comment all consuming behavior

All Consuming Behavior

Reality Is Perception:
The Truth about
Car Brands
Expensive advertising cannot compensate for weak
brands and undifferentiated products.

by Evan Hirsh, Steve Hedlund, and Mark Schweizer

1

strong car brand can consumers think about car brands.

A
Illustration by Lars Leetaru
create significant value Our analysis uses standard statistical
in the automotive techniques to distill multiple brand
industry. The price image attributes (drawn from Alli-
consumers expect to son-Fisher International LLC sur-
pay for otherwise veys of car buyers) into a small set of
identical luxury vehi- underlying factors, which provide
cles can vary as much valuable insights into consumer
as $4,000, depending on the car’s brand perceptions. (See “Research
brand. For mass-market cars, brand Methodology,” page 3.)
helps determine which products a Our research shows that con-
consumer considers buying. Fur- sumers have a simple yet sophisticat-
thermore, superior brands extend ed understanding of what differenti-
their halo across every model of ates car brands. Notwithstanding
vehicle within the brand. It’s no sur- automakers’ attempts to distinguish
prise that most auto manufacturers their brands on the basis of lifestyle
make brand positioning and devel- or emotional imagery, consumers
opment a key item on their market- evaluate brands in terms of their
ing agenda. earned reputation for product excel-
Yet despite intense interest in lence relative to their total owner-
their power, automotive brands ship cost. Consumers’ perceptions
remain relatively poorly understood. are based on their accumulated
Why do car brands have such value direct and indirect experience with
in a business that is clearly product the products that constitute those
driven? How do brands acquire brands.
their value? What causes their value These perceptions are obviously
to wax or wane over time? not perfect. Some brands’ reputa-
Because of the prominent role tions exceed or fall short of their
strategy + business issue 32

that brand positioning and devel- demonstrable product attributes.

opment play in many auto manu- But, as a rule, consumers’ beliefs are
facturers’ business strategies, we accurate, stable, and relatively
conducted extensive research and immune to manipulation. In con-
analysis to better understand how trast to the situation with other con-
 comment all consuming behavior
sumer goods, in which equity is cre- expenditures determine the total Evan Hirsh ([email protected]) is a
vice president of Booz Allen Hamilton
ated substantially through advertis- cost to the consumer over the own- based in Cleveland. He specializes in
ing, automotive brand perceptions ership cycle. As with the product strategic marketing, business unit strate-
change primarily through consistent excellence dimension, the various gy, and performance improvement for
consumer and industrial companies.
and sustained changes in the under- attributes that determine a brand’s Mr. Hirsh is coauthor, with Steven
lying product portfolio. expected ownership costs can be Wheeler, of Channel Champions: How
Within this overarching con- integrated into a single measure of Leading Companies Build New Strategies to
Serve Customers (strategy+business/
clusion, we were able to identify five product cost. Jossey-Bass, 1999).
central insights that are critical to These two holistic measures,
Steve Hedlund ([email protected]) is
understanding how, and to what product excellence and cost of own- a vice president of strategic planning and
extent, manufacturers can enhance ership, account for 91 percent of new business development for Fortune
and leverage the value of their the difference in how consumers Brands Inc. Previously, he was a principal
with Booz Allen Hamilton, focusing on
brands. perceive automotive brands. (See organizational and strategy-based trans-
Exhibit 1.) In fact, these two holistic formation for automotive, aerospace, and 2
1. Virtually all of the differ- measures are comprehensive enough industrial companies.

ence in how consumers perceive to predict the consumers’ overall Mark Schweizer
competing brands can be explained opinion of the brand with an ([email protected]) is a senior
associate in Booz Allen Hamilton’s
by their relative performance extremely high degree of accuracy. Cleveland office. He focuses on product,
against two holistic measures: Of the remaining variation in sales, and marketing strategy for auto-
product excellence and cost. consumer perceptions, roughly half motive OEMs and suppliers.
Traditionally, car manufacturers (or 5 percent) is due to specific
have tried to measure their brands attributes such as “sporty.” These
across a large number of image secondary attributes are not highly
attributes, hoping to develop addi- correlated with other attributes and
tional insights about brand differen- cannot be included in the holistic
tiation. However, consumer percep- measure of product excellence.
tions of a brand’s reputation are With the exception of a few outliers
generally consistent across different (for example, BMW, whose reputa-
measures of value. For example, tion rests in part on its sportiness),
consumers believe that manufactur- most brands tend to be relatively
ers whose car lines have a reputation undifferentiated along these second-
for luxury and prestige tend to pro- ary attributes.
duce cars that excel in many other
areas, such as ride, handling, safety, 2. Consumers are not only
and reliability. In fact, a brand’s elegantly simple in their view of
score on any one attribute tends to automotive brands, they are
be so highly correlated with its score acutely rational as well.
on another attribute that these scores For the average consumer, a
can be integrated into one measure new car is second only to a new
that represents a car line’s propensity home in the size of the transaction,
to create excellent products. the length of the ownership cycle,
Consumers also have a sophisti- and the potential to reaffirm and
cated understanding of product communicate an individual’s sense
cost. They recognize that vehicles of self-worth. Consequently, con-
differ not only in their initial pur- sumers spend a substantial amount
chase price, but also in their expect- of time evaluating their alternatives.
ed maintenance and operating costs, In addition to their own firsthand
as well as their ultimate resale value. experience, they consult a number
Together, these different types of of sources, from the anecdotal evi-
comment all consuming behavior

