THE EFFECT OF DISTANCE DECAY: A STUDY OF AUTOMOTIVE RETAILING

Abstract

Retail automotive literature that examines how the distance between a retail automotive facility and the prospective purchaser affects market performance is limited. Primary data for this study indicates that distance and purchase in the retail automotive sector move in opposite directions. This study examines similar goods that have high barriers of entry and proposes other methods of increasing market reach. This is a study of the conditions that affect the market performance for imported luxury vehicles. First, is the effect of distance on purchase decisions. Vehicular sales drop the further away a customer is from a car dealership. We call this phenomenon distance decay. Distance decay is defined as: the interaction between two locations declines as the distance between then increases. Secondly, when similar brands are viewed as substitutes, the consumer will choose the brand with the closest automotive service department to their residence or place of employment. Thirdly, door-to-door selling can decrease distance decay. Lastly, pick-up and delivery service can decrease distance decay. Data from 30,936 prospects and individuals who entered, phoned, or emailed a dealership inquiring about purchasing a new Audi were used in the study. These prospects will be categorized by who intended to buy and who actually purchased a car. In addition to the prospects, data from 6,153 individuals who purchased a new Audi from four Audi dealerships in the greater Philadelphia area and from the framed field experiment were used in the study. These categories will then be further labeled by ZIP code and city to determine the effects of distance. Then, possible solutions will be performed on test groups to determine what alternatives from other industries can be used to improve market performance involving long distances.