Marketing Intelligence & Planning

Consumer preferences and policy implications for the green car market
Mahzabin Chowdhury Khan Salam Richard Tay
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To cite this document:
Mahzabin Chowdhury Khan Salam Richard Tay , (2016),"Consumer preferences and policy implications for the green car
market", Marketing Intelligence & Planning, Vol. 34 Iss 6 pp. -
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 Consumer Preferences and Policy Implications for the Green Car Market

Introduction

Background

Concern for the environment among all levels of society has been growing in recent years.
This concern has changed the way consumers purchase many products and the way some
businesses operate today. For example, with growing public concerns in some countries about
the effects of automobiles on environmental degradation (Li et al., 2013; Qian and
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Soopramanien, 2011), the automobile industry has been active in promoting its environment-
friendly or ‘green’ vehicles. This change is evident in the upward sales trends of green cars in
many European countries. In Sweden, for example, green cars comprise five out of the six
best-selling cars in 2011 (BIL Sweden, 2012). Extant research has shown that consumer
attitudes toward environment-friendly products and pro-environmental consumer behaviors
are associated with green car purchase intentions (Oliver and Lee, 2010; Roozen and De
Pelsmacker, 1998; Laroche et al., 2001; Young et al., 2010). Also, consumers with strong
green knowledge or orientation are likely to be more interested in purchasing green or
environment-friendly vehicles.

One the other hand, McDonald et al., (2015) argue that some environmentally oriented
consumers may continue to purchase products that may be damaging to the environment
(e.g., flying or air travel). This attitude-behavior gap can be partly explained by the
differences in consumers’ sense of social responsibility for sustainability consumption (Luchs
et al. 2015). Similarly, Dermody et al. (2015) propose that consumers’ pro-environmental
self-identity will have a significant mediating effect on sustainable consumption behavior. In
a related study, Ingenbleek et al. (2015) develop a model of buyer social responsibility that
explains the likelihood of consumers purchasing a socially attractive product that possesses
both personal (functional and hedonic) and social attributes. In the vehicle purchase decision,
for example, a consumer may trade off lower price and greater power in vehicles (personal
utilities) with higher fuel efficiency and lower emissions (social attributes).

The public understanding of the term ‘green car’ is usually associated with an automobile that
is more fuel-efficient and pollutes less (Jansson, 2011). Fuel efficiency has been linked to
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 green vehicles as traditional non-green vehicles have less efficient fuel usage rates than green
ones (Gould and Golob, 1998). Green vehicles have also been linked to reduced emission of
green-house gases and improvement of the environment (Li et al., 2013). Hence, some early
studies of green vehicle purchases have focused on fuel efficiency (McCarthy and Tay, 1998;
Dreyfus and Viscusi, 1995), while many recent studies focus on alternate fuel vehicles (Li et
al., 2013; Achtnich et al., 2012; Campbell et al., 2012; Lebeau et al., 2012; Qian &
Soopramanien, 2011; Caulfield et al., 2010; Oliver and Lee, 2010).

It should be noted that the official definitions of green cars vary from country to country and
from region to region. The European Union (EU), for example, classifies a car as green or
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environment friendly if it emits less than 140 g/km of carbon dioxide or CO2 (ACEA, 2009).
The Swedish government applies a slightly stricter definition of less than 120 g/km of CO2
emissions (Ministry of Environment, 2007). The UK government goes even further with the
definition of less than 100 g/km of CO2 emissions for a car to be considered green or
environment-friendly (Lane and Potter, 2007). Even with these broad conventional and
official definitions of green cars, only a few studies have been found that explicitly examine
the influence of both fuel efficiency and CO2 emission on consumer vehicle choice and its
impact on the domestic car industry.

Examining the effects of green attributes on consumer preferences is important in broadening

our understanding of the subject matter since previous studies in this context have produced
mixed results. For example, in their UK-based study, Dixon and Hill (2009) reveal that CO2
emissions and fuel economy are important to existing and potential car owners in making
their decisions. In an earlier study, the UK Department for Transport or DfT (2004) lists fuel
economy as one of the most important but CO2 emissions as one of the least important green
car attributes for consumers. However, Caulfield et al. (2010) finds that CO2 emission is one
of the least important attributes and fuel economy is a moderately important attribute for the
Irish green car consumers. Therefore, it will be insightful to compare and contrast the
findings from Sweden with other countries, to provide additional insight into consumer
preferences.