Research Methodology dence of friends and family, to inde- segment, brands that deliver more
Our research is based on data from the pendent reviews by magazines, of both attributes provide superior
Allison-Fisher Barometer of Automotive
Awareness and Imagery Study (the primary industry groups, and government value to the consumer.
source is the “Car Makes” study, which is agencies, to the manufacturers’ mar- As a result, brands can differen-
supplemented with the “Light Vehicle”
study to include Saab and Infiniti). The
keting communications, including tiate themselves in two fundamental
research and conclusions are specifically brochures, measured media, and ways: by providing a different pro-
for cars. Allison-Fisher surveys car owner events. portion of product excellence to
buyers on their attitudes, focusing on 24
specific attributes: excellent handling, It’s true that some brand repu- cost of ownership (i.e., segment
excellent ride, excellent workmanship, tations, particularly in the mass- selection); and by providing more or
good looking, good warranty program, market segment, don’t keep lockstep less performance across both attrib-
good customer service, good safety for
occupants, high trade-in value, presti- pace with actual changes in the utes (within the boundaries of the
gious, luxurious, really dependable, products. But in general, consumers chosen segment). The result is a
sporty, technically advanced, fun to drive,
excellent acceleration, lasts a long time,
are well informed, and their opin- production function that’s a classic
3 name you can trust, viewed as a leader, ions accurately reflect the accumu- trade-off between product excellence
satisfying sales experience, trend-setting lated performance of the products and cost of ownership, with the
vehicles, economical to operate, excellent
gas mileage, good value for the money, that are the physical embodiment of frontier defined by brands provid-
reasonably priced.
We employed standard statistical
analysis (factor analysis) to identify which
of these image attributes correlate with
The majority of brands are not
each other and to distill the 24 attributes
down to a small set of underlying, uncor- differentiated on any basis
related factors, or “meta-attributes.”
Attributes with a 60 percent correlation
were considered part of the same factor.
other than product excellence
Two underlying meta-attributes emerged
from this distillation: product excellence
and cost of ownership.
and cost of ownership.
In order to further validate the dual those brands. For example, the cost- ing the most value in each segment.
meta-attribute model, we employed
standard regression analysis techniques of-ownership brand measure is It is possible to group brands
to demonstrate the meta-attributes’ highly correlated with actual cost of using statistical clustering tech-
ability to predict brand opinion. The
results confirmed the model and demon-
ownership. Similarly, consumers’ niques, so that grouping definitions
strate very strong predictive power perceptions of a brand’s reputation minimize the differences within
(R2 =96%) for the model. for durability, reliability, and work- clusters and maximize the differ-
After identifying the two factors and
determining each brand’s scores on the manship (which are key con- ences between clusters. These clus-
two meta-attributes, we detected clus- stituents of the holistic product ters represent groupings of brands
ters of brands. These clusters not only excellence measure) are highly cor- that consumers believe offer compa-
match our intuition of how the automotive
market is segmented, but are statistically related with the actual dependabili- rable amounts of product excellence
valid (based on cluster analysis, another ty of that brand’s vehicles. and low cost of ownership. Con-
standard statistical technique).
To study how brands have changed
sumers perceive that brands in a
over time, we looked at historical image 3. The relative magnitude of cluster offer a value proposition sim-
attribute data, limiting ourselves to the product excellence and low cost of ilar to those of other brands in the
subset of image attributes that were con-
sistently available across the entire past ownership determines a brand’s same cluster and materially different
decade. The original analyses (factor value proposition in the market- from those in different clusters.
analysis and clustering) were repeated on place. This is not to argue that brands
this subset of image attributes and con-
ducted on the full decade-long set of Consumers recognize that, in within the same cluster are identical.
data. Brand position evolution was then general, better products cost more. Brands can partially differentiate
strategy + business issue 32

