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International Journal of Electronic Business Management, Vol. 4, No. 1, pp. 48-63 (2006)
EXPLORING DIMENSIONS OF CUSTOMER RETENTION AND INFORMATION QUALITY IN THE ONLINE AUTOMOBILE INDUSTRY Alan D. Smith Department of Management and Marketing Robert Morris University Pittsburgh, PA (15219-3099), USA
ABSTRACT Purchasing online is becoming increasingly more popular option in virtually every industry. There are a number of advantages and disadvantages associated with purchasing automobiles online that were modeled and tested. The basic extraction method was PCA with the basic rotation method of varimax with Kaiser Normalization, although basic descriptive statistics were used to simply the results the factor analysis. The three major independent constructs, which accounted for 61.3% of the explained variance, were found to be statistically significant, included Convenience and Internet Ready, Online Service, Human Interaction, and Gender Influences. These constructs are similar to the basic requirements of online B2C interactions. The dependent variable regressed against these major independent factor-based constructs was perceived resistance to purchasing online (as measured with agreement with viewing inline purchasing as a hassle). Even among the education and Internet-empowered group, it seems that the primary role for the Internet is on information gathering and customer service, rather than actual purchasing automobiles. Evidently, old traditions die slowly. Researching or gathering background information about a product is one aspect that online automobile distributors have a distinct competitive advantage, with 72% of individuals preferring to research online prior to making a purchase. However, no attempt was made in this study was made to survey the attitudes of the dealers toward online purchases, which is a suggested topic for further research. Keywords: Automotive Industry, Empirical Study, Factor Analysis, Online Purchase Behavior
1.INTRODUCTION *
For many years, either purchasing cars directly from a dealership or manufacturer were the only options potential customers could negotiate the purchase price and features of a new automobile. The thought of actually leveraging the information-gathering power of the Internet to buy a vehicle was hardly imaginable [5]. Purchasing online has become increasingly more popular, which is reflected in the number of customers using the Web, if not to purchase, at least find valuable information about dealer’s costs and vehicle features. Most companies at least support an active link that will direct the potential customer their store or another website with a simple click of a button. Auto companies, dealerships, and manufacturers are starting to strategically use the reach and richness of the Internet. Not only can the potential customer *
Corresponding author:
[email protected]
research their favorite auto, but in some cases actually design it through available options to meet their own specifications. The use and acceptance of the Internet to purchase automobiles online is not to the point where it is the primary source of buying behavior, but few can ague that this option may be the choice in the near future. Contained in the empirical section, a survey of professionally employed, automobile owners was conducted to get explore these concepts, including what these customers were purchasing online, if they liked the idea of purchasing automobiles online, what age group was purchasing, who was informed on Internet use, and related questions. The basic hypotheses to be explored included the following: Do auto customers potentially find it more convenient to purchase online than they do from a dealership; how important did people feel that it was to access a customer service representative; does age come into play when determining who will purchase online? In addition, through the data reduction of factor
A. D. Smith: Exploring Dimensions of Customer Retention and Information Quality analysis techniques, basic constructions of CRM (customer relationship management) will be explored. There are a number of driving forces behind customer retention in purchasing automobiles online as they relate to CRM principles. Included in the discussion will be an examination of what car companies have begun to implement purchasing online and recommendations for improving automobile purchasing online. These driving forces are initially illustrated in Figure 1. In the future, potential customers will probably be more motivated to purchase an auto using the Internet, primarily due to the Internet’s convenience, accessibility, cheaper, and perceived less hassle in terms of price negotiations. Only the potential customer attitudes, not dealers, will be explored in the present study. Ability to Customize
Convenience
Customer Retention (CRM) Purchasing Online
Ability to Compare
Avoid Salespeople & Related Hassle
Figure 1: Basic model illustrating some of the major driving forces in customer retention with purchasing auto online Customers have found that their ability to purchase automobiles online has significantly increased since the restricted options of purchasing via physical contact with a neighborhood dealership and picking out from a line up of vehicles that were pre-paid by the dealership, a limited selection at best. This procedure would seem to create bargaining power in the hands of the dealer, not the customer, and would typically be perceived as a hassle to someone aware of the benefits of purchasing products/services online. So many of the factors that may have hindered increased purchases in the past, have only heightened the bargaining power of the Internet-driven consumer. This power on the part of the customer is in part due to the many available factors involved with purchasing a vehicle via the Internet today. Such potential online benefits that influence the actions of these consumers include the convenience this method brings to the consumer, the ability it gives the consumer to customize their cars, as well as the freedom it provides for them to compare different cars, while at the same time avoiding “pushy” salesman, whose profit-making goals may not be the same as the
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customer’s. Each of these benefits help explain the recent push in customer growth of online automobile purchases and may be the reason why this way of buying automobiles will flourish with time, not fade, as more ideas are added to its market of already powerful selling opportunities for today’s quick-paced society.
2. MODEL DEVELOPMENT DEALING WITH ONLINE AUTO PURCHASES 2.1 Outline of the Automotive-Purchasing Process (Without the Internet) As previously mentioned, the automotive-purchasing process may be a long, arduous, emotional, and stressful task. This may be mostly due to the multitude of alternatives to choose from and the exceptionally high cost associated with each task. An automobile, second probably to a home, is one of the most expensive items a consumer will ever purchase. Similar to purchasing a home, many consumers finance their automotive purchases over at least a few years. Further, the cost of a new vehicle continues to rise, up 7.3% in 1997 to nearly $22,000 [20]. This trend is forcing people are keeping their cars longer; for example, the average vehicle age in 2003 rose to 8.6 years [6]. If a consumer makes a poor decision, or ends up with a deficient product, it can be very costly as customers seek alternatives that are sub-optimal. In terms of basic CRM, one of the best ways to safeguard against making a poor decision in any purchasing process is to become an informed buyer; hence avoiding the costly error of lack of customer retention and resultant loyalty. The difficulty of attaining a satisfied and empowered customer is largely dependent on the number of alternatives that are available for a given purchase. The situation does work both ways, as the larger the alternative set, the longer it will take to make a well-informed decision, as in the case for the automotive consumer. As seen in the linear models to follow, the consumer automotive purchasing process can be broken down into at least four stages, namely vehicle type, vehicle age, research, and negotiation/purchase. For simplicity and comparison purposes, these four stages will provide the organization of this paper, with three decisions acting as transitions. First, the purchasing process will be presented without the aid of the Internet shown in Figure 2, with a discussion of each phase in detail. This discussion associated with the implementation of the Internet, illustrating the empowerment of the consumer and the streamlining of the process (Figure 3).
