Question

Assuming that most modern cars share very similar characteristics, what do customers really buy – a product or an experience? In your opinion, what drives car-buying decision? Explain.

Answer 1

The car manufacturing industry, is in today's time considered to be a monopolistic competition wherein, the demand for a product is higher or lower not simply because of the quality of the good provided or the inherent product characteristics, but other things such as quality or branding also help in deciding, whether or not a product type sells better than the other one.

For example, all cars would do the same job for a vehicle owner i.e. take them from point A to point B and almost all would be able to do so. But the experience, luxury or ride quality is what matters today for the buyer in his buying decision.

Thus, we can say, that the market for cars is monopolistic competition in nature wherein the differences between demand happen not because of the characteristics, but rather is based upon the critical aspects of branding and the overall quality of services provided and that of the product itself.

For example, people would prefer a Mercedes over a Volkswagen, not because they both do a separate job for them, but rather brand value, quality of the product, advertising and social considerations are the reason for the brand to have a higher value than the other.

Thus, we can conclude by saying that some brands receive higher payments than others, because of customer loyalty and the perception which has been created in the minds of the buyer, who rightfully believe that the quality of the product is higher than competition and offers them better value.

Please feel free to ask your doubts in the comments section if any.