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Supply Chain Management of J.D. Power and Associates

Supply Chain Management of J.D. Power and Associates

Discuss Supply Chain Management of J.D. Power and Associates within the Elements Of Logistics forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; By the early 1990s, the name J.D. Power and Associates had become synonymous with automotive quality in the minds of ...

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Netra Shetty
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Supply Chain Management of J.D. Power and Associates - January 11th, 2011

By the early 1990s, the name J.D. Power and Associates had become synonymous with automotive quality in the minds of consumers. Power's surveys defined quality in terms of how consumers judged it, rather than from the manufacturers' point of view. Power's surveys influenced not only consumers, but also manufacturers. Power has been recognized as playing a major role in propelling the U.S. auto industry toward improving quality in the late 1980s and 1990s.

Power bears the cost of conducting the surveys, which could run as much as $300,000 or more. The firm then generates revenue by selling the results of its surveys to interested companies for $50,000 to $100,000. In addition, advertisers must also buy the rights to use the Power name for an additional sum. Agency founder Dave Power himself admits that the surveys are used as a marketing tool by the auto manufacturers as well as a measure of manufacturing quality and customer satisfaction.

Collecting Data and Conducting Surveys: 1968-80

J.D. Power and Associates was founded in 1968 as a market research firm in Agoura Hills, a suburb of Los Angeles, by James David (Dave) Power III. He grew up in Worcester, Massachusetts, and went to local college Holy Cross (class of 1953). After a stint in the U.S. Coast Guard, he went to the Wharton School of Business at the University of Pennsylvania and received his M.B.A. in 1959. He was recruited by Ford Motor Company and became a financial analyst at the company's headquarters in Dearborn, Michigan. He spent two years with Ford, then joined Marplan/Detroit, a subsidiary of Interpublic and the research arm of advertising agency McCann-Erickson. There he did market research studies for Buick for three-and-a-half years.

After a few more job changes, Power established a market research agency in April 1968 called J.D. Power and Associates. The firm's first clients included chainsaw manufacturer McCulloch Corporation, for whom Power had done market research, U.S. Borax, United California Bank, and MSI Data Systems. The firm's first big break came when Toyota, which had just opened a sales office in Torrance, California, hired Power to do market research.

Power then began preparing independent surveys that were sold to automakers on a subscription basis in the early 1970s. The first was a national ownership survey of the Mazda rotary engine. The survey revealed that owners were having major problems with the unique engine. Although Mazda initially denied the problems, the company later acknowledged them. The survey gave Power great credibility and showed that the agency was not just a spokesperson for the auto industry.

In the mid-1970s Power surveyed American car owners about front-wheel-drive vehicles. At the time U.S. automakers were not offering that option; only Honda and Subaru were. Power's front-wheel-drive survey showed that American consumers were interested in front-wheel-drive if it performed well and was reliable. The survey clinched Power's position as an auto industry prophet. Still, the Power agency was one of several statistics-gathering organizations in the 1970s and did not really stand out among automakers.

Customer Satisfaction Surveys Becoming Well-Known: 1980s

Power's annual Consumer Satisfaction Index, first published in 1981, measured satisfaction among customers who had owned their cars for one year. Consumers were asked to rate their vehicles as well as dealer service during the first year of ownership by checking off a list of defects and service problems. The 1983 survey indicated the overall index was up 9.5 percent, which could be taken as an indication that automobile manufacturers were becoming more concerned with quality. While imports dominated the list, Ford was able to pull ahead of a number of imports in the survey.

It was not until the mid-1980s that Power was able to sell his research findings to the big three automakers in Detroit. By then approximately half of Power's revenues were from various studies on the automotive business. To improve the firm's credibility and stop complaints about its methodology, Power opened its studies to three statisticians from graduate business schools for auditing.

Power's revenues were $7.5 million in 1987, the year in which the agency introduced its Initial Quality Study (IQS), which covered automobile owner experiences during the first 90 days of ownership. The study was released every May. In the first IQS the Toyota Cressida was ranked first with a score of 69 problems per hundred cars.