studied to see which brands showed both

significant (i.e., large magnitude relative
Consumers self-select an automo- themselves on the basis of secondary
to others) and consistent (i.e., same year- tive segment on the basis of which attributes. BMW has carved a niche
to-year trend) movement. attribute (cost of ownership or within the luxury segment based on
product excellence) they value its image as the “ultimate driving
more. Within a consumer’s chosen machine” that offers superior accel-
 comment all consuming behavior
eration, turning, and handling. mass-market segment are competi- off curve. While not yet in the same
Likewise, Subaru has partially dif- tively disadvantaged relative to league, several other brands, such as
ferentiated its reputation within the other brands within the same seg- Volkswagen, Saturn, and Subaru,
mass-market segment on the basis ment and relative to brands in have also separated themselves from
of the security of all-wheel drive. neighboring segments, as Exhibit 1 the rest of the pack.
Channel performance (e.g., shows.
dealership experience and product For vehicle manufacturers with 5. Brand positions tend to
availability) can also be used to dif- large capital investments, this situa- change relatively little over time.
ferentiate a brand. Saturn stands out tion is untenable. They must seek to Consumer perceptions are
for having good customer service improve at least one of the two shaped in large part through accu-
and providing a pleasant buying holistic brand measures for their mulated product experience, both
experience. However, the majority brands. Because improvement of a firsthand and indirect. Consumers
of brands are not meaningfully brand’s product excellence is diffi- also use a large number of objective
differentiated on any basis other cult to accomplish across an entire sources of information to supple- 4
than product excellence and cost of product portfolio and generally ment their direct product experi-
ownership. requires up to a decade, the only ence (e.g., word of mouth, product
way for brands to improve their reviews, and safety ratings). As a
4. Brands in crowded, weakly positioning quickly is to lower prod- result, the perception-forming pro-
positioned clusters tend to suffer uct prices and offer customers better cess is long and relatively immune
from eroding margins. cost of ownership. to simple manipulation by the man-
Brands positioned closer to the By contrast, Honda and Toyota ufacturer, in contrast with most
lower left-hand corner of Exhibit 1 have clearly distanced themselves consumer goods, whose brand equi-
(i.e., those with higher cost of own- from the rest of the mass-market ty is created substantially through
ership and lower product excel- segment. In the consumer’s mind, advertising.
lence) offer less value to consumers. Honda and Toyota represent a com- Although marketing communi-
Such brands naturally tend to bination of product excellence and cations certainly play an important
achieve lower purchase considera- cost of ownership that so far sur- role in what consumers think, the
tion and hence volume. A large passes all other competitors that only way to sustain meaningful
number of such brands within the they operate along a different trade- change in automotive brand percep-
tions is with ongoing, consistent
Exhibit 1: Average Performance of Car Brands* changes in the underlying product
experience. Furthermore, since
Low

•Honda brand value is a function of per-

• Saturn •Toyota formance relative to the brand’s
•Volkswagen
• Subaru competition, significantly altering
•Hyundai •Mazda • • Nissan
Chevrolet brand perceptions requires a manu-
Cost of Ownership

•Kia • Ford
• Mitsubishi facturer to systematically improve
•Dodge
•Pontiac its entire product range faster than
•Volvo
•Olds •Buick •Acura •Infiniti
•Mercury its competitors do.
• Saab •Audi
•Chrysler Over the past two decades,
•BMW
•Lexus Mercedes- most manufacturers have made con-
•Lincoln Cadillac •Benz
• certed efforts to improve product
quality, develop new features, and
High

reduce costs. They have used various

Bad Product Excellence Good techniques, such as computer-aided
design, system outsourcing, and
Entry Segment Mass-Market Segment Premium Segment Luxury Segment
component reuse, to speed up the
* Data represents 2001 image attribute scores, except for Infiniti and Subaru data, which is based on 2002 scores product development cycle, reduc-
Source: Allison-Fisher Barometer of Automotive Awareness and Imagery Study; Booz Allen Hamilton
ing the time it takes to respond to
comment all consuming behavior

