Price Effciency Market

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International Journal of Market Research Vol. 51 Issue 3

Exploring the price efficiency within

automotive marketsAn application of data envelopment analysis

Pingjun JiangLa Salle University

Using.a.non-parametric.data.envelopment.analysis.(DEA).approach,.this.paper.

compares.the.price.of.each.car.model.in.a.segment.of.the.personal.car.market.

with.the.best.possible.price.in.view.of.the.technology.available.given.its.particular.

combination.of.characteristics.In.this.approach,.a.car.model.is.defined.as price

efficient.if.it.offers.customers.the.highest.value.per.dollar.spent.for.that.set.of.

characteristics.Likewise,.a.car.model.is.inefficient.if.there.is.some.other.car.model.

with.a.lower.price.having.equivalent.or.higher.quality,.whereby.a.measure.of.the.

price.efficiency.is.determined.by.the.price.reduction.needed.to.make.a.car.model.

efficient.The.data.set.covers.141.different.year.2002.car.models,.as.appeared.in.

Consumer Reports. magazine.The. vehicles.that.are. listed. by. Edmundscom.as.

consumers.most.wanted.are.compared.with.those.at.the.top.of.our.efficiency.list.It.is.found.that.the.majority.of.cars.at.the.top.of.our.list.are.also.listed.as.

most.wanted.by.Edmundscom.Evidently,.consumers.who.usually.make.decisions.

based.on.price.and.quality.information.will.naturally.employ.a.heuristic.such.as.

buy.car.models.at.the.top.of.price.efficiency.list.if.this.list.is.made.available.to.

them

Introduction

There.has.been.considerable.change.in.the.automotive.industry.Product.life. cycles. have. shortened,. internal. competition. has. increased. and.competition. has. become. a. worldwide. phenomenon. The. product. is.becoming. increasingly. important. and. strategic. in. corporate. marketing.mixes. in. this. new. context;. therefore,. the. product. development. process.ensures.that.car.models.perceived.of.higher.value.will.fulfil.the.needs.of.the.highest.possible.number.of.customers.more.satisfactorily.and.rapidly.

Received.(in.revised.form):.14.August.2007


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Exploring the price efficiency within automotive markets

Car.manufacturers. are. required. to. address. increasingly. specific.market.needs.while.still.providing.value,.in.order.to.ensure.success.and.thereby.

maintain.or.improve.their.position.with.regard.to.competitors.Substantial.price.dispersion.has.been.found.or.implied.in.a.large.number.of.studies.in.actual.retail.automotive.markets.(examples.are.Benham.1972;.Pratt. et al.1979;.Maynes.&.Assum.1982;.Dahlby.&.West.1986;.Shugan.1988).For.the.simple.reason.that.consumers.are.assumed.to.maximise.their.utility,.this. is. strong. evidence. that. consumers. are. less. than. perfectly. informed.about. the. alternatives. that. are. available. in. consumer. markets. (see,. for.example,.Oxenfeldt. 1950;.Bettman.1979;.Beals.et al.1981;.Maynes.&.Assum.1982)

The. literature. indicates. several. reasons. why. consumers. may. make.choices. without. being. fully. informed. The. consumer. is. faced. with. the.non-availability.of.desired. information. (Feldman.&.Spencer. 1965). and.the. cost. of. time. needed. to. acquire. information. (Mitchell. &. Sorenson.1986;. Ratchford. &. Gupta. 1987). There. are. limitations. of. processing.capacity. (Bettman. 1979;. Beals. et al. 1981). culminating. in. consumers.insufficient. capability. to.understand. all. available. information. (Sepstrup.1978). Especially. in. automotive. markets,. technical. complexity. and. the.multi-component.nature.of.products.(Maynes.&.Assum.1982).potentially.

affect.price.dispersionThat. consumers. make. purchase. decisions. based. on.maximising. their.utility.function.with.imperfect.information.raises.some.obvious.questions.How.are.the.car.models.positioned.in.the.market.in.terms.of.providing.consumers. a. set. of. utilities. at.a. certain. price?.How.does. such. position.relate.to.its.market.performance.(eg.sales)?To. address. these. questions,. the. utility. derived. from. personal. cars.might.be.an.interesting.area.in.which.to.perform.consumption.efficiency.analysis. to. examine.which. cars. satisfy. a. consumers. needs,. given. their.

respective.costs.The.critical.point.behind.consumption.efficiency.is.then.how.to.identify.and.measure.these.needs.Before.one.can.conclude.that.consumers.do.not.reach.their.consumption.frontier.with.the.amount.of.money.they.spend,.ie.they.are.inefficient.in.their.consumption.bundle,.the.consumption.frontier.must.be.objectively.defined.Obviously,.summation.over. utilities. for. different. consumers. is. not. objectively. measured. as. is.summation.over.production.from.different.plantsStudies. in. production,. such. as. that. by. Womack. et al.. (1990),. are.typically.directed.to.analysts.and.potential.car.owners.as.well,.and.indicate.that.consumers.should.purchase.car.models.that.are.cheaper,.have.lower.variable.and.service.costs,.have.a.longer.life.and.higher.performance.than.


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cars.made.by.a. different. production. technology.Many. car. owners,. car.magazines,.journalists.and.experts.(eg.Consumer Reports,.Annual.Auto.

Issue,.2002,..and.JD.Power.Associates,.wwwjdpowercom).seem.to.agree.with.that.Various.marketing.investigations.among.car.owners.show.that.some.car.models.perform.better.in.many.respects.than.the.others.The.tests.from.car.magazines,.though,.are.rather.subjective.and.reflect.the.drivers.personal. evaluation. of. the. tested. car. In. addition,. cars. are. often. tested.against.each.other,.without.investigating.whether.both.cars.are.inefficient.Furthermore,.such.tests.do.not.quantify.how.efficient.the.recommended.car.model.is.or.how.inefficient.the.non-recommended.one.is

The.purpose.of.this.study.is.to.examine.if.and.to.what.extent.some.car.

models/makes.are.superior.and,.more.importantly,.whether.such.superiority.are.turned.into.larger.sales.The.results.of.this.study.are.valuable.not.only.to.consumers. but. also. to.producers. For. instance,. are. consumers.most.wanted. cars. also. the. most. efficient. car. models?. Alternatively,. are. the.least.efficient.car.models.the.consumers.least.wanted?.This.study.intends.to.provide. consumers.with. advice. to.avoid.certain. car.models. as.being.inefficient.for.one.or.more.reasons,.and.by.doing.so.increase.consumer.welfare.The.study.may.further.inform.an.automotive.producer.whether.its.competitors.presumptive.model.is.superior.to.its.own.and.in.that.case.

what.substantial.improvements.are.required.in.order.to.turn.its.inefficient.car.into.an.efficient.one.The.method.applied.to.evaluate.this.is.the.data.envelopment.analysis.(DEA).approach,.using.economic.and.technical.data.for.141.different.models.in.2002,.from.Consumer Reports

This.paper.is.organised.as.follows.A.simple.presentation.of.the.DEA.approach. and. its. input-orientated. formalisation. is. provided. Next,. car.models.are.evaluated.and.the.main.findings.summarised.Finally,.a.general.sales.model.with.some.additional.criteria.is.provided.and.discussed,.and.the.conclusions.and.managerial.implications.summarised

Methodology

A simple DEA approach

This. study. adopts. Kamakura. et als. (1988).methodology. paradigm. in.terms. of. defining. and. measuring. market. efficiency. Kamakura. et al.employ. a.DEA. for.measuring. the. degree. of. inefficiency. of. each. brand.within.a.product.category.They.define.the.measure.of.price.efficiency.in.the. characteristics-space. According. to. them,. this. measurement. allows.comparison.of.the.price.of.each.brand.with.the.best.possible.price.under.the.


