover a distinct group of consumers whose purchases are strongly influenced by concern for the environment. Their needs might be met by actions taken across classes such as offering hybrid models, maximizing recyclable parts, and minimizing the environmental impact of the manufacturing process. A segmentation within a class might find that single and married SUV buyers have distinct needs, and the manufacturer might develop different models, option packages, and/or marketing messages to optimize targeting of each. Although those who purchase automobiles for personal use or fleets drive the industry, other players may be important to understand as well. These include aftermarket parts manufacturers, service centers and dealerships, personal insurance companies, and auto parts and accessories stores.

Question 4

What are the 4 major challenges to automotive market research?

Accepted Answer

Automotive market research is especially challenging with respect to ensuring data quality, managing the complexity of the product offering, measuring intangibles, and presenting meaningful stimuli. The foundation of automotive market research is matching the issues you need to know about to the consumers and sources that can provide the most relevant input. On the plus side, samples can draw on millions of consumers who buy new cars each year, but, on the minus side, sample can get quite small and difficult when you narrow them down to the makes of interest, recency of purchase, and other criteria. In such situations, screening criteria must be very precise and clear, and data quality sentinels must be on high alert. Larger universes are likely to have more poor respondents in them and, while it is likely that potential respondents will accurately answer the broader criteria, such as car ownership, their memories may get hazier on the specifics, especially if they really want to participate in research. Further complicating the situation, two respondents who own the same model may differ in other ways that could invalidate them for certain research because of options packages, special deals, or the particular edition of the model, and these differences must be accounted for. Often, you will want to ask about not only the car they bought but the ones they considered or of which they are otherwise aware. You must make sure that your analysis includes only “true” alternatives, and you should try to understand the respondent’s depth of experience with the alternative. Someone who test drove the new model will have a deeper level of credibility than someone who merely saw an ad. Of course, you can restrict the data to the model that was actually purchased, but you are likely to find that almost everyone likes almost everything about the model they bought, but you will learn little about how they came to select it. Research with prospective buyers can be valuable, but may be even more difficult to validate. For example, a respondent that really likes Porsches may believe they’ll buy one “someday” and might be eager to take a survey to answer questions about Porsches but has no real chance of buying one in the next 10 years. A possible way to deal with this is to ask them questions about themselves that might associate them with a car class before asking them anything about cars, especially if you have prior research from which you can develop a segment scoring model. Another challenge is the complexity of the product itself. There could be multiple decision criteria associated with basic performance, as well as with exterior design, interior design, features associated with driving, features associated with comfort, and so on. Pricing can have several dimensions, even if leasing is not included, and service agreements can also be multi-faceted. Certainly the dealership and its personnel influence decisions, too. The researcher has to choose where to focus and how to explain what is not part of the research. For example, if you want to measure purchase intent for a car if certain features are included and you measure only those features, you need to account for the value provided by the rest of the car because that has the greater influence. In other words, some of the answers you would like to have depend on more than what you have the capacity to measure, so you must account for those in how you report the results. As complex as a car is, the decision to purchase one can also be complex. If the car is purchased for a family (or a fleet), there may be multiple decision makers involved. If the shopper has never owned a car in that class before, they may take more and different steps than someone shopping in a class from which they previously bought. In some cases, the shopper may pursue financing outside of the dealership. As a high-involvement purchase, many sources may be consulted and many alternatives may be considered. In designing your research, it may be important to consider whether these factors are relevant to your topic or not. In automobile purchases, intangibles may be just as important as measurable specifications. An alternative with objectively “better” specs may lose to one that the shopper “fell in love with” at the dealership. It may also lose to an inferior, more expensive model from a brand the shopper trusts; if they always bought a certain make, they might never shop for a different one, let alone buy one. It is important to include some research that measures the value of these intangibles in addition to the value of physical characteristics, specs, features, price etc. because they will have a very tangible impact on purchase decisions. You should know how much consumers value your brand versus alternatives and measure the “brand equity” trends. Customer satisfaction research can be an input to this, and brand tracking can help diagnose the drivers of these trends so that marketing and advertising can be adjusted. As the industry evolves, cars within a class can become commoditized on their major performance attributes, pushing the opportunity to differentiate and charge a premium to less critical features and options, especially those which enhance the in-vehicle experience. Consumer preferences and willingness to pay must be measured accurately for these enhancements while properly accounting for their preferences and values for the overall vehicle performance, vehicle make or brand, and, increasingly, other brands that may be involved in delivering these experiences. Market research might also include unstructured data, such as sales data, and Big Data analytics can fill in some of these gaps just discussed. It may provide ways to derive brand value, and it may also help to explain the gap between survey measures and “real world” results. The automotive industry certainly has access to a wealth of unstructured data, and there are many ways that Big Data analytics can provide valuable insights. Market researchers in the automotive industry should not overlook the opportunity to use it to “calibrate” survey results to market behaviors. The fourth major challenge is how to present relevant stimuli in a meaningful way. For example, new car sales are driven by intangibles, such as seat comfort or the feeling when “the rubber hits the road.” These experiences can be described in words, but the words do not produce the same emotions as the experience does. Traditional car clinics have provided the opportunity for respondents to “experience” the actual vehicle and make side-by-side comparisons to alternatives. Better imaging within surveys improves their ability to share the experiential aspects, but virtual reality (VR) stimuli may ultimately provide the best simulated experiences in both in-person and remote research.

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