Good auto quality ratings motivate consumers to take better care of their cars, says O.R. study

October 04, 2001

LINTHICUM, MD, October 4 - Consumers take better care of their autos if they initially believe the cars are of better quality, according to a study published in a journal of the Institute for Operations Research and the Management Sciences (INFORMS®).

The study, "The Relationship Between Initial Quality and Maintenance Behavior: The Case of the Automotive Industry" is by Edward Conlon, Sarv Devaraj, and Khalil F. Matta, Mendoza College of Business, University of Notre Dame. It appears in the current issue of Management Science, an INFORMS publication.

The study points manufacturers and dealers to changes they should consider if they are concerned about customer loyalty, pricing, and leasing operations.

There are several possible explanations for the connection between perceived quality and maintenance, say the authors. One is simple economic rationality: If consumers feel they have paid a premium for initial quality, they protect their investment by making regular oil changes and doing other routine care.

Another is consistency: If a key reason that consumers select a vehicle is its presumed quality and reliability, they engage in activities like maintenance that are consistent with that belief. A third is self-fulfilling prophecy: Individuals may care for their cars simply because they expect long-term quality from them and, thus, act accordingly.

Dealer Approval Tied to Service Departments The study employed archival data regarding actual repair and service incidents at a dealer's service facility; self-reported data from the owners of the vehicles, which were tracked in the dealer archives; and Consumer Reports data on quality ratings and the initial purchase price. From the archival data, the authors created an independent measure of the maintenance events at the dealership. They then used self-reported survey data to capture owners' profiles and preferences and capture maintenance events outside the dealer's domain. They used data from Consumer Reports to indicate customers' perceptions of the quality of vehicles participating in the study.

The authors found that service satisfaction was highly correlated with consumers' general feelings about the dealership, suggesting that those feelings are highly affected by the perceived quality of a dealership's service facility.

Although respondents' level of education did not have a direct relationship with maintenance, they found that it was positively related to quality rating, suggesting that more educated consumers choose vehicles with higher quality.

Customer Loyalty
The findings, say the authors, suggest that manufacturers of vehicles with lower initial quality ratings may pay a price in long-term quality ratings. Consequently, they should consider programs and owner incentives that encourage better maintenance, as Audi did when faced with negative publicity.
-end-
For auto manufacturers, dealers, and distributors, there are three important lessons, conclude the authors.

1. Pricing Power: Consumer perceptions of initial quality affect their maintenance behavior, thereby impacting the long-term quality of the vehicles. This, in turn, affects brand image, which affects pricing power in the marketplace.

2. Customer Loyalty: The enhanced reputation of a product and its brand, which is influenced not only by the initial quality of the product but also by its longer term reliability, determines, in part, customer retention rates. 3. Leasing: Consumer quality perceptions affect the depreciation value of vehicles, thereby providing higher quality manufacturers and dealers with a pricing advantage for leasing operations.

The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with over 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications. The INFORMS website is at http://www.informs.org.

Institute for Operations Research and the Management Sciences

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