Determination of Factors Affecting Purchase of Pre-Owned Cars

AMBUJ GUPTA (04) AVNEESH MUNJAL (18) BALRAM SUNDAS (19) KUNAL MALHOTRA (33) SAHIL JAIN (50)

Research Objective and Executive Summary

Objective: To understand the mindset of consumers while buying a pre-owned car and categorize different variables into Components and Factors India represents one of the worlds largest car markets. Various reasons viz. easy availability of finance, rising income levels etc. have been cited for a stupendous growth of the industry over the past few years. While many still prefer to buy cars first-hand, there has been a positive impact on the used car market as well According to the latest study on the sector, the Indian used car industry possesses a significant potential, with overall market expected to grow at a CAGR of around 22% during 2011-2014 to reach 3.9 Million Units by 2014-end. The growth of the sector can be attributed to the rise of organized sector. Big players such as Mahindra First Choice and Maruti True Value are coming to the fore and taking the market by a storm As the demand for pre-owned vehicles continues to outstrip the supply, Original Equipment Manufacturers (OEMs) have been witnessing a huge opportunity in the business In Kolkata, the market is not as booming as it is in other Metro Cities of India. This can be attributed to the fact that the average per capita income of Kolkata is less compared to other Metro cities of India. Despite this, dealers such as Ritchie Motors at Park Circus, Bhandari Motors at Ballygunge and MA motors in Salt Lake City have made a name for themselves in the field

Research Methodology
Segmentation of market and finding out the pre-owned car stores

Interviewing one of the store owners to get a better insight into the factors affecting purchase

Designing an appropriate questionnaire to judge the behaviour of consumers

Conducting a primary survey by interviewing around 40 consumers and store owners in close to 10 stores across Kolkata

Understanding and finding consumer insights through detailed analysis

Suggesting appropriate recommendations and higlighting the limitations of the same

Data Gathering and Questionnaire Design

We selected non probabilistic sampling-convenience sampling We began with interviewing the one of the pre-owned car dealers in Kolkata to get a slight insight into the attributes that consumers look for while buying a car The process of gathering data started with the primary research and floating an online form, which included questions pertaining to the preferences made by users for purchasing pre-owned cars Respondents were asked to rank the independent variables cost of purchasing, brand name, cost of servicing, to learn driving, peer pressure, frequent buying, warranty coverage and brand ambassador on a Likert scale of 1-5 with 1 being the lowest and 5 being the highest

Questionnaire (1/3)

Questionnaire (2/3)

Questionnaire (3/3)

Response Gathered
Cost of purchasing 4 4 1 3 4 4 3 3 4 4 3 3 4 4 3 4 3 3 4 4 3 3 4 4 3 4 4 1 3 4 3 3 Brand Name 5 4 1 4 5 4 4 4 5 4 4 3 5 4 3 4 4 4 5 4 4 3 5 4 3 5 4 1 4 4 4 3 Cost of servicing 3 5 1 3 3 4 5 3 3 4 5 3 3 5 3 4 5 3 3 4 5 3 3 5 3 3 5 1 3 4 5 3 To learn Driving 1 1 3 2 5 5 5 2 5 5 5 2 1 1 2 5 5 2 5 5 5 2 1 1 2 1 1 3 2 5 5 2 Peer Pressure 1 3 1 3 5 1 2 3 5 1 2 5 1 3 5 1 2 3 5 1 2 5 1 3 5 1 3 1 3 1 2 5 Frequent Buying 3 4 1 1 5 3 4 1 5 3 4 1 3 4 1 3 4 1 5 3 4 1 3 4 1 3 4 1 1 3 4 1 Warranty Coverage 4 4 5 3 3 4 3 3 3 4 3 1 4 4 1 4 3 3 3 4 3 1 4 4 1 4 4 5 3 4 3 1 Brand Ambassador 1 1 1 1 2 1 1 1 2 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1

