Why the car I can afford is not the car I want
Can you really afford to spend $30,000 on a slick new ride?
If you live anywhere other than Washington, D.C., the answer is a resounding "no."
Interest.com's inaugural Car Affordability Study found that the median-income family in 24 of the top 25 U.S. markets can barely afford to shell out $20,000 for a new vehicle. But — according to TrueCar — buyers left dealerships paying an average of $30,550 on new vehicles last year. That's about the price of a swanky new 2013 Acura TSX.
Many times, the car we desire can be more than we can afford. And buyers consumed by their lust end up paying a hefty price — literally. But why?
To better understand the dynamics of consumers' car-buying habits, we picked the brains of marketing experts Michael Belch, professor of marketing in the College of Business Administration at San Diego State University, and Scott Hamula, associate professor in the Roy H. Park School of Communications at Ithaca College in New York.
1. What are your initial impressions of the disparity between the amount a median-income family should be spending on a new car (around $20,000), and the price they're actually spending nationally ($30,550)?
Belch: I think it says a lot about demographics in these areas. Many people will look at their mortgage payments and housing costs and allocate the remainder to buy a car, neglecting saving for retirement or college education and so forth. If you look at San Diego, and California as a whole, there's just a general fascination with cars. There's no real mass transit to speak of. People will even sacrifice their housing costs to afford more expensive cars. So San Diego residents may be more willing to pay for costlier automobiles than in other cities.
Hamula: (The Car Affordability Study) includes prices for all new vehicles, and that's a fairly wide range. Let's say a person or household has a "need" for reliable transportation. The problem usually arises when what a person "wants" exceeds their level of affordability and their "need." Do I really need to buy a new model when it first becomes available, or can I wait (delay gratification) for an end-of-the-model-year with discount pricing? Do I need a fully loaded version, or will the car I can afford — an entry-level trim model — satisfy my needs? And there's always a used recent model as an option.
2. According to Nielsen, automotive companies make up a significant portion of Super Bowl ad buys. Why do you believe the auto industry, more than any other industry, has targeted the Super Bowl as such a crucial time to reach consumers?
Belch: Even if you look on a local basis here in San Diego, 80% of the commercials on local networks are either furniture or automobiles. During the recession, the automakers were still heavily advertising when every other industry seemed to be cut back.
In regards to the Super Bowl, if you're selling a product that appeals to the masses, running an ad during the Super Bowl is probably one of the best buys you can get in terms of cost-per-exposure basis.
This is a great buy for automakers for two reasons: One, they're reaching 100 million people at a very cost-affordable rate, and two, it's good image-building.
If you look at the VW ad that ran a few years back with the kid in the Darth Vader mask, people talked about it, and VW got a lot of buzz out of that commercial. Has it helped sales? It's hard to be certain. But it definitely didn't hurt.
Hamula: While $3.8 million for 30 seconds of commercial time may seem kind of high, a closer look can justify this hefty price. For starters, there is no other medium or single event that can deliver an audience of over 110 million all at once, and over 40% of those viewers say they are watching the Super Bowl primarily for the commercials, so they're also very attentive to your commercial.
Advertisers like Audi, Mercedes-Benz, Lincoln and the upper-end models of Chrysler, Kia and Hyundai are looking to attract these potential buyers, many of whom are in the right income bracket to afford these vehicles.
Another attraction to advertisers is the pregame and postgame publicity, referred to as "earned media." Consumers going online to YouTube to view a spot before and after the big game, sharing it with their friends with blog comments, and USA Today's next-day "Ad Meter" — all can produce some really big earned-media dollar figures for these marketers.
"National make you cry, local makes you buy" is a common phrase we use in advertising that especially applies to the automotive industry.
Great examples of ads affecting consumers' attitudes towards these car brands are the Chrysler/Ram "farmer" and the Jeep "whole again" commercials that ran during this year's Super Bowl. Both were primarily about image-building and generating positive feelings towards those two brands. Once you've established that, the next step is "action," and that can be encouraged through national and/or local dealer incentives to come in and take a test-drive or buy one now.
3. What role do advertising and marketing play in consumer purchasing decisions?
Belch: You have to look at the emotional side of car-buying rather than the functional. Functionally, we should all be driving Priuses, but we don't. Cars are a manifestation of one's own self-image. So I believe people buy cars that make them feel good and important. There are old Freudian studies that looked at the propensity of older men buying younger-looking cars to feel young again. So there are a variety of reasons beyond the functional attributes as to why people buy cars, and I think that carries directly over to why they're more willing (to) pay more for the car they want.
Hamula: Consumers buy most things for two reasons: to satisfy functional needs and psychic needs. First, the functional need: Does this particular vehicle/brand have enough seating, ample storage space, acceleration, etc. Second, the psychic or symbolic need is more about how it makes you feel and what that vehicle/brand says about you, whether it fits your self-concept or personality. Sometimes we refer to these as "badge brands." For example, if I drive a Mercedes-Benz, it's a moving billboard, expressing the perception that "I'm successful."
Special thanks to Michael Belch, Scott Hamula and San Diego State and Ithaca College, respectively.
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