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Figure 2: Basic model of decision-making flows before the introduction of the Internet 2.1.1 Vehicle Type The first major issue that an automobile consumer typically needs to address is the type of vehicle to shop for to suit basic requirements. This should be governed by the consumer’s needs and/or intended use of the vehicle to be purchased, which is generally easy to establish. However, the consumer has literally hundreds of alternatives to fulfill these needs. This stage has been simplified by the extensive segmentation of the automobile market. But with so many options, there can be many segments that fit the consumer’s needs, so establishing the correct vehicle type is an important initial decision, and one that may need to be revisited later on. Before or without the Internet, the consumer has a limited set of tools to make this vital first decision. Advertisements, advice from friends and family, past experience, and simple daily activities are the primary decision inputs. 2.1.2 Vehicle Age Once the consumer has established the vehicle type to be investigated, the new or used decision must be made. Three criteria can be used to make this choice, namely the desire for reliability, desire or ability to perform maintenance, and cost. Of these three issues, cost can be the most powerful factor driving a decision. Assuming the vehicle type is the same, there will be a significant difference between new and used car pricing. This may be another stage that a consumer is forced to revisit, but most can establish their initial target between new or used vehicles. 2.1.3 Research The potential consumer has paired down the list of alternatives significantly by deciding on the vehicle type and age, but now the real work begins. Researching and deciding on the specific vehicle model and options will take up the most time and energy in the purchase process. Without the use of the Internet, the consumer is again limited. This
information gathering can come from three sources, namely past personal experience, published materials, and test-drives. Past experience can be a valuable source of information, though it will certainly be biased. Friends, family, neighbors, and coworkers may offer advice that helps with avoiding problematic models or dealerships. On the other hand, this source may steer a consumer toward a particular product in hope of repeated good luck. This source of information is readily available and does not require extensive time commitments. There are a number of publications offering consumer information and expert analysis. Consumer purchasing magazines, like Consumer Reports, offer annual purchasing guides. These materials can pride specifications and test drive reports for individual models, both new and used, as well as reliability ratings and maintenance cost summaries. Industry magazines, such as Motor Tend or Car and Driver, also offer test drive reports and technical information, but mostly on new models and again on individual models. Industry magazines will also occasionally do comparison testing of a few models in the same market segment, which can be particularly valuable in the model selection decision. Independent companies produce all of these materials, so the information should be unbiased. It is important to note that this expert analysis must be purchased. However, many public libraries will have these sources available. Since many of the sources mentioned can be accessed at a library or purchased in one location, they are easily accessible. However, the volume of information available can make this a slow process. First-hand experience can provide the most persuasive information in the model selection decision. Such experience is most often attained through past purchases and test-drives. However, the consumer should be conscious of the fact that this is another highly biased source of information. Marketing materials available at dealerships are designed to show their products in the best possible
A. D. Smith: Exploring Dimensions of Customer Retention and Information Quality conditions. Some automobile salesmen employ manipulative tactics to sell vehicles as well. They are highly skilled at exciting prospective customers about the vehicles for sale, and at creating a sense of urgency [14]. These obstacles can cloud the perception of a consumer simply looking for information, but hands-on time can still be the best source in this automotive purchasing stage. This is also a very slow stage in the purchasing process. Automotive retailers are often grouped along high traffic routes, which helps cut down on time a bit. New car inventories at these dealerships are generally plentiful and the proximity of various manufacturers can help the consumer to compare models. However, since there are so many alternatives in each market segment, a consumer can spend days or even weeks doing test-drives. This process can take even longer if the consumer is shopping for a used car, or wants to buy from a private party, as the desired vehicle may require a larger search radius. 2.1.4 Negotiation/ Purchase Now that the consumer has selected the model of vehicle to purchase, the negotiation and purchasing stage commences. This part of the consumer purchase process can be quite a hassle, and many consumers find it stressful. Without the aid of the Internet, the average customer is fairly limited to the traditional retail and consumer-to-consumer outlets for purchasing automobiles. Vehicle auctions exist, but they are not always open to the public. This purchase option requires an educated consumer comfortable with purchasing after little or no time to inspect the vehicle, which is offered, “as is,” with no guarantee of quality. Regardless of the venue, the consumer now needs to locate the specific vehicle to attempt to purchase. The consumer is likely to have an idea of the local inventory of the desired vehicle from the test drive phase. Unfortunately, the high volume of sales in this industry causes stocks to fluctuate considerably. Auto Trader is a publication that lists used vehicles for sale. Despite these helpful options, this can be another slow and frustrating process. Many automobile buyers intend on financing their purchases. This potentially adds another dimension to the purchase process. Dealerships, banks, and credit unions all offer automobile loans. Consumers can shop for these products over the phone, but this is still a time consuming process. Further, loan procurement procedures often require the consumer to visit the lender to file paperwork, adding more time to the process. Many consumers, again limited to non-Internet information sources, simply do not have the time to invest into this process. This puts the consumer at a distinct disadvantage. An uninformed consumer enters a seller’s market. These consumers are led to believe that market supply for the desired automobile is limited, allowing
