A fickle but valuable segment

Editor’s note: Lonnie Miller is managing director and Jeff Martini is vice president of the Polk Center for Automotive Studies, a division of R.L. Polk & Co., a Southfield, Mich., automotive information firm.

For most individuals, it has been said that buying a vehicle is the second-most important and expensive purchase, next to the acquisition of a home. For those just entering the car market, this is often simply the largest investment they will have made to date. To the auto industry, first-time buyers (FTBs) provide the chance to create positive impressions that will undoubtedly be reflected upon in later years as they make subsequent vehicle decisions. For players in this industry, much is at stake by not understanding FTBs given the future monetary contributions these individuals will make over the course of their lives. Based on past Polk studies, actual repeat buying (i.e., loyalty) behavior has repeatedly shown that young vehicle buyers are particularly fickle and less loyal to a brand than their older counterparts, thus adding another layer of challenge to capturing this consumer segment.

To say the least, it is an immense challenge to influence car and truck buyers overall, let alone those coming into the market for the first time. Part of the dilemma relates to effectively communicating relevancy and value to someone who is examining this category with little or no serious experience. Whether it is a new or used vehicle, the list of considerations can be overwhelming before a vehicle selection is made.

From a reach strategy, traditional media does not always support the needs of automotive marketers. Alternatively, special efforts are given to target FTBs and those influencing this audience through large-scale auto shows, clinics and test-drive events. As an example, in January 2006, both Los Angeles and Detroit hosted internationally-monitored auto shows which revealed many new production and concept vehicles for consideration to the public. Additionally, the annual Specialty Equipment Market Association show in Las Vegas highlights accessorized vehicles and their components, with the goal of showcasing how a vehicle’s look and/or overall performance can be enhanced. Each of these venues, while addressing the market overall, are also designed to intercept young buyers in order to influence their subsequent purchase decisions.

One timely example of possibly hitting the FTB audience at the right moment relates to a popular small car model. At the time of this writing, the newly redesigned Honda Civic was named as one of the top three vote-getters for the 2006 North American Car of the Year Award1. Ideally, such an award, if ultimately achieved, will heighten the consideration for this model among a coveted group of buyers. For those between the ages of 18 to 24, the Honda Civic and other comparable models fall into the “segment of choice” for this young group. With an average of 25 percent of all new registrations among 18-24-year-olds coming from the small-car category2, this type of public attention can help break through to a very desirable audience.

When first-time buyers enter the marketplace, the realities of the transaction and cost of ownership must be balanced against the dream cars they’ve typically imagined themselves driving. Choices must be addressed and balanced by a series of pragmatic questions, such as:

  • How will I finance the vehicle and what will be the monthly payments?
  • Will my family help reduce the cost?
  • What are my financing options?
  • Will I get the car or truck I really want?
  • How will the cost of accessories, insurance and other factors, like the price of gasoline, affect my budget?

It is safe to say that some or all of these issues pose a daunting challenge for a brand-new buyer. It’s equally daunting to automakers, dealers, finance companies and media organizations, among others, who wish to better understand if they can effectively serve such a prospect.

So what are first-time buyers doing during their search process for a new or used vehicle, and what’s prompting them to enter the market? These questions, among others, will be addressed in the following discussion in order to reveal current behaviors and attitudes among the FTB segment.

This study focuses on recent views among 366 U.S. consumers between the ages of 18 and 30 who were first-time buyers or lessees of a new or used vehicle in the past two years (since October 2003). Market insights in this study come from an Internet-based public opinion poll conducted by the Polk Center for Automotive Studies during November 4-10, 2005.

Info rmation-gathering: “surf’s up”

Less than a generation ago, searching for automotive information focused primarily on media sources such as newspapers, print advertisements, radio and television. Potential customers also relied on word-of-mouth and advice from peers and family, as well as surveying vehicles at the local dealerships.

No doubt, these avenues are still leveraged today. However, over the past decade the Internet has changed everything. Today, a wealth of vehicle-related Web sites, message boards, review sites, chat rooms, and blogs are available at the touch of a fingertip. With time being finite, using the Internet as an information provider has replaced personal time that was once allocated toward traditional media.

For those addressed in this study, participants were asked about the importance of various sources of information during their decision to buy their first vehicle. As depicted in Figure 1, results show that 35 percent of respondents consider the Internet to be the most important source of information - a higher percentage than is attributed to television, radio, newspaper, and magazines combined. With a relatively young, technology-savvy segment in this cohort giving such a high priority to the Internet, this finding continues to challenge conventional media outlets that have been in place for decades.

From a regional view, almost half of the respondents in the Western region of the U.S. (45 percent) pointed to the Internet as a very important source of information, the only region higher than the national average (35.3 percent). Supporting this finding, according to the U.S. Census Bureau’s report on computer and Internet usage, the Western region of the country has the highest percentage of homes with computers and Internet access3.

Additional findings from this current study show that FTBs with a higher level of education and income are more likely to mention the Internet as a “very important” source. However, marketers should not assume that lesser-educated individuals or those with lower incomes prefer to avoid the Internet as their top informational source. It is wise to realize that those with access to it tend to use it. So with availability and usage of technology in mind, the opportunities to capitalize on alternative media are equally important to all strata of first-time buyers.

Family influence

While over one-third of respondents say that the Internet is the most important source of information when making decisions about their first vehicle, this is rivaled by the influence of friends and family. As shown in Figure 1, a combined 38 percent consider recommendations by their parents (24.9 percent) and friends (13.4 percent) to be the most important source. So while respondents in this study may belong to the much discussed Gen Y target, which embodies a group who prides itself on independence and being on the cutting edge of what’s new, do not assume the immunity of their influence from trusted relationships. This has two implications:

1. Word-of-mouth strategies will still matter to an independent, tech-oriented audience.

2. Communication strategies which build trust among family members about a vehicle (and related investment requirements), should be prioritized.

Cars are passed down too

Not only is information passed readily between the household generations, but so are the cars and trucks themselves. As shown in Figure 2, over one in four (26.2 percent) entering the market to acquire their first car is doing so because a hand-me-down vehicle would no longer operate. This implies quality and durability messages have the opportunity to also resonate with a younger audience, and not just with an experienced buyer base. To automakers, a point in loyalty gained because a reliable vehicle kept a customer in the brand is worth multiple millions of dollars. Earlier impact analyses by Polk indicate the collection of all domestic makes gain roughly $1.1 billion in revenue for every point in loyalty gained. For the aggregate of all European makes, it is an incremental $141 million gained and for Asian makes, the windfall is another $571 million.

Worth noting in Figure 2, nearly one in five (19.4 percent) of all responding first-time buyers indicate they acquired a vehicle simply because “it was just time” based on them becoming of driving age. And among respondents age 18 to 21 years old, over 41.8 percent state it as their top reason for entering the market. In contrast, only 15 percent of those between the ages of 22 and 30 years old indicate it as their main reason for buying. This finding reaffirms the need for demographers and market planners to track aging youth. The closer individuals get to driving age, the more their potential need for a vehicle increases.

Influencing factors

When a first-time buyer identifies their need to enter the market, what are some of the issues they consider in making their first purchase? Respondents were asked to identify the importance of several items as they made their initial buy. Several factors related to economics and personal services were addressed and are summarized in Figure 3.

Results show two understandable dynamics at play: how much one will pay (on a monthly basis) and how well one is treated. For FTBs, the financial issue tops the list as being more important than the dealer experience, yet the latter should not be neglected, especially given the number of future buying years possessed among this segment.

Despite the earlier mention of parental influence on FTBs as solid sources of information, over half (54.1 percent) indicate where their parents bought in the past is “not at all important” to them (i.e., only 6.8% said this is a “very important” consideration). This hints at some limits to the extent which families may control or influence the total purchase process.

Regarding the same set of issues, results offer interesting regional differences to the consideration list, especially as it pertains to those in the Southern region of the U.S.

Table 1 illustrates how respondents in the South place more importance to each consideration at a higher rate than the other U.S. regions. Those in the South place particular importance on being treated well at the dealership. Over half (56 percent) say this is very important, while approximately one-third of the rest of the nation feels the same way.

Bringing earlier thoughts into this discussion, respondents in the Southern region are most likely to consider various forms of traditional media - television, newspaper and magazine - as a very important source of information. With regard to peer recommendations, Southern respondents also consider their parents to be very important, while FTB respondents in the Northeast place a particularly high importance on friends’ recommendations.

Reaching a goal

Ideally, a buyer ends up with the vehicle they were seeking all along. Respondents were asked about whether they got the vehicle they intended to buy, as well as the level of autonomy they had in selecting their first car or truck. Figure 4 shows that nearly two-thirds (64.5 percent) state they had the “final say” or decision in acquiring the type of vehicle they bought. At the same time, nearly half (47.8 percent) of all respondents strongly agree they got the vehicle they wanted. Again, this level of purchasing success implies buying power that should be respected and leveraged when interacting with FTBs.

Credit is important

Over one-third (35.3 percent) of all respondents consider the availability of affordable credit (i.e., good interest rates) as a very important consideration to them when buying their first vehicle. Expanding on this idea, respondents were further asked about financing specifics supporting their initial acquisition.

Overall, 54.9 percent of all FTBs state they took out a loan to pay for some or a partial amount of the vehicle. As expected, this behavior is even more pronounced when comparing those who picked up a new vehicle versus used vehicle buyers. In the case of those acquiring a new car or truck, 65 percent took out a loan, while only 46 percent of used vehicle buyers decided to do the same.

On the opposite end of the continuum, just 27 percent of respondents paid cash for their vehicle. Lastly, support from the family did not rate high as only 18 percent of FTBs received complete financial support from family or friends.

In total, better than half (57.7 percent) of FTBs financed their vehicle through the dealership. Trailing this venue, an additional 33.8 percent took out an auto loan financed through a bank of their choice. Worth noting, among “loan customers” in the Midwest, just fewer than 42 percent took out a traditional auto loan financed through a bank (as opposed to working through the dealership). Compared to the other regions, the Midwest shows the highest level of this type of behavior regarding loan sources.

Drivers come of age

In a BusinessWeek article published in 1999, auto executives discussed their strategies to appeal to the Gen Y audience as it was estimated at that time that four million new drivers would come of age each year until 20104. No doubt, this target is still in the sights of many automakers and that their affiliated organizations continue to pursue new, long-term revenue streams of future buyers.

According to the above, the U.S. market has roughly another four years of this four million annual target coming of age for the benefit of the auto industry. In one regard, this puts the potential into perspective: millions of fresh, new customers to be reached and battled for on an annual basis, yet companies struggle to absolutely dominate the category of first-time buyers, many of whom can be captured by simply knowing their birth date. Whether a 16-, 18- or 30-year-old, a consumer new to the auto buying scene has a lot to give - if they are addressed in a relevant and timely manner. With that in mind, we offer the following suggestions to various stakeholders in the automotive industry.

  • Message development and media

Blend a mix of interactive opinion leaders into an overall communication strategy. Taking a cue from the reliance on the Internet as well as parents/friends, use this to justify how a message framework could be developed. As has been done by some automakers, leverage how FTBs, especially those associated with the Gen Y audience, will respond to interactive offerings which present iconic or cultural leaders in the medium. As many youth-oriented automotive brands build a grassroots presence with event marketing, it is also important to look for ways to appeal to the tech-savvy side of these buyers who want validation through thought leadership that they can identify with in an easy manner. As revealed by earlier findings, FTBs “want what they want” and being able to visualize themselves into successful buying scenarios is important.

Consider creating a “voice of the family” when speaking to this audience. For example, allowing print media to depict the concerns of parents to their independent and maturing children may appeal to FTBs who still respect family values and the advice of others who have been through the vehicle buying process.

Think twice if communication strategies to reach FTBs exclude interactive or online approaches in a media plan. While a seemingly obvious point, it is easy to sometimes get caught in the trap of relying on traditional media (e.g., radio, newspaper) because it is what has been used so often for a given automotive nameplate or related demographic. This has implications to dealer marketing efforts which have not invested yet in such strategies. For the first-time buyer, it appears an online communication outlet is a must-have component to effectively reach them. Again, think about how they search and what they value.

  • Financing organizations

Related to the message development discussion, captive finance companies (related to an OEM), banks and other independent financing organizations might test how sympathetic they appear to this segment, based on acknowledging financial limitations facing young buyers. It appears to be one way to gain credibility with FTBs since they place considerable importance on the payment factors. Aspects of value should be conveyed but not at the expense of appearing cheap or discounted in nature.

From this study, a deeper regional evaluation seems to have merit. Because a higher share of respondents in some parts of the U.S. favor taking out auto loans through traditional banks (and not via dealers), it may be worthwhile to investigate the driving factors behind this behavior. At this point, no conclusions can be drawn about why a FTB seeks loans via a bank as opposed to through a dealer or whether this behavior is on par with other vehicle buyers.

  • Dealer communities

As seen in other market studies, the interaction with the dealer plays an important role on future business and referrals. Don’t neglect the amount of preparation that this ambitious and independent audience may have done prior to entering the showroom.

Some in the industry feel that loyalty does not exist. Overall brand loyalty, let alone loyalty to an automotive retailer, can be a dream when counting on business from young buyers. As noted earlier, FTBs give little regard to where their parents bought a vehicle, so do not assume younger offspring or relations to a more mature buyer base will come to the same showroom as their elders.

Genuine connection

It comes down to choices and the ones made early on in life tend to be remembered well, especially if they reinforce a bad call. For the auto industry and affiliated companies pursuing this segment, much is to be gained if a genuine connection can be made with first-time buyers. Being creative, respectful and sensitive to this group is well-worth the effort. If such an effort is not made, these may be decisions this target won’t forget - possibly at your brand’s expense. 


References

1 Jewett, Dale. “Fusion, Civic, Solstice Battle for Car Award.” Automotive News. December 13, 2005.

2 R.L. Polk & Co. New U.S. Retail Registrations (November 2004-October 2005).

3 Computer and Internet Use in the United States: 2003. U.S. Census Bureau.

4 “Gen Y: Today’s Teens – The Biggest Bulge Since the Boomers – May Force Marketers to Toss Their Old Tricks.”   BusinessWeek. July 1999. http://www.businessweek.com/1999/99_07/b3616001.htm.