Moreover, it is important to understand the potential impacts of any changes in the demand
and supply of green car attributes on changes in the market shares of the relative automobile

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 manufacturers. This knowledge is especially critical in countries that have a domestic
automobile manufacturing sector. Any regulatory, economic or social policy to encourage the
demand and supply of green cars may have beneficial or negative impacts on the domestic
car industry, and hence the economy and unemployment rate. If the impact is beneficial, then
policy makers should implement policies to promote green vehicle purchases by domestic
consumers. However, if the impact is negative, then other programs need to be implemented
to assist those adversely affected by the transition towards a greener car market, especially
the local automobile production workers.

Objectives and Scope of Study

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The main objective of this study is to examine consumer preferences for green vehicles with
low fuel consumption and emission. More specifically, we aim to identify the values
consumers place on a set of important vehicle attributes using the adaptive choice based
conjoint analysis. These attributes include fuel economy, carbon dioxide emission, engine
power, size and style, price and brand.

This study will provide evidence-based recommendations to increase the share of green cars
in new vehicle purchases and contributing to improving the environment. It will also
contribute significantly to our understanding of consumer preferences by exploring the
preferences of a sample of consumers from a country with a well-established alternative fuel
and green car market but has adverse weather and driving conditions and a domestic
automobile manufacturing industry. It will also examine the differences in preferences
between existing owners and potential green car buyers. Finally, it will simulate the effects of
changing fuel efficiency and emission levels on consumer utility and preference shares, and
as a result, changes in market share of different vehicles and the potential impact on the
domestic automobile manufacturing sector and the economy.

The Swedish Context

Sweden has a substantial and growing green car market. BIL Sweden (2011) reports a 109%
increase in the sales of green cars, rising from 35,599 in 2009 to 74,493 in 2010.
Furthermore, the 2012 BIL report reveals that 101,437 green cars have been sold in 2011,

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 which constitutes 33.26% of all new car purchases. Table 1 provides a summary of the
Swedish personal vehicle statistics for the years 2007-11. These statistical data help to
strengthen the observations by Porter and van der Linde (1995) and Lynes and Andrachuck
(2008) that Sweden (along with other Scandinavian countries), represents a highly
environmentally conscious consumer market. Therefore, the results of this study will present
an insightful comparison with findings from previous studies conducted in earlier times or in
countries where the markets are less environmentally conscious.

Besides having an active green car market, Sweden also provides a unique advantage for
conducting a green car purchase study due to the availability of alternative fuel, since it has
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one of the most advanced alternative fuel infrastructures in the world (Målard, 2010). Several
studies have found that the availability of alternative fuel is an important element in
determining the purchase intention of green cars (Achnicht et al., 2012; Caulfield et al., 2010;
Dixon and Hill, 2009; Lane and Potter, 2007; Lebeau et al., 2012; Oliver and Lee, 2010;
Potoglou and Kanaroglou, 2007). Hence, it will be interesting to contrast the findings from
Sweden with earlier studies from earlier times, or in countries with less developed alternative
fuel infrastructure to provide additional insight to consumer preferences.

Moreover, it will also be insightful to compare the results of this study with those obtained in
studies from countries with higher car dependency. In their study on identifying early
adopters of green or alternative fuel vehicles in the United Kingdom, Campbell et al. (2012)
has chosen Birmingham because it has a less-than-average car dependency when compared to
other UK cities. In our research, Umeå is chosen because it possesses all of these
characteristics – a large portion of its population uses public transportation and/or bicycle for
their everyday activities, and the "Be Green Umeå" campaign is an active push by the city
authority towards making this city more environmentally friendly.

Finally, Sweden also provides another interesting dimension for comparison with other
studies due to its adverse weather conditions. As discussed earlier, studies by Caulfield et al.
(2010), DfT (2004) and Dixon and Hill (2009) are all conducted in moderate climate regions
like Ireland and the UK. Therefore, the extreme winter conditions of the country make this
case study very interesting because green cars ownership and usage are normally associated
with easy driving under mild weather conditions. Hence, consumers in Sweden may have

4
 different preferences for different vehicle attributes from consumers in countries with more
moderate weather conditions. In particular, they may exhibit a stronger preference for vehicle
power in green vehicles. Similarly, concerns about battery performance in cold weather may
result in lower demand for electric vehicles.