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the seller to demand a price in excess of the true market equilibrium. There are a few sources of information available to consumers at this stage to help ease the pain of negotiation. A consumer can discuss pricing and purchase experiences with peers. Some of the automobile industry publications mentioned in the previous section include pricing guides as well. The Kelly Blue Book, for example, is a publication that a consumer can use to assess the value of a used vehicle. This can be useful information when purchasing a used vehicle or trading in a vehicle at a dealership. Advice from such sources can make a consumer more confident, and help to prevent the consumer from agreeing to lopsided terms. 2.2 Automotive-Purchasing Process (With the Internet) As it has been noted throughout this section, the automobile consumer purchase process can be slow and tedious. Many consumers simply do not have the time to become educated consumers. Fortunately, the growing reach and exceptional richness of the Internet is both empowering consumers and streamlining the automobile purchasing process [12]. These results are illustrated in the following section, as illustrated in Figure 3. 2.2.1 Vehicle Type and Age The vehicle type and age stages are essentially the same for both consumers using the Internet and those that do not. The consumer will base the desired vehicle type on usage requirements. The vehicle age decision is likewise made by considering the desire for reliability, desire or ability to perform maintenance, and cost. Each of these stages may need to be revisited based on the results of the following research stage. 2.2.2 Research Naturally, the three traditional methods of information gathering (i.e. past personal experience, publications, and test drives) are available to the Internet user. These are still valuable information sources, but they are not very time efficient and/or have limited availability. The Internet has streamlined the research stage of the consumer automotive purchasing process extensively. Users are not limited by hours of operation, and can compare and contrast alternatives quickly and easily. Each of the three previously mentioned information sources can been found on the Internet as well. Past personal experience, though biased in one direction or the other, can be a valuable source of first hand knowledge. There are websites organized by enthusiasts both for and against many makes and models. These websites are excellent sources for
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establishing the potential for repeat problems, gathering maintenance tips, and reliability ratings. Since so many of them exist, a consumer can gather
extensive past personal experience information relatively quickly.
Figure 3: Basic model of decision-making flows after the introduction of the Internet Traditional publishers, like those mentioned earlier and their competitors, also have a presence on the Internet. They offer their reviews and expert analysis, as they do in their published format, but often for free. As expected, accessibility to these expert sources has also increased via the Internet. There are a number of non-traditional automobile information websites, independent of the manufacturers that also offer expert reviews and vehicle specifications. For example, Edmunds.com is a good source of information where you can research many different makes and models in a time efficient manner. However, the real power of the Internet lies in customized or personalized research (e-personalization). There are websites, such as MSNAutos.com, that allow a user to perform side-by-side model comparisons, which is not easily done with the traditional format and rarely encouraged between difference car manufacturers. This allows an exceptional amount of timesavings, as the list of viable alternatives can be quickly pared down to just a few, as well as their cost comparisons. Used vehicle shoppers can attain accident reports on specific vehicles, using the VIN, by utilizing services such as CarFax.com. This has the potential to prevent a consumer from purchasing a vehicle with a history of serious flaws or problems. Automotive manufacturers are also harnessing the Internet for marketing purposes [19]. All of the major automotive manufacturers have a presence on the Internet, providing extensive information about their models. One powerful option is the “build-your-own” optional technology. This allows a user to completely customize the vehicle they desire, within the options made available. The consumer
can experiment with different option packages, while tracking price fluctuations, in a “what if” scenario. The consumer can use this option on competing manufacturers’ websites to do a more appropriate comparison of models, specific to the option package detail level. Manufacturers may offer extensive picture galleries of the interior and exterior of their vehicles, as well as descriptions of special features and systems. All of this information is available from the comfortable, low-pressure environment of the consumer’s home. Hence, one of the assumptions on this study is that the educated, Internet-empowered customer would prefer this option to the traditional approach to purchasing. 2.2.3 Negotiation/ Purchase The Internet savvy customer has streamlined the research phase of the consumer purchasing process as well; and is now been empowered by their knowledge to negotiate improved pricing. The informed customer most often will still utilize one of the traditional purchasing venues, retail or private party, but there are other options available for the educated consumer. These options typically include a number of Internet auction sites, such as EbayMotors.com, where they can purchase vehicles on the Internet. Seller credentials are available for inspection, and the host website ensures an environment relatively free of fraudulent activity. There are also companies on the Internet that offer brokerage services, but mostly for new vehicles. A customer specifies the make, model, and options, and companies such as Cars.com, InvoiceDealers.com, and StoneAge.com, will return a list of local dealers from which to purchase. Each of these options allows the consumer to save time and
A. D. Smith: Exploring Dimensions of Customer Retention and Information Quality get competitive pricing, but the traditional sales outlets have been transformed as well. Traditionally, without the use of the Internet, it was an often difficult and time-consuming task to establish the local inventory for a desired vehicle. This allowed the seller a distinct advantage, forcing prices up due to a perception of limited supply. The consumer’s accessibility to available inventory has squashed this advantage, and may be the most powerful information made available on the Internet. Manufacturers often offer inventory-check functionality with their build-your-own optional technology, or consumers can utilize AutoTrader.com, Cars.com, and other similar websites to search their area for used vehicles, if that is what they are shopping for. As stated earlier, the consumer purchasing process is often complicated and lengthened by the automotive loan procurement process. This aspect has also been streamlined. There are numerous banks and credit unions available on the Internet, so searching for rates is fast and easy, via online banking options. The phenomenal reach of the Internet has added competition and is keeping rates low. The application process is often available on the Internet as well, allowing for the entire transaction to take place over the Internet, or possibly over the phone. Both manufacturers and independent websites offer listings of consumer and dealer incentives on new vehicle purchases. This has served to bridge the power gap between the buyer and dealer by making pricing more transparent [15]. These can be in the form of cash back to customers, low-interest loans, or marketing allowance to dealers. Dealer invoice prices are also readily available from sources such as Edmunds.com. Edmunds.com and KellyBlueBook.com also provide appraisal tools for used cars, which is helpful in purchasing a used vehicle or with establishing an existing vehicle’s trade in value. The empowered consumer has streamlined the negotiation stage of the purchasing process as well. An argument can be made that this step can even be eliminated. For the informed consumer, this market now heavily favors the buyer. Armed with a list of local alternatives and accurate pricing information, a consumer can realistically refuse to negotiate.
