Have promotions assumed overwhelming significance surpassing attributes like performance, product quality and brand image?
Consumer is the King’ couldn’t have been more appropriately used than to describe the tribe of consumers in present times, whether it is FMCG, financial services, brown and white goods or hospitality. A slew of promotions characterize every category today, freebies and discounts are freely dangled to woo the consumers.
The question then is, “have promotions assumed overwhelming significance surpassing attributes like performance, product quality and brand image?” Again, does it also mean that all the money spent on brand building is actually coming to naught? Are consumers moving from one brand to another based on promotional offers?
These and similar questions led us to dig deeper into the fast-changing face of the consumer durables industry in India.
We decided to check this in arguably the most ‘brand driven’ category namely, automobiles. Here, brand image probably plays a more important role in driving brand preference than in any other category and paradoxically, there have also been a host of promotional schemes on offer.
Car marketing and promotions
Strategically, promotions are used to encourage consumers to either try new products or enhance repeat purchase. In a competitive situation where there is product parity in terms of attributes offered and benefits sought, promotions are also used as incentives for consumers to display brand preference.
Although cars have always been advertised largely on lifestyle benefits and aspirations, promotions have been used more aggressively in car marketing during the last decade. Typically, these offers are provided by dealers, as well as, by the car marketers and comprise price discounts and gifts like gold coins, diamond rings, free accessories, gift vouchers, etc. For example, Maruti Suzuki had announced a price discount along with a gold coin for their slower moving model Versa, while Sai Service, who is their dealer in Mumbai, added free accessories like leather steering cover, three additional free services and free registration of the vehicle. At the start of every festive season we can see most of the car advertisements carrying one or more promotional offers. It is assumed that these promotional offers will lure a customer to prefer one brand or one dealer over another. This study is an attempt to investigate the role of promotions in car buying.
The Objective
To obtain an in-depth understanding of the role of promotions in car buying, we conducted a nationwide study with the following objectives:
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- To map various criteria a consumer uses for brand choice and to know whether promotions is one of them
- Understand the relative importance of various brand choice criteria and whether there are any regional or city-wise differences in the same
- Understand the car buyer’s attitude towards promotions and whether promotions can affect brand choice
Research Design and Methodology
Both exploratory and quantitative research studies were carried out to address the study objectives.
Phase 1-Exploratory research to develop hypotheses
Affinity groups amongst car buyers and in-depth interviews with car dealers were conducted to develop hypotheses regarding the brand choice criteria in car buying. This study was conducted in Ahmedabad and Mumbai.
As expected, the car buying process is an involved one and buyers use multiple criteria in choosing one brand over others. Some of the key criteria are:
- Uniqueness and the looks of the car
- Features and technology
- Luxury and comforts
- Brand imagery and social acceptability
- Budgetary considerations and cost of operations
- Promotional offers
Buyers as well as dealers mentioned promotional offers as one of the criteria for choosing one car brand over another. A study of car advertisements and visits to dealerships in Mumbai and Ahmedabad emphasised these hypotheses. Car advertisements and dealer displays carried promotional offers prominently, in addition to specific brand promises. Table 4.1 summarizes the brand promises made in the advertising and the promotional offers on the brands.
Phase 2-Quantitative research to test the hypotheses
To validate the hypotheses, a detailed quantitative survey was done using a questionnaire at six centers-Mumbai and Ahmedabad (Western India), Delhi and Jaipur (Northern India) and Chennai and Cochin (Southern India). A battery of 39 statements was developed using a five-point Likert scale for understanding the criteria for brand choice in cars and the role and importance of promotions in this process. The relative importance of these criteria was also judged by getting the respondents to rank them.
Respondent Profile, Sampling and Data Analysis
The respondents for this research were males of 25+ years, who had bought a car after September 1, 2003, or were planning to buy a car before March 31, 2004. The existing industry classification of cars was used as a guide for sample distribution. There was near equal representation of respondents from each region and each segment of car buyers. In all, 220 respondents who were either owners or intending buyers of the following cars were interviewed:
- A segment-Maruti 800
- B segment-Santro, Indica, Zen, Palio and Wagon R
- C segment-Indigo, Esteem, Honda City, Ikon and Accent
- D segment-Sonata, Lancer and Accord
A region-wise break-up of respondents is presented in Table 4.2, and the segment-wise break-up of respondents is presented in Table 4.3.
Interpretations and findings
Brand Choice Criteria
It is evident that the buyers of different car segments have different criteria on which they choose one brand over another and the relative importance of the factors on which a car brand is chosen varies across segments. A and B segment car buyers use simple criteria primarily based on budgets and cost of operation. C segment car buyers come across as the most complex buyers and use multiple criteria ranging from technology, features, uniqueness and luxury, to fuel economy. Segment D car buyers also use simple criteria based on features, luxury and technology. However, promotions do not feature as an important criterion in choosing a brand over another in any of the segments and are the least important criterion for a car brand choice.