Methodology

In this paper, we employed an adaptive choice-based conjoint analysis to examine the

consumer preferences for six vehicle attributes, including fuel efficiency and carbon dioxide
emissions. Conjoint analysis has been widely-used as a quantitative method in marketing
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research to measure preferences for product features, to learn how changes to price affect
demand for products or services, and to forecast the likely acceptance of a product if brought
to the market (Gensler et al., 2012; Jervis et al., 2012; Green and Srinivasan, 1978). For
example, it was used by Lebeau et al. (2012) to examine the market potential for plug-in
hybrid and battery electric vehicles in Flanders, and by Kabadayi et al. (2013) to study the
automobile market in Turkey.

Prior to conducting the conjoint analysis, several semi-structured interviews were undertaken
with local car dealers to obtain a qualitative understanding of consumer preferences and
behaviors concerning green cars. These interviews provided valuable insights, particularly on
the product attributes and their levels, to assist the authors in designing the conjoint survey.
In addition, as per recommendations of Green and Srinivasan (1978), a pilot test of the survey
instrument was conducted among 10 randomly selected respondents. The survey and analyses
were conducted using the SSI Web (conjoint analysis) and SMRT (market simulation)
programs (Sawtooth Software, 2003, 2009). These programs were loaded onto a laptop
computer that was used in the face-to-face interviews with the participants of the survey.

Adaptive Choice Based Conjoint (ACBC) Analysis

Among the numerous conjoint techniques, ACBC analysis was chosen for this study because
it provided higher accuracy in measuring consumer responses since price and brand name
were included as key attributes (Jervis et al., 2012; Chapman et al., 2009; Gensler et al.,
2012). ACBC utilized buyers' input through an adaptive interviewing experience, from

5
 developing the choice set to the final decision on product choice (Orme, 2010; Jervis et al.,
2012). This process would result in greater accuracy, especially in market simulation. It
would also lead to more precise predictions, especially in more complex choice processes.
When compared with conventional conjoint data collection techniques, the ACBC survey
technique would also be more engaging and appealing, which might induce respondents to
answer more in-line with their actual choice process (Orme, 2010). A detailed explanation of
the ACBC method could be found in Sawtooth Software (2009).

Sample
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A sample of 100 respondents was interviewed in the City of Umeå in northern Sweden. The
sample size was kept to 100 due to the lengthy nature (25-30 minutes per survey) of the
conjoint survey. It should be noted that conjoint analysis possessed the capability of
providing meaningful analysis with a relatively smaller sample size (Orme, 2009). The
sample was split into 30 existing green car owners and 70 potential green car buyers to reflect
the approximately 30% motorization rate in Sweden (BIL Sweden, 2013; Eurostat, 2013). In
order to ensure the target split, respondents were screened through a small pre-survey
questionnaire that identified existing green car owners who intended to purchase green cars
again, and potential first-time owners who would purchase green cars.

As expected, the sample consisted of a younger and more educated population, which would
be typical of green consumers. More specifically, 71% of the respondents were below the age
of 30, 54% were employed and 46% had a monthly income of more than SEK 20,000. Across
the two different ownership segments, existing owners were older, had a higher employment
rate, income level, and higher education level than the potential owner segment.

Product Attributes

An automobile could be considered as a product with a bundle of attributes. Although full-

profile conjoint experiments (such as ACBC) could accommodate large numbers of
attributes, Orme (2002) observed that respondents would find it difficult to follow the
experiment when there were more than 6 attributes. Therefore, we focused on a set of 6

6
 attributes identified as the most important in influencing consumers’ choice of green cars in
the pre-experiment interviews with the local automobile dealers.

Brand: The make or brand of the car is a key factor in vehicle preference and choice (Train &
Winston, 2007; McCarthy and Tay, 1998, 1989; Tay & McCarthy, 1991). King (2007)
suggests that the brand of an automobile reflects the image of the automobile, which is an
important factor in influencing the consumer decision process, while Lane (2007) links brand
with social status. McCarthy & Tay (1989) and Tay & McCarthy (1991) suggest that brand
may be a signal of quality and reliability, and Bloemer and Lemmink (1992) find that 80% of
the car brand loyalty results from satisfaction with the brand itself that comes in the form of
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service and performance.

Price: One of the obvious determinants of vehicle preference and purchase is price (Lebeau
et al., 2012; Train & Winston, 2007; McCarthy and Tay, 1998, 1989; Tay & McCarthy 1991;
Bunch et al., 1993; Ewing & Sarigöllü, 1998; Musti & Kockelman, 2011; Hidrue et al., 2011;
Hensher et al., 2011). Lane (2007) identifies vehicle price as the top factor that creates or
eliminates the attitude-behavior gap concerning consumers’ purchase of low-carbon or green
vehicles. McCarthy and Tay (1989, 1998) find that price relative to income is the key
determinant of vehicle purchase because of the consumer budget constraint.