3. UNDERSTANDING AUTOMOBILE CUSTOMER BEHAVIOR Although it is logical to assume that potential customers who know about the ability to purchase online would rather than go face-to-face interactions with a dealer, this optional is still rarely used as compared to the huge volumes associated with the
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automotive industry. One reason may be the age difference and generational gap that separates today’s consumers. From the computer savvy consumers to those of the less likely to be computer informed in society are typical viewpoints and may explain possible early acceptance and rejection characteristics that this newer type of online buying experience presents. Perhaps the age group less likely to utilize a computer to purchase their cars could as an example is referred to as the baby boomers of today, who may rather see what it is they are buying before actually purchasing it. Those who would agree to purchase an automobile without having physically seen or driven the vehicle would understandably be presented by the younger generations of today, who as an example, are referred to as generation X. Regardless of age, human elements of face-to-face interaction may still be the preferred mode of purchasing a vehicle. In traditional forms of car shopping, there were multiple tiresome tasks that had to be completed before even being able to buy a car. These tasks included a walk around inspection of the vehicle while a salesperson explained the cars most saleable features. It also involved a test drive by the consumer, which would entail listening to the automobile for any unnatural feedback. After returning to the dealership, the dealer then has to do a credit check and a bank verification, which must be approved from the consumer’s bank if they decide to purchase. Stacks of paperwork have to be signed, while financing techniques are offered that may initially immediately benefit the dealership once this part of the sale is underway. The consumer is forced to go into various departments that consult the consumer in their purchase, asking numerous questions to see whether or not the consumer is satisfied with their treatment thus far. Perhaps this is delay in service may be a strategic option for the dealership to sell the consumer additional products and service, while the paper work is being processed and filed. When greeted by the various department specialists, more selling tactics by the dealership are used to encourage repeat business in the form of automobile upkeep and service recommendations over the life of the car [3]. If the potential customer has survived the ordeal with a purchase, by the time a consumer leaves one dealership to inspect another, their original price limits are now in ruins. The Internet consumer that knows these many checkpoints exist when going to a dealership physically and sees the abundance of time that could have been redirected in these many attempts to purchased a similar automobile online, partially die reduced wait for credit checks to be reviewed or processed and no sale calls. As previously discussed, vehicles can be virtually toured and the physical visit to the dealership is non-existent. If a
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buyer wishes to purchase they are given options to buy the automobile and the keys are waiting with the vehicle when it is picked up at the agreed place of transport between buyer and seller. In an attempt to attract potential online customers, the benefit of customizing cars before they are actually built may be employed to increase the enquiring consumers’ willingness to purchase online and it has given them a virtual world in which to navigate through different color schemes and trims that offer endless customizability that will give their vehicles a sense of originality among the same types of makes and models in the crowd. This feature has grown so quickly that entire websites have been devoted within the companies offering the feature to their online customers. Possibilities are endless and continue to become more unique; consumers can virtually customize wheel and tire packages and add or delete standard options to make their vehicle specially fitted to their wants. For example, Dodge was a company that offered this feature in an attempt to sell their R/T Stratus when it was new to the market in 2000. To do this as effectively as possible, they offered various sections of the car’s interior that could be swapped for higher priced upgrades, such as seating, carpeting and different lighting options for the cars instrument clusters. While giving the company an advantage over the different companies’ vehicles that were competing in the R/T Stratus’ class, their website offered many virtual viewing choices of the vehicle also came with a “purchase now” feature. Offering the e-personalization option was an innovative way of allowing people to tour the various models without a time-consuming test drive, which allowed them a competitive advantage through virtual viewing and customization of their product [12]. Comparison shopping while online is also an added benefit of purchasing online and it gives the potential consumer a sense of self empowerment and knowledge of the overall market in their area or nationally, as well as automobiles they are considering for purchase. This is a classic example where the Internet plays the information gathering role through accessibility to limitless resources from which to gain information on pricing ranges, overall drivability and reliability, performance inquires, and seller information. If a consumer is given enough options and answers to their questions, the probability of purchase behavior should be increased. For example, Gallop-Goodman [7] found that the number of consumer’s choices to purchase vehicles online was directly correlated to the information they could gain on that vehicle. Gallop-Goodman also noted that there is a general need for consumers to have this type of information readily available, since only 2% of the total online consumers stated that they used the Internet specifically to gather information on the
vehicles they were purchasing. However, in comparison to the benefits and advantages of online automobile purchasing to the rigors of buying a vehicle by any other means, the consideration of the lost of face-to-face interaction or human moments [8] is a consideration in the overall efficiency discussion. It should be noted that those who want the convenience of shopping without human moments can be bypassed through the use of the Internet and its ease of use can be directed toward all age groups, as it seems to be doing as technology online provides endless possibilities to purchase anything from socks to automobiles.
