Executive Summary

In the new car market manufacturers sell cars using dealers as intermediaries. Both the car manufacturer and the dealer strive to enhance their respective retention rates. Dealer and brand retention decisions are often interrelated because consumers’ brand retention decisions may be dependent upon the dealers’ performance, because dealers influence brand retention through their sales and service efforts. The interplay between brand retention and dealer loyalty has, however, received little attention in the literature. Therefore, this study investigates the degree to which new car dealers contribute to brand retention, and also how this contribution is moderated by brand tier.

Theoretically this study builds on the theory of consumption systems. The car provided by the manufacturer and the sales efforts and services offered by the dealer can be considered the two subsystems of the car consumption system. Characteristic is that product performance not only depends on consumers’ continuous experience with the car, but also on the associated periodic sales and service efforts provided by the dealer. Thus the consumption systems perspective specifically argues that the interplay between the car and the dealer subsystems influences consumers’ retention decisions.

In this study dealer retention decisions are based on consumers’ unobserved dealer value. This value is construed by consumers’ perceptions of dealer-related variables, such as dealer intrinsic and extrinsic quality, dealer payment equity, dealer trust, dealer switching costs and consumers’ prior ties with the dealer. Similarly, brand retention decisions are based on consumers’ subjective value of the brand. This value is construed by consumers’ perceptions of brand-related variables, such as brand quality, brand payment equity, brand equity, brand trust, brand switching costs and consumers’ prior ties with the brand. In line with the theory of consumption systems this study argues that dealers also contribute to brand retention. This implies that the value the dealer provides to the consumer also contributes to brand retention. Moreover, this study suggests that the dealer’s contribution to brand retention is moderated by brand tier, that is, the contribution of the dealer to brand loyalty varies across different brand tiers. To this end this study distinguishes between three brand tiers: prestige brands (e.g., BMW, Mercedes, Lexus), volume brands (e.g., Opel, Volkswagen and Ford) and economy brands (Suzuki, Skoda and Hyundai). Additionally, this study examines how the effectiveness of dealer instruments to increase dealer retention, such as dealer extrinsic and intrinsic quality, and payment equity, differs across these brand tiers.

The estimation results of a nested logit model using perceptual and behavioural data of 922 new car buyers in the Netherlands reveal that only dealers selling volume brands are able to improve brand retention rates. Dealers of prestige and economy brands are not in a position to contribute to brand retention.Thus our research provides pivotal knowledge in the sense that the contribution of the dealer to brand retention is dependent upon brand tier. In line with the notion of brand-dealer fit the results also show that the effects of dealer extrinsic service quality (e.g., dealer showrooms) and dealer payment equity on dealer retention differ between prestige, volume, and economy brands. Extrinsic dealer service quality has the smallest effect for dealers selling economy brands, while dealer payment equity is the most important determinant of dealer retention for these dealers. These findings emphasize the difference in the importance of various dealer instruments for dealer retention across brand tiers.

The empirical results lead to several implications for car manufacturers and dealers. First, the results indicate that manufacturers should form different expectations about the brand retention impact of investments in dealers selling and servicing different types of brands, because only volume brands add to consumers’ brand retention decisions. Second, the findings suggest that dealers differ in their negotiating power in relation to manufacturers. Dealers of volume brands have more negotiating power than dealers of prestige and economy brands because they add value to the manufacturer’s brand. Third, the results imply that dealers should pursue different strategies to ensure brand-dealer fit. Dealers of economy brands should, for example, not only emphasize their low maintenance and service costs, but also create a rather sober service environment that is consistent with their brand’s price image. Together the results and implications of this study provide ample opportunities for future research on the interplay between brand and dealer retention decisions.