Car Size and Body Style: The size and style of the automobile have been found to be
important determinants in consumer decision making in several studies (Train & Winston,
2007; McCarthy and Tay, 1998, 1989; Tay & McCarthy, 1991; King, 2007; Lane, 2005,
2007; Caulfield et al., 2010; Dixon and Hill, 2009; Hensher et al., 2011). In Sweden,
consumers purchase automobiles with specific needs that may sometimes determine the
automobile size prior to making the purchase. A consumer looking for a small car for short
driving needs usually looks for a compact or 'Halvkombi' (3-door hatchback), while a
consumer looking for a family vehicle will want a larger 5-door hatchback or 'Kombi'. These
observations are consistent with the findings by Tay and McCarthy (1991) that larger families
tend to purchase hatchbacks and station wagons because of higher demand for space.

Engine Power: The engine capacity or horsepower of the car is another important factor
considered by most consumers when purchasing an automobile (Train & Winston, 2007; Tay

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 & McCarthy 1991; Dixon & Hill, 2009; Caulfield et al., 2010; King, 2007; Lane, 2005;
Hensher et al., 2011). The horse power or engine size of a vehicle is an important attribute
because it determines the performance of the vehicle, including acceleration and speed (Tay
& McCarthy, 1991).

Fuel Economy and Cost: Fuel economy and fuel cost is another important attribute that
influence consumer preferences and choices (Train & Winston, 2007; McCarthy and Tay,
1998, 1989; Tay & McCarthy, 1991; Hensher et al., 2011). Dixon and Hill (2009) find that
the fuel economy label of the car is either very important or fairly important to about 73% of
the car buyers. In addition, the price of fuel is a strong determinant in the green car purchase
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trends as an increase in fuel price increases the sales of fuel efficient or greener cars
(Vasilash, 2010; McCarthy & Tay, 1998), although it reduces the overall probability of
vehicle purchases due to an increase in operating costs (McCarthy and Tay, 1998).

CO2 Emissions: The defining attribute of green cars is the amount of CO2 emissions produced
(Bunch et al., 1993; Hidrue et al., 2011). Lane (2005) claims that 71% of consumers identify
CO2 emissions as the top reason for climate change or global warming while 56% believe
that emissions from automobiles is the top culprit, and similar results are expected to be
found across Europe. Dixon and Hill (2009) find that about 47% of used car owners and 50%
of new car owners consider the CO2 emissions of their vehicle as either the most important or
a very important feature in their purchase decisions.

Stimuli Set

According to Orme (2010), the optimal number of levels for each attribute considered in a
conjoint analysis would be between 3 and 7, because having too few or too many levels could
lead to data analysis problems, such as imprecise estimates of the part-worth. Hence, seven
automobiles were selected for the attributes and levels construction: Volvo V70, VW Golf,
Renault Megane, Ford Focus, Peugeot 308, Toyota Prius, and Audi A3. These seven
automobile makes and models were selected based on data from BIL Sweden (2012) on the
best-selling green cars in Sweden. The attribute levels of the hypothetical choices were
constructed using the ranges of attribute values from the seven selected automobile models
and were shown in Table 2.
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 ACBC Survey

To keep the survey interactive and effective, the ACBC data collection process was
controlled in four steps. Following a brief prologue, in the first section, called Build-Your-
Own (B-Y-O) Section, the product attributes and stimuli set were presented to the
respondents. Four attributes (body style, CO2 emissions, engine power, and fuel economy)
out of six and its levels were presented to the participant. Price and brand names were
intentionally excluded from the B-Y-O section to reduce the bias of the respondents. The
respondents were then asked to select a preferred level for the four attributes.
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Respondents virtually built or assembled their own (hypothetical) cars, and an ACBC
algorithm then built a pool of 24 (4x6) different cars based on the respondents’ choices. A
near-orthogonal design was applied to generate the new choices by altering a few of the
attribute levels to the B-Y-O responses (Orme, 2010). The B-Y-O section helped to reduce
standard error when compared to other conjoint methods by identifying the relatively
preferred choices earlier and thereby avoiding repetitive questions later in the survey.