4. METHODOLOGY AND RESULTS 4.1 Sample and Procedures To properly investigate the various research propositions inherent in the models presented in Figures 1 through 3, a number of statistical techniques are used to test specific hypotheses that deal with the elements in the models were made. As a result, a total of fully employed 50 professional Internet users, representing a college-educated and knowledge-based sample derived from the metropolitan section of Pittsburgh, PA. A large telecommunication company, representing the service sector, was selected due to time and convenience factors and 50 out of a possible 188 individuals were successfully interviewed for the purposes of this study, representing an assortment of backgrounds, age groups, and gender distributions. The initial survey instrument that was conducted focused on a wide variety of aspects dealing with the automobile industry and online purchase behaviors, with questions ranged from the perception of hassle in buying online versus face-to-face to why certain online behaviors are perceived favorably. From these inquiries and questions, a relatively interesting and revealing body of knowledge was gathered, especially in terms of the importance of CRM concepts on potential automotive customers’ views on the importance of successful online shopping experience. In order to test the validity of the models previously presented in Figures 1 and 3, a variety of data reduction techniques [factor analysis and principle components analysis (PCA)], multiple regression, graphical analyses, and cross-tabulation procedures were employed to test the specific factor-based hypotheses presented in Table 1. However, principal components and factor analyses techniques will be the dominant multivariate statistical procedures to be used in this research effort, although much the mathematic details will be simplified for purposes of presentation. PCA is a classical linear transform statistical method, which
A. D. Smith: Exploring Dimensions of Customer Retention and Information Quality has been widely used in data analysis and compression [2,4,13], with formed the basis on the linear testing of independnet constructs in the
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hpotheses-tetsing phase of the present study (as reflected in Tables 2 through 7).
Table 1: Selected specific research hypotheses
H1
H2 H3 H4
Description of Hypothesis There will be a general acceptance of purchasing online due to Convenience and Internet-Ready factors as intervening influence on perceiving buying automobiles online as an inconvenience among the highly educated and professional sectors. There will be a general acceptance of purchasing online due to Convenience and Internet-Ready factors as intervening influence on perceiving buying automobiles online as an inconvenience among the highly educated and professional sectors. There will be no gender differences in determining the general acceptance of purchasing online on perceiving buying automobiles online among the highly educated and professional sectors. There will be a general acceptance of purchasing online due to the combined Convenience and Internet-Ready, Online Service, and Human Interaction factors as intervening influences on perceiving buying automobiles online as an inconvenience.
4.2 Basic Analysis and Results Surprisingly, in terms of descriptive statistics, 80% of the respondents stated they would rather purchase an automobile from a dealership than from an online website. In fact, of the individuals who said they would find it more convenient to purchase online, only 29% of females and 14% of males surveyed agreed (unusually low for employees of a telecommunications firm). When purchasing an automobile, the selection of manufacturer and model become a very important decision for virtually all consumers. There were several apparent reasons why customers put a high level of cognitive and affective thinking into purchasing an automobile, such as wanting to avoid risks, meet their internal requirements, and please their external influences. In terms of cross-tabulation of the various independent items of the survey instrument with the dependent variable (i.e. perception that buying online is a hassle), the graphs in Figure 4 demonstrate the complex relationships among these items. 4.3 Factor Analysis and Hypothesis-testing Results In terms of factor analysis and PCA results, three independent constructs were found from the pool of interval Likert-type and binary discrete variables from the questionnaire data. The basic extraction method was PCA with the basic rotation method of varimax with Kaiser Normalization. The three major constructs that were generated from the factor loadings, which accounted for 61.3% of the explained variance and were found to be statistically significant, were renamed based on the variables that loaded with loadings equal to greater than 0.05, and included: Convenience and Internet Ready, Online Service, Human Interaction, and Gender Influences. An eigenvalue greater than one criterion was used to generate the factor scores used in the analysis. The dependent variable chosen to be regressed against
these major independent factor-based constructs was perceived resistance to purchasing online (as measured with agreement with viewing inline purchasing as a hassle), as illustrated in Figures 1 through 3. Tables 4 and 5 present the hypothesis-testing results of regressing the three independent factor-based scores or constructs against the dependent variable, hassle associated with online purchases. Table 2 displays the total variation explained by the factor groupings, with Table 3 presenting the actual varimax rotated-component matrix and associated factor loadings into each major independent construct, in decreased order of importance. The results of the hypothesis testing are demonstrated in Tables 2 through 9, with Table 9 summarizing the surprising complex and sometime counter-institutive results. Basically, even among the education and Internet-empowered group, it seems that the primary role for the Internet is on information gathering and customer service, rather than actual purchasing automobiles. Evidently, old traditions die slowly. 30
20
10
manufacturer/online Count
Hypothesis Number
online manufacturer
0 strong agree
disagree agree
strong disagree
Figure 4a: Cross-tabulation of perception that buying online is a hassle versus the major components of the survey
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20
representative
10
Count
not important important very important
0 strong agree
disagree agree
Figure 4b: Dealer is less of a hassle to negotiate for new vehicle
strong disagree
Figure 4f: Importance of meeting with a dealer’ representative
30
30
20
20
build online
10
customer service o
10
unsure
online
0 strong agree
disagree agree
Count
Count
not important salesperson
important very important
0
strong disagree
strong agree
Figure 4c: Perception of the build-your-own automobile option
disagree agree
strong disagree
Figure 4g: Importance of customer service options online
30
30
20
20
10
Internet-enabled
10
not important
no
Count
Count
prefer test drive
yes
0 strong agree
disagree agree
important
strong disagree
Figure 4d: Prefer to test drive before purchase decision
very important
0 strong agree
disagree agree
strong disagree
Figure 4h: Importance of being Internet-enabled
30
30
20
20
customized
10
10
research
pick off lot wait
0 strong agree
disagree agree
strong disagree
Figure 4e: Importance of customization in the automobile purchase
Count
Count
unsure
shop 0
research disagree
strong agree agree
strong disagree
Figure 4i: Importance of using the Internet mainly to shop or do research
A. D. Smith: Exploring Dimensions of Customer Retention and Information Quality
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30
20
10
Count
gender of responden female male
0 strong agree
Figure 4j: Age distribution of respondents
disagree agree
strong disagree
Figure 4k: Gender distribution of respondents
Table 2: Total variance explained on the three independent factor-based constructs Extraction Sums of Rotation Sums of Squared Initial Eigenvalues Squared Loadings Loadings % of Cumulative % of Cumulative % of Cumulative Total Total Total Construct Variance % Variance % Variance % Convenience and 1.665 23.783 23.783 1.665 23.783 23.783 1.529 21.843 21.843 Internet Ready Online Service, 1.393 19.900 43.683 1.393 19.900 43.683 1.416 20.234 42.077 Human Interaction 61.324 1.347 19.247 61.324 Gender Influences 1.235 17.640 61.324 1.235 17.640 Extraction Method: Principal Component Analysis Table 3: Varimax rotated-component matrix displaying the factor loadings into each major independent construct, in decreased order of importance Convenience and Online Service, Human Gender Influences Internet Ready Interaction -7.758E-02 .750 -.406 Dealer Less Hassle .735 -5.186E-03 .289 Prefer Test Drive -.165 .707 .208 Representative -.272 -.549 8.402E-03 Customer Service Online .513 -.197 -.565 Internet-enabled -.751 -5.973E-02 4.983E-02 Age of Respondent .235 -.102 .857 Gender of Respondent Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation converged in 5 iterations. Table 4: ANOVA results of testing first hypothesis using factor-based constructs Sum of Squares df Mean Square F Regression (Convenience and .254 1 .254 .413 Internet Ready) 29.526 48 .615 Residual 29.780 49 Total Predictors: (Constant), REGR factor score 1 for analysis. Dependent Variable: Buying online as a hassle. Table 5: ANOVA results of testing second hypothesis using factor-based constructs Sum of Squares df Mean Square F .804 1 .804 1.333 Regression (Online Service, Human Interaction) 28.976 48 .604 Residual 29.780 49 Total Predictors: (Constant), REGR factor score 2 for analysis. Dependent Variable: Buying online as a hassle.
