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RESEARCH—Empowering The Consumer

J.D. Power III Title: Chairman Age: 70 Education: B.A., College of the Holy Cross and M.B.A., Wharton School of Finance Most Admired Person: Alvin Toffler Career Turning Point: Starting my own business Personal: Married, four grown children J.D. ‘Dave’ Power revolutionized the world of market research, and helped improve the quality of consumer products Companies large and small give lip service to the clich & #233;, “The customer is always right.” Some actually believe it; a few really act like it. But there was a time when it was even worse. Before the late 1960s, if you’re seeing that era through the eyes of J.D. “Dave” Power, almost nobody in the business world even thought about it. Certainly not anybody in the American automobile industry. “They knew it all and knew what customers wanted,” said Power. So, in 1968, Power left his market research job in Detroit and headed west. Settling in Southern California, Power went into business for himself. In an age when market research often meant telling clients what they wanted to hear, Power had a different idea: Do the research without being shackled to a single client, and then offer it for sale to anybody who thought it was worth buying. Then one day, about the time Mazda was having trouble with its rotary engine, a Wall Street Journal reporter got hold of one of those reports. Mazda’s troubles ended up on every front page in the U.S. and suddenly J.D. Power and Associates was a name to be reckoned with. “But it still took us 20 years to get any credibility in Detroit,” Power said last week. Now, from the company’s headquarters in Agoura Hills, Power manages a virtual empire devoted to the consumer: a staff of close to 500 people and a company that had nearly $100 million in revenue last year. J.D. Power and Associates, still best known as a leading independent authority in the automotive world, has branched out to do surveys of other industries: homebuilding, financial services, travel, electric utilities and telecommunications. While best known for its syndicated studies that evaluate customer service, the company also does proprietary studies, commissioned by companies looking for objective information about what their customers want. Question: How did J.D. Power and Associates get started? Answer: I was doing market research primarily for General Motors in Detroit in the 1960s. What I saw happening was that they really weren’t listening to research. We tried to give straightforward facts to management. I left Detroit (because they weren’t listening). Eventually, I decided to start my own business. One of my first clients was Toyota. The Japanese knew they didn’t have a product right for the American market and they didn’t have good information. But management was open to it. Meanwhile, the domestic car companies (thought they) knew it all and knew what customers wanted. But the Japanese were just reentering the market. They went back to the drawing board with a model more attuned to the American market, the Toyota Corolla. That left the Big Three, plus American Motors, in a vulnerable position. We worked closely with Toyota in the first three years. Q: One of the first times market research seemed to have a highly visible impact on an industry involved the Mazda O-ring problem in the mid-1970s. What was the role of J.D. Power and Associates in all that and how did it affect the company? A: In those days, market research companies could only work for one company in an industry. I saw an opportunity to do generic studies across the board. Most people in the market research business thought that was unethical and that it wouldn’t work. But we went into syndicated research. We would fund the report and then make it available to them. We started off at the kitchen table in our house in 1973. We surveyed 1,000 Mazda buyers and we had 500 responses. While my son napped, my wife Julie would tabulate the surveys. One night I came home and she said, ‘Mazda’s got an O-ring problem.’ I said, ‘What’s an O-ring?’ We didn’t know but we put it in the report. When we sent results out, Mazda Motors of America didn’t even buy the study. Then one morning Charles Camp, the bureau chief of the Wall Street Journal in Detroit, called to ask about the report, which I didn’t know he had. I told him I would send him a press release and he said all right, but the story was going to press. So, after talking to him, I sat down and wrote my first press release. In those days, I had to find an office in our building that had a telex machine. I gave the gal $5 to type up my handwritten release. The next day, on the front page of the Wall Street Journal was the article. Within 48 hours, we were in every newspaper in the world. We were challenged by Mazda, but we knew we had an accurate reading of what was going on. It gave us credibility with the press after that and I believe our reliability with the press is what has built our reputation. It isn’t that I had good insights. Q: How has the automotive industry changed during the years you’ve been surveying it? A: The biggest change is the consumer movement. In the late ’60s and ’70s, we had Ralph Nader. He was a voice in the wilderness, but he was more adversarial. Of course, a lot of his findings were not well-founded. We used consumer ratings to present (the same thing). By doing that, we knew it wouldn’t be wrong. Q: While it may have started with the automotive industry, J.D. Power and Associates has branched out to study others. Do you feel you’ve been able to have the same impact on other industries? A: Certain industries just don’t get it yet, like the computer industry. In the late ’80s and early ’90s, we studied customer satisfaction there. We found, where the automobile industry was product-driven, the personal computer industry was technology-driven. We tried to make it both. We gave up after four or five years because they weren’t interested in what we were doing. They were always looking for the next product, not what the consumer wanted. They spent money on product development instead of it being a balance by listening to consumers. The computer industry has a long way to go to satisfy the average consumer. Q: At about the same time, you tried to survey the health care industry and decided it might not be worth it to enter that arena. Just recently you have decided to give it another try. Why is that? A: In the health care industry, there are so many factions. They don’t have a common goal. There has been a lot of research done but they all have different findings and they often conflict. We tried several times to come in. Now, we’re doing studies in specific areas. We’re taking it one step at a time. We’re starting with how pharmaceuticals are being used by consumers. We’re not trying to answer everything up front. Q: What impact has technology had on the way consumers behave? A: The information explosion has aided consumers today like they’ve never been aided before. In the health care field, for instance, the doctor makes a diagnosis, then the patient goes on line and goes back to the doctor and says, what about this or that? Q: Do consumers have more impact on the economy now than they did 30 or 40 years ago? A: When (President John) Kennedy spoke to Congress in 1962 on a consumer bill of rights, I thought that was a landmark. Even today, other countries don’t do that. We have more open information with fewer hidden agendas, and this is changing the balance of power. CEOs now understand this and they want correct information. Consumers can topple a company overnight. Witness Firestone. Q: You have gotten into several other fields other than automobiles, most notably homebuilding. Given you don’t collect any revenue on syndicated surveys until you release them, how hard is it to justify what must be substantial start-up costs when you begin studying a new industry? A: That’s why you can’t do it overnight. You’ve got to invest in the right people. Our reentry into the health field, we wouldn’t have done it if we didn’t have the right people. It makes all the difference in the world. Q: Day in and day out, how can you assure the accuracy of all the different kinds of studies you do? A: Well, we don’t just ask questions. We will do a series of pilot studies to find out what’s going on. We might do it over a period of four or five years before we launch a study. Q: How do you control the use of your company brand in the advertising of other companies? A: In 1984, at the halftime of the Super Bowl, a new commercial came on saying that, according to J.D. Power and Associates, Subaru was second only to Mercedes-Benz in customer satisfaction. We didn’t know it was going to happen. Mercedes-Benz was upset. They called and asked how we could allow Subaru to advertise like that. I said we didn’t know it was going on. Eventually, all the carmakers were taking pieces out of the study to use in their commercials. We knew we had to do something about it or the information wouldn’t mean anything to anyone. So we started to give awards to leaders (as a way of controlling the flow of information). The reports they subscribe to now are really purchase-of-service agreements. Over the years, it’s grown more important for us to police it and keep it going.

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