In the second part of the survey, Screening Section, a collection of different product concepts
or vehicle choices derived from the respondents’ choices in the B-Y-O section were
presented on the screen. Each respondent had his/her own individually designed concepts
based on the responses to the previous section. The brand name and price were included in
this screen task to observe the influence of price and brand consciousness. The screening
section would result in the respondents narrowing down their product choices based on their
actual preferences (Johnson and Orme, 2007). The twenty four different product concepts or
vehicle choices were shown to the respondents on each screen task and the respondents
simply rated each product concept as either a possibility or not a possibility as a choice.

Following the initial screening, respondents had the options of selecting and/or eliminating
their most preferred or least preferred attribute level(s). The subsequent screening sections
included ‘must- haves’, ‘must- avoids’ and ‘unacceptable’ options. In addition, a ‘none’
option was also added in each section so that respondents could answer in the negative if they
did not prefer any combination of the products.

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 The third section of the survey was the Choice Task Tournament Section. Respondents were
presented with a series of hypothetical product choices based on their preferences in the
previous screening sections. Three products were shown each time on the screen and the
respondents were asked to choose the most preferable one in each case. The choices were
attuned with the cut-off rule and the choice task was continued until the respondent made the
final choice.

The fourth section, Calibration Section, was an optional section of the experiment to
calculate the ‘none’ threshold of the product. In this section, respondents were presented with
4 concepts based on the product concept selected in the B-Y-O section, the winning concept
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from the screening section, and two other concepts that the respondent had partially or fully
chosen during the screening sections. A five point Likert scale ranging from 'definitely would
buy' to 'definitely would not buy' was used to rate each product concept.

Consumer Preference Analysis

In this analysis, the calculations of the individual utility values were done using the
hierarchical Bayesian (HB) estimation method, and then rescaled with a zero-centered
difference method (Orme, 2010). As the sum of the utilities had to be ‘zero’, each attribute
level would have both positive and negative utility values that indicated the most acceptable
and least acceptable levels respectively. Although, greater respondent preference towards the
attribute would be indicated by a positive value, a negative utility value would not necessarily
mean undesirability. In this experiment, a negative utility value would simply mean that it
would have a lower than average degree of desirability.

In addition, we performed monotone regression to obtain an individual level part-worth

estimation of the attributes and the Kendall’s tau. The average tau-value of monotone
regression estimation was 0.99 which indicated that the goodness of fit was very good. Note
that the Kendall’s tau had been widely used as a measure of the correlation between the
observed and estimated preferences.

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 Market Share Analysis

We conducted the market simulation to understand the desirability of each of the seven car
models included in this study. We did this to predict the consumer purchase likelihood of the
actual products. In a conjoint experiment, hypothetical products were presented to the
consumer by mixing different attribute levels and these were used to measure the consumer
preference towards each attribute (Orme, 2010). Using the SMRT, we conducted the ‘share of
preference’ simulations for all of the seven automobile models.

In the likelihood of purchase simulation, the part-worth estimates would be scaled in such a
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way that their utility sums would indicate estimates of purchase likelihood. Scaling of the
part-worths ensured that the purchase likelihood of one car would not affect the likelihood of
others. The share of preference calculation allocated choice likelihood among products by
first computing exponential functions of all products’ utilities to convert them to positive
numbers and then converting the results into percentages so that they totaled 100. It must be
noted that the share of preference would depict the hypothetical share of each car model in a
market consisting only of these 7 models.

RESULTS AND DISCUSSIONS

The utility or part-worth values for all the experimental levels chosen for the six attributes
were shown in Figure 1. As expected, higher price or emission levels were associated with
the lower utility or part-worth values, whereas higher levels of fuel-economy or engine power
were associated with higher utility or part-worth values.

Focusing on the part-worth or utility values for the green attributes, our study found an
increasing effect for fuel economy and a fairly linear effect for emissions. These findings
were in contrast to Bunch et al. (1993) who found a negative but decreasing effect for both
fuel cost and emission level relative to existing level. These results indicated that the market
in California two decades ago might be experiencing diminishing marginal utility for the
green attributes whereas the current market in Sweden might not.

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 With respect to the car size-style, the 3 door hatchback was the most preferred, with the
highest utility or part-worth value, whereas the 2 door coupe was the least preferred car size-
style. Between the two hatchbacks, the halvkombi (3 doors) was preferred over the kombi (5
doors), which might indicate that Swedish consumers preferred smaller green vehicles to
larger ones. This finding was in contrast to the finding of Tay and McCarthy (1991), who
found an increasing demand for vehicle size among American car buyers for all vehicles
(green and non-green vehicles) two decades ago.