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technology.available.at.its.particular.combination.of.characteristics.It.also.allows.the.identification.of.a.set.of.efficient.brands.used.as.the.standard.of.

comparison.Finally,.this.measurement.provides.some.instructions.on.how.to.make.a.brand.price-efficient.Using.Kamakura. et als.approach,.a.brand.can.be.defined.as.efficient.if.it.provides.the.highest.value.per.dollar.spent.for.that.set.of.characteristics.where.an.efficient.brand.would.be.assigned.a.value.of.1.on.a.price-efficiency.scale.Efficiency.of.any.particular.brand.is.measured.as.the.ratio.between.the.efficient.price.and.the.actual.price.paid

A.potentially.useful.application.of.Kamakura.et als.study.might.involve.providing. lists. of. inefficient. brands. or. providing. price. ranges. in. which.

inefficient.brands.would.be.efficient.Such.information.would.potentially.be.useful.to.a.consumer.We.apply.the.methodology.set.forth.in.Kamakura.et als.study.to.a.number.of.car.models.in.automotive.markets

Let.us.return.to.economics.and.work.with.measured.costs.and.benefits.Consider. a. rational. consumer. who. pays. an. amount. of. money,.p,. to.purchase. and. drive. a. car,. y.In.fact,.in.purchasing.a.car,. y,.one.buys.a.bundle.of.technical.characteristics,.t,.such.as.space,.weight,.engine.power,.etc,. which. provide. the. owner. with. a. utility.Uy(p, t). We. consider.p.as.the.economic.or.price.variable.Obviously,.the.first.partial.derivative.with.

respect.to.p.is.negative.(the.more.expensive.a.car,.the.less.utility.it.yields).and. with. respect. to. t. is. positive. (the. higher. the. technical. performance,.the. higher. the. utility).For.a. given.utility.level. derived.from. a.car,.y,.we.obtain.that.d

t/d

p.=.y

p/y

t,.ie.the.rate.at.which.the.car.buyer.is.willing.to.

substitute.technical.performance.for.costs.equals.the.ratio.of.derivatives.of.the.utility.function.It.is.assumed.that.d

t/d

p.>.0,.ie.indifference.curves.

between.costs.and.technical.performance.have.a.positive.slope,.if.the.lower.utility.from.higher.costs.is.compensated.by.the.higher.utility.from.higher.performance

Fare. and. Grosskopf. (1994),. among. others,. have. formalised. input-orientated.DEA.models.A.detailed.description.of.a.DEA.model.can.be.found.in.Banker.and.Morey.(1986).They.extended.the.original.model.to.empirical.data.involving.ordinal.or.nominal.characteristics.This.extension.was.incorporated.into.Kamakura.et als.study,.as.well.as.ours.We.will.not.present.the. detailed.procedures.on. how. the. DEA. model.is. applied.This.study. determines. the. efficiency. by. mathematically. solving. the. following.problem.(adapted.from.Banker.et al.1984)

(Max)Z s skh s s

r i

i

m

r

g

j r i, , + +

+

== 11 . (1)


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subject.to:

p z p h srk k rj

j

n

j r + =

=

+1

0 . (r.=.1,.2,.,.g). (2)

x h s xij

j

n

j i ik

=

+ =1

. (i.=.1,.2,.,.m). (3)

==

11j

n

. (4)

h s sj r i

, ,+ 0 . (j.=.1,.2,.,.n). (5)

where. n. is. the. number. of. car. models. for. each. category,.m.the.number.of. inputs,.g. the. number. of. outputs,. x

ij.the.level.of. i-type. input. for. car.

model.j,.prj

. the. level. of. r-type. output. (car. characteristic). for. car. model.j,.Z

k. is.the.efficiency.ratio.for. the. car. model.under. consideration,..is.a.

very.small.constant,.sr

+.and.si.are.slack.variables.for.output. r.and.input.

i,.and.hj.is.the.weight.for.car.model.j.The.slacks.measure,.in.addition.to.

the.price.reduction,.how.many.more.of.the.attributes.should.be.offered.by.

the.inefficient.car.models.to.make.them.efficient.(Kamakura.et al.1988).According.to.these.models,.the.objective.is.to.reduce.the.eventual.slack.in.inputs.(costs).without.reducing.the.optimal.output.(technical.performance).If,. for. instance,. the. input. slack. is. equal. to. unity,. the. observed. car. is.efficient.If,.on.the.other.hand,.the.input.slack.is.less.than.unity,.the.car.under.investigation.is.inefficient.A.computer.program.is.utilised.to.solve.the.above.DEA.models.for.each.of.the.nine.car.categories

Given.these.quality.indexes,.we.employ.the.same.definition.of.efficiency.as. employed. by. Hjorth-Anderson. (1984). and. Kamakura. et al. (1988).

Hence,.a.car.model.is.inefficient.if. there.is.some.other.car.model.with.a.lower.price.having. equivalent. or.higher. quality,. and. the. price.reduction.needed.to.render.the.chosen.car.model.efficient.provides.a.measure.of.the.loss.incurred.by.choosing.an.inefficient.car.model

Determinant attributes

Cars.are.extremely.differentiated.products.If.producers.intend.to.satisfy.the.consumers.preferences,.they.have.to.offer.many.possibilities.of.choice.The.entire.spectrum.of.factors.or.characteristics.can.be.very.large,.covering.space,. motor. power,. safety,. price,. reliability,. dimensions,. and. so. on.


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Obviously,.in.order.to.evaluate.the.efficiency.of.a.particular.car,.all.these.characteristics.should.be.taken.into.account.The.problem.that.a.car.buyer.

faces,. however,. is. that. some. of. these. factors. (such. as. driving. features,.design,. safety,. reliance). are. not. objectively.measured. A.car. buyer.must.rely.either.on.car.manufacturers.who.claim.that.their.models.are.superior.to. those.of. their.competitors,. on.professional. car. magazines,.or.on. the.objective.and.measurable.characteristics

All.determinant.attributes.need.to.be.included.in.the.DEA.study.because.the.efficiency.calculation.depends.on.the.assumption.that.utility.is.estimated.correctly.A.buyer.may.not.have.sufficiently.good.information.on.some.of.these.attributes.that.are.in.the.DEA.calculation.to.make.comparisons.of.

the. attractiveness.of. the. bought.model.with. its. competitors. models. In.addition,.a.list.of.attributes,.which.could.be.assigned.to.each.competing.model,. is. developed. independently. of. the. buyers. knowledge. These.attributes.need.to.capture.salient.dimensions.as.well.as.possible

Gupta. and. Ratchford. (1992). uncovered. five. dimensions. from. a. set.of. concrete. attributes. that. determine. a. consumers. choice. of. selecting.car. models. Starting. from. their. perceptual. constructs,. we. compile. a.corresponding.list.of.attributes.that.are.available.for.each.car.model.in.our.data.set.In.particular,.an.exhaustive.list.of.ratings.of.each.of.the.141.cars.

in.the.study.on.attributes.available.in.Consumer Reports.was.assembled.Eliminating. all. attributes. in. the. Consumer Reports. data. that. were. not.significantly. related. to. at. least. one. perceptual. dimension. developed. by.Gupta.and. Ratchford. (1992),. and. eliminating. redundant. attributes,. led.to.a.list.of.ten.attributes.for.which.objective.data.were.readily.available,.and. which. were. significantly. related. to. one. or. more. of. the. perceptual.constructs

A. problem. is. that. these. ten. attributes. may. not. adequately. capture.differences. in. quality,. performance. and. style,. which. were. identified. as.

