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| “Effective market segmentation, which is vital for price discrimination, can also play a critical role in a firm’s profitability and survival.” |
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–given the heterogeneity of consumer preferences – the high involvement nature of the purchase and the high degree of differentiation among cars, product-related information is also very valuable to consumers, enabling them find products that better match their preferences. While the increased availability of price-related information to consumers leads to lower prices, the increased availability of product-related information is thought to decrease consumers’ price sensitivities and lead to higher prices on an average. Our study begins by examining whether these differential impacts of price and product information availability on outcomes are indeed borne out in the market for new cars.
Data drawn from an annual survey of new vehicle shoppers, conducted by J.D. Power and Associates, forms the basis for this study. A random sample of new vehicle purchasers and lessees, based on registration data, was taken to reflect actual sales of new cars. A response rate of 24 percent was achieved for 116,317 surveys mailed out. The dataset also reflects details of online information sources used in the consumer search process, as well as detailed consumer profiles, which are linked to a recent automobile purchase. Consumers answered questions relating to their usage of specific online OBS, the specific type of information found through the different OBS, price paid, vehicle choice, and satisfaction, among others. Other measures in the study included consumer demographics, psychographics (price sensitivity and involvement with the |
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product), internet usage, and technical competence.
Key Findings
Our preliminary analysis uses a 3SLS (three-stage least squares) systems estimator to examine the relationship between the type of information obtained by the consumer and the resulting price paid, controlling for individual and vehicle characteristics. These results (based solely on the type of information found irrespective of the specific source used) show that finding more price information results in the consumer paying a significantly lower price, while finding more product information results in the consumer paying a higher price, on average, for the same vehicle. While this finding points to the existence of distinct consumer segments, this knowledge is of limited practical value without a viable mechanism that enables firms to specifically identify and target these customer-segments. Given that different OBS provide different types of information, a natural question that arises in this context is whether consumers’ usage of OBS can be used as a viable mechanism to identify these consumer segments. To answer this question, we examine consumers’ OBS-usage patterns and their consequences in greater detail.
Interestingly, our data shows that consumers typically visit more than one OBS during their vehicle purchase process, and a pair-wise analysis of OBS-usage allows us to examine if particular pairs of OBS tend to be used together by more (fewer) consumers than would be expected if |