Finally, with regards to vehicle brand, Audi was the most valued brand and Renault was the
least preferred brand. Interestingly, the domestic brand, Volvo, was the second most preferred
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brand, followed by Toyota, whereas the second least preferred brand was Peugeot, followed
by Ford. These preference orderings was likely due to both prestige and country-of-origin
effects. Not surprisingly, the two luxury car brands (Audi and Volvo) were found to be
valued most. The German and Japanese brands (Volkswagen and Toyota) were found to
perform better than the American brand (Ford) whereas the two French brands performed
worse. These findings were in contrast to McCarthy and Tay (1989) who found that Japanese
and European cars were valued less by American consumers for all types of vehicles (green
and non-green cars), but were consistent with Tay and McCarthy (1991) who found that
German and Swedish cars were valued more by American consumers for all types of
vehicles, while French cars were valued less.

The aggregate importance weights of attributes across the entire sample were depicted in
Figure 2. On the aggregate level, price had the highest importance weight (20.75%) while car
size-style had the lowest importance weight (11.19%). In terms of relative importance, we
found the following order: price, brand, engine power, emission, fuel economy, car size-style.
Our results were different from those obtained by TCI/ECI (2000) which was conducted in
the United Kingdom and found a different order of the six common attributes: price (4th most
important), fuel economy (6th), car size (8th), brand (9th), emission (10th), engine size
(12th). Our results were also different from another UK study (Dixon and Hill, 2009) which
found car size as the most important attribute, followed by price (2nd), fuel economy (5th),
engine size (7th) and brand (10th) while emission did not make the top 11 attributes listed.
Also, our results were different from Hensher et al. (2011) who found that the choice
elasticity in Australia was greater for purchase price than fuel efficiency, which in turn was

12
 higher than emission surcharges. Finally, our results were also different from Tay and
McCarthy (1991) who found that choice elasticity was higher for fuel cost than capital cost in
the United States.

The divergent results might be explained by the higher car dependency and relatively less
developed green car markets in some of the other countries like the United States and
Australia. On the other hand, our results would be more concordant with results obtained
from less car dependent and relatively more environmentally conscious markets. In fact, our
results were consistent with Rijnsoever et al. (2013) who found that purchase price and
emission were more important than fuel cost (fuel economy) in the Dutch market.
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Although consistent with previous studies on green vehicle choice, the lower relative
importance found for the two green attributes (fuel efficiency and emissions) in our study
should still be deliberated. Young et al. (2010) provided an insight regarding the low
aggregate importance of the ‘greener’ attributes. They found that green consumers tended to
exhibit this behavior when comparing among all green product alternatives. Also, Kok (2013)
reported similar findings regarding CO2 emissions being a relative non-factor when all the
alternatives were green while Hensher et al. (2011) found that the choice elasticity for vehicle
price (-0.888) was 7.5 times higher than the elasticity for fuel efficiency (-0.118) for hybrid
vehicles. Hence, knowing that the fuel efficiency and emission levels available in green cars
would be far superior to non-green automobiles, the respondents might then concentrate on
the other attributes in selecting their preferred model.

In addition, to understand the differences between the preferences of existing and potential
green car users, we calculated the relative distribution of the importance weights according to
the two profiles. As evident from Figure 2, while the three attributes with the relatively lower
preference remained fairly consistent, the importance weights of the top three attributes
changed substantially between the two groups. Specifically, existing buyers valued engine
size or power more than price whereas potential buyers placed greater importance on price
over power. This difference might partly be explained by the winter driving experience of
consumers in Northern Sweden. The existing users, having driven green cars in these
conditions, might consider engine power to be a stronger determinant of purchase decision
while the potential users, lacking this particular experience, might lean more towards the best

13
 bargain when selecting their first vehicle. The difference might also be partly due to an
"income effect" since potential buyers reported relatively lower income than existing owners.

It should be noted that both segments of the market valued emission more than fuel
efficiency. Although fuel efficiency would have a direct impact on fuel cost and consumers'
budget, emission would only have a direct impact on social cost and not the private cost of
owning and operating a vehicle. One possible explanation might be the higher expected costs
(likelihood and consequences) Swedish consumers place on the adverse effects associated
with green house emission and climate change. It might also indicate that Swedish consumers
tended to be more environmentally conscious and might have internalized environmental
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costs to a greater extent.