Sig. .524
Sig. .254
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International Journal of Electronic Business Management, Vol. 4, No. 1 (2006) Table 6: ANOVA results of testing third hypothesis using factor-based constructs Sum of Squares df Mean Square F .458 1 .458 .750 Regression (Gender Influences) 29.322 48 .611 Residual 29.780 49 Total Predictors: (Constant), REGR factor score 3 for analysis. Dependent Variable: buying online as a hassle.
Sig. .391
Table 7a: ANOVA results of testing final combined hypothesis using factor-based constructs (Model summary) R R Square Adjusted R Square Std. Error of the Estimate .226 .051 -.011 .78 Predictors: (Constant), REGR factor score 3 for analysis, REGR factor score 2 for analysis, REGR factor score 1 for analysis. Table 7b: ANOVA results of testing final combined hypothesis using factor-based constructs (ANOVA results) Regression (Convenience and Internet Ready; Online Service, Human Interaction; Gender Influences) Residual Total
Sum of Squares
df
Mean Square
F
Sig.
1.517
3
.506
.823
.488
28.263 29.780
46 49
.614
Predictors: (Constant), REGR factor score 3 for analysis, REGR factor score 2 for analysis, REGR factor score 1 for analysis. Dependent Variable: Buying online as a hassle Table 8: Statistical results of individual coefficients in the factor-based hypothesis test Un-standardized Coefficients B 2.380 (Constant) -7.200E-02 REGR Factor Score 1 (Convenience and Internet Ready) REGR Factor Score 2 (Online Service, Human .128 Interaction) 9.671E-02 REGR Factor Score 3 (Gender Influences)
Std. Error
Standardized Coefficients Beta
t
Sig.
.111 .112
-.092
21.470 -.643
.000 .523
.112
.164
1.144
.258
.112
.124
.864
.392
Dependent Variable: Buying online as a hassle. Table 9: Summary of hypothesis-testing results Hypothesis Number H1
H2
H3
H4
Description of Hypothesis There will be a general acceptance of purchasing online due to Convenience and Internet-Ready factors as intervening influence on perceiving buying automobiles online as an inconvenience among the highly educated and professional sectors. There will be a general acceptance of purchasing online due to Online Service, Human Interaction factors as intervening influence on perceiving buying automobiles online as an inconvenience among the highly educated and professional sectors. There will be no gender differences in determining the general acceptance of purchasing online on perceiving buying automobiles online among the highly educated and professional sectors. There will be a general acceptance of purchasing online due to the combined Convenience and Internet-Ready, Online Service, Human Interaction factors as intervening influences on perceiving buying automobiles online as an inconvenience.
Present Study Results
NS (not expected)
NS (not expected) NS, accepted original null hypotheses (as expected) NS (not expected)
NS denotes not statistically significant at the 0.05 level for a one-tailed test; MS denotes marginal support, S denotes statistically significant at the 0.05 level for a one-tailed test, HS denotes highly significant at the 0.01 level for a one-tailed test.
