Maxim Meier & Frank Ohnesorge
As more car makers roll out electric vehicles, they are discovering an important trait among early customers: They are far more apt to try new brands.
The Wallstreet Journal 2022
Over the past decade, the automotive industry has undergone tremendous change, driven by technological breakthroughs in the field of electric mobility, rapidly changing consumer preferences and the emergence of new market players. The transition from internal combustion engines (ICEs) to battery electric vehicles (BEVs) is expected to contribute significantly to the decarbonization of the transportation system and the reduction of local air pollution. To further accelerate the EV diffusion process and to consequently achieve these sustainability goals, consumers of traditional ICEs need to be convinced to adopt EVs and existing customers need to remain loyal to them. Among the various drivers influencing the adoption of EVs, the increase in consumers’ environmentally conscious purchasing behavior is the most important one. However, recent research has shown that the main drivers of EV adoption differ from those of EV disadoption. For example, as noted above, environmental factors are the greatest motivator behind EV adoption, but they are poor predictors of potential disadoption. In addition to the importance of understanding vehicle type loyalty from a social and environmental perspective, brand loyalty is of great economic interest to vehicle manufacturers to further increase their sales and consequently their market shares. It is therefore crucial to gain a comprehensive understanding of the factors influencing customer loyalty in the EV market and to derive practical implications from the findings.
EV Market as a Dynamic Market
Dynamic markets are typically characterized by high uncertainty, which is caused by high competition, the fast introduction of innovations, the instability of market demand, the high probability of environmental shocks and the limited availability of critical resources. Depending on these characteristics, customer loyalty varies more in such markets and tends to be reduced. The emerging EV market fulfills all the characteristics of a high dynamic market: There is a high level of uncertainty in the market due to intense competition among car makers, the rapid introduction of new innovative EV models and battery technology, rapidly changing consumer preferences, a high probability of environmental shocks such as government policies and substitutes, and the limited nature of critical resources such as Lithium or Cobalt for battery production.
Comprehensive Framework for Understanding EV Loyalty through the Lens of Dynamic Market Characteristics
To fully understand customer loyalty in the context of the dynamic electric vehicle market, a descriptive conceptional loyalty framework is presented. While including the previously mentioned dynamic market characteristics, the framework builds on prior research on customer loyalty, dynamic markets and electric vehicles. The fundamental premise is that a higher customer satisfaction level with an EV will lead to a higher level of customer loyalty. Loyalty can be attitudinal (favorable attitude towards an EV) and/ or behavioral (repeat purchases of an EV). The described psychological satisfaction-loyalty process is influenced and caused by a range of factors, including consumer value dimensions, EV market specific industry and customer characteristics as well as social norms and situational influences.
The drivers of customer satisfaction can be explained by several consumer value dimensions such as the price or driving range (functional value), the excitement driving an EV (hedonic value) or the derived self-esteem of owning an EV (social value). Of particular interest is the finding that while environmental performance is the biggest driver of EV adoption, the biggest post-purchase satisfaction driver is the operational cost saving potential of EVs.
According to the framework, industry and customer characteristics can influence the relationship between customer satisfaction and customer loyalty in different ways. For example, the high degree of competition and innovation in the EV market is leading to a wider choice of appealing EV models for consumer segments. Coupled with EV consumers’ higher willingness to innovate (innovativeness), these characteristics have a negative impact on customer loyalty. On the other hand, governments in particular can introduce policies to increase EV loyalty. Norway, for example, has the highest diffusion of EVs worldwide partially due to their aggressive incentive policies such as subsidies. However, the majority of industry and customer characteristics in the EV market tend to have a negative moderating effect. Consequently, the impact of customer satisfaction on customer loyalty is weaker in the EV market and customer loyalty tends to be lower.
Practical Implications
In general, companies in dynamic markets such as the EV market need to be aware of greater variations in customer loyalty and increased consumer switching. Loyalty can be stabilized and increased by identifying and enhancing effective satisfaction drivers. Car makers and the government should particularly ensure customer satisfaction with the operational cost savings of EVs to prevent customers from disadopting. This could be achieved by increasing the efficiency of EV propulsion (e.g. battery technology), reducing maintenance requirements, improving charging infrastructure, or providing low-cost electricity from renewable sources. In addition, switching costs can be increased to make it more difficult for customers to switch providers (e.g. chargers with closed standards). In this context, company decision-makers must weigh up the positive effect of higher switching costs on reduced customer switching and the potential negative effect of higher switching costs on customer satisfaction.