Power became involved in a dispute with Ford Motor in the late 1980s. Ford's own in-house studies ranked it above its domestic competitors in terms of initial customer satisfaction and quality. Power's IQS ranked Ford below its domestic competitors. The two sides discussed their different methods of data collection and interpretation and appeared to resolve the dispute. By 1992 Ford outranked both General Motors and Chrysler in the IQS.

By 1989 the Power agency was sending out four million questionnaires annually to car owners and taking in $12 million. About 35 percent of the mailed surveys were answered, a higher than average response rate. At the end of the 1980s quality was the biggest issue among carmakers. They were spending millions of dollars promoting the findings of the Power organization, which had grown in status during the 1980s due to three main factors: increased professionalism of the Power staff; increased attention given to domestic automakers; and a substantial increase in the number of winners who purchased advertising to promote the Power findings and the organization.

Automakers cited Power's improved technical support. They were completely confident in the Power organization's ability to conduct interviews and code results properly, without bias. At the end of the 1980s Power was publishing four major automotive reports annually, plus numerous minor ones. Its best-known surveys were the Customer Satisfaction Index and the Initial Quality Study. Customers were not allowed to publish or release the contents of an entire survey, but they could report and publicize favorable findings as long as Power approved it for accuracy.

Branching out into Other Industry Surveys: 1990s

By 1990 Power was growing at an annual rate of 25 percent, with 100 full-time employees and 150 part-time employees. In addition to its Agoura Hills headquarters, the firm had a Detroit office that also handled its Canadian operations. It had recently entered into a 50-50 market research venture in Japan called R & D/J.D. Power. It also conducted its first annual automotive advertising strategy conference, which became a sold-out event among advertising and marketing professionals.

In addition to its automotive CSI and IQS, Power was also producing a Sales Satisfaction Index, whose key elements were the salesperson, initial product quality, and actual delivery of the car to the customer; the Vehicle Performance Index, which covered the first two to three years of ownership; and the Vehicle Dependability Index, which looked at owner satisfaction and the incidence and type of problems during the first four to five years of ownership.

More carmakers than ever were citing the results of Power surveys in their 1990 model introduction ads. As a result, the firm tightened its guidelines for the next year. Under then current guidelines, advertisers were not allowed to extract just one factor from the Customer Satisfaction Index (or any other Power index) to support overall claims. For example, an automaker could not say it provided the best road service if its overall customer satisfaction rating was not even in the top 20.

When Buick's LeSabre was ranked number one in Power's Initial Quality Survey, Buick launched an advertising campaign touting the LeSabre as 'the most trouble-free car built in America.' Sales subsequently jumped by 32.5 percent in June, 91 percent in July, and 98 percent in August, enabling Buick to report a sales gain of one percent over 1989 instead of a decline. Power's guidelines allowed Buick to promote its 1990 models based on 1989 survey results. The Power survey was 'one of the key factors in the tremendous resurgence that Buick has had in the last few years,' according to David Cole, director of The Center for Study of Automotive Research, quoted in California Business.

'Quality' was the buzzword of the 1990s as automakers touted their cars as 'best built,' 'most trouble-free,' and 'highest quality.' According to Automotive Industries magazine, J.D. Power's Initial Quality Survey and Consumer Reports' Frequency of Repair Records were the two most respected independent measures of car quality.

In 1991 Power released its first Computer Industry Satisfaction Program study, which measured customer satisfaction with personal computers, in time for the annual spring Comdex show. Sixteen manufacturers were included in the study, based on Power's judgment of who the leading companies were. Results of the survey were available for around $50,000; only companies involved in the survey were likely to purchase the report. Dell and Apple were ranked one and two. The study was based on phone calls to companies with fewer than 500 employees. Two additional studies were planned, one on PCs in large corporations and one on PCs at home. Following release of the survey results, Dell ran a full-page ad in the Wall Street Journal.