Of the six most important criteria for brand choice, promotions feature as one of the criteria, the other five being uniqueness in looks and design, value for money, popularity of the car, peer recommendations and status attached to the car. Though buyers of A, B, C and D car segments have different evaluation processes and brand choice criteria, promotions are ranked the least important criterion for brand choice across regions, in metres and smaller towns and across car segment owners and intenders. Figure 4.1 gives details of the relative importance of the brand choice criteria in car buying.
C segment car buyers are the most complex and demanding
These buyers come across as the most demanding. They look for all the factors, i.e., features, uniqueness, luxury, peer and family opinion, advertising imagery, status attached to the brand within a stipulated budget and also look for the cheapest and most fuel efficient cars within the choice set.
Does this mean that promotions do not have any role in car buying? If so, why are they so abundantly used by car marketers? How do car buyers feel about the promotional offers? What role does promotion play in overall brand choice?
Attitudes of car buyers towards promotional offers
Metro and non-metro buyers have different attitudes towards promotions
Car buyers in non-metros believe that promotional offers are the norm of the day and every manufacturer offers them. This belief spans across the different segments. However, buyers from metros have a different opinion and feel that offers will differ from dealer to dealer. Across towns, buyers of A and B segment cars feel that every dealer will give similar promotional offers; however, C and D segment buyers feel that the offer would differ from dealer to dealer.
Promotions adversely affect the brand image for D segment buyers
Promotions can have negative effect on D segment buyers in both metres, as well as, in non-metros. However, for buyers of A, B and C segment cars, promotions do not have any negative effect on the brand in terms of image and status. Therefore, D segment buyers may seek promotions in their buying process, but the offer will certainly lower the image of the brand in their minds. Figure 4.2 explains this point, where a percentage of total respondents from each car segment agreed to the statement regarding promotional offers.
For a C segment buyer, a promotional offer means that the brand is open for further negotiation
C segment buyers across town class feel that promotional offers indicate that the brand is either moving slowly or is not moving at all and the marketer is open to negotiating the deal! This attitude is more prevalent in the smaller towns as compared to the metros. On the other hand, segments A and B buyers do not have this kind of attitude towards promotional offers. As figure 4.2 indicates, on one hand segment C buyers do feel that a promotional offer means that the brand is not moving in the market and at the same time, they are positive towards a promotional offer. In other words, they will try to extract the maximum, once a brand starts offering a promotion since they feel that it is not moving and at the same time also come from the context that there is nothing wrong with the brand/product per se. One of the possible explanations of this attitude could be that a C segment buyer is stretching his limits to move into a higher segment and therefore, wants to minimise his financial outlay and yet fulfill his aspirations.
A C segment buyer from a small town is more negotiation savvy than his metro counterpart
Buyers from smaller towns strongly feel that the rate of interest can always be negotiated on a car purchase once you have finalized a brand. This attitude is more prevalent in C segment buyers as compared to A and B segment buyers in these towns.
Role of promotions in car buying
C segment buyers especially from North India are more prone to promotional offers
Discounts and free offers can have a considerable effect on the brand choice for North Indian buyers across car segments and more so for C segment buyers. For other regions, promotions may not affect brand choice, especially in South India, where promotions have nearly no effect on the choice of brands across car segment buyers.
Similarly, a low rate of interest on finance will affect the brand choice for C segment buyers across metros and small towns. Car buyers across segments are generally sure about the brand they are looking for and are not affected by promotions in terms of their brand choice. For them promotional offers can, at best, affect dealer choice.
Promotions can sway the brand choice between two brands of similar social status
Across all segments of buyers in metros and non-metros, peer opinion on their brand of preference holds far greater importance than the promotional offer on the brand. However, where there are two comparable brands, the one with an attractive promotional offer wins the customer. This phenomenon is particularly true for C and D segment cars and is equally prevalent in metros and smaller towns.
Issues raised by this research
Is the C segment artificially created?
The C segment buyer seems to be most prone to promotional offers and tends to actively negotiate for deals. It is evident that the C segment buyer stretches himself to upgrade his status.
This also proves that if the price points can be reduced a little or the rate of interest on car finance can be further brought down, the C segment is likelyto see an explosive growth. So, what could be the ideal price point to motivate larger chunks of buyers for that stretch? Similarly, would the C segment disappear if prices go up in the wake of increasing raw material costs or higher taxes?
Promotions actually have very little effect on brand choice if the brand is differentiated well. Brand differentiation is the key to counter promotions. Once they have decided on a brand, buyers generally stick to their choices even in the case of a longterm offer like lower interest rates on the loans. However, if the brand is not differentiated and there is parity in terms of imagery and features, free offers and promotions can shift the brand choice, as in the case of C segment buyers. The study also suggests that though car buyers expect promotions to be offered, the attitude towards promotions differs across car segments and markets. Therefore, promotions should be used only if it is not possible for the brand to differentiate itself in terms of image, features, technology, etc.
Reprinted by permission of Tata McGraw Hill Education Private Limited. Excerpted from 9780070707139: Parameswaran, Medh,: Draftfcb Ulka Brand Building Advertising Concepts & Cases Book II; Rs 625. Copyright © 2011 by Tata McGraw Hill Education Private Limited. All Rights Reserved.