A. D. Smith: Exploring Dimensions of Customer Retention and Information Quality In response to the understanding that purchasing a car is an important decision to many consumers; when addressing the idea of convenience to the customer, how can this be best achieved through customer’s expectations [9]? Providing convenience in the eyes of most automobile customers is not offering the quickest method of order, payment, and delivery. It appears that offering the quickest and most effective method of providing the customer with the necessary options allows them to feel confident and comfortable with customer service and maintaining a certain automobile. Statistically speaking, the most important options to consumers include personally seeing the car, test drives, and background information. The first two needs of the customer, such as personally witnessing the car, and test-driving the car go hand-in-hand. The exploratory results suggest that 74% of people consider it very important to test drive an automobile prior to purchase. Breaking down this trend further, based upon gender, 86% of males compared to 57% require a test drive before they will consider purchasing an automobile. This alone is an inherently huge logistics problem for online automobile sellers to overcome and accommodate. Researching or gathering background information about a product is one aspect that online automobile distributors have a distinct competitive advantage. Appropriately 72% of individuals prefer to research online prior to making a purchase. Further breaking down the statistics based, upon gender, 76% of males as compared to 67% of females will research online prior to making a purchase. Since this statistic is based upon research on the Internet prior to making any purchase; hence, when consumers make a purchase that carries such a high level of cognitive and affective decision-making skills, the percentage of people researching the product could be much higher than 72%. Another issue of major importance in any industry is the ability for people to access and communicate with customer service representatives. It was a research proposition that potential customers would want to be able to talk to someone that would help them with any problems that they may have at any time. The results certainly suggest this is true, with the majority of the respondents agreeing to the importance of having representatives. Of the 50 respondents, 34 felt that customer service was extremely important in their decision to purchase from a particular manufacturer, while 16 felt that it was moderately important to be able to speak with people as soon as a problem occurs. Only one person in the survey did not think that it was necessary for any customer service representation, which equates to 98% stating that dealer representatives in terms of customer service were
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necessary. Problems that arise could be very simple or ultimately extremely complex, ranging from pricing issues to customization and maintenance issues. Dealerships are becoming more and more interested in increasing their car sales online due to the cost savings it offers. In theory, by allowing customers to pick the specific options they want their car to have, it will allow dealerships to reduce their inventory and storage costs. In order for dealerships to increase their sales online, dealerships need to make the older crowd more aware of the benefits of online services. The relatively large 35 to 64 year old age groups appeared less Internet savvy than the 18 to 34 year old age group, as expected. Automobile dealerships should continue to market strongly towards the 18 to 34 year old age group, since they have the skills to become the largest purchasers of cars online and generate the most sales. For example, dealerships could offer benefits and discounts on products and upgrades if someone purchases a car from their online website. However, the recent projects by the major automotive manufacturers concerning online purchases may be too optimistic. It is hoped that as more and more people use the Internet and realize the convenience the Internet offers them, they are beginning to order products online. General Motors projected in 2000 that in 2003, as many as 80% of its cars sold could be sold online [10]. Ordering a car online may be much easier for customers, the reality is that they are not choosing as a viable option in the numbers that the manufactures hoped. In terms of the used market, the real-world value is more evident as the Internet provides a huge selection of vehicles in virtually one place [17]. Evidently, automotive websites some of the most visited sites and the majority of car buyers do their research online, they still tend to purchase their cars from the dealership instead. By using the Web, car buyers are given large amounts of the most recent information on products and cars as well as quality information services. Customers are able to reach this information from the convenience of their own home [1]. Anyone who uses the Internet to gain research has the same general values. They like the customization, personalization, and convenience that they receive from researching online, as evident from the three significant factor loadings found in Tables 3 and 4. For users looking to purchase a car online, some of the most important factors are the price of the car. When buying online, the salesperson is no longer there. Therefore, they are no surcharges or commissions, which raise the price higher. Customers also like how they can customize their cars with the specific options they want their car to have. Every customer has their own personal
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preferences, likes, and dislikes about the specific options they want their cars to have. Convenience is very important for customers today because in today's busy world, people do not have the time to travel to different dealerships in a day. Customers can go online any time of the day and find the exact car they want with the click of the mouse. Self-service, which is similar to convenience, allows users to find the information they want when they want it. Car buyers are online because they are looking for information that is helpful. As noted in the practitioner literature, if the dealership has a good quality website, then customers will continue to come back for further research [1]. Gaining information on the Internet has allowed customers to avoid the hassles of dealing with salespeople and relationships are changing with customers due to the growth of the Internet. When analyzing how age affects who purchases cars online, as expected. The 18 to 34 age group was more willing to purchase cars online as compared to the 35 to 64, which virtually ignores this option. Much of this is probably due to members of the 18-34 age group has grown up using computers either from work or from learning how to use them during their childhood in school. In addition, most age groups still preferred to purchase from the manufacturer, rather than from a website, as evident from Table 9, summarizing the hypotheses-testing results. This is probably true since most people would never invest such large sums without the security that comes have the tangible experience. In fact, based on the present study, experiencing the test drive was the most popular reason for wanting to buy from a dealership. Due to this tangible experience, many salespeople believe that “the feel of the wheel will seal the deal” [16]. However, according to a study by J.D. Power and Associates in 1999 [7], 70% of people surveyed had at least considered the idea of purchasing an automobile online. People like the idea of choosing from several new and more creative options as opposed to the old automatic or standard transmission, or which color to choose from. The same study also showed that 16% would buy their next vehicle online if they could get it for the same price or less than the dealership, and have it delivered to there house within eight weeks or less. Automotive consumers appear to show the most enthusiasm in their desire to design, configure, and order products to be done the way that they feel is the best. However, these same people also generally agreed that they would still want to see the finalized product before they purchased it. Perhaps one of the main reasons that companies are trying to grow from online sales is that they want to strengthen customer hold. For example, in 2000 Ford Motor Company introduced a co-marketing
program with Yahoo! (as evident in Part A of Figure 5). Ford made it possible for people to register online, access their owners guides and credit information, receive recall notices and service reminders, and maintain auto maintenance logs, and receive up to date road conditions. Ford’s management believed that the addition of these new perks would help to retain customers online, and keep them purchasing Ford automobiles [18]. Lex Retail Group [11] is another example of a company trying to become a quality-driven company to attract and keep customers through enhanced customer service online. Forced into this by several marketing strategies and tougher competition, Lex focused more on the needs of customers, rather than the internal corporate needs that they had focused on in the past (as evident in Part C of Figure 5). However, as automobile companies that are incorporating online options to their businesses, there still lies the question of actual face-to-face communication. In today’s business world the Internet has made many forms of communication quicker, easier, and less expensive. The question sill exists; can electronic communication completely take the place of face-to-face interaction? According to Hallowell [8], personal communication is still a requirement of effective business practice. Hallowell defines the human moment as an authentic psychological encounter that can happen only when two people share the same physical space. This statement appears to hold true by the relationship that is developed between a customer and an automobile dealership. Consumers who are purchasing items such as vehicles, based on the present study, hold a great deal of importance and comfort in being able to discus problems and/or questions with individuals at a dealership. Along the same lines, much of repeat business occurs simply because customers enjoy the relationship they have developed with salespeople at the dealership. There is a certain amount of comfort that goes with purchasing a product from familiar people, and feeling comfortable leads the feeling to confidence. Being confident that the right decision has been made is what all consumers are trying to achieve when purchasing an important item such as an automobile. For online purchasing to overcome the connection that is made between customers and dealerships they must make a significant effort to make the customer feel that he/she is interacting with real people. Perhaps a good start for this e-personalization process would be to keep a detailed database containing everything about the customers’ car, so that a representative can discus problems with the vehicle without having to ask for background information. If a problem with a customer’s vehicle requires maintenance a customer service representative should schedule an appointment with
A. D. Smith: Exploring Dimensions of Customer Retention and Information Quality the nearest garage, and be able to give directions the garage, the mechanics name, and an estimate of how long the maintenance will take to complete (based upon the problem expressed over the phone). In order for an online automobile business to compensate for the lack of human interaction between themselves and the customer, they must have incredible customer service, just to compete. As evident from the statistical analysis of the major factors and illustrated in Figure 5, at least three major B2C models were found to be favored by the respondents; namely the Ford Motor Company Model (Part A), the Toyota Motor Company Model (Part B), and the closer interaction B2C model primarily found in the present study. Hence, the term online automobile purchase has several meaning, depending on the potential customer.