Revenues for 1991 reached $18 million. To maintain and guard its credibility, Power tightened the rules regarding advertising. When Infiniti and Lexus tied for first place in the IQS, both were barred from naming the study in their ads without mentioning the tie. The variety of surveys and proliferation of categories, if not policed by the Power organization, tended to result in some confusion and a potential erosion of the firm's credibility.

In addition, Power decided in 1991 that its name could only be associated in advertising with the top car in four categories: best American, Asian, and European brands, and best overall. Since Lexus occupied three of the four top spots, advertising references to J.D. Power and Associates were not as numerous.

By tightening the rules and guarding its credibility, Power was responding in part to an advertising campaign involving Chevrolet's Lumina. Chevrolet had advertised its Lumina as the 'most trouble-free two-door car in the midsize segment' and referred to Power by name. When it came to light that all of the models in that segment performed below average, Chevrolet pulled the ads.

By 1992 Power was producing 12 studies that measured the performance of automakers and their dealers. It launched its first Canadian CSI in 1991. The first Japanese CSI on luxury cars was due the fall of 1992, the result of Power's joint venture with a Japanese research firm. Negotiations were underway to set up similar ventures in Europe and Australia. Power's 1992 revenues were expected to reach $22.5 million. It was estimated that industry surveys, such as the CSI, accounted for about one-third of Power's revenues. Another third came from proprietary research for individual clients. Such research supported a growing management consulting business as well as extensive training for manufacturers and dealers. No single company accounted for more than five percent of the firm's business.

For the first time since its founding, Power began recruiting MBAs from college campuses in the spring of 1992. Power traveled a lot on behalf of his business, visiting Detroit once a month, Japan every two months, and Europe three times a year. He was on the road an estimated 80 percent of the time. The agency announced it would release its first consumer satisfaction survey for the airline industry in December 1992. The company asked 40,000 frequent travelers to file reports on business trips.

In 1995 Power introduced a new survey on credit cards. The agency surveyed 7,200 cardholders and reported on 21 card issuers that accounted for about 75 percent of the market. The survey found that customer service and billing were key factors in determining customer satisfaction with cards they held. Industry experts, though, still considered fees, rewards, and rates as the main factors in determining what credit cards consumer chose. Power also began conducting a similar survey in Canada.

J. David Power unveiled a new daily sales reporting network for automobile dealers at a University of Michigan conference in August 1996. Power claimed the network could cut distribution costs by $4 billion a year by reducing dealer inventories to a 30-day supply. Power had invested $6 million in the network, which was started in 1993 and already included 1,000 of California's 3,600 automobile dealers. By 1997 the Power Information Network was gathering daily sales transaction data from 1,250 California dealerships. Power took that data, analyzed it, and provided the dealers with information useful for distribution, price, and marketing strategies. In 1998 Power added dealers in several major markets, resulting in 3,000 dealers providing daily sales information to the network. Power projected that the network would cover areas representing at least two-thirds of automotive sales in the United States by the end of 1999.

In 1996 revenues reached $46 million. Power continued to run into resistance in Europe, where automakers did not believe his surveys could help them sell more cars. Also hindering international expansion was the lack of a vehicle registration system comparable to that of the United States.

In 1996 Power introduced the Residential Local Telephone Service Study to measure customer satisfaction with local telephone service. From 1996 to 1999 the top ranked provider was BellSouth.

During the 1990s the automotive industry became more responsive to customer needs and desires. Power's surveys, always conducted from the customer's perspective, contributed to the auto industry becoming more customer-driven. According to Automotive Industries, J.D. Power and Associates was 'a name that's become ubiquitous in the automotive world, virtually synonymous with automotive quality and reliability.' In 30 years the firm grew from an obscure southern California market research firm 'to become the nation's arbiter of customer satisfaction.' Power's surveys created an awareness of customer satisfaction and defined ways in which customer expectations could be both measured and met.

