When Consumer Surveys Go Flat
At the recent SAE Congress in Detroit, Scott Miller, the CEO of automotive research firm Synovate Motoresearch, announced during a panel discussion that according to a recent survey his firm had conducted, half of the respondents said they "would pay either nothing or up to a $1000 premium for a plug-in hybrid electric vehicle."
Our own research during the 1990s, spending 20 hours per household invested in our own survey, offered many useful insights about consumer consideration of electric vehicles, but "willingess-to-pay " figures were probably not reliable.
The way these surveys are constructed have very little to do with the way decisions are made about cars. And yet car companies and everybody else wants an "average-willingness-to-pay" figure. Such a number is largely an artifact of survey design.
What we uncovered can be summarized in four key points:
1. In our many years of work on this stuff, we find that the answers to these questions are extremely unstable. The answers people give change easily with small additions of information, even after we have informed them best we can of the options. In particular, these numbers are very unstable in the social environment of focus groups, phone interviews, and in the information vacumn of surveys. Sometimes, in face to face interviews, at a respondent's home, where we know lots about past purchase decisions of households, we can repeat questions using past behavior as a probe, until we think we have established a stable answer.
For example, a household (HHld) says they will pay $35,000 for a hybrid SUV, and we note they have only bought compact sedans in the past for under $15,000. They have to explain their change in behavior and budget. Households will then discuss and recalculate. Then you ask "how did you recalculate?" it is the answer to that question that will explain what is important to the household.
2. The incremental cost of "green" does not really present itself in the market, even with HEVs. For example, even in cases where the added cost of green appears to be clear, it is just not that way. All the Civic buyers we have interviewed, did not consider a non-hybrid Civic. More often than not, Prius buyers we talked to compared the Prius with more expensive mid sized sedans rather than less expensive compacts. Understanding how the consumer frames their choice is essential.
3. Just about every study, from the 1990's on shows a similar result, a willingness to pay about $1000 - $2000/3000 for an "alt fuel/clean" car. This number is an average, usually representing a distribution of answers from $0 to $10,000. It is the distribution, not the average that matters in markets. The way to read these answers are strength of opinion about green vehicles, not willingness to pay. Those who said they would pay $0 are telling the survey people that they think green is a crock; those who say $10,000 are saying "green is really important".
However, in an interview, you may find that the guy who said $0, burns a lot more money on cars, and options than all other buyers. That same person, at a car lot, might easily drop $5000 on "clean" while the other person, who said $10,000, is in reality really cheap, and at purchase time, will only buy a used vehicle.
4. Surveys are not objective instruments. They are a dialogue between respondents and researchers. The most important question in the survey is not "how much more will you spend for a PHEV?", which few buyers can answer with any clarity or stability, but rather when they say "$2000" , you then ask "why $2000?" You then may find out what is of value. Or you may find that they are uncertain of the value, and want to know what we (the researchers) think is the right amount. Or that $2000 was what they payed for power windows and cruise control, so that seemed reasonable increment.
So, if you have to have "willingness-to-pay-numbers " in order to make decisions about regulations and investments, make sure the study investigates why they answered the way they did, so that you can judge the quality of the figures and understand what is shaping the survey results.
Tom Turrentine is the Director of the University of California, Davis Plug-In Hybrid Electric Vehicle Center & Research Anthropologist at The Institute of Transportation Studies.
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