J.D Power and Associates Takes a Close Look at the Tire Purchasing Habits of Canadians

Background

A growing awareness of safety considerations is apparent in the automotive buying habits of Canadians. This is borne out by the increased focus on features like ABS and multiple side airbags on even economy models. There is also a tendency to equate safety with all-wheel drive, which partly explains the popularity of the AWD across all vehicle segments, not just SUVs (more on this later).

One of the results of this increased focus on safety is a growing incidence of winter tire purchase, not just in the east, where it has historically been strong, but across Canada. The J.D. Power and Associates Customer Commitment Index Study analyses the service habits of owners of vehicles that are two to twelve years old, an age bracket that accounts for about 70 per cent of all vehicles on the road in Canada. The study features a special section on the replacement tire market which tracks tire purchasing habits in terms of frequency, prices paid, reasons for facility selection, and brand loyalty.

Who is shopping for winter tires?

According to the J.D. Power and Associates CCI study, just over half (51 per cent) of owners reported buying a complete set of new tires in the past 24 months. Of these, 43 per cent were winter or snow tires (up four per cent from last year), with Quebec having the highest incidence (72 per cent) followed by Atlantic Canada at 48 per cent. There is a clear distinction between the buying patterns of car versus truck owners with regards to the type of tires purchased. SUV, pickup and van owners tend to stick with their all-season tires during the harsh winter months. From those purchasing a new set of tires, just 35 per cent of truck (pickups, SUVs and vans) owners purchased winter tires in the fall of 2006 compared to 47 per cent of car owners.

Part of this difference is also driven by the perceived higher safety that comes with all-wheel drive found on most vehicles within these segments, as well as the illusion of safety created by the larger size and better visibility that these vehicles offer that sway customers away from the purchase of a set of winter tires. That being said, the proportion of those owners who purchased a set of winter tires this year actually increased for both car and truck owners.

Tire brand loyalty and additional service

Brand retention is an important metric given the high price sensitivity that surrounds a tire purchase. In terms of brand loyalty, Michelin tires showed the highest loyalty rates. As many as half of the owners who had a set of Michelin tires, replaced them with another set of Michelin tires. BFGoodrich was second at 35 per cent, followed closely by Goodyear at 34 per cent. The brands with the lowest loyalty were General (12 per cent), and Firestone (15 per cent).

Of all the vehicle service events, tire purchase is the one which is the most driven by price considerations since the required level of skill for mounting a set of tires is manageable for most facilities. This has led a number of facilities to treat the event as a loss leader, in the hope that it would lead to other service business in the long term (some owners tend to buy routine service such as an LOF or inspection while the vehicle is in for a tire change). This has implications for the way facilities price replacement tires, and the rest of their service offerings. The J.D. Power and Associates Customer Commitment Index Study shows that approximately 20 per cent of those who purchase tires actually get additional service work done and this number more than doubles for those visiting car dealers to 44 per cent.

Selection Criteria — Cost is a key driver in the short term however the customer experience has long term implications

In terms of reasons for facility selection, the tire industry wrestles with the challenge of extreme price sensitivity. When asked to pick the one critical factor that drove their choice of auto service provider, 35 per cent selected cost. The customer experience was next on the list but considerably lower: just 18 per cent cited previous good experience as being the most important factor. High quality service came in third at 14 per cent.

When looking at shopping behaviour by channel, customers of the mass merchant channel (Wal-Mart, Costco and Canadian Tire) are by far more focused on cost as a key selection criterion than any other channel. Over half (55 per cent) stated that cost was the critical reason for choosing to purchase their tires from facilities such as these. These establishments are clearly running a price based business model as opposed to a relationship based operation. This is not a sustainable solution in an industry where advocacy is critical for long-term growth. The study also finds that, unlike for the industry, for customers of independents the most important key criterion is previous good experience (26 per cent). This is a clear demonstration of the strong relationship this channel has with its customer base.

Are tires more expensive at the dealerships?

For a product where cost matters a great deal, ensuring that they received the lowest price and the greatest value is probably the main objective for most shoppers. However, this study shows that the amount consumers actually pay for tires varies quite significantly depending on which service establishment they purchased their tires from.

The average price paid for a set of new tires was $550. On the higher end, those purchasing from new car dealers paid on average 15 per cent more for a new set of tires ($632) and on the lower end those visiting mass merchants paid $470 or 17 per cent less than the industry average. In the middle of the pack, those purchasing from independent repair shops scored a price of approximately $515 and tire specialists would most likely have charged just under $600 for a new set of tires. Much of this is driven by the type of tires carried by different establishments (e.g. most mass merchants carry their own house brand of tires that is a budget brand).

However, low prices do not guarantee consumer retention. When we asked these same consumers if they would “return” to the service facility from which they purchased their new set of tires, some interesting differences were observed. Independent repair shops ranked at the top of the chart, where 63 per cent of their customers stated they would “definitely return” for the next purchase of tires, followed by tire specialists at 53 per cent. At the other end of the spectrum, mass merchants scored the lowest at 29 per cent. This goes to show that cost may be the initial push factor but ultimately it is the overall customer experience that will lead to retention and advocacy.