Data Processing and Analysis

Null Hypothesis- H0:Population Matrix is an identity matrix (It means independent variables are uncorrelated) Alternate Hypothesis- H1: Population Matrix is not an identity matrix (This means independent variables are correlated and we can group them into factors) We ran a Factor Analysis test on SPSS for analyzing the responses that we gathered
Kaiser-Meyer-Olkin measure of sampling adequacy:
Cost of purchasing Brand Name Cost of servicing To learn Driving Peer Pressure Frequent Buying Warranty Coverage Brand Ambassador KMO 0.589 0.689 0.395 0.394 0.465 0.600 0.464 0.531 0.524

On SPSS we found out the value of KMO test to be 0.524 which is greater than 0.5, so we can go ahead with Factor Analysis. Our Null Hypothesis is rejected and we accept alternate hypothesis which means variables are correlated.

Data Processing and Analysis

Total Variance Explained
Component 1 2 3 4 5 6 7 8 Initial Eigenvalues Total 3.098 1.968 1.399 .922 .435 .120 .060 -2.281E-016 % of Variance 38.719 24.597 17.487 11.520 5.435 1.498 .744 -2.851E-015 Cumulative % 38.719 63.317 80.803 92.323 97.758 99.256 100.000 100.000 Extraction Sums of Squared Loadings Total 3.098 1.968 % of Variance 38.719 24.597 Cumulative % 38.719 63.317

Extraction Method: Principal Component Analysis.

We can see from the table that cumulative variance is 63.317 which is greater than 60% in 2nd factor itself , so out of 7 factors we will broadly consider 2 factors to which independent variables will be correlated

Data Processing and Analysis

From the scree plot we can see that there are 2 Eigen values which are substantially greater than One and explaining almost 65% of total variance which reinforces our point of considering Two factors.

Data Processing and Analysis

Component Matrixa Component 1 2 Cost of purchasing .870 -.002 Brand Name .868 .014 Cost of servicing .712 -.144 To learn Driving .273 -.039 Peer Pressure .090 .962 Frequent Buying .883 -.196 Warranty Coverage .030 -.875 Brand Ambassador .465 .464 Extraction Method: Principal Component Analysis. a. 2 components extracted. From the component matrix by observation, Factor loading of the above variables can be observed. We can see Cost of purchasing, Brand Name, Cost of servicing and Frequent Buying can be categorized as Factor 1-Budget Constraint And Learn Driving, Peer Pressure, Warranty coverage and Brand Ambassador can be categorized under Factor 2Status Symbol

Data Processing and Analysis

BUDGET CONSTRAINT
Cost of purchasing Brand Name Cost of servicing Frequent Buying Learn Driving Peer Pressure Warranty coverage Brand Ambassador

STATUS SYMBOL

The 4 independent variables Cost of purchasing, Brand Name, Cost of servicing and Frequent Buying are strongly correlated to Budget constraint and weakly correlated to Status symbol while Learn Driving, Peer Pressure, Warranty coverage and Brand Ambassador are strongly correlated to status symbol while weakly correlated to budget constraint.

Conclusion

Various variables were gathered and understood through primary and online surveys and those were later factorized into finally two components namely, Budget Constraint & Status Symbol The research draws attention to the fact that the major customers or consumers of the used cars segment are the young and the middle aged people with age group 18-54 contributing close to 90% of the total sample One very interesting insight for the major players in the industry was that more than 90% people consult with friends and family before buying a new car, which reaffirms our theory, that car buying is not an individual decision Only 40% of the customers refer to an automobile website or an online classified before buying a new car Also, the customers claimed that overall condition of the car is usually the make or break factor for them, followed by mileage promised. Profile of the previous owner played the least role in decision making It is recommended that:

Marketers focus on the value proposition of buying a pre-owned car and highlight it Target the whole family not just the decision-maker Highlight the cost effectiveness of buying a second hand car Stores such as Maruti True Value and Mahindra First Choice should highlight how people will get the car with proper documentation

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