Distribution Intensity and New Car Choice

Abstract

The authors develop a new method to assess how changes in the intensity of mature distribution networks—specifically, those in the U.S. automotive industry—might affect consumer choice. They capture distribution intensity by car make (e.g., Honda, Toyota) at the disaggregate level using the exact geographic locations of individual buyers and new car dealers. They develop three buyer-centric measures for the intensity level of each competing make from this information: (1) dealer accessibility (the buyer's distance to the nearest outlet for each make), (2) dealer concentration (the extent to which multiple dealers for each make are located near a given buyer), and (3) dealer spread (the dispersion of the multiple dealers for each make relative to the buyer's location). The authors propose a logit choice model, estimated with Bayesian methods, to study the association of these measures with new car choices. They apply the model to buyer records in the midsize premium sedan category, drawn from an anonymous sample provided by the Power Information Network. All three buyer-centric measures of intensity were significantly related to new car choice. Buyers were more likely to select cars whose dealer networks had shorter distances to the closest outlet (accessibility), more dealers within a given radius from the buyer (concentration), and locations that skewed toward the buyer (spread). Based on the modeling results, the market share elasticity of distribution intensity averages approximately .6 across the new car models included in the study. The approach should help firms evaluate the potential effects of expanding or contracting distribution networks for mature products.