The calculation of the likelihood of purchase and share of preference for each of the seven
automobiles was reported in Table 3. The clear winner was the Volkswagen Golf, which had
the highest likelihood of purchase as well as share of preference with 69 utility-value and
38% share whereas the Ford Focus had the lowest likelihood of purchase and share of
preference at 29 utility-value and 7% share. Interestingly, the domestic model, the Volvo
V70, had the median ranking, with 47 utility-value and 11% share. This preference share was
slightly lower than the 12.8% share expected based on uniform distribution across all seven
models.

To gain a better understanding on the effect of fuel economy and emission on consumers'
utility and relative market shares, we ran market simulations of these two attributes to
observe the changes in utility and likelihood of purchase for each of the seven car models.
The simulation results for changes in consumer utility due to fuel economy changes were
reported in Figure 3, and Figure 4 reported the corresponding results for emissions.

As expected, increasing fuel efficiency was found to be associated with increasing consumer
utility, whereas increasing emissions was found to be associated with decreasing consumer
utility. These results showed that consumers would be more likely to purchase a vehicle if the
average fuel efficiency of the fleet was increased but less likely to purchase a vehicle if the
average emission level of the fleet was increased. Moreover, the changes in the utility levels
were relatively large (30.2%-60.4% for fuel efficiency and 29.5%-54.1% for emission),

14
 indicating that the market demands might be quite elastic with respect to changes in these
attributes.

Since the changes in consumer utility were not consistent across the different models, with
some models experiencing larger rates of increase than other models, it would be insightful to
simulate the effects of changing fuel efficiency and emission levels on relative preference
shares. The sensitivity simulations for CO2 emission were reported in Figure 5 and
corresponding simulation for emissions were reported in Figure 6.

As shown in Figure 5, when emissions decreased across all vehicles, Renault Megane,
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Peugeot 308 and Volkswagen Golf experienced an increase in market share, whereas the
Volvo V70 experienced a decrease in market share. The effects of improving emissions were
non-monotonic for Toyota Prius, Audi A30 and Ford Focus and the direction of change in
their market shares would be dependent on their existing emission levels. Note that the
increases in the market shares would be amplified for these manufacturers since they would
be accompanied by an increase in overall demand as discussed above.

On the other hand, with increases in fuel efficiency across all vehicles, the winners would be
Volvo V70, Toyota Prius, Ford Focus and Peugeot 308, while the simulated effects on the
Audi A3, Volkswagen Golf and Renault Megane were non-monotonic and the changes in
their market shares would depend on the existing fuel efficiency levels. Similarly, the
simulated gains by four make-models would be more substantial because they would be
accompanied by an overall increase in market demand.

Conclusion

Over the last decade, there has been increasing concerns in many countries about climate
change and the environment, which in turn has changed consumers' preferences for vehicle
attributes and choices. This study surveyed a sample of existing and potential green car
buyers in Sweden to assess their relative preferences of six important vehicle attributes,
including fuel efficiency and emission levels.

15
 As expected, higher price or emission levels were associated with the lower utility or part-
worth values whereas higher levels of fuel-economy or engine power were associated with
higher utility or part-worth values. Focusing on the part-worth or utility values for the green
attributes, our study found an increasing effect for fuel economy and a fairly linear effect for
emissions. Moreover, the changes in the utility levels due to an overall change in these
attributes across all vehicles were relatively large, indicating that the market demands might
be quite elastic with respect to changes in these attributes. Hence, continued improvements in
green vehicle designs would likely result in increases in the market demands for green
vehicles.
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In terms of relative importance of the six attributes, we found that consumers in Sweden
exhibited the following preference order: price, brand, engine power, emission, fuel
economy, car size-style. Interestingly, existing owners valued engine power over all other
attributes whereas the potential owners ranked price as their top attribute. This result would
suggest that manufacturers might wish to focus more on increasing engine power to increase
customer retention and customer loyalty. On the other hand, a more competitive price would
be needed to induce potential buyers to purchase a green vehicle. In addition, we also found
that both segments of the market valued emission more than fuel efficiency. This result
would suggest that manufacturers and policy makers might want to focus on reducing
emission more than increasing fuel efficiency to shift market demands and improve the
environment, although both strategies would be effective in increasing the market demand.