competitors’ innovations. As a to improve their reputation for sure from Japanese luxury brands
result, it is increasingly difficult for product excellence while maintain- (most notably Lexus). However, we
manufacturers to improve their ing their cost of ownership, they believe a large portion of the differ-
products continuously at a rate that could leapfrog the Big Three mass- ence is due to a change in product
outpaces the market. market brands to join the cluster mix to include more entry-level lux-
Doing so requires a coordinated currently defined by VW, Nissan, ury vehicles (e.g., BMW’s 3 series
strategy and a concerted effort. and Saturn. and Mercedes’s C-class). As these
In the late 1990s, Volkswagen
deployed a steady stream of new
products to significantly shift con- Hyundai and Kia have made
sumer perceptions of its brand. VW
leveraged product and process tech-
stunning improvements in brand
nologies that had been developed perceptions. Saturn’s brand
for Audi in such areas as engine
5
packaging, powertrain, chassis tun- value has deteriorated.
ing, advanced material forming, and
tight tolerance assembly. The result In contrast, the value of Saturn’s brands have shifted their center of
was a slate of products, including brand has been deteriorating. Sat- mass toward “entry luxury,” so has
the Jetta, Passat, and New Beetle, urn was initially able to transfer consumer opinion shifted.
that offered superior ride, handling, consumers’ satisfaction with the
styling, and assembly quality at a dealer experience to the product. Marketer’s Checklist
reasonable cost. Furthermore, the Although Saturn still remains differ- Few manufacturers have the
migration of Audi process and prod- entiated on the basis of its channel resources required to implement
uct technologies to VW did not performance, the product has failed such a sweeping overhaul of their
erode consumers’ perceptions of the to satisfy consumers’ expectations product portfolio. Consequently,
Audi brand. However, recent for quality, and the brand as a whole brand positions tend to change rela-
reports of cross-model quality prob- has experienced significant erosion. tively little over time. Furthermore,
lems (e.g., ignition coil faults) could Like Saturn, the Buick, it is far easier to erode brand equity
serve as the reversal point of VW’s Oldsmobile, and Mercury brands than it is to build brand equity.
recent brand improvement journey. demonstrate the impact that a con- Product missteps, gaps in the prod-
Like VW, the Hyundai and Kia sistently weak product line has on uct pipeline, and intentional efforts
brands have benefited from a sus- brand value. In their heyday, Buick to shift a brand’s customer base can
tained flow of new products that and Oldsmobile represented the lead to significant deterioration in
offer significantly improved quality, quintessential premium brands — brand value.
attractiveness, edgy styling (at steps above Chevrolet and only a The five findings detailed above
times), and extremely low cost of notch or two below Cadillac. Sever- have profound implications for
ownership due to low sticker prices al generations of product that were most manufacturers.
and extended warranty coverage. rebadged versions of mass-market • Tangible product differentia-
The resulting value proposition has vehicles, and the growth in market tion is both critical to success and
not only increased these brands’ penetration of alternatives such as difficult to maintain on a sustained
unit volume, but also has radically Volvo and, more recently, Audi, basis. A key focus of the marketing
changed consumers’ perceptions of undermined the value position of function should be to rigorously
the brands. What is stunning is how the Buick, Oldsmobile, and Mer- understand consumers’ preferences,
much the Korean brands have cury brands. unmet needs, and willingness to
strategy + business issue 32

improved in such a short time, espe- Mercedes-Benz and BMW pay, in order to maximize the “hit
cially in comparison with how long have both delivered significant rate” on innovative products.
it took Toyota and Honda to shake improvements in cost of ownership • Minimizing cost of owner-
their reputation for producing tin over the past decade. In part, this ship (both up-front acquisition cost
cans. If the Korean brands continue was caused by direct pricing pres- and long-term ownership cost)
 comment all consuming behavior
within the segment boundary is
critical. The marketing function
must take an active role in balancing
the drive toward lower cost of own-
ership with the consumer value cre-
ated through innovative features
and options.
• Lifestyle and emotional
imagery cannot compensate for
weak brands and undifferentiated
products. Consumers may acknowl-
edge a brand’s “personality,” but the
aspects of the brand that drive con-
sumer shopping behavior are prom- 6
ises that the brand represents for
product excellence and cost of own-
ership. Image advertising and life-
style and event marketing may help
to accelerate consumers’ under-
standing of the brand, but it cannot
fundamentally change the promise.
Consequently, the number of
resources applied toward lifestyle
and image advertising should be
scrutinized for appropriateness and
effectiveness.
• For mass-market vehicles,
incentives are a symptom of a weak
brand — not the cause. In the
absence of a strong brand, price is
the only plausible way to affect
near-term demand. Hence, curtail-
ing incentives in an effort to “build
brand” is not likely an economically
viable option.
Many manufacturers have
made brand positioning and devel-
opment a key item on their market-
ing agenda. Yet brands are not the
product of manufacturers’ market-
ing efforts. Instead, consumers base
their understanding of an automo-
tive brand’s value on their accumu-
lated experience with that brand’s
products. If you want to change the
brand, change the products — for
the better. +
Reprint No. 03302