Figure 5a: Basic models that were exhibited by survey respondents (Part A) (1)Online Ordering AUTOMOBILE MANUFACTURER
CUSTOMER (2)Order Fulfillment
Figure 5b: Basic models that were exhibited by survey respondents (Part B)
Figure 5c: Basic models that were exhibited by survey respondents (Part C)
5. GENERAL CONCLUSIONS AND IMPLEMENTATIONS Based upon the statistical findings, there are some strategic and operational improvements that should be made in order to advance the processes that online automobile selling functions. Automobile companies must start by building upon their strengths. Their strength is that the Internet is an excellent source of information accessible to the majority of automobile consumers. To utilize this, manufactures should influence people to do more researching online. The initial impact would be that
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customers would be more knowledgeable about product before entering car dealerships. This would allow salespeople and customers to discus product in an educated manor making it easier for the salespeople to point out specific advantages regarding their vehicles. As this practice becomes more popular and widely used, customers will start feeling more comfortable with using the Internet, eventually associating car purchasing with the internet. Another strategic opportunity that is available is focusing on female consumers to purchase vehicles online. The results, although not significant in terms of minimizing the hassle associated in purchasing online, as evident the PCA and factor analysis results, have shown that females are less concerned with actually driving an automobile before purchasing then males are. The most effective method of targeting female customers may be to determine the most important features that females look for in a car, and completely educate these customers by using their website based upon their findings. The only way this opportunity can evolve is if female customers become educated enough to accurately determine which car is the best for them, omitting the need to physically witness the car prior to purchase. Changing the operational behaviors of the online automobile industry could also completely revolutionize the industry. The operational changes that have the potential to make the greatest impact are providing test-drives prior to orders being completed, and speed of delivery once an order has been placed. The future of the online automobile sales industry is combining the ease of gathering knowledge and making payments online, with the physical presence of test-driving a vehicle. To achieve this, once an order for a car has been received, a customer representative would take a vehicle as close to ordered one as possible to the customer to test drive and witness for themselves. If the customer is satisfied with the automobile they will submit the order, starting the custom manufacturing of their car. Speed of delivery for custom ordered cars would come with time and improvements in technology. Once the practice of having to produce custom ordered cars becomes a more practiced norm by consumers’ automobile manufactures will progress creating a faster process. Another key strategy would be to try and get the older generations involved with the purchasing of automobiles online. One way that dealerships could reach the older crowd is by posting ads for cars on websites, which are not related for cars. For example, General Motors uses their Internet technology to gain attention of the magnitude of potential customers who search the Internet each day. It has deals with companies like America Online Inc. and NetZero Inc. NetZero is the largest provider of
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free Internet service in the United States. They place ads on web pages, which are related to hobbies such as hunting, fishing, golf as well as any other sport, rather than being related only to researching cars. For example, someone looking at a fishing or hunting article could see adds for a General Motors’ sport utility vehicles or trucks, since these automobiles are geared towards outdoor hobbies. Another example would be for Chrysler to place an ad on a web page that has to do with golf. This is because Chrysler sponsors many golf tournaments and donates large amounts of money to charities. Then, if the person is interested in the car, they can click on the link, which will take them right to the web page where information can be gathered quickly and easily. This would be beneficial in making the older crowd more aware of online services because they will be able to access information about cars by searching for their hobbies. In conclusion, customer retention involving purchasing automobiles online is becoming increasingly more popular. Virtually all companies have a link that will direct people to a website where you can find out more information on their companies. Many automobile manufacturers and dealerships also offer this feature so one can do more research on the car they would like to look into more. Thanks in part to increasingly new technology, purchasing online is becoming more efficient and easier than ever. In the future, people should be more inclined to purchase automobiles online due to the convenience, accessibility, and ease of purchasing. In addition, as noted by a reviewer of this paper, no attempt was made in the present study to survey the attitudes of the dealers toward online purchases, which is a suggested topic for further research. It was an assumption of the author that in normal B2C customer interactions, dealers would embrace CRM principles to improve customer service. However, this may not be a valid assumption and requires further research to clarify this important relationship.
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ABOUT THE AUTHORS Alan D. Smith is presently Professor of Operations Management at Robert Morris University, located in Pittsburgh, PA. Previously he was Chair of the
A. D. Smith: Exploring Dimensions of Customer Retention and Information Quality Department of Quantitative and Natural Sciences and Coordinator of Engineering Programs at the same institution, as well as Associate Professor of Business Administration at Eastern Kentucky University. He holds concurrent PhDs in Engineering Systems/Education from The University of Akron
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and in Business Administration from Kent State University, as well as author of numerous articles and book chapters. (Received May 2005, revised June 2005, accepted November 2005)