With respect to the domestic automobile market in Sweden, we found that the country of
origin effect was moderate, with the domestic manufacturer ranked as the median preferred
brand. Furthermore, our simulation results showed that the domestic manufacturer would
perform well and increase its market share if the fuel efficiency was increased in all vehicles.
In addition, the total market size of the green car market would also increase. The double
positive effects indicated a clear benefit for the domestic car manufacturing sector. Hence,
policy makers in Sweden might want to develop policies and incentives to increase the
average fuel efficiency in new vehicles being sold in the domestic automobile market.

On the other hand, our simulation results also showed that if carbon dioxide emission were to
be reduced in all new vehicles, then the domestic manufacturer would not perform as well as

16
 its foreign competitors in terms of relative market shares. However, since the total size of
green vehicle market would increase, the net effect on the domestic car manufacturing sector
would be ambiguous. Hence, any policy targeted at reducing carbon dioxide emission should
be accompanied measures to mitigate any possible adverse effects on its domestic automobile
manufacturing sector.

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 Table 1: Annual Sales of Swedish Personal Automobiles
Swedish Definition EU Definition
Year All Cars
Green Cars Share (%) Green Cars Share (%)
2007 306,794 17,784 5.8 34,929 11.39
2008 253,982 25,922 10.21 43,706 17.21
2009 213,336 35,599 16.68 57,383 26.89
2010 289,477 74,493 25.66 113,393 39.14
2011 304,984 101,437 33.26 151,621 49.71
Source: BIL Sweden
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1
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Table 2: Product Attributes and Experimental Levels

Attributes 308 A3 Focus Golf Megane Prius V70 Ex

Fuel Economy
20 23.8 23.8 26.3 25 26.3 25 2
(km/l)
Price
190 230 220 175 190 270 270 175, 185
(1000 SEK)
CO2 Emissions
92 109 119 99 92 104 104 92, 9
(g/km)
Engine
110 105 112 122 115 120 120 105, 1
(horsepower)
Volvo, VW
Brand Peugeot Audi Ford VW Renault Toyota Volvo

Coupé 2
Size/Style Coupe Halvkombi Halvkombi Halvkombi Coupe Halvkombi Kombi
(Halvkombi)

2
 Table 3: SMRT Analysis for Examined Car Models
Car Model Purchase Likelihood(Utility Value) Share of Preference (%)
Volkswagen Golf 69 38
Renault Megane 59 15
Toyota Prius 57 12
Volvo V70 47 11
Audi A3 39 9
Peugeot 308 37 8
Ford Focus 29 7
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3
 Figure 1: Part-Worth of Attributes

Fuel Efficiency Emission

20 20
15
10 10
Utility

Utility
5
0
0
-5 -10
-10
-15 -20
18 20 22 24 26 28 90 95 100 105 110 115 120
Fuel Efficiency (km/l) Emission (g/km)
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Engine Power Price

20 40
10 20
0
Utility

Utilty

0
-10
-20
-20
-30 -40
100 105 110 115 120 125 130 135 140 150 175 200 225 250 275 300 325
Horsepower Price (1000SEK)

Size-Style Brand
2 25
1.5 20
1 15
10
0.5
Utility

5
0 0
Utilty

-0.5 -5
-1 -10
-1.5 -15
-2 -20
-2.5
-3
Coupé Halvkombi Kombi
 Figure 2: Aggregate Importance of Attributes
25

20

15

10

5
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0
Brand Size Emission Engine Power Fuel Economy Price

Existing Potential Aggregate

 Figure 3: Fuel Efficiency and Utility
80

70

60
308
50
A3
Utility

40 Focus
Golf
30
Megane

20 Prius
V70
10
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0
18 20 22 24 26 28
Fuel Efficiency (km/l)
 Figure 4: CO2 Emission and Utility

80

70

60
308
50 A3
Utility

40 Focus
Golf
30
Megane
20
Prius
10 V70
0
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90 100 110 120

Emission (g/km)
 Figure 5: Effects of CO2 Emission (g/km) on Preference Shares (%)
100%

90%

80%
V70
70%
Prius
60%
Megane
50%
Golf
40% Focus
30% A3
20% 308
10%

0%
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119 g/km 109 g/km 104 g/km 99 g/km

 Figure 6: Effects of Fuel Efficiency (l/km) on Preference Shares (%)
100%
90%
80%
V70
70%
Prius
60%
Megane
50%
Golf
40%
Focus
30%
A3
20%
308
10%
0%
20 l/km 23.8 l/km 25 l/km 26.3 l/km
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