The Polk Blog

Are you curious what impact the Cash for Clunkers program had on customer loyalty to OEMs? Are you interested in some strategic tips for managing customer loyalty? Do you think that understanding what drives customers' decision to repurchase is critical to building loyalty? Have you ever wondered about the financial impact of loyalty on the OEM bottom line?

If your answer to any of these questions is yes, then you may be interested in the white paper that Lonnie Miller and I have put together and released this week. Click here to get your own copy of the white paper.

Posted by Dan Zetu, Analytic Consultant, Polk (01.13.2010)

Recently, the importance of customer loyalty in automotive marketing has skyrocketed due to the increased proportion of loyalty sales among total industry sales. Beyond measuring customer loyalty, OEMs and dealers need to understand what drives consumers' decisions to repurchase the same brand. Here at Polk, we attempted to uncover some of the drivers of repurchase intentions through a consumer research study we carried out this past spring.

In this study, we asked consumers who bought a new vehicle during the past three years what the likelihood is that they will repurchase a vehicle of the same brand next time they return to market, based on their ownership experience. We also asked them how satisfied they were with a series of factors pertaining to their purchase and ownership experience that we considered as potential influencers behind their repurchase decision.

These influencing factors were grouped into three major categories:

1. Product (brand affinity, product quality, performance, safety, fuel economy, workmanship, drive quality)
2. Customer relations (sales process, customer communications)
3. Monetary (purchase price, sales incentives, financing, cost of ownership)

Our analytical model revealed that product attributes are the most important drivers. Sales process and customer communications also emerged as highly influential, which reinforces the notion that a positive experience during the sales process has the potential to drive loyalty and also highlights the need for constant communication with customers.

Within the product category, fuel economy is a significant attribute that drives repurchase intention, though it is also directly related to the cost of ownership. Purchase price is perhaps less influential than we expected, although there are other monetary aspects that are important such as incentives, cost of ownership and indirectly, fuel economy. A diagram of the derived importance of repurchase drivers is shown below. More detailed study findings are forthcoming in a paper to be published shortly. Stay tuned.

Posted by Dan Zetu, Analytic Consultant, Polk (10.06.09)

Last week, Congress approved and President Obama signed a bill allocating an extra $2 billion for the popular Cash for Clunkers program. The first $1 billion ran out in less than one week, although one should keep in mind that this program was highly anticipated well before it officially went into effect and some OEMs and dealers advanced the government rebate to qualifying customers.

Even with the extra $2 billion available, many experts are forecasting the new funds will run out before Labor Day. In fact, in a recent New York Times article, Polk predicts that the extended Cash for Clunkers program will last just three to five weeks. It is tempting to conclude that these funds will run out quickly given the significantly higher than expected market response to Cash for Clunkers. But, there are a number of factors influencing the length of the program.

First, many transactions were technically completed before the original funds became available. At the same time, it is reasonable to expect some diminishing consumer interest as the novelty effect of the Cash for Clunkers program erodes. On the other hand, many consumers still interested in trading in their clunkers will rush to do so while money for the rebate is still available, thus shortening the amount of time the program will last.

Given the complex and sometimes contradictory factors influencing the length of the program, I wonder how long the additional funds will really last. Polk is guessing three to five weeks. What do you think?

Posted by Dan Zetu, Analytic Consultant, Polk (08.10.2009)

The eagerly awaited Cash for Clunkers program is one of the hot topics du jour in the automotive industry. Given the current automotive industry challenges, any additional incentive program could be an instrument in enabling the recovery of auto sales. Although experts in general are skeptical of the real impact on sales trends, many in the industry are wondering how many households qualify for this new program (although the budget cap on the program will make it impossible for everyone who qualifies to participate).

Here at Polk we created a model identifying the households likely to own a vehicle that qualifies for the Cash for Clunkers program. At the same time, independently of the Cash for Clunkers model, we segmented the entire US market into groups based on the type and number of vehicles they own, age and market value of the vehicles, income and ability to pay for a new vehicle (with or without extra incentives). Based on this segmentation and the Cash for Clunkers model, we came up with a rough estimate of the program's market potential: 4 million.

Let me explain how we arrived at that number.

Roughly 11 million households are highly likely to own clunkers. However, not all of these will be able to afford a new vehicle, will be interested in taking advantage of the program or will even be aware of it. Of the 11 million clunker owners, we identified a group (about 6.5 million), that have high income and can easily afford a new car. Most likely, these people keep the clunker as an extra vehicle in their garage. It is hard to tell without further research how many of these households will actually be interested in getting another new vehicle, but a fair estimate is about 3.5 million.

Another segment of 2.5 million clunker owners have relatively low incomes and will probably be challenged in securing funding for acquiring a new vehicle, even though they may actually need one. We estimate conservatively that about 500,000 consumers from this group will actually be able to acquire a new vehicle via the program.

Whether or not the Cash for Clunkers program results in the additional 4 million sales we estimate will depend on a series of factors that are difficult to control. First, the $1 billion budget cap allocated for the program limits severely the number of customers able to take advantage of the program. Even if the budget were unlimited, some households would want to purchase new vehicles that wouldn't qualify due to poor gas mileage. Other consumers will simply not want to incur payments for an extra new vehicle, even if they can afford it, and yet others may not even be aware of the program. Even with those caveats, we believe that the potential of the Cash for Clunkers program is significant.

If you’re like me, you probably hear the term “loyalty” all the time. It’s become a bit of a buzzword in many industries, and the automotive sector is no exception. But, especially with the current state of the auto industry, I’d say that customer loyalty is much more than a catchphrase for OEMs and dealers. Loyalty (which we define at Polk as repeat purchase) is necessary for survival. Without repeat customers, a dealership or OEM simply won’t make it.

This may seem obvious to anyone in the automotive industry. What’s less obvious is how to measure customer loyalty. After all, there’s no industry standard, leaving different organizations to come up with different ways of calculating this key metric.

Polk decided to take a look at this issue in a white paper we recently released. It’s called “What is the Best Way to Calculate Transactional Loyalty?” In it, we look at two approaches to measuring loyalty: the disposal and household methodologies. You’ve probably heard of disposal, which basically assumes a one-to-one trade-off – every time someone buys a new car or truck, they get rid of one in their garage…often, the oldest one. We compare and contrast this approach to the household methodology. The household methodology takes a more comprehensive view all of the vehicles owned by a household and calculates loyalty even when the consumer doesn’t eliminate a car or truck.

What did we find? You’ll have to read the white paper for all the details. But, I’ll give you a clue. One of these two approaches makes it possible to calculate automotive customer loyalty for a far greater percentage of the market. This same approach gives faster results. And, this way of measuring loyalty is more aligned with market share.

I’m not saying that there’s a “one size fits all” approach to measuring automotive loyalty. I know that different organizations have different needs. But, in general, our white paper shows that the household approach to measuring customer loyalty outperforms the disposal methodology. (A caveat: you can measure disposal loyalty a few different ways, including with surveys. For a more “apples-to-apples” comparison, we looked at the disposal methodology as measured with vehicle registration data.)

Intrigued? Want to know more? I’d suggest downloading our free white paper.