Consumers’ Willingness to Pay for Innovative Technology: Hybrid Vehicles

1. Consumers’ Willingness to Pay for Innovative Technology: Hybrid Vehicles

2. 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 (early 1900s) Questions? Theory Case Analysis Conclusion Introduction

3. 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 • Inefficiency • Introduction of the hybrid • Combination of gas/electric engine • In late 2000 – Toyota releases the Prius (first mover) Questions? Theory Case Analysis Conclusion Introduction

4. How Do Hybrid Cars Works? Questions? Theory Case Analysis Conclusion Introduction

5. Evolution of the Vehicle • Expansion of product assortment and growth Questions? Theory Case Analysis Conclusion Introduction

6. Objectives of Analysis • Consumers’ willingness to pay for: • New technologies • Vehicles -> Demographics • Exploration through scenario analysis ? Questions? Theory Case Analysis Conclusion Introduction

7. Innovation Adaption and the Hybrid Kotler (2008) Questions? Theory Case Analysis Conclusion Introduction

8. Innovation Adaption Diffusion Model (Rogers, 1962) Questions? Theory Case Analysis Conclusion Introduction

9. Conclusions from Kotler and Rogers Questions? Theory Case Analysis Conclusion Introduction

10. Demographic Correlation Studies • Economic Logit models • Whether or not to upgrade • Multinomial Logit and Nested Logit • Mixed Logits integrating combined and stated preferences • Demographic Correlation • “What kind of Person chooses a vehicle type” Questions? Theory Case Analysis Conclusion Introduction

11. Fuel Prices Putting the Theories Together • Environmental concern • Government incentives • Different Demographics Questions? Theory Case Analysis Conclusion Introduction

12. Three Factors that Affect Consumers • Government incentives • Government Tax Credit up to $3,500 • Access to High-Occupancy Vehicle (HOV) lanes • Discount on insurance premiums • Environmental Issues • Moreenvironmentallyfriendly than conventional counterpart • Emits less greenhouse gases and consumes less gas • Cost-savings • High fuel efficiency cuts fuel costs • Due to the high premium, it takes years to recover the premium in fuel cost savings Questions? Theory Case Analysis Conclusion Introduction

13. Consumer Segments Questions? Theory Case Analysis Conclusion Introduction

14. Consumer segments 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 Questions? Theory Case Analysis Conclusion Introduction

15. Consumer segments 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 Questions? Theory Case Analysis Conclusion Introduction

16. American Dream • 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 Questions? Theory Case Analysis Conclusion Introduction

17. Consumer Segment Results ? Questions? Theory Case Analysis Conclusion Introduction

18. Summary • Forecasts of hybrid electric vehicle sales is expected to increase worldwide in the future • Adaption of such an innovation will occur as time passes since this technology will gain acceptance from the consumer • Consumers’ willingness to purchase depends on their degree of importance on environmental concern, long-term cost savings, and government incentives • The consumer segment is expected to shift as time passes Questions? Theory Case Analysis Conclusion Introduction

19. Discussion Questions • What would you suggest to the government, in terms of offering incentives, to increase the demand for hybrid vehicles among the Early Bloomer consumer segment? • Early Bloomer: • 18-24 years old – single –high school education – income of less than $20,000 Questions? Theory Case Analysis Conclusion Introduction

20. Discussion Questions • 2. What do you think the future is for pick up trucks and SUVs? Will car manufacturers be pressured to only create models that are environmentally friendly? Questions? Theory Case Analysis Conclusion Introduction