Some auto manufacturers turned to outside consultants to help improve their ratings in the Power surveys. In 1994 and 1995 Chrysler hired a consultant to improve its internal audit process. Chrysler discovered its own audit procedures did not catch certain things that Power respondents would complain about, such as the lack of a center armrest on certain models. As a result, Chrysler learned not only how to emulate Power internally, but also how to use the methodology to fix problems.

Power's 1997 Initial Quality Study found that overall vehicle quality continued to improve. The study found an average of 86 problems per hundred vehicles, compared to 110 problems per hundred vehicles in 1996. The 22 percent improvement was the best since the study began in 1987.

The 1997 survey was based on questionnaires sent to 110,000 randomly selected new car owners. Results showed Ford with 81 defects per hundred cars, a 40 percent improvement; General Motors with 97 defects per hundred cars; and Chrysler, with a 20 percent improvement to 103 defects per 100 cars. The clear winners, though, were Japanese automakers such as Honda (62 defects per hundred vehicles), Toyota (64 defects per hundred vehicles), and Nissan (79 defects per hundred vehicles). The winner in the passenger car category was the Lexus LS 400, with only 38 defects per hundred cars.

In 1997 Power introduced its first annual study of the used vehicle market. The survey noted that used vehicle sales in the United States were growing, while sales of traditional entry level vehicles continued to fall. By 1998 the survey showed an increase in the percentage of people concerned that new vehicles depreciated too much. It also noted that used vehicles were becoming important to luxury brands, with consumers increasingly purchasing used luxury vehicles instead of comparably priced new vehicles. The 1999 survey revealed that more than one-fourth of used vehicle buyers used the Internet for assistance and information to help with their purchase decision.

In the 1997 survey the gap between the top and bottom had narrowed considerable since the first survey in 1987, when 340 points separated the top and bottom models. In 1998 Power modified its IQS by giving consumers more defects they could choose--135 versus 90 in previous versions of the survey. Survey results for 1998 would thus show more defects per hundred vehicles. Added to the list of possible defects were many technological gadgets that had been added to cars since the first IQS in 1987. Some defects that did not occur very often, such as engine dieseling and body rust, were dropped from the survey. The changes were made in response to criticism that the difference between model quality was becoming difficult to judge, with many models having less than one defect per car in the 1997 survey. Power also introduced the APEAL (Automotive Performance Execution and Layout) study, which focused on what went right with a vehicle rather than what went wrong.

In 1998 Power expanded into the recreational vehicle (RV) market. It received approval from the Go RVing Coalition's Committee on Excellence for a proposed research project. The Committee earmarked $298,000 to contribute to the study, which would determine the important factors in customer satisfaction with RVs. The Power survey would be tailored to the RV industry and would not include individual model rankings. Survey results would be used to support an overall industry advertising campaign to promote the use of RVs.

Power completed its RV survey in 1999. Results were based on 12,000 owners of 1997 model year RVs. Product issues accounted for about two-thirds of RV customer satisfaction, according to the survey, with the sale and delivery experience being the next most important factor. Disclosure of the survey results was to be determined by the major RV industry associations, with proprietary reports sent to individual participating manufacturers.

In the summer of 1998 Power released the results of its first new home buyers survey. Power surveyed home buyers in southern California, Phoenix, and Denver, targeting customers of builders who accounted for the top 70 percent of the market. The survey results were based on 3,200 responses in southern California, 8,800 responses in Phoenix, and 4,300 responses in Denver. For 1999 the company planned to survey Dallas-Fort Worth, Atlanta, and Chicago.

As of 1999 Power continued to expand into new industries. It was evaluating the marine market for possible surveys. It also conducted an annual Cable/Satellite TV Customer Satisfaction Study, and in 1999 the agency introduced a new study of automobile insurance.

Principal Competitors: Consumer Reports (Consumers Union); AutoPacific Group; Strategic Vision Inc.; IDC; InfoCorp; Dataquest Inc.

Last edited by netrashetty; January 11th, 2011 at 04:58 PM..
   
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