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 / Fall 2003 / Issue 32(originally published by Booz & Company)


Reality Is Perception: The Truth about Car Brands

Of the remaining variation in consumer perceptions, roughly half (or 5 percent) is due to specific attributes such as “sporty.” These secondary attributes are not highly correlated with other attributes and cannot be included in the holistic measure of product excellence. With the exception of a few outliers (for example, BMW, whose reputation rests in part on its sportiness), most brands tend to be relatively undifferentiated along these secondary attributes.

2. Consumers are not only elegantly simple in their view of automotive brands, they are acutely rational as well.

For the average consumer, a new car is second only to a new home in the size of the transaction, the length of the ownership cycle, and the potential to reaffirm and communicate an individual’s sense of self-worth. Consequently, consumers spend a substantial amount of time evaluating their alternatives. In addition to their own firsthand experience, they consult a number of sources, from the anecdotal evidence of friends and family, to independent reviews by magazines, industry groups, and government agencies, to the manufacturers’ marketing communications, including brochures, measured media, and owner events.

It’s true that some brand reputations, particularly in the mass-market segment, don’t keep lockstep pace with actual changes in the products. But in general, consumers are well informed, and their opinions accurately reflect the accumulated performance of the products that are the physical embodiment of those brands. For example, the cost-of-ownership brand measure is highly correlated with actual cost of ownership. Similarly, consumers’ perceptions of a brand’s reputation for durability, reliability, and workmanship (which are key constituents of the holistic product excellence measure) are highly correlated with the actual dependability of that brand’s vehicles.

3. The relative magnitude of product excellence and low cost of ownership determines a brand’s value proposition in the marketplace.

Consumers recognize that, in general, better products cost more. Consumers self-select an automotive segment on the basis of which attribute (cost of ownership or product excellence) they value more. Within a consumer’s chosen segment, brands that deliver more of both attributes provide superior value to the consumer.

As a result, brands can differentiate themselves in two fundamental ways: by providing a different proportion of product excellence to cost of ownership (i.e., segment selection); and by providing more or less performance across both attributes (within the boundaries of the chosen segment). The result is a production function that’s a classic trade-off between product excellence and cost of ownership, with the frontier defined by brands providing the most value in each segment.

It is possible to group brands using statistical clustering techniques, so that grouping definitions minimize the differences within clusters and maximize the differences between clusters. These clusters represent groupings of brands that consumers believe offer comparable amounts of product excellence and low cost of ownership. Consumers perceive that brands in a cluster offer a value proposition similar to those of other brands in the same cluster and materially different from those in different clusters.

This is not to argue that brands within the same cluster are identical. Brands can partially differentiate themselves on the basis of secondary attributes. BMW has carved a niche within the luxury segment based on its image as the “ultimate driving machine” that offers superior acceleration, turning, and handling. Likewise, Subaru has partially differentiated its reputation within the mass-market segment on the basis of the security of all-wheel drive.

Channel performance (e.g., dealership experience and product availability) can also be used to differentiate a brand. Saturn stands out for having good customer service and providing a pleasant buying experience. However, the majority of brands are not meaningfully differentiated on any basis other than product excellence and cost of ownership.

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