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J.D. Power and Associates

Quality Insider

Fun Driving Experience Important for Brand Loyalty

Expected resale value becomes less important

Published: Wednesday, December 22, 2010 - 05:30

(J.D. Power and Associates: Westlake Village, CA) -- New-vehicle owners are increasingly citing fun-to-drive vehicles as a top reason to remain loyal to their brand, while shifting away from expected resale value as a loyalty reason, according to the recently released J.D. Power and Associates 2010 Customer Retention Study.

Now in its eighth year, the study measures the rate at which automotive brands retain their existing customers and the reasons why owners remain loyal. Customer retention is critical to a brand’s market success, particularly during the current period of slow recovery, in which each new-vehicle sale is vital.

The study finds that the importance of fun-to-drive vehicles as a reason for owner loyalty has increased by eight percentage points in 2010, compared with 2009. Meanwhile, the importance of resale value as a reason to stay loyal has decreased by 10 percentage points from 2009.

In addition to customer retention, the study also examines rates at which automotive brands capture customers from their competitors, a process known as “conquesting.” The importance of a fun-to-drive vehicle has also increased as a reason why brands appropriate new customers from their competitors, as has vehicle styling.

“Now that economic and market conditions have improved somewhat, vehicle owners are increasingly citing emotional, rather than practical, reasons for staying with their vehicle brand or switching to a different one,” says Raffi Festekjian, director of automotive product research at J.D. Power and Associates. “In light of this, developing new models with attractive styling and that are perceived as fun to drive is increasingly critical for automakers to retain and conquest customers as the market continues to recover.”

Ford and Honda rank highest in a tie among automotive brands in retaining vehicle owners. Each brand retains 62 percent of owners. Ford’s retention rate is primarily driven by the Edge, F-Series, and Fusion models, while for Honda, retention is driven by the Accord, CR-V and Pilot. Comparing the two brands, Ford owners are more likely than are Honda owners to indicate they have remained with their brand due to the perception that their new vehicle is fun to drive or has appreciable styling. Honda owners are more likely than Ford owners to cite resale value and safety as reasons for repurchasing the brand.

Following Ford and Honda in the rankings are Hyundai, Lexus, and Toyota, in a three-way tie, each with a customer retention rate of 60 percent. Kia posts the greatest improvement in customer retention rate from 2009, improving by 21 percentage points to 58 percent in 2010.

Overall customer retention has remained stable from 2009 at 48 percent. In 2010, 16 of the 34 ranked brands have improved their customer retention rates from 2009, while 14 have declined and four have remained flat.

The study finds that customer retention among domestic brands, as a whole, has improved slightly from 2009. In 2010, 69 percent of owners who traded in a vehicle from a domestic brand purchased another domestic vehicle, compared with 68 percent in 2009. However, retention rates among domestic brands continue to lag behind those of import brands. In 2010, 90 percent of owners who traded in a vehicle from an import brand purchased another import vehicle—a level that has remained consistently high during recent years.

Compared with their retention rates, domestic brands have made more substantial progress during the past two years in conquering customers from import brands. In 2010, 14 percent of buyers of domestic brand vehicles previously owned an import, up from 10 percent in 2008.

“While import brands still have notably higher customer conquest rates than domestic brands, the gap is beginning to narrow,” says Festekjian. “In recent years, domestic brands have achieved parity or even surpassed the performance of import brands in initial quality and new-vehicle appeal, and customer perceptions of these nameplates seem to be evolving accordingly. It will be interesting to see how the performance gains by domestic brands affect retention and conquest rates in the coming years.”

The 2010 Customer Retention Study is based on responses from 123,601 new-vehicle buyers and lessees, of which 81,350 replaced a vehicle that was previously acquired new. The study was fielded between February and May, and August and October 2010.

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J.D. Power and Associates

J.D. Power and Associates is a global marketing-information services company operating in key business sectors across a variety of industries. It provides customer satisfaction research, market research, automotive forecasting, social media research, and performance improvement programs. Established in 1968, the company has been listening to consumers and business customers, analyzing their opinions and perceptions, and refining research techniques and study methodologies to offer some of the most advanced product quality, customer satisfaction, and tracking research available. The company’s quality and satisfaction measurements are based on responses from millions of consumers annually. J.D. Power and Associates is a business unit of the McGraw-Hill Companies.