important. attributes. by. Gupta. and. Ratchford. (1992). Unfortunately.there. is.no.clean.objective. analogue.of. these.attributes. However,. since.they. may. be. an. important. influence. on. consumer. choice,. a. reasonable.measure.of.these.attributes.for.each.of.the.141.car.models.identified.in.this. study.was.required. Our. solution.was.to.establish. attribute.ratings.utilising.studies.published.by.JD.Power.and.Associates.The.automobile.consumer. satisfaction. ratings. given. by. JD. Power. and. Associates. are.based.on.surveys.of.actual.automobile.owners,.and.cover.issues.such.as.owner-reported.problems.with.the.vehicle.and.measures.of.a.consumers.satisfaction.with.particular.characteristics.of.the.vehicle


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In. general,. the. attributes. used. as. the. basis. for. our. analysis. do. a.reasonable. job. of. capturing. variation. in. the. perceptual. attributes. that.

consumers.appear.most.likely.to.use.in.differentiating.among.car.models.The. attributes. considered. in. this. study. were. those. listed. by.ConsumerReports.and.JD.Powers.website.(as.shown.in.Table.1)The.first.ten.attributes.are.objective.measures.The.rest.of.the.attributes.

are.subjective.ratings.on.a.5-point.scale.These.16.attributes.(ten.objective.attributes.plus.ratings.of.six.variables.including.comfort.and.styling).were.used.to.capture.most.of.the.variation.in.the.major.perceptual.constructs.identified.by.Gupta.and.Ratchford.(1992),.and.we.have.some.confidence.in.assuming.that.they.are.capturing.the.major.dimensions.used.by.consumers.

in.buying.automobilesThe. choice. of. these.variables.was. not.made.arbitrarily. In. fact,.none.

of. the. relevant. technical. performance. characteristics. published. in. the.magazine. was. left. out. In. addition,. this. study. includes. a. measure. of.safety,.given.that.data.on.airbags.are.available.This.study.is.based.not.only.on.many.measurable.characteristics.always.used.in.car.tests.but.also.the. selected. parameters. covering. a. large. part. of. all. possible. subjective.parameters.that.consumers.consider.when.they.decide.to.purchase.a.new.car.Many.car.owners.(and.potential.buyers.as.well).are.driven.by.such.

soft.or.non-measurable.parameters.Therefore,.the.selected.performance.parameters.are.rather.comprehensive.in.this.study.The.price.characteristic.is.the.only.characteristic.that.is.treated.as.an.economic.parameter.(input.

Table 1 Automobile characteristics

Source Characteristics

Consumer Reports 1. Horse power

2. Seating (number of seats)

3. Length (inches)

4. Width (inches)

5. Weight

6. Drive wheel

7. Safety belt

8. Airbags (head); airbags (side)

9. ABS

10. Traction aid

J.D. Power and Associates 11. Mechanical quality

12. Body and interior quality

13. Reliability

14. Feature and accessory quality

15. Performance (including acceleration and handling stability)

16. Style


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variable).and.therefore.minimised.instead.of.maximised.However,.as.was.mentioned.at.the.beginning.of.the.paper,.these.characteristics.cover.by.no.

means.all.the.possible.parameters.a.car.owner.had.in.mind.before.making.a.purchase.decision

The data set

We.now.apply.the.methodology.to.this.complex.automotive.product.class,.which.involves.a.large.number.of.continuous.and.ordinal.attributes,.and.a.large.number.of.makes.and.models.A.total.of.141.different.car.models.in. 2002. were. selected. from. Consumer Reports. magazine,. April. 2003.

The.models.are.classified.into.nine.groups.by.car.type:.family.cars,.small.cars,.large.cars,.luxury.cars,.upscale.cars,.minivan,.sporty.cars,.SUVs.and.trucks.Technical.performance.criteria.and.detailed.economic.data.(such.as.price.and.engine.power).exist.for.these.car.models.In.the.sample,.there.are.73.car.models.made.in.the.US,.3.made.in.Korea,.45.made.in.Japan.and.20.made.in.Europe.Although.it.was.intended.to.balance.the.number.of.car.models.among.all.the.countries,.the.data.availability.mentioned.above.led.to.over-representation.of.American.cars

Analyses (two-step decision making)

From. a.productmarket. point. of. view,. a.marketplace. in. the. eye.of. the.consumer. represents. the. realistic. market. structure. Consumers. with.different.decision-making.processes.have.different.perceptions.of.current.market. structure,. and. these. perceptual. differences. will. cause. them. to.position.car.models.in.their.consideration.set.in.a.different.way

Some.consumers.put.all.the.available.car.models.into.their.consideration.sets. when. shopping. for. a. car;. in. this. sense. they. implement. a. one-step.

decision-making.process.However,.many.consumers.perform.two.separate.steps.in.buying.a.car:.first,.they.decide.which.type.of.car.they.want.to.buy;.then.they.form.their.consideration.set.by.including.only.the.car.models.within.the.car.type.of.their.choice.For.instance,.a.consumer.may.decide.to.buy.a.luxury.car.and.then.look.up.the.car.models.in.the.class.that.s/he.has.chosen.Since.the.majority.of.consumers.adopt.a.two-step.analysis,.an.efficiency.map.of.the.automotive.market.developed.from.such.a.basis.is.more.realistic.Therefore,.we.will.calculate.the.efficiency.scores.only.with.respect.to.two-step.decision.making.and.study.the.results.The.efficiency.scores.will.be.termed.as.two-step.decision.making.The.firm.that.does.not.understand. the. impact.of.the. consumer.decision-making.process.on.


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its.brand/model.positioning/repositioning.is.likely.to.miss.opportunities.to.capture.new.competitive.advantages.because.of.market.structure.changes.

brought.about.by.competitorsIn. order. to. calculate. efficiency. under. the. two-step. decision-making.

process,.the.relevant.choice.set.had.to.be.defined.Since.consumers.should.be.able.to.readily.classify.cars.into.general.types.simply.by.looking.at.them,.it.was.felt.reasonable.to.assume.that.consumers.make.an.optimal.choice.of. type.of.car. (eg. family. vs. luxury),.and. that. the. relevant.alternatives.for.calculation.of.efficiency.are.other.car.models.within.the.chosen.type.That.is,.we.assume.that.a.consumer.can.readily.tell.the.difference.between.general.types.of.cars,.but.cannot.tell.which.model.within.a.type.is.best.

without.more.extensive.search.Accordingly,.the.models.that.we.employ.in.our.efficiency.calculations.are.other.models.in.the.general.class.in.which.the. consumer. made. his. or. her. choice. We. employed. the. classification.scheme. used. by. Consumer Reports. . the. magazine. that. publishes. car.model. ratings. . in. classifying. each. of.the. 141.models. into.one.of.nine.classes.As.mentioned.above,.these.are.family.cars,.small.cars,.large.cars,.luxury.cars,.upscale.cars,.minivan,.sporty.cars,.SUVs.and.trucksFor.car.models.that.were.estimated.to.be.lower.in.quality.but.higher.in.

price.than.at.least.one.other.alternative,.efficiencies.were.calculated.as.in.

equations.(1)(5).of.the.DEA.model.presented.above.The.results,.which.were.calculated. for.quality.scales. constructed.according. to.the. two-step.decision-making.process.outlined.above,.are.presented.for.each.car.model/make.in.Tables.25

Efficiency estimates

Results

As.discussed.earlier,.the.measures.of.efficiency.under.the.two-step.decision-making.process.were.obtained.A.summary.of.the.DEA.results.is.presented.in.Tables.25.The.tables.show.the.economic.and.technical.performance.inefficiency.All. nine.groups.by.car. type.have.been. tested. separately. for.constant.returns.to.performance.(CRP),.ie.the.lower.performance.level.is.derived.from.the.cheaper.cars,.while.the.higher.performance.is.derived.from.the.expensive.cars.Table.2.consists.of.all.efficient.car.models.and.their.corresponding.prices.Table.3.displays.the.inefficient.models.classified.according.to.the.highest.price.efficiency.obtained.by.the.CRP.frontier.A.summary.of.efficiency.estimates.by.car.group.and.by.country.is.presented.


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Group I: Family carsChevrolet Impala 19,960Chevrolet Malibu 17,535Dodge Stratus 17,400Ford Taurus 18,815Honda Accord 15,500Hyundai Sonata 15,499Mercury Sable 19,820Oldsmobile Alero 17,640Pontiac Grand Am 16,800Saturn L-Series 16,370Legacy/Outback 19,295

Toyota Camry 18,970Volkswagen Passat 21,750

Group II: LuxuryAcura RL 43,150Audi A6/Allroad 35,400BMW 5-Series 35,950Cadillac DeVille 42,590Lexus GS300/GS430 38,605Lincoln Continental 38,185Lincoln Town Car 40,170Mercedes-Benz E-Class 48,450

Group III: Sporty carsAudi TT 31,200Chevrolet Camaro 18,285Ford Escape 18,415Ford Mustang 17,365Mazda MX-5 Miata 21,180Mercury Cougar 16,520Pontiac Firebird 19,920

Toyota Celica 17,085

Group IV: SUVsBMW X5 38,900Chevrolet Blazer 19,475Chevrolet Tracker 15,865Dodge Durango 25,100Ford Excursion 35,110Hyundai Sante Fe 17,199Isuzu Rodeo/Sport 16,100Jeep Grand Cherokee 25,425Jeep Wrangler 15,230Mazda Tribute 18,155Mercedes-Benz M-Class 36,300Mitsubishi Montero Sport 22,777Nissan Xterra 17,999Pontiac Aztek 19,995Subaru Forester 20,295Suzuki Vitara/XL-7 15,599

Toyota 4Runner 26,335

Group IV: SUVs (continued)Toyota Highlander 23,880Toyota RAV4 16,525

Group V: TrucksChevrolet S-10 13,742Chevrolet Silverado 1500 17,518Ford Ranger 12,330GMC Sierra 1500 17,408Mazda B-Series 12,840Nissan Frontier 12,799

Toyota Tacoma 11,900Toyota Tundra 15,605

Group VI: MinivansChevrolet Astro 23,920Chevrolet Venture 21,380Chrysler Voyager 16,355Dodge Caravan/Grand 16,355Ford Windstar 22,340GMC Safari 23,920Honda Odyssey 24,250Mazda MPV 22,250Mercury Villager 19,340

Toyota Sienna 23,905

Group VII: Small carsChrysler PT Cruiser 16,275Dodge Neon 12,315Ford Focus 12,470Hyundai Elantra 12,499Nissan Sentra 11,799Saturn S-Series 10,570Subaru Impreza 17,495

Toyota Echo 9,995Volkswagen Golf 15,050Volkswagen Jetta 16,850Volkswagen New Beetle 15,900

Group VIII: Upscale carsBMW 3-Series 27,100Chrysler 300M 28,415Infiniti I35 28,750Lexus ES300 31,505Lexus IS300 29,435Mazda Millenia 28,075Mercedes-Benz C-Class 24,950

Group XI: Large carsBuick LeSabre 24,495Chrysler Concorde 22,510Ford Crown Victoria 22,930Pontiac Bonneville 25,700

Toyota Avalon 25,845

Table 2 Efficient models classified by price (in US$)

Price Price


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in.Table.4.All.car.makes.are.classified.(again.based.on.average.efficiency).and.presented.in.Table.5

The.results.in.Table.4.indicate.that,.under.the.two-step.decision-making.process,.in.terms.of.car.type,.the.truck.sub-market.has.average.efficiency.of.09901,.with.667%.of.the.tested.trucks.being.efficient.The.minivan.sub-market. follows,. having. a. slightly. lower. efficiency. at. 09747,. with.

Group I: Family cars

Mazda 626 0.8273

Infiniti G20 0.8505

Dodge Intrepid 0.8616

Nissan Maxima 0.8855

Oldsmobile Intrigue 0.9116

Mitsubishi Galant 0.9164

Volvo S40/V40 0.9197

Pontiac Grand Prix 0.9201

Buick Regal 0.9467

Buick Century 0.9494

Chrysler Sebring 0.9522

Group II: Luxury

Mercedes-Benz S-Class 0.6716

Lexus LS430 0.9788

Cadillac Seville 0.9801

Jaguar S-Type 0.9917

Group III: Sporty cars

Porsche Boxster 0.5784

Mercedes-Benz SLK 0.5829

Chevrolet Corvette 0.7087

BMW Z3 0.7244

Honda S2000 0.7272

Group IV: SUVs

Toyota Land Cruiser 0.5363

Acura MDX 0.7069

Infiniti QX4 0.7306

Isuzu Trooper 0.7739

Lexus RX300 0.7840

GMC Yukon 0.8949

Toyota Sequoia 0.9796

Nissan Pathfinder 0.9865

Group IV: SUVs (continued)

Chevrolet Suburban 0.9139

Chevrolet Tahoe 0.9907

Group V: Trucks

Ford Explorer Sport Trac 0.8966

GMC Sonoma 0.9911

Ford F-150 0.9944

Dodge Dakota 0.9995

Group VI: Minivans

Oldsmobile Silhouette 0.8160Pontiac Montana 0.9009

Chrysler Town & Country 0.9500

Nissan Quest 0.9795

Group VII: Small cars

Mercedes-Benz CLK 0.4991

Toyota Prius 0.8253

Pontiac Sunfire 0.9050

Honda Civic 0.9147

Mazda Protg 0.9549

Chevrolet Monte Carlo 0.9894

Chevrolet Cavalier 0.9955

Group VIII: Upscale cars

Volvo S80 0.7912

Saab 9-5 0.8546

Lincoln LS 0.8729

Oldsmobile Aurora 0.9509

Saab 9-3 0.9531

Group XI: Large cars

Buick Park Ave 0.7510

Mercury Grand Marquis 0.9626

Table 3 Inefficient cars classified according to price efficiency estimated by CRP* frontier

CRP CRP

* CRP: constant return to performance, the producers are able to linearly scale the inputs and outputs

without increasing or decreasing efficiency.


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Table 4 Summary of efficiency estimates

Subgroup Efficientcars/totalcarstested Averageefficiencydegreeofallcars

Family car 13/24 = 0.5417 0.9559Luxury car 8/12 = 0.6667 0.9685Sports/sporty 11/18 = 0.6111 0.9015SUV 16/24 = 0.6667 0.9330

Truck 8/12 = 0.6667 0.9901Minivan 10/14 = 0.7143 0.9747Small car 11/18 = 0.6111 0.9491Upscale 7/12 = 0.5833 0.9519Large car 5/7 = 0.7143 0.9591

European 12/20 = 0.60 0.8879Japanese 28/45 = 0.6222 0.9413Korean 3/3 = 1.0 1.0000US 46/73 = 0.6301 0.9700

Total 89/141 = 0.6312 0.9499 (std dev. = 0.1020)

Table 5 Summary of all manufacturers based on CRP frontier efficiency estimates

Manufacturer Testedcars Efficientcars(CRP) AverageefficiencyforCRP

Acura 2 1 0.8535

Audi 2 2 1.0000BMW 4 3 0.9311Buick 4 1 0.9118

Cadillac 2 1 0.9900Chevrolet 14 9 0.9713Chrysler 6 4 0.9837Dodge 6 4 0.9769Ford 10 8 0.9891GMC 4 2 0.9715Honda 4 2 0.9105Hyundai 3 3 1.0000Infiniti 3 1 0.8604Isuzu 2 1 0.8870Jaguar 1 0 0.9917Jeep 2 2 1.0000Lexus 5 3 0.9526Lincoln 3 2 0.9576

Mazda 7 5 0.9689Mercedes-Benz 6 3 0.7923Mercury 4 3 0.9907Mitsubishi 2 1 0.7297Nissan 6 3 0.9753Oldsmobile 4 1 0.9196Pontiac 7 4 0.9609Porsche 1 0 0.5784Saab 2 0 0.9039Saturn 2 2 1.0000Subaru 1 1 1.0000Suzuki Vitara/XL-7 1 1 1.0000

Toyota 13 10 0.9493Volkswagen 4 4 1.0000Volvo 2 0 0.8555


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7143%.of.its.tested.cars.efficient.The.large.and.upscale.sub-markets.performed.similarly,.with.efficiencies.of.09591.and.09519.respectively;.

and,. respectively,. 7143%. and. 5833%. of. the. tested. cars. in. these. two.categories. are. efficient. While. estimated. mean. efficiency. is. lowest. for.sports.cars.(09015),.this.is.also.the.type.most.likely.to.have.attributes.not.well.captured.in.our.data.(eg.sportiness);.consequently,.the.estimates.in.this.category.should.be.treated.with.some.cautionEfficiencies.will.tend.to.be.lower.for.categories.having.a.larger.number.

of.alternatives.because.the.cost.of.acquiring.and.retaining.the.information.on.these.will.be.greater:.after.a.point,.it.will.be.more.cost-effective.to.risk.losses.rather.than.to.seek.more.information.We.measure.the.number.of.

alternatives.as.the.number.of.models.in.the.class.in.which.the.consumers.choice.occurred.(car.models.in.a.category).The.correlation.between.these.two.is.0466,.a.negative.correlation,.significant.at.alpha.=.005.By.our.definition,. inefficiency. is. the. price.reduction. that. a. consumer.could.get.from.choosing.some.lower-priced.model.of.equal.utility.Since.the.expected.price. differential. between. the. chosen. model. and. the. better. alternative.increases.with.the.dispersion.of.prices.in.that.category,.inefficiency.should.increase. (or. efficiency. should. decrease). with. the. dispersion. of.prices. in.the. category.We.measure. price.dispersion. as. the. standard.deviation.of.

prices. in.the. class. in.which.the. consumers. choice. occurred.(std. dev.of.prices).The.correlation.between.these.two.is.0518,.a.significant.negative.relationship.at.alpha.=.005If.one.is.interested.in.the.most.frequent.efficient.cars.with.which.the.

method.chose.to.compare.the.inefficient.cars,.the.models.shown.in.Table.6.dominate.in.respective.car.groupsHowever,.it.is.not.clear.if.these.cars.appear.frequently.because.they.are.

super-efficient,.or.if.they.are.chosen.to.project.the.inefficient.cars.because.they. happen. to. lie. near. the. majority. of. inefficient. cars. For. instance,.

a. Mercedes-Benz. C-Class. customer. will. be. satisfied. with. the. distinct.characteristics.of.his/her.efficient.car,.without.bothering.if.this.model.is.regarded.as. an. alternative. model. to,. say,. the. inefficient.BMW. 5-series.Finally,.there.are.six.car.makes.that.share.first.place.as.far.as.the.total.number. of. efficient.models. among.the. tested. is.concerned:. the.German.Audi,.with. two.out.of. two.models;. the.American. Jeep.with. two.out.of.two;.the.Korean.Hyundai.with.three.out.of.three;.the.American.Saturn.with.two.out.of.two;.Subaru.with.three.out.of.three;.and.Volkswagen.with.four.out.of.fourThe. results. in.Table.4.also. indicate.the.average.performance.in.terms.

of.efficiency.among.the.four.countries.As.expected,.under.the.two-step.


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decision-making.process,.the.lowest.efficiency.in.terms.of.CRP.is.obtained.for.the.European.cars.(08879,.with.60%.of.its.tested.car.models.efficient),.

and. the. highest. for. the.Korean. cars. (1000,.with. 1000%. of. its. tested.car.models.efficient).On.the.other.hand,.there.are.significant.differences.between.the.European.(as.above).and.US.efficiency.scores.(09700,.with.6301%.of.tested.car.models.efficient).The.Japanese.efficiency.(09413,.with.6222%.of.its.tested.car.models.efficient).is.higher.for.the.CRP.than.the.efficiency.of.the.European.cars.The.US.car.efficiency.is.higher.than.that.of.the.Japanese.carsIn. Table. 4,. the. mean. efficiency. of. all. year. 2002. car. models. in. the.

automotive.market.under.the.two-step.decision-making.process.is.09499,.

with. 6312%. of. the. tested. car.models. being. efficient. In. particular,. as.shown.in.Table.5,.mean.efficiency.by.car.make.ranges.from.05784.for.Porsche.(ie.an.average.price.reduction.of.4216%.is.needed.to.render.this.make.efficient).to.10.(Audi,.Hyundai,.Jeep,.Saturn,.Subaru,.Suzuki.and.Volkswagen).Mean.efficiency.lies.between.090.and.10.in.26.car.makes,.085.to.090.in.four.makes,.070.to.085.in.two.car.makes,.and.less.than.070.in.one.car.make.The.most.efficient.car.makes.are.Audi,.Jeep,.Saab,.Subaru,.Saturn,.Nissan,.Hyundai,.Ford,.Volkswagen,.Mercury.and.Dodge.The. least.efficient. car.makes.are. Porsche,.Mitsubishi,.Volvo,.Mercedes-Benz,.Isuzu,.Infiniti.and.Acura

Table 6 Dominating cars by car type

Cartype Dominatingcars ingroup

Family cars Chevrolet Impala, Chevrolet Malibu, Ford Taurus, Honda Accord, Hyundai Sonata,

Saturn L-Series and Volkswagen Passat

Luxury cars Audi A6/Allroad, BMW 5-Series, Cadillac DeVille, Lexus GS300/GS430 and Lincoln

Continental

Sporty cars Chevrolet Camaro, Ford Mustang and Toyota Celica; SUV Hyundai Sante Fe, Pontiac

Aztek and Suzuki Vitara/XL-7

SUVs Hyundai Sante Fe, Pontiac Aztek and Suzuki Vitara/XL-7

Trucks Nissan Frontier and Toyota Tundra

Minivans Chevrolet Venture, Chrysler Voyager, Dodge Caravan/Grand and Mazda MPV

Small cars Saturn S-Series, Toyota Echo, and Volkswagen Jetta

Upscale cars Infiniti I35 and Mercedes-Benz C-Class

Large cars Buick LeSabre, Chrysler Concorde and Ford Crown Victoria


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Sensitivity analyses to subjective and objective measures

Since. DEA. is. used. to. evaluate. performance. by. considering. input. and.

output.data,.the.results.will.depend.directly.on.the.input/output.choices.In.this.section,.we.present.the.estimates.of.car.models.obtained.with.respect.to.different.combinations.of.inputs.and.outputs.In.particular,.we.examine.the.sensitivity.of.the.car.models.efficiency.scores.on.changes.in.the.list.of.objective.vs.subjective.outputs.With.respect.to.the.nine.car.types,.all.of.their.average.efficiency.scores.and.the.number.of.inefficient.car.models.are.found.sensitive.to.both.subjective.and.objective.measures.(except.the.group.of.large.cars)

Overall,.the.greatest.influence.on.a.cars.efficiency.was.the.dimension-

related. (length,. width. and. weight). output.measure. Over. 80%. of. the.inefficient.car.models.have.to.make.improvement.on.these.outputs.The.drive.wheel.output.measure.had.the.second.largest.influence,.with.the.non-availability.of.four-wheel.drive.(4WD).contributing.to.82%.of.the.inefficient. car. models. Another. influential. factor. was. the. head. airbag.test

We.also.examined.the.sensitivity.of.the.cars.efficiency.in.each.category.on.changes.in.the.list.of.other.outputs.The.outputs.Drive.wheel,.Length,.Width. and. Seating. had. the. largest. influence. on. the. efficiency. scores. of.

family. cars. The. outputs. Drive. wheel,. Length,. Width,. Weight,. ABS,.Traction.aid.and.Seating.had.a.large.influence.on.the.efficiency.scores.of.luxury/upscale.cars.Furthermore,.luxury.car/upscale.car.models.can.best.be.differentiated.among.competition.models.through.satisfying.consumers.perceived. notions. of. style. and. comfort The. outputs. Length,. Weight,.Traction.aid.and.Seating.had.the.largest.influence.on.the.efficiency.scores.of.minivans. The. outputs.Length,.Width,.Weight.and.Head. airbag. had.the.largest.influence.on.the.efficiency.scores.of.sporty/SUVs.The.outputs.Drive.wheel,.Side.airbag,.Head.airbag.and.Traction.aid.had.the.largest.

influence.on.the.efficiency.scores.of.trucks.The.results.indicate.that.trucks,.minivans.and.small.cars.can.stand.out.by.doing.especially.well.on.these.objective.features

Brand name effect

Undoubtedly,.affective.elements.such.as.brand.image.play.an.important.role. in. car. purchase,. too. Consequently,. cars. with. strongly. preferred.brand.names.are.perceived.of.high.value.even.when.they.are.too.expensive.given.their.performance.or.specifications.The.brand.strength.is.correlated.with. the. brand.make.efficiency. to. test. this. reasoning.According. to. the.


16/25


brand.equity. evaluation.model.employed.by. the.Allgemeiner.Deutscher.Automobil.Club.(ADAC).(2001),.brand.strength.is.measured.as.an.index.

of.brand.awareness,.recognition,.image.and.sympathy.The.brand.image.data.were.taken.from.the.2003.driver.survey.conducted.by.the.ADAC.The.number.of.problems.detected.by.cars.in.2002.is.also.used.to.correlate.with.the.brand.efficiency.scores.The.first.correlation.is.significant.at.alpha.=.010.and,.as.expected,.the.coefficient.is.negative.(sig.=.0099;.coefficient.=.046).The.second.correlation.is.significant,.too,.but.the.coefficient.is.positive.(sig.=.007;.coefficient.=.035).The.results.show.that.the.efficient.brands.are.those.with.lower.brand.images.and.tend.to.be.those.with.more.car.maintenance.problems.detected.later.Put.another.way,.the.consumers.

experience. fewer. maintenance. problems. with. using. those. inefficient.cars

A general sales model

Additional selection criteria

Efficient. estimates. in.DEA. models. do. not. differentiate. among. efficient.units.How.can.one.rank.all.these.efficient.car.models?.A.simple.selection.strategy.is.to.allow.potential.buyers.to.purchase.among.these.efficient.cars.

according.to.the.additional.determining.factors.in.their.purchase.process.We.might.therefore.conclude.that,.since.efficiency.is.not.calculated.relating.to.satisfaction.or.to.depreciation.and.fuel.economy.(measured.by.mileage.per. gallon,.MPG),. one. should. choose. among. the. efficient. car. models.from.Table. 2,.which.perform.highly. in.satisfaction. scores,. depreciation.and.MPG,.too,.such.as.the.BMW.3-series,.Honda.Odyssey,.Volkswagen.Passat,.Nissan.Sentra.and.the.BMW.5-series,.if.depreciation.and.MPG.are.important.factors,.tooAnother. general. problem. with. the. previous. studies. is. that. they. are.

unable.to.provide.information.on.whether.the.inefficient.brands,.however.defined,.have. large.or.small.purchase. frequencies. Thus,.we.are. unable.to. determine. whether. measured. inefficiencies. are. due. to. temporary.disequilibria.that.affect.relatively.few.consumers,.or.whether.purchases.of.inefficient.brands.are.common,.and.consequent.consumer.losses.are.high.The.issue.is.whether.it.is.possible.to.develop.a.model.that.will.explain.sales. by. including. efficiency. score. as. a. major. influence. factor.While.there.is.a.large.body.of.literature.that.attempts.to.explain.sales.and.market.share. (see.Beatty.&.Smith.1987. for.a. review),. there. is. very. little.work.


17/25


on.determinants.of.sales,.or.on.gains.from.the.effort.to.affect.efficiency.Both.Punj.and.Staelin.(1983).and.Ratchford.and.Srinivasan.(1989).have.

studied.the.determinants.of.cost.savings.(discounts).on.cars,.and.Carlson.and.Gieseke.(1983).have.studied.the.determinants.of.savings.on.groceries,.but.we.do.not.know.of.any.recent.field.studies.of.the.determinants.of.sales.related.to.efficiencyIt.would. be. interesting. to. investigate. if. and. to. what. extent. new. car.

owners.behave.according.to.the.efficiency.estimates.of.this.study.If.these.estimates.were.known.to.everybody.and.no.other.characteristics.were.taken.into. account. before. the. cars. were. purchased,. our. normative. approach.would.imply.that.the.inefficient.models.should.be.avoided.This.can.be.

tested.using.the.sales.statistics.of.year.2002.It.is.expected.that.efficient.car.models.have.larger.than.average.sales,.as.suggested.by.economies.of.scale.or. economies. of. scope. Besides. the. efficiency. consideration,. a. typical.ultimate.consumer.asks.two.questions.in.purchasing.an.automobile:

1. What.is.its.potential.trade-in.value?2. Will.I.get.reasonable.MPG?

On.the.other.hand,.customer.satisfaction.in.general.could.have.an.effect.

on.sales.Regressions.with.these.factors.as.predicting.variables.are.suggested.in.exploring.this.relationship.between.sales.and.efficiency.scores

The model

Following.the.above.discussion,.we.postulate.that.increasing.sales.depend.on.a.production.process.incorporating.the.efficiency.of.the.car.model,.its.depreciation.rating,.MPG.and.customer.satisfaction.about.the.car.modelIn. order. to. simultaneously. test. our. hypotheses. about. the. impact. of.

factors,. efficiency,.MPG,.depreciation.and. satisfaction.on. sales.volume,.we.build.a.multiple.regression.model.using.sales.as.the.dependent.variable.Independent. variables. are. defined. below.The. parameters. are. estimated.including.all.the.car.models.within.each.car.category.that.have.sales.figures.available:

. DV: sales.volume.(by.units). IVs:.efficiency.score.(calculated.through.DEA,.ranging.from.010);.

satisfaction.ratings.on.a.5-point.scale;.MPG;.and.depreciation.(ratings.on.a.5-point.scale)


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Specifically,.we.can.represent.the.determinants.of.sales.by.the.following.relation:

S.=.f.(E,.D,.M,.Sat,.e). (6)

where. S. denotes. sales,. E. is. the. efficiency. of. the. car. model,.D. is. the.depreciation,.M.is.gas.efficiency.measured.by.MPG,.Sat.is.the.satisfaction.with.the.car.model,.e.is.a.random.error.term,.and.f.is.function.Equation.(6).describes.a.function.relating.to.sales.Higher.performance.on.any.of.these.predictors.should.lead.to.higher.sales

Estimation and results

Regression. analyses. are. conducted,. respectively,. to. test. the. impact. of.efficiency.on.sales.for.each.car.category.The.sales.model.is.significant.only.at.the.alpha.=.010.level.for.the.luxury.car.category.(R2.=.0902,.F.=.6866,.sig.=.0073).and.SUV.category.(R2.=.0350,.F.=.2426,.sig.=.0086)The.coefficient.estimates.for.the.two.car.categories.are.shown.in.Table.7

In. the. luxury. car. category,. at. the. alpha. level. 010,.we. can. conclude.that. there. is. a. highly. significant. impact. on. sales. depending. on. the.efficiency. (beta.=. 1685,. sig. =. 0026).The. positive. signs.of. significant.

beta.coefficients.of.efficiency,.satisfaction,.and.MPG.tell.us.that.as.these.three.variables.increase,.sales.gains.increase.But.luxury.cars.with.better.depreciation.didnt.garner.higher.sales.In.the.SUV.category,.at.the.alpha.

Table 7 Estimates for the general sales model by car type

DV(salesunitsbycartype) Salesmodel(sig.) Coefficients(beta) Sig.

Family cars, small cars, large cars, minivans,

trucks, sporty cars, upscale Non-significant

Luxury cars 0.073Constant 0.042

Efficiency 1.685 0.026

Depreciation 1.588 0.020

Miles per gallon 1.252 0.067

Customer satisfaction 1.125 0.029

SUVs 0.086

Constant 0.188

Efficiency 0.582 0.009

Depreciation 0.079 0.737

Miles per gallon 0.227 0.265

Customer satisfaction 0.369 0.152


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level.010,.we.can.conclude.that.there.is.a.highly.significant.impact.on.sales.depending.on.the.efficiency.(beta.=.0582,.sig.=.0009).The.positive.

sign.of.the.significant.beta.coefficient.of.efficiency.tells.that,.as.efficiency.increases,. sales. gains. increase. Cars. with. higher. customer. satisfaction,.better.MPG.and.depreciation.did.not.garner.higher.sales.in.the.SUV.car.category,.probably.owing.to.the.popularity.of.SUVs.and.minivans,.which.are.typically.gas-inefficient.carsEvidently,. the. high-efficiency. car. models. are. the. best. buy. for. many.

consumers. purchasing. luxury. cars. and. SUVs.While. one. might. assume.MPG.to.be.positively.related.to.sales,.the.correlation.between.these.two.across.SUV.car.models.was.not.significant.It.appears.that.consumers.who.

face.brands.that.provide.an.unfavourable.position.on.MPG.are.generally.able.to.compensate.for.this.with.other.attributesThe.luxury.cars.that.sold.well.are.those.with.high.efficiency,.good.MPG.

and.better.customer.satisfaction.Those.best-selling.luxury.cars.also.tend.to.be.the.ones.that.depreciate.fast.The.SUVs.that.sold.well.are.those.that.are.efficient.The.trucks.that.sold.well.are.those.that.are.less.efficient.but.have. good. depreciation. value. The. family. cars. that. sold.well. are. those.that.are.efficient,.but.the.small.cars.that.sold.well.are.those.that.are.less.efficient.and.depreciate.fast

Discussion, conclusions and managerial implications

Consumers perspective

We.have. estimated. that,. on. average,. buyers. of. automobiles. could. save.about.24%.of.the.car.purchase.price.if.they.bought.car.models.of.at.least.equivalent.utility.at.a.lower.price.Consumers.appear.to.consider.only.a.fraction.of.the.models.available.to.them.in.a.given.class,.and.in.this.sense.

they.do.not.perform.a.complete.search.In.car.classes.with.a.large.number.of.alternatives,.or.classes.with.a.large.price.range,.car.buyers.are.likely.to.purchase.inefficient.cars.due.to.their.reluctance.to.thoroughly.search.the.class.The.results.herein.with.respect.to.the.family.cars.category.illustrate.this.effect.This.finding.may.reflect.a.lack.of.incentive.to.seek.information.on.many.alternatives.due.to.costs.of.search,.and.it.may.also.reflect.the.phenomenon.of. information.overload,.which.has. been. studied. in.other.contexts.(Keller.&.Staelin.1987).If.consumers.are.directly.provided.an.efficiency.list.of.car.models,.time.saved.in.searching.and.comparison.is.considerable.Further,.the.accuracy.and.effectiveness.of.decision.making.will.be.very.much.improved


20/25


European. cars. performed. best. in. depreciation,. followed. by. Japanese.cars. American. cars. showed. greater. depreciation. than. European. and.

Japanese.cars,.but.Korean.cars.showed.the.highest.level.of.depreciation.European.cars.have.the.highest.MPG,.while.American.cars.fare.worst.in.the.MPG.category.Japanese.and.Korean.cars.perform.comparably.well.in.the.MPG.category.Overall,.European.cars.are.priced.much.higher.than.the.cars.of.the.other.three.countries.By.car.type,.family.cars.have.the.highest.MPG,.and.trucks.perform.the.worst.on.this.criterion,.although.trucks.are.the.most.efficient.buy.compared.to.other.cars,.followed.by.family.cars.Sporty.cars.and.SUVs.do.the.best.in.terms.of.depreciation,.followed.by.trucks.and.luxury/upscale.cars

Potential. car. buyers. always.wonder. if. the. car. under. consideration. is.worth.purchasing,.as.compared.with.other.competitive.cars.This. study.was. an. alternative. approach. to. help. potential. buyers. find. the. best. car.among.a.variety.of.models

Producers perspective

Recent. visitors. to. Edmundscom. cast. more. than. 80,000. votes. for. the.2002.Consumers.Most.Wanted.vehicle. awards.Which.economy. sedan.

stands.out.from.the.crowd?.Which.luxury.SUV.towers.over.the.rest?.How.do.consumers.choices.compare.with.those.on.our.efficient.car. list?.Are.the.efficient.cars.the.Consumers.Most.Wanted?.Are.the.consumers.least.wanted.also.the.inefficient.cars?Figure.1.provides.a.profile.of.the.efficiency.and.the.degree.of.being.wanted.

by.consumers.for.car.models.in.the.nine.categories.Clearly,.the.precise.boundary.positions.between.quadrants.are.subjective.What.is.apparent,.however,. is. that. no. matter.where. the. boundaries. are. drawn,. some. car.models.that.score.well.on.efficiency.are.not.greatly.desired.by.consumers.

This.is.despite.the.more.general.trend,.also.apparent,.that.higher.overall.efficiencies.are.associated.with.a.higher.degree.of.being.wanted.Clearly,.judging.long-term.viability.on.the.basis.of.overall.efficiency.alone.would.overlook.some.car.models.good.at.attracting.customersIn.Figure.1,.car.models. located.in.the.upper-right.quadrant.should.be.

viable.so.long.as.they.at.least.maintain.(in.the.long.term).that.position.Any. scope.for. improved.overall. efficiency.will. reinforce. the. viability. of.these. car. models. The. long-run. viability. of. car. models. located. in. the.bottom-right.quadrant.depends.on.any.prospects.for.improved.marketing.communication/promotion. strategies. There. is. probably. a. lot. of. scope.for. generating. further. growth. of. buyers. interest. The. low. degree. of.


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being.wanted.of.efficient.car.models.could.be.the.result.of.poor.market.

positioning.or.the.lack.of.effort.in.convincing.consumers.of.the.excellence.of. product. attributes. Otherwise. these. car. models. are. viable.With. an.effective.promotion.and.positioning.strategy,.the.producers.should.be.able.to.move.these.car.models.to.the.upper-right.quadrantCar. models. located. in. the. upper-left. quadrant. are. the. lucky. ones,.

which.are.wanted.by.consumers.despite.their.low.efficiency.scores.Long-term.viability.should.be.expected.from.them.through.scope.for.improved.efficiency,. a.possible.result. of.developing. salient. and.unique. benefits. to.differentiate. from. competitors. Car.models. in. the. bottom-left.quadrant.offer.low.efficiency.and.are.not.much.desired.by.consumers.There.is.scope.for.improvement.in.the.product.features.and.hence.the.overall.efficiency.

Figure 1 Car model eciency vs consumers most wanted

Efficiency of car models

Consumer

swanted HighLow

Most

Least

Small cars: Dodge NeonFamily cars: Saturn L-Series; Mercury SableLuxury cars: Cadillac DeVille; Lincolns Town Car;

Lincolns ContinentalUpscale cars: Chrysler 300M; Infniti I35;

Mercedes-Benz C-ClassLarge cars: Buick LeSabre; Ford Crown VictoriaSporty cars: Audi TT; Pontiac Firebird; Mercury

Cougar

SUV: Chevrolet Tracker; Suzuki Vitara; Isuzu RodeoSport; Suzuki Vitara/XL-7; Mitsubishi MonteroTrucks: Ford Ranger; Chevrolet S-10; Mazda Truck;

GMC SierraMinivan: Toyota Sienna; Caravan/Grand Caravan;

Mazda MPV; Ford Windstar

Small cars: Hyunda Elantra; Nissan Sentra; Ford

Focus; Subaru Impreza; Volkswagen Jetta;Volkswagen Gol

Family cars: Honda Accord; Volkswagen Passat;Toyota Camry; Subaru Legacy and Outback; FordTaurus

Luxury cars: BMW 5 Series, Audi A6; Lexus GS 300and 430

Upscale cars: BMW 3 SeriesLarge cars: Toyota Avalon; Pontiac BonnevilleSporty cars: Mazda Miata; Ford Mustang; Ford

Escape; Toyota Celica; Audi TT; BMW M3SUV: Mazda Tribute; Toyota RAV4; Nissan Xterra;

Toyota Highlander; Toyota 4Runner; DodgeDurango

Trucks: Toyota Tacoma; Nissan Frontier; ToyotaTundra; Chevy SilveradoMinivan: Honda Odyssey

Small cars: Chevrolet Cavalier; Pontiac SunfreFamily cars: Pontiac Grand Prix; Dodge Intrepid;

Chrysler Sebring; Pontiac Grand AmLuxury cars: Cadillac SevilleUpscale cars: Saab 9-5; Volvo S80; Lincolns LS;

Saab 9-3Large cars: Buicks Park AvenueSporty cars: BMW Z SeriesSUV: Isuzu Trooper

Trucks: GMC SonomaMinivan: Chrysler Voyager; Town & Country;Nissan Quest

Small cars: Honda Civic; Mercedes-Benz CLK

Family cars: Nissan MaximaLuxury cars: Lexus LS 430; Acura 3.5RLUpscale cars: NoneLarge cars: NoneSporty cars: Honda S2000; Porsches Boxster;

Chevrolet CorvetteSUV: Nissan Pathfnder; Toyota Sequoia; GMC

Yukon; BMW X5; Acura MDXTrucks: Ford Explorer; Dodge Dakota; Ford F-SeriesMinivan: None


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of.these.car.models.The.producers.also.need.to.develop.more.effective.marketing. promotion. or. positioning. strategies. to. improve. the. overall.

marketing.performance.of.these.car.modelsFurthermore,.it.is.found.that.car.models.in.different.car.categories.are.

not.distributed.in.the.same.pattern.as.depicted.in.the.four.quadrants.of.Figure. 1. Figure. 1. shows. evidence. that. the. degree. of. being.wanted.by.consumers.is.not.always.consistent.with.the.efficiency.score.Clearly,.no.car.models.from.categories.of.upscale.cars,.large.cars.and.minivans.are.located.in.the.upper-left.quadrant.(very.few.in.the.upper-right.quadrant),.but. a. significant. number. of. car.models. from. these. three. categories. are.found.in.the.bottom-right.quadrant.This.indicates.that.better.positioning.

and. promotional. strategies. are. needed. to. market. these. cars. Also,. the.majority.of.car.models.from.the.sporty.and.SUV.categories.are.located.in.the.two.mis-perceived.quadrants.(upper-left.and.bottom-right).This.might.be.due.to.the.missing.attribute.of.sportiness.in.our.DEA.estimation

Limitations and future research

While.we.went.to.considerable.lengths.to.develop.a.list.of.attributes.for.use.in.this.study,.failure.to.incorporate.attributes.that.are.idiosyncratic.to.a.

small.group.of.consumers.could.still.lead.to.biases.in.our.efficiency.estimates.There.is.a.need.to.study.this.problem.and.to.find.ways.of.overcoming.it.There.are.some.attributes.beyond.the.objective.attributes.considered.in.our.model.that.distinguish.car.models,.such.as.mechanical.quality,.body.and.interior.quality,.feature.and.accessory.quality,.performance,.comfort,.style.and.reliability.Although.our.data.are.able.to.distinguish.between.general.attributes.that.may.create.large.amounts.of.efficiency/inefficiency,.they.may.not.be.100%.comprehensive.and.may.fail.to.account.for.those.attributes.that.lead.to.small.price.differences.between.otherwise.similar.models.As.

noted.earlier,.this.might.be.a.general.problem.in.applying.DEA.to.complex.products.with.dimensions.that.are.difficult.to.describe.objectivelyCars.are.extremely.differentiated.products,.and.models.can.differ.from.

one. another. in. many. characteristics. Any. conclusion. derived. from. our.approach. is. conditional. on. the. assumption. that. all. relevant. attributes.have.been.considered.Accordingly,.the.exclusion.of.a.potentially.relevant.attribute.such.as.sportiness.may.have.resulted.in.efficiency.ratios.that.in.part.reflect.the.cost.of.this.missing.attribute.to.consumers.Unfortunately,.this.characteristic.cannot.easily.be.measured.and.is.not.addressed.in.this.study.Nevertheless,.this.study.provides.potential.buyers.with.information.on. the. objective. qualities. of. a. considered. car. and. alternative. models.


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Since.explicit.weights.are.given.to.car.characteristics,.if.a.considered.car.accelerates.slowly.and.is.limited.in.horsepower,.that.car.might.be.perfectly.

efficient. to. a. potential. buyer. who. is. not. interested. in. these. criteria.Professional.tests.in.this.field.can.calculate.how.expensive.the.horsepower.of.an.Audi.is,.how.high.the.shadow.price.of.safety.for.a.Volvo.is,.or.how.expensive.the.design.of.a.BMW.is

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About the author

Pingjun. Jiang. is. an. Associate. Professor. of.Marketing. in. the. School. of.Business,. La. Salle. University,. Pennsylvania,. US. She. received. her. PhD.degree. from. The. Southern. Illinois. University. Her. research. interests.

include. e-commerce,. consumer. behaviour,. pricing. strategy. and. research.methodology. She. has. published. papers. in. the. following. publications:.Psychology & Marketing,. European Journal of Marketing,.Journal ofServices Marketing,.Journal of Product and Brand Management,.InternetResearch,.and.Proceedings of American Marketing Association EducatorsConferencesAddress. correspondence. to:. Department. of. Marketing,. School. of.

Business.Administration,.La.Salle.University,.Philadelphia,.PA.19141,.USEmail:.jiang@lasalleedu


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Price Effciency Market