Consumers willingness to pay for innovative technology: Hybrid Vehicles

Evolution of the Vehicle

• Late 19th and early 20th century – Steam, electricity, and gasoline

• Problems?– Vibration and Friction– Weight – Power/Fuel/Distance

• Internal Combustion Engine emerged dominate (early 1900s)

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Evolution of the Vehicle

• Late 20th and early 21st century – Traditional gasoline engine receives criticism • Global warming• Fear of limited oil supply • Rising gasoline prices • Inefficient

• Introduction of the hybrid – Combination of gas/electric engine – Late 2000 First mover Toyota releases the Prius

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Evolution of the Vehicle

• Expansion of product assortment and growth

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Objectives of Analysis

• Consumers willingness to pay for:– New technologies – Vehicles -> Demographics

• Exploration through scenario analysis

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Innovation Adaption and the Hybrid

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Relative Advantage• Degree of superiority to existing products

Compatibility • Fit of values and experiences

Complexity • Difficulty of use

Divisibility • Limited basis of trial

Communicability • Ability to be observed or described to others

Kotler (2008)

Innovation Adaption Diffusion Model

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(Rogers, 1962)

Conclusions from Kotler and Rogers

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Consumers willingness

Environment

Fuel PricesGovernment Incentives

Demographic Correlation Studies

• Economic Logit models– Whether or not to upgrade • Multinomial Logit (Train, 1980) and Nested Logit

(Hocherman et. al. 1983)• Mixed Logits integrating combined and stated

preferences

• Demographic Correlation – “What kind of Person chooses a vehicle type”– Choo and Mohktarian (2004) and Sangkapichai and

Saphors (2009)

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Putting the Theories together

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Different Demographics

Environmental concern

Fuel Prices

Government incentives

Three Factors that Affect Consumers

• Government incentives– Government Tax Credit up to $3500– Access to High-occupancy Vehicle Lane– Discount on Insurance premiums

• Environmental Issues– More environmentally friendly then conventional counterpart– Emit less green house gases and consume less gases

• Cost-savings– High fuel efficiency cuts fuel costs– However, due to the high premium takes years to recover the

premium in fuel cost savings

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Consumer Segments

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Early Bloomers• 18-24, single with high school education• Household income of less than $20,000

Wealthy Elite• 35 to 44, married with graduate degree • Household income of greater than $150,000

American Dream• 35 to 44, married with kids and University

degree• Household income between $75,000 to $90,000

Early Bloomer• Government incentives are important– Purchase price is a significant factor in a lower income

bracket• Although they are environmentally conscious, they are

not willing to pay a high premium to drive a hybrid• Fuel Efficiency and Cost-Savings are important– Research finding showed that income has non-linear effect – High interest in hybrids to save fuel costs– However, due to a high premium the cost-saving is not

significant

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Wealthy Elite• Government incentives are not as vital

– Purchasing price becomes less important– High disposable income

• Non-financial incentives may be more important– Access to HOV lanes can be a strong factor

• Environmentally conscious– More educated consumers are more environmentally conscious– Ownership of a hybrid goes beyond means of transportation, it’s

making a social statement• Long-term cost savings will less likely matter

– Only saves cost if driven for a long period of time

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American Dream

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• Government Incentives – Lower disposable income– High-occupancy Vehicle Lane

• Environmental concern– Future for children

• Fuel cost – May be seen as an short term incentive for

saving

Conclusion

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Thank You for your attention.We